History and Organization
The
Company is a minerals investment, management, and exploration
company, and currently conducting test mining and pilot milling
operations through an operating subsidiary in México, with
specific focus on precious and base metals in México. The
Company was originally incorporated in the State of California on
September 28, 1937, under the name West Coast Mines, Inc. In
November 1998, the Company re-domiciled from California to Delaware
and changed its name to DynaResource, Inc.
(“DynaUSA”).
We
currently own 80% of the outstanding shares of
DynaMéxico, and DynaMéxico
currently holds a lien on 20% of the outstanding shares of
DynaMéxico.
DynaMéxico owns 100% of the
mining concessions, equipment, camp and related facilities which
comprise the San
Jose de Gracia Property, in northern
Sinaloa State, México. We also own 100% of
Mineras de DynaResource S.A. de C.V.
(“DynaMineras”), the exclusive oper
ator of the
San José de Gracia Project, under contract with
DynaMéxico. DynaMineras currently conducts test mining and
pilot milling operations, and other exploration activities in
México.
In
2000, the Company formed DynaMéxico for the purpose of
acquiring and holding mineral properties and mining concessions in
México. DynaMéxico owns a portfolio of mining concessions
which comprise the San José de Gracia Project
(“SJG”). The mining concessions which comprise the SJG
District cover 69,121 hectares (170,802 acres) on the west side of
the Sierra Madre mountain range. At the incorporation of
DynaMéxico, 100 shares of Fixed Capital Series “A”
shares were issued, with DynaUSA receiving 99 shares and its CEO
receiving 1 share.
In
2005, the Company formed DynaMineras. DynaMineras entered into an
operating agreement with DynaMéxico on April 15, 2005. As a
consequence of that agreement and subsequent amendments to that
agreement, DynaMineras is the exclusive operating entity for the
SJG Project.
Also in
2005, the Company formed another wholly owned subsidiary,
DynaResource Operaciones, S.A. de C.V.
(“DynaOperaciones”). DynaOperaciones entered into a
personnel management agreement with DynaMineras and, as a
consequence of that agreement, is the exclusive management company
for personnel and consultants involved at the SJG
Project.
From
January 2008 through March 2011, DynaMéxico issued 100
Variable Capital Series “B” Shares to Goldgroup
Resources Inc., a wholly owned subsidiary of Goldgroup Mining Inc.,
in Vancouver, BC. (“Goldgroup”), in exchange for
Goldgroup’s total capital contributions of $18,000,000 to
DynaMéxico. At the time of the issuance of the 100 Series B
Shares to Goldgroup, Goldgroup owned 50% of the outstanding capital
shares of DynaMéxico.
On May
17, 2013, DynaUSA agreed to acquire a stock certificate for 300
Series “B” Variable Capital Shares of DynaMéxico,
in exchange for the settlement of accounts receivable from
DynaMéxico in the amount of $31,090,710 Mexican Pesos
(approximately $2.4 million USD). After giving effect to the
issuance of the 300 Series B Shares on June 21, 2013, DynaUSA owns
80% of the total outstanding Capital of DynaMéxico. (See table
representation of the outstanding Capital of DynaMéxico
below). The exchange of shares by DynaMéxico for amounts
payable to DynaUSA was unanimously approved by shareholders at a
meeting of the shareholders of DynaMéxico, held on the second
call for shareholder's meeting on May 17, 2013 in Mazatlán,
Sinaloa, México. The date of issuance of the 300 Series B
Share Certificate was June 21, 2013. As a result of the issuance to
DynaUSA of the 300 Variable Capital shares for amounts owed to
DynaUSA, the accounts payable amount owed by DynaMéxico to
DynaUSA was retired in full.
After
giving effect to the issuance to DynaUSA of the 300 Series B
Variable Capital shares of DynaMéxico as described above, the
current outstanding Capital of DynaMéxico is set forth in the
table below:
DynaMéxico Shareholder
|
Fixed CapitalSeries "A" Shares
|
Variable CapitalSeries "B" Shares
|
Total Capital Shares(Series A and B)
|
DynaResource,
Inc.
|
099
|
300
|
399
|
Koy
W. (“K.D.”) Diepholz
|
001
|
-
|
001
|
Goldgroup
Resources Inc.
|
-
|
100
|
100
|
|
|
|
|
Total
Capital Issued
|
100
|
400
|
500
|
DynaUSA
currently owns 80% of the outstanding capital shares of
DynaMéxico.
Company Ownership and Description of Subsidiaries
A
description of the subsidiaries owned by the Company and its
ownership in each is summarized below:
DynaResource de México, S.A. de
C.V.:
80%
Owned by DynaResource, Inc.
●
100% owner of the
San Jose de Gracia Property;
Mineras de DynaResource, S.A. de
C.V.:
100% Owned by DynaResource, Inc.
●
Exclusive Operator
of the San Jose de Gracia Project;
●
Entered into
Exploitation Agreement (“EAA”) with DynaMéxico
(See below);
●
Entered into
20-year surface Rights agreement with the Santa Maria
Ejido;
DynaResource Operaciones de San Jose de Gracia,
S.A. de
C.V.:
100% Owned by DynaResource, Inc.
●
Personnel
Management Company at San Jose de Gracia;
Exploitation Amendment Agreement (“EAA”)
On May
15, 2013, DynaMineras entered into an Exploitation Amendment
Agreement (“EAA”) with DynaMéxico. The EAA grants
to DynaMineras the right to finance, explore, develop and exploit
the SJG Property, in exchange for the following:
(A)
Reimbursement of all costs associated with financing, maintenance,
exploration, development and exploitation of the SJG Property,
which costs are to be charged and billed by DynaMineras to
DynaMéxico; and
(B)
After Item (A) above, 75% of gross receipts received by
DynaMéxico from the sale of all minerals produced from SJG, to
the point that DynaMineras has received 200% of its advanced funds;
a 2.5% Net Smelter Royalty on all minerals sold from SJG over the
term of the EAA. The total advances made by DynaMineras to
DynaMéxico as of December 31, 2017 are
$6,125,000.
(C)
After items (A) and (B) above, 50% of all gross receipts received
by DynaMéxico from the sale of all minerals produced from SJG,
and throughout the term of the EAA.
The EAA
is the third and latest Amendment to the original Contract Mining
Services and Mineral Production Agreement (the “Operating
Agreement”), which was previously entered into by DynaMineras
and DynaMéxico in April 2005, and in which DynaMineras was
named the Exclusive Operating Entity at SJG. The Operating
Agreement was first amended in September 2006 (the “First
Amendment”), and amended again at July 15, 2011 (the
“Second Amendment”). The Term of the Second Amendment
is 20 years, and the EAA (Third Amendment) provides for the
continuation of the 20 Year Term from the date of the Second
Amendment (July 15, 2011).
Our
objective is to increase the value of our shares through the
exploration, development and extraction of gold, silver and other
valuable minerals. We generally conduct our exploration activities
as sole operator and our current flagship property is San Jose de
Gracia.
Our
principal executive office is located at 222 W. Las Colinas Blvd.,
Suite 1910 North Tower, Irving, Texas 75039. We can be reached by
phone at (972) 868-9066 and by fax at (972) 868-9067. The
Company’s website is
www.dynaresource.com
.
In this
report, “DynaResource, Inc.”, the
“Company”, “DynaUSA”, “our” and
“we” refer to DynaResource, Inc. DynaResource de
México SA de CV, the 100% owner of the mining concessions,
camp, equipment, and related interests to San Jose de Gracia
Property, is referred to a “DynaMéxico”. DynaUSA
owns 80% of DynaMéxico. Mineras de DynaResource SA de CV, the
named exclusive operator at San Jose de Gracia Property under
agreement with DynaMéxico, is referred to as
“DynaMineras”. DynaUSA owns 100% of DynaMineras.
DynaResource Operaciones de San Jose de Gracia SA de CV, and the
named manager of personnel and consultants who are actively
involved at San Jose de Gracia under agreement with DynaMineras and
DynaMéxico, is referred to as “DynaOperaciones”.
DynaUSA owns 100% of DynaOperaciones. The San Jose de Gracia
Property is referred to as “SJG”, or the “SJG
Property”, or the “SJG Project”, or the
“SJG District”. DynaMéxico owns 100% of the SJG
District. Further in this report, “Au” represents gold;
“Ag” represents silver; “oz.” represents
ounces; “gpt” represents grams per metric tonne;
“ft” represents feet; “m” represents meter,
“km” represents kilometer; and “sq”
represents square.
Segment Information
Our
only current operating segment is México.
Products
The end
use product produced at our test mining and pilot milling
operations at SJG is either in the form of primarily gold-silver
Dore, or primarily gold-silver concentrates. The end use product
from current activities generally consists of approximately 100%
concentrate and 0% Dore. Dore is an alloy consisting primarily of
gold and silver but also containing other metals. Dore is sent to
refiners to produce bullion that meets the required market standard
of 99.95% gold and 99.9% silver. Gold-silver concentrates, or
simply concentrate, is raw precious metals materials that has been
crushed and ground finely to a sand-like product where gangue
(waste) and non-precious metals are removed or reduced, thus
concentrating the precious metals component. Concentrates processed
and produced from San Jose de Gracia are shipped to third-party
smelters, refineries or third parties for further processing or
re-sale.
During
2017, we reported the delivery and sale of 10,740 net Oz gold
contained in concentrates. All gold-silver concentrate originated
from the San Jose de Gracia Property in México.
Gold-silver
concentrates are sold at a small discount to the prevailing spot
market price, based on the price per
ounce of gold and silver
quoted at the London PM fix, with the actual net precious metals
prices received depending on the sales contract. Concentrates are
priced by individual concentrate lots of 36 to 72 tons, or as a
series of lots under contract, whereby the final selling price and
gold-silver quantities are subject to final adjustments at the time
of final purchase settlement.
Gold and Silver Pilot Processing Methods
Gold
and silver are extracted from mined mineralized material, by
crushing, grinding, milling, and further by simple gravity and
flotation recoveries. The mineralized material is extracted by
underground mining methods. The processing plant at the San
José de Gracia mine is composed of conventional crushing and
grinding circuits, and with gravity and flotation recovery methods.
The gravity and flotation concentrates are dewatered or dried, and
shipped to purchasers in semi-trailers.
Gold and Silver Reserves / No Known Reserves
The
Company currently has no mineral “reserves” as defined
by SEC Industry Guide 7 promulgated by the SEC.
General Government Regulations
México
Mining
in México is subject to numerous federal, state and local
laws, regulations and ordinances governing mineral rights,
operations and environmental protection.
Mineral Concession
Rights.
Exploration and exploitation
of minerals in México may be carried out through Mexican
companies incorporated under Mexican law by means of obtaining
mining concessions. Mining concessions are granted by the Mexican
government for a period of fifty years from the date of their
recording in the Public Registry of Mining and are renewable for a
further period of fifty years upon application within five years
prior to the expiration of such concession in accordance with the
Mining Law and its regulations. Mining concessions are
subject to annual work requirements and payment of annual surface
taxes which are assessed and levied on a semi-annual basis. Such
concessions may be transferred or assigned by their holders, but
such transfers or assignments must be registered with the Public
Registry of Mining in order to be valid against third parties. The
holder of a concession must pay semi-annual duties in January and
July of each year on a per hectare basis and in accordance with the
amounts provided by the Federal Fees Law. During the month of May
of each year, the concessionaire must file with the General Bureau
of Mines, the work assessment reports made on each concession or
group of concessions for the preceding calendar year. The
regulations of the Mining Law provide tables containing the minimum
investment amounts that must be made on a concession. This amount
is updated annually in accordance with the changes in the Consumer
Price Index.
Surface Rights.
In México, while mineral rights are
administered by the federal government through federally issued
mining concessions,
Ejidos
(communal owners of land recognized by the federal laws in
México) control surface access rights to the land. An
Ejido
may sell or lease
lands directly to a private entity. While the Company has
agreements or is in the process of negotiating agreements with the
Ejido
that impact all of
its projects in México, some of these agreements may be
subject to renegotiations.
Mining Royalties.
In October 2013,
the Mexican lower house passed a bill levying a tax-deductible
mining royalty of 7.5% on earnings before the deduction of
interest, taxes, depreciation and amortization, along with an
additional 0.5% surcharge on precious metals revenue for mining
companies. The effective date of the law was January 1, 2014.
Although there are a number of uncertainties surrounding the scope,
calculation and enforcement of the royalty, based on the Company's
current interpretation of the bill, the royalty or surcharge was
not material for 2016.
Environmental Law.
The Environmental
Law in México, called the "General Law of Ecological Balance
and Protection to the Environment" ("General Law"), provides for
general environmental policies, with specific requirements for
certain activities such as exploration set forth in regulations
called "Mexican official norms". Responsibility for enforcement of
the General Law, the regulations and the Mexican official norms is
with the Ministry of Environment and Natural Resources, which
regulate all environmental matters with the assistance of
Procuradur’a Federal de
Protección al Ambiente
(known as
"PROFEPA").
The
primary laws and regulations used by the State of Sinaloa, where
our San Jose de Gracia property is located, in order to govern
environmental protection for mining and exploration are: The
General Law, Forestry Law, Residues Law, as well as their specific
regulations on air, water and residues, and the Mexican official
norms (known as "NOM-120"). In order to comply with the
environmental regulations, a concessionaire must obtain a series of
permits during the exploitation and exploration stage. The time
required to obtain the required permits is dependent on a number of
factors including the type of vegetation and trees impacted by
proposed activities.
Mining Permits.
The Secretariat of
Environmental and Natural Resources, the Mexican Government
environmental authority ("SEMARNAT"), is responsible for issuing
environmental permits associated with mining. Three main permits
required before construction can begin are: Environmental Impact
Statement (known in México as
Manifesto Impacto Ambiental
) ("MIA"),
Land Use Change (known in México as
Estudio Justificativo Para Cambio Uso
Sueldo
) ("ETJ"), and Risk Analysis (known in México as
Analisis de Riesgo
) ("RA").
A construction permit is required from the local municipality and
an archaeological release letter must be obtained from the National
Institute of Anthropology and History (known as "INAH"). An
explosives permit is required from the ministry of defense before
construction can begin. The Environmental Impact Statement is
required to be prepared by a third-party contractor and submitted
to SEMARNAT and must include a detailed analysis of climate, air
quality, water, soil, vegetation, wildlife, cultural resources and
socio-economic impacts. The Risk Analysis study (which is included
into the Environmental Impact Statement and submitted as one
complete document) identifies potential environmental releases of
hazardous substances and evaluates the risks in order to establish
methods to prevent, respond to, and control environmental
emergencies. The Land Use Change requires that an evaluation be
made of the existing conditions of the land, including a plant and
wildlife study, an evaluation of the current and proposed use of
the land, impacts to naturally occurring resources, and an
evaluation of reclamation/re-vegetation plans.
Customers
The
Company sells its concentrates to the buyer who offers the best
terms based upon price, treatment costs, refining costs, and other
terms of payment. During the year ended December 31, 2017, the
Company sold gold-silver concentrates to the following
purchasers:
Dore:
|
None.
|
Gold-Silver
Concentrates:
|
Mercuria
Commodities Trading S.A. de C.V.;
and
Trafigura Mexico
S.A de C.V.
|
Employees
As of
March 30, 2018, we had 200 employees, including 195 employees based
in México, and 5 in the United States. Consultants are
retained from time to time. Employees based in México and the
United States include laborers, engineers, geologists, information
technologists, office administrators, managers and executives. None
of our employees in México are covered by union contracts and
the Company believes we have good relations with our
employees.
This
report, including Management’s Discussion and Analysis of
Financial Condition and Results of Operations, contains
forward-looking statements that may be affected by several risk
factors. The following information summarizes all material risks
known to us at the date of filing this report.
Risks Relating to Our Company
Nature of Mineral Exploration and Mining
The
Company is involved in the business of exploration and development
of resource properties, which carries the inherent risk of
failure.
The
exploration and development of mineral deposits involve significant
risks which a combination of careful evaluation, experience and
knowledge may not eliminate. There is no assurance that the
Company’s exploration programs will result in discoveries of
commercial mineralized bodies.
The
Company’s future is dependent upon the success of its
exploration programs, and the success of its test mining and pilot
milling programs. The exploration and development of mineral
deposits involve significant risks over significant periods of
time. It is impossible to ensure that the current or proposed
exploration programs on the Company’s property will result in
a profitable mining operation.
Whether
a mineralized deposit will be commercially viable depends on many
factors, such as size and grade of the deposit, proximity to
infrastructure, financing costs, regulations, environmental
protection, commodities prices, taxes, and political risks. The
impact of these factors cannot be accurately predicted, but the
combination of factors may result in the Company’s failure to
provide a return on investment.
Competitive Business Conditions
The
Company competes with many larger, well capitalized companies,
which places the Company at a competitive
disadvantage.
The
Company competes with many companies in the mining business,
including large, established mining companies with substantial
capabilities, personnel, and financial resources. There is a
limited supply of desirable mineral lands available for
claim-staking, lease, or acquisition in México, where the
Company’s activities are focused. The Company may be at a
competitive disadvantage in acquiring mineral properties, since it
competes with companies which have greater financial resources and
larger technical staffs. From time to time, specific properties or
areas which would otherwise be attractive for acquisition or
exploration are unavailable due to their previous acquisition by
competitors or due to the Company’s lack of financial
resources.
Competition
in the industry extends to the technical expertise to find,
advance, and operate mineral properties; the labor to operate the
properties; and the capital for the purpose of funding exploration
and development activities on such properties. Many competitors
explore for and mine precious metals and conduct refining and
marketing operations on a world-wide basis. Such competition may
make it more difficult for the Company to recruit or retain
qualified employees, to obtain equipment and personnel to assist in
its exploration and production activities, or to acquire the
capital necessary to fund operations.
Government Regulations
The
Company conducts its resource exploration and development
activities in México, subject to rules and regulations for
owning and maintaining mining concessions and surface rights,
environmental protection, water rights, hazardous wastes,
explosives, reclamation, and others. There can be no certainty that
the Company maintains full compliance with all government
regulations.
México.
Exploration and development of minerals in
México may be carried out through Mexican companies
incorporated under Mexican law by means of obtaining exploration
and development (exploitation) concessions. The Company’s
concessions are granted by the Mexican government, or acquired from
previous owners, are filed in the Public Registry of Mining, and
are scheduled to expire from 2028 through 2058. Holders of
exploration concessions may, prior to the expiration of such
concessions, apply for one or more development concessions covering
all or part of the area covered by an exploration
concession.
Environmental
law in México provides for general environmental policies,
with specific requirements set forth under regulations of the
Ministry of Environment, Natural Resources and Fishing, which
regulate all environmental matters with the assistance of the
National Institute of Ecology and the Procuraduria Federal de
Proteccion al Ambiente.
The
primary laws and regulations governing environmental protection for
mining in México are found in the General Law, the Ecological
Technical Standards, and also in the air, water and hazardous waste
regulations, among others. In order to comply with the
environmental regulations, a concessionaire must obtain a series of
permits during the exploration stage. Generally, these permits are
issued on a timely basis after the completion of an application by
a concession holder. The Company believes it is currently in full
compliance with the General Law and its regulations in relation to
its mineral property interests in México.
Commodities Prices
Any
potential economic success of the Company’s properties will
depend to a large extent to the market price of commodities, the
future price of which is impossible to predict.
The
current value and potential value for properties obtained by the
Company is directly related to the market price for gold. The
market price of gold may also have a significant influence on the
market price of the Company’s common stock. If the Company
obtains positive drill results and a property progresses to a point
where a commercial production decision can be made, the decision to
put a mine in production and to commit funds necessary for that
purpose would be made long before any revenue from production would
be received. A decrease in the market price of gold at any time
during future exploration or development may prevent a property
from being economically mined or result in the write-off of assets
whose value is impaired as a result of lower gold
prices.
The
price of gold is affected by numerous factors beyond the
Company’s control, including inflation, fluctuation of the
United States dollar and foreign currencies, global and regional
demand, the purchase or sale of gold by central banks, and the
political and economic conditions of major gold producing countries
throughout the world. During the last five years, the market price
of gold has fluctuated between approximately $1,057 and $1,895 per
ounce. The volatility of gold prices represents a substantial risk
which is impossible to fully eliminate. In the event gold prices
decline and remain low for prolonged periods of time, the Company
might be unable to explore, develop, or produce revenue from its
properties.
The
volatility of mineral prices represents a substantial risk which no
amount of planning or technical expertise can fully eliminate. In
the event mineral prices decline and remain low for prolonged
periods of time, we might be unable to develop our properties,
which may adversely affect our results of operations, financial
performance and cash flows. Our results of operations have been and
could continue to be materially and adversely affected by the
impairment of assets. An asset impairment charge may result from
the occurrence of unexpected adverse events that impact our
estimates of expected cash flows generated from our producing
properties or the market value of our non-producing
properties.
The
volatility in gold, silver and copper prices is illustrated by the
following table, which sets forth, for the periods indicated, the
average market prices in U.S. dollars per ounce of gold and silver,
based on the average daily London P.M. fix, and per pound of
copper based on the London Metal Exchange Grade A copper settlement
price.
Metal
|
|
|
|
|
|
|
|
Gold
|
$
1,572.00
|
$
1,669.00
|
$
1,411.00
|
$
1,266.00
|
$
1,175.00
|
$
1,236.00
|
$
1,244.00
|
Silver
|
35.12
|
31.15
|
23.79
|
19.08
|
13.90
|
17.14
|
17.77
|
Copper
|
4.00
|
3.61
|
3.32
|
3.11
|
2.09
|
2.54
|
2.80
|
As of
April 10, 2018, the price of gold was $1,336 per ounce. Should a
downward trend in prices occur, there is a possibility that we may
record impairment charges in 2018, or in future years.
Revenue
The
Company suspended its test pilot production activity in June 2006
in order to focus on exploration activities. The Company
re-commenced test mining and pilot production work in 2014. There
is a risk that the Company would expend available cash and funding
in test mining and milling activities, and administration costs,
and would not be able to obtain further funding to continue its
work.
In
2007, the Company focused on the exploration of the vast SJG
district. Funds received by DynaMéxico pursuant to the Earn
In/Option Agreement (See Earn In / Option Agreement –
Financing of Drilling – Exploration Programs (2006 –
2011), were utilized for exploration and related
activities.
In
2015, the Company commenced test mining and pilot milling
operations. And during 2017, the Company improved and expanded its
operations in order to increase outputs from the test mining and
pilot milling activities.
The
Company and its subsidiaries have $3,528,735 cash on hand at
December 31, 2017. The Company could incur test pilot production
expenses and corporate expenses greater than the amount of
available cash on hand. The Company may need to raise additional
funds in order to support its activities. If the Company needs to
raise additional capital, its common stock could be diluted.
Further, if the Company is unable to raise funds to meet its
obligations, the value of its common stock may
decline.
Substantial Control of Chairman / Preferred Shares
The
Company’s Chairman / CEO, owns 100% of the outstanding shares
of Series A preferred stock. The Series A preferred shares retain
the right to elect a majority of the members of the Company’s
Board of Directors. Such ownership and concentration of control may
have the effect of delaying, deferring or preventing a change in
control of the Company, even if the transaction could be determined
to be beneficial to Company stockholders as a whole.
Capital Needs
The
Company may need to raise additional capital, which may not be
available or may be too costly, and which, if not obtained, could
cause the Company to cease operations.
The
Company’s capital requirements could be greater than its
operating income. The Company believes it has adequate cash on hand
for the foreseeable future, but it does not have sufficient cash to
indefinitely sustain operating losses. The Company’s
liquidity depends on its ability to raise capital through the sale
of common stock or through debt or equity offerings. Additional
financing may not be available, or, if available, may be on terms
unacceptable or unfavorable. If additional capital is required and
not obtained, or if the Company is not able to produce sufficient
revenue from operations, or otherwise operate at a profit, the
value of investment in the Company could decline or be lost
entirely.
Illiquid Market
The
Company has a limited public market trading on the
Over the Counter Market
(“OTC”)
, and an active trading market may never
materialize, and an investor may not be able to sell
stock.
There
is currently only a limited public market for the Company’s
Common Stock and there can be no assurance that a more robust
trading market will develop further or be maintained in the future.
An active trading market may not develop and if not the market
value could decline to a value below the amount investors paid for
stock. Additionally, if the market is not active or illiquid,
investors may not be able to sell the securities of the
Company.
Penny Stock Classification
If a
public trading market for the Company’s common stock
materializes, it may be classified as a ‘penny stock’
which would result in additional requirements for trading the
stock. These additional requirements could affect the liquidity of
the stock.
The SEC
has adopted regulations which generally define a “penny
stock” to be an equity security that has a market price of
less than $5.00 per share, subject to specific exemptions. The
market price of the Company’s Common Stock may trade at less
than $5.00 per share and accordingly may be a “penny
stock.” Brokers and dealers effecting transactions in
“penny stock” must disclose certain information
concerning the transaction, obtain a written agreement from the
purchaser and determine that the purchaser is reasonably suitable
to purchase the securities. These rules may restrict the ability of
brokers or dealers to sell the Common Stock and may affect an
investor’s ability to sell such shares.
Title Matters
No Guarantee of Title
The
Company has investigated title to all mineral claims and
properties, and, to the best of its knowledge, title to all mineral
claims and properties comprising the SJG District is in good
standing. However, there can be no assurance of complete title, nor
guarantee of title. The mineral claims and properties may be
affected by undetected defects in title, such as the reduction in
size of the mineral claims and other third party claims affecting
the Company's rights.
Our business requires substantial capital investment and we may be
unable to raise additional funding on favorable terms to develop
additional mining operations.
We will
need to obtain additional financing, either in the form of debt or
equity financing, to fund development of additional mining
operations at the San Jose de Gracia project and to continue our
administrative activities. Our ability to obtain necessary funding,
in turn, depends upon a number of factors, including the state of
the economy and applicable commodity prices. We may not be
successful in obtaining the required financing for San Jose de
Gracia or other purposes, on terms that are favorable to us or at
all, in which case, our ability to continue operating would be
adversely affected. Failure to obtain such additional financing
could result in delay or indefinite postponement of further
exploration or potential development and the possible partial or
total loss of our interest in certain properties.
The feasibility of mining at our San Jose de Gracia property has
not been established in accordance with SEC Industry Guide 7, and
any funds spent on exploration and development could be
lost.
A
"reserve," as defined by Industry Guide 7 of the SEC, is that part
of a mineral deposit which could be economically and legally
extracted or produced at the time of the reserve determination. A
reserve requires a SEC-compliant feasibility study or other report
demonstrating with reasonable certainty that the deposit can be
economically extracted and produced. Since we have not received a
SEC-compliant report on any of our properties, we currently have no
reserves as defined by SEC Industry Guide 7, and there are no
assurances that we will be able to prove that there are reserves on
our properties.
The
mineralized material identified on our properties, including the
San Pablo mine where we are currently conducting test mining
activities does not and may never demonstrate economic viability.
Substantial expenditures are required to establish reserves through
drilling and additional study and there is no assurance that
reserves will be established. The feasibility of mining at San Jose
de Gracia, or any other property has not been, and may never be,
established. Whether a mineral deposit can be commercially viable
depends upon a number of factors, including the particular
attributes of the deposit, including size, grade, metallurgical
recoveries and proximity to infrastructure; metal prices, which can
be highly variable; and government regulations, including
environmental and reclamation obligations. If we are unable to
establish some or all of our mineralized material as proven or
probable reserves in sufficient quantities to justify commercial
operations, our investment in that property may be lost, and the
market value of our securities may suffer.
There
are significant risks and uncertainty associated with construction,
commencing or expanding test mining and pilot production activities
or changing operational plans without a current feasibility,
pre-feasibility or scoping study. As such, the San Jose de Gracia
property may ultimately be determined to lack one or more
geological, engineering, legal, operating, economic, social,
environmental, and other relevant factors reasonably required to
serve as the basis for a final decision to successfully complete
all or part of these projects.
The figures for our estimated mineralized material are based on
interpretation and assumptions and may yield less mineral
production under actual conditions than is currently
estimated.
Unless
otherwise indicated, mineralization figures presented in our
filings with Canadian securities regulatory authorities (on SEDAR),
news releases and other public statements that may be made from
time to time are based upon estimates made by independent
geologists and our internal geologists. When making determinations
about whether to advance any of our projects to development, we
must rely upon such estimated calculations as to the mineralized
material and grades of mineralization on our properties. Until
mineralized material is actually mined and processed, mineralized
material and grades of mineralization must be considered as
estimates only.
These
estimates are imprecise and depend upon geological interpretation
and statistical inferences drawn from drilling and sampling
analysis, which may prove to be unreliable. We cannot ensure
that:
these
estimates will be accurate;
mineralization
estimates will be accurate; or
this
mineralization can be mined or processed profitably.
Any
material changes in mineral estimates and grades of mineralization
may affect the economic viability of placing a property into
production and such property's return on capital. There can be no
assurance that minerals recovered in small scale tests will be
recovered in large-scale tests under on-site conditions or in
production scale. The estimates contained in our public filings in
Canada (on SEDAR) have been determined and valued based on assumed
future prices, cut-off grades and operating costs that may prove to
be inaccurate. Extended declines in market prices for gold and/or
silver may render portions of our mineralization estimates
uneconomic and result in reduced reported mineralization or
adversely affect the commercial viability of one or more of our
properties. Any material reductions in estimates of mineralization,
or of our ability to extract this mineralization, could have a
material adverse effect on our results of operations or financial
condition.
Legislation has been enacted that affects the mining
industry
In
México, in October 2013, the Mexican lower house passed a bill
proposing a tax-deductible mining royalty of 7.5% on earnings
before the deduction of interest, taxes, depreciation and
amortization, along with an additional 0.5% on precious metals
revenue for precious metals mining companies. In addition, the long
term corporate tax rate is expected to remain at 30% rather than
being reduced to 28% as originally planned. The Mexican Senate
approved the provisions of the Tax Reform on October 31, 2013.
The effective date of the law was January 1,
2014.
Dependence upon Key Personnel
The
Company is dependent upon the efforts and abilities of its
management team.
The
loss of any member of the management team could have a material
adverse effect upon the business and prospects of the Company. In
the event of such loss, the Company will seek suitable competent
replacements, but there is no assurance that the Company will be
able to retain such replacements. The Company has obtained a Key
Man Life Insurance program for its Chairman and CEO, which would
pay the proceeds of such policy to the Company in the event of his
death.
Uncertainty of Resource Estimate
There
can be no certainty that any resource estimate by the
Company’s consultants would ever be realized in
production.
The
current formal resource estimate in respect of the SJG Property
(the “NI 43-101 Mineral Resource Estimate") is based on
limited information, such as historical data, drilling programs,
the production activity conducted by the Company in
2003–2006, and various reports, manual calculations and
opinions. No assurance can be given that the anticipated tonnages
and grades will be achieved or that the estimated or indicated
level of recovery will be achieved. The grade of mineralization
actually recovered or produced could differ significantly from the
resource estimates. In addition,
under
U.S. standards, as set forth in SEC Industry Guide 7,
mineralization may not be classified as a “reserve”
unless a determination has been made that the mineralization could
be economically and legally produced or extracted at the time the
reserve determination is made.
The SJG Property as described
in this Annual Report is without known reserves. Mineral resources
which are not classified as mineral reserves do not have
“demonstrated economic viability.” The quantity of
resources and the quality (grade) of resources reported as
“Indicated” and “Inferred” mineral
resources in the mineral resource estimate compiled for
DynaMéxico, under the NI 43-101 Mineral Resource Estimate
filed by the Company on SEDAR, are
not disclosed in this Form
10-K
. There has been insufficient exploration to define any
mineral reserves on the SJG Property, and it is not certain if
further exploration will result in definition of mineral
reserves.
No Known Reserves
Historical Production of Gold at the San Jose de Gracia Property
May Not Be Indicative of Future Production or Revenue
The SJG
Property is a high-grade mineralized system with reported
historical production of over 1,000,000 Oz. Gold. The production
occurred in the early 1900’s, prior to the Mexican
Revolution. Since that time, the property has seen small scale
mining operations, from small scale local owners, to the
Company’s pilot production activities in 2003–2006 and
2014 to present. Due to the uncertainties associated with
exploration, including variations in geology and structure, there
is no assurance that the Company’s efforts will be successful
in identifying mineralization in sufficient quantities to define
proven or probable reserves, and further there is no assurance that
any such reserves could be developed into a commercial operation.
Investors in the Company’s securities should not rely on
historical operations as an indication that the SJG property will
be developed into a commercial production in the future. The
Company expects to incur losses unless and until such time as one
or more of its properties enters into commercial production and
generates sufficient revenue to fund continuing
operations.
Environmental and Regulatory Concerns
The
Company operates in an industry where there are significant
environmental and regulatory requirements. The inability of the
Company to satisfy these requirements could cause the value of its
common stock to decline.
The
current or future operations of the Company, including acquisition,
leasing, and sales activities, involve mineral properties which
require permits from various federal, state and local governmental
authorities. Such future operations are and will be governed by
laws and regulations governing prospecting, development, mining,
production, exports, taxes, labor standards, occupational health,
waste disposal, toxic substances, land use, environmental
protection, mine safety and other matters. Companies engaged
in the development and operation of mines and related facilities
generally experience increased costs, and delays in production and
other schedules as a result of the need to comply with applicable
laws, regulations and permits. Additional permits and studies,
which may include environmental impact studies conducted before
permits can be obtained, are necessary prior to operation of
properties in which the Company has interests. Required
permits could adversely affect the Company's ability to negotiate
agreeable acquisition, lease, or sales terms and therefore
adversely affect the price of the Company’s common
stock.
Our business is subject to U.S. Foreign Corrupt Practices Act and
similar worldwide anti-bribery laws, a breach or violation of which
could lead to civil and criminal fines and penalties, loss of
licenses or permits and reputational harm.
We
operate in certain jurisdictions that have experienced governmental
and private sector corruption to some degree, and, in certain
circumstances, strict compliance with anti-bribery laws may
conflict with certain local customs and practices. For example, the
U.S. Foreign Corrupt Practices Act and anti-bribery laws in other
jurisdictions, generally prohibit companies and their
intermediaries from making improper payments for the purpose of
obtaining or retaining business or other commercial advantage, and
often carry substantial penalties. There can be no assurance that
our internal control policies and procedures always will protect it
from recklessness, fraudulent behavior, dishonesty or other
inappropriate acts committed by the Company's affiliates, employees
or agents. As such, our corporate policies and processes may not
prevent all potential breaches of law or other governance
practices. Violations of these laws, or allegations of such
violations, could lead to civil and criminal fines and penalties,
litigation, and loss of operating licenses or permits, and may
damage the Company's reputation, which could have a material
adverse effect on our business, financial position and results of
operations or cause the market value of our common shares to
decline.
We are subject to foreign currency risk.
While
we transact most of our business in U.S. dollars, expenses, such as
labor, operating supplies, and property and equipment, are
denominated in Mexican pesos. As a result, currency exchange
fluctuations may impact our operating costs. The appreciation of
non-U.S. dollar currencies against the U.S. dollar increases costs
and the cost of purchasing property and equipment in U.S. dollar
terms in México, which can adversely impact our operating
results and cash flows. Conversely, a depreciation of non-U.S.
dollar currencies usually decreases operating costs and property
and equipment purchases in U.S. dollar terms in foreign
countries.
The
value of cash and cash equivalents denominated in foreign
currencies also fluctuates with changes in currency exchange rates.
Appreciation of non-U.S. dollar currencies results in a foreign
currency gain on such investments and a depreciation in non-U.S.
dollar currencies results in a loss. We have not utilized market
risk sensitive instruments to manage our exposure to foreign
currency exchange rates but may in the future actively manage our
exposure to foreign currency exchange rate risk. We also hold
portions of our cash reserves in Mexican currency.
Increased operating and capital costs could affect our
profitability.
Costs
at any particular mining location are subject to variation due to a
number of factors, such as variable ore grade, changing metallurgy
and revisions to mine plans in response to the physical shape and
location of the mineralized bodies, as well as the age and
utilization rates for the mining and processing-related facilities
and equipment. In addition, costs are affected by the price and
availability of input commodities, such as fuel, electricity,
labor, chemical reagents, explosives, steel and concrete and mining
and processing-related equipment and facilities. Reported costs may
also be affected by changes in accounting standards. A material
increase in costs at any significant location could have a
significant effect on our profitability and operating cash
flow.
We
could have significant increases in capital and operating costs
over the next several years in connection with the development of
new projects and in the sustaining and/or expansion of test mining
and pilot processing operations. Costs associated with capital
expenditures have escalated on an industry-wide basis over the last
several years, as a result of factors beyond our control, including
the prices of oil, steel and other commodities and labor, as well
as the demand for certain mining and processing equipment.
Increased capital expenditures may have an adverse effect on the
profitability of and cash flow generated from existing operations,
as well as the economic returns anticipated from new
projects.
Majority Ownership of DynaMéxico
DynaUSA
owns 80% of the outstanding share capital of DynaMéxico
– the 100% owner of the SJG Project. As a consequence of this
shared ownership (80%/20%), any current benefits to be derived from
the ownership of DynaMéxico could be distributed on an 80%/20%
basis.
A
wholly owned subsidiary of DynaResource, Inc. -- Mineras de
DynaResource S.A. de C.V. (“DynaMineras”) -- maintains
an exclusive operating agreement with DynaMéxico.
Additionally, another wholly owned subsidiary of DynaResource, Inc.
-- DynaResource Operaciones de San Jose De Gracia S.A. de C.V.
(“DynaOperaciones”) maintains an exclusive agreement to
manage the personnel registered as employees in
México.
The
Company’s Chairman and CEO, is also President of
DynaMéxico and President of DynaMineras, and the CEO holds a
broad power of attorney granted by the shareholders of
DynaMéxico. The power of attorney gives the CEO broad
authority to act for DynaMéxico. The power of attorney held by
the CEO is consistent with the laws in México, whose laws are
based on a civil code.
The nature of mineral exploration and production activities
involves a high degree of risk and the possibility of uninsured
losses that could materially and adversely affect our
operations.
Exploration
for and production of minerals is highly speculative and involves
greater risk than many other businesses. Many exploration programs
do not result in the discovery of mineralization, and any
mineralization discovered may not be of sufficient quantity or
quality to be profitably mined. Few properties that are explored
are ultimately advanced to production. Our current exploration
efforts are, and future development and mining operations we
conduct will be, subject to all of the operating hazards and risks
normally incident to exploring for and developing mineral
properties, such as, but not limited to:
●
economically
insufficient mineralized material;
●
fluctuations in
production costs that may make mining uneconomical;
●
availability of
labor, contractors, engineers, power, transportation and
infrastructure;
●
potential delays
related to social, public health, and community
issues;
●
unanticipated
variations in grade and other geologic problems;
●
difficult surface
or underground conditions;
●
metallurgical and
other processing problems;
●
mechanical and
equipment performance problems;
●
failure of pit
walls or dams;
●
unusual or
unexpected rock formations;
●
personal
injury, fire, flooding, cave-ins and landslides; and
●
decrease in
reserves or mineralized material due to a lower gold, silver, or
copper price.
Any of
these risks can materially and adversely affect, among other
things, the development of properties, production quantities and
rates, costs and expenditures, potential revenues and production
dates. We currently have no insurance to guard against any of these
risks, except in very limited circumstances. If we determine that
capitalized costs associated with any of our mineral interests are
not likely to be recovered, we would incur a write-down of our
investment in these interests. All of these factors may result in
losses in relation to amounts spent which are not
recoverable.
We do not insure against all risks to which we may be subject in
our operations.
While
we currently maintain insurance to insure against general
commercial liability claims and physical assets at our properties
in México, we do not maintain insurance to cover all of the
potential risks associated with our operations. We may also be
unable to obtain insurance to cover other risks at economically
feasible premiums or at all. Insurance coverage may not continue to
be available or may not be adequate to cover liabilities. We might
also become subject to liability for environmental, pollution or
other hazards associated with mineral exploration and production
which may not be insured against, which may exceed the limits of
our insurance coverage, or which we may elect not to insure against
because of premium costs or other reasons. Losses from these events
may cause us to incur significant costs that could materially
adversely affect our financial condition and our ability to fund
activities on our property. A significant loss could force us to
reduce or terminate our operations.
Shortages of critical parts and equipment may adversely affect our
operations and development projects.
The
mining industry has been impacted, from time to time, by increased
demand for critical resources such as input commodities, drilling
equipment, trucks, shovels and tires. These shortages have, at
times, impacted the efficiency of our operations, and resulted in
cost increases and delays in rehabilitation and refurbishing of
projects, thereby impacting operating costs, capital expenditures,
and production and construction schedules.
Our operations are subject to permitting requirements which could
require us to delay, suspend or terminate our operations on our
mining properties.
Our
test mining and pilot milling operations, and including future
exploration and drilling programs, require permits from the state
and federal governments, including permits for the use of water and
for drilling wells for water. We may be unable to obtain these
permits in a timely manner, on reasonable terms or on terms that
provide us sufficient resources to develop our properties, or at
all. Even if we are able to obtain such permits, the time required
by the permitting process can be significant. If we cannot obtain
or maintain the necessary permits, or if there is a delay in
receiving these permits, our timetable and business plan for
exploration of our properties will be adversely affected, which may
in turn adversely affect our results of operations, financial
condition, cash flows and market price of our
securities.
Title to mineral properties can be uncertain, and we are at risk of
loss of ownership of one or more of our properties.
Our
ability to explore and operate our properties depends on the
validity of our title to that property. Our concessions in
México are subject to continuing government regulation and
failure to adhere to such regulations could result in termination
of the concessions.
We cannot ensure that we will have an adequate supply of water to
complete desired exploration or development of our mining
properties.
Our
test mining and pilot milling operations require significant
quantities of water for mining, ore processing and related support
facilities. Our operations in México are in areas where water
is scarce and competition among users for continuing access to
water is significant. Continuous operations at our mines is
dependent on our ability to maintain our water rights. Although
each of our operations currently has sufficient water rights and
claims to cover our operational demands, we cannot predict the
future circumstances relating to our water rights, claims and uses.
Water shortages may also result from weather or environmental and
climate impacts out of the Company's control.
We are subject to litigation risks.
All
industries, including the mining industry, are subject to legal
claims, with and without merit. Defense and settlement costs can be
substantial, even with respect to claims that have no merit. Due to
the inherent uncertainty of the litigation process, the resolution
of any particular legal proceeding, including regulatory
proceedings, could have a material adverse effect on our financial
position and results of operations.
Risks Relating to Our Common Stock
A small number of existing shareholders own a significant portion
of DynaResource, Inc. common stock, which could limit your ability
to influence the outcome of any shareholder vote.
The
Chairman/CEO currently owns approximately 10.5% of total
outstanding common shares and the management and members of the
Board of Directors as a group own approximately 30.64% of common
shares outstanding. These blocks of ownership could limit other
stockholders’ ability to influence the outcome of any
shareholder vote.
Our stock price may be volatile, and as a result you could lose all
or part of your investment.
In
addition to other risk factors identified herein and to volatility
associated with equity securities in general, the value of your
investment could decline due to the impact of any of the following
factors upon the market price of our common stock:
●
Changes in the
worldwide price for gold, silver and/or copper;
●
Volatility in the
equities markets;
●
Disappointing
results from our exploration or test mining and pilot milling and
production efforts;
●
Test pilot
production rates lower than those targeted;
●
Political and
regulatory risks;
●
Weather conditions,
including unusually heavy rains;
●
Failure to meet our
revenue or profit goals or operating budget;
●
Decline in demand
for our common stock;
●
Downward revisions
in securities analysts' estimates or changes in general market
conditions;
●
Technological
innovations by competitors or in competing
technologies;
●
Investor perception
of our industry or our prospects;
●
Actions by
government central banks; and
●
General economic
trends.
During
the 2017 calendar year the price of our stock has ranged from a low
of $.90 to a high of $1.75. In addition, stock markets in general
have experienced extreme price and volume fluctuations and the
market prices of securities have been highly volatile. These
fluctuations are often unrelated to operating performance and may
adversely affect the market price of our common stock. As a result,
you may be unable to resell your shares at a desired
price.
ITEM
1B.
UNRESOLVED
STAFF COMMENTS
None.
We
classify our mineral property as an "Exploration Property". We do
not suggest that we have proven or probable reserves at our
property as defined by the SEC.
Under
U.S. standards, as set forth in SEC Industry Guide 7,
mineralization may not be classified as a “reserve”
unless a determination has been made that the mineralization could
be economically and legally produced or extracted at the time the
reserve determination is made.
The SJG Property as described
in this Annual Report on Form 10-K is without known reserves.
Mineral resources which are not classified as mineral reserves do
not have “demonstrated economic viability.” The
quantity of resources and the quality (grade) of resources reported
as “Indicated” and “Inferred” mineral
resources in the mineral resource estimate compiled for
DynaMéxico, under and filed by the Company on SEDAR, are
not disclosed in this Form
10-K
. There has been insufficient exploration to define any
mineral reserves on the SJG Property, and it is not certain if
further exploration will result in the definition of mineral
reserves.
San Jose de Gracia Mineral Property
San
Jose de Gracia Property (“SJG”) is a high-grade
mineralized system which reports historical production of 1,000,000
Oz. gold (“Au”), from a series of underground workings
and is located in the state of Sinaloa, México. The Company is
focused on the exploration and future exploitation of this
vein-hosted, near surface, and over 400 meters down dip gold
potential, that occurs within fault breccia veins; and has been
traced on surface and underground over a 15 Sq. kilometer
area.
DynaMéxico
owns 100% of the mineral concessions at the SJG Property, and all
mineral concessions are contiguous. The SJG Property is currently
the only property in which DynaMéxico retains an interest. The
Company owns 80% of the outstanding capital shares of
DynaMéxico. DynaMéxico holds title to 33 concessions
covering approximately 69,121 hectares (170,802
acres).
Property Location
The
property is located in and around San Jose de Gracia, Sinaloa
State, México which is approximately 100 km northeast of
Guamuchil, near the west coast of México. It is located on the
west side of the Sierra Madre mountain range in the Sierra Madre
Gold-Silver Belt. The topography is generally rugged with
elevations varying from 400 meters in the valley bottoms to over
1,600 meters in the higher Sierra. Several roads on the property
are accessible throughout the year, with the possible exception of
July through September when the rainy season sometimes causes
flooding and runoff to make the roads difficult to
navigate.
Access
The San
José de Gracia Project can be accessed by road, via a sealed
highway from Culiacan, the capital city of the State of Sinaloa
(located to the south of the San José de Gracia Project) or
the city of Guamuchil (located to the southwest of SJG), to the
small town of Sinaloa de Leyva, then by gravel mountainous road to
the village of San José de Gracia.
The San
José de Gracia Project can also be accessed by air. A gravel
airstrip is located adjacent to the village of San José de
Gracia which is located at the southwestern portion of the property
at the SJG Project, and the airstrip is suitable for light
aircraft.
Climate and Operating Season
The
climate is semi-tropical with a rainy season dominating from late
June through September. Operations at the San José de Gracia
Project are, in part, dependent on the weather and some activities
may be suspended during the rainy season.
Infrastructure and Local Resources
Power
A power
line to the San José de Gracia Project has been installed by
the Comisión Federal de Electricidad, the only authorized
power producer in México. The power line was installed in
March 2012 from the municipality of Sinaloa de Leyva (La Estancia
area), a distance of approximately 75 kilometers.
The
power line is currently 220 volts maximum capacity, which supports
domestic use only, including the office and camp facilities at SJG,
such as water pump, air conditioning, refrigeration, lights,
internet, and fans, as well as local residential use. Currently,
the SJG Project produces its own diesel-generated power for
industrial use.
Water
The
water source for the SJG camp is from a well located close to the
river which runs just west of the village of San José de
Gracia. DynaMéxico has obtained the water concession rights
for this water source, which provide for usage of 1,000,000 cubic
meters per year. DynaMéxico estimates its current consumption
of water to be approximately 10,000 liters per week.
Accommodations
The
mine site area camp maintains facilities which can accommodate 50
persons. The village of San José de Gracia maintains few
stores, which offer only minimal goods.
Offices – Camp Facilities
DynaMéxico
maintains an administrative and logistics office in Guamuchil,
located 100 kilometers southwest of the SJG property. The SJG
Project sources many of its supplies from Guamuchil, and from Los
Mochis and Culiacan. A satellite dish installed at the SJG Property
provides communications from the SJG Property to
Guamuchil.
Lab
A field
laboratory is maintained within the camp facility. The Company
utilized the lab for assaying services during its production
activities in 2003-2006. In the second half of 2016, the laboratory
has been refurbished by DynaMineras and is currently utilized by on
site personnel to provide assays for mined material, feed material,
gravity and flotation concentrates, and tailings. DynaMineras
anticipates utilizing the lab facility in the future for providing
internal assays to support the exploration, test mining, and pilot
milling activities.
Regional Geology & Mineral Deposits
San
José de Gracia lies within the Sierra Madre Occidental
(“SMO”) Gold-Silver Belt, in a second-order graben
directly east of the regional-scale Grete Graben. The SMO is
recognized as a highly prospective mineral belt for gold, silver
and poly-metallic deposits. The basement to the Sierra Madre
Occidental consists of deformed Paleozoic sedimentary strata, which
are non-conformably overlain by Tertiary mafic to felsic volcanic
and volcanoclastic strata known as the Lower Volcanic Series
(“LVS”). Strata of the LVS are recognized as being
spatially related to gold and silver mineralization in the region.
Volcanic and sedimentary strata are capped by a thick
sequence of non-deformed Late Tertiary ignimbrites, known as the
Upper Volcanic Series (“UVS”).
Property Geology
The
oldest rocks exposed at San José de Gracia are deformed
Paleozoic shale, sandstone, conglomerate and minor limestone, which
are non-conformably overlain by andesite and rhyodacite flows and
tuffs of the LVS. Volcanic and sedimentary strata are cut by
quartz-feldspar porphyry, porphyritic diorite bodies and
fine-grained mafic dykes, which may be co-temporal with the LVS.
Ignimbrites of the UVS are exposed at higher elevations on
the property and are thought to act as a post mineralization cap
rock, thereby indicating an Early to Mid-Tertiary (Paleocene to
Eocene) age for gold mineralization at San José de
Gracia.
Geologic Structure
Detailed
mapping within the project area has defined several stages of
deformation, beginning with compression during the Laramide Orogeny
which affected the Paleozoic basement and formed flat-lying reverse
faults, which have been reactivated as conduits for gold-bearing
fluids in the La Prieta trend. Extension in Tertiary time led
to the development of second order structures, trending south,
southwest and southeast; which formed the major structural
orientations for mineralization at San José de Gracia.
The latest phase of deformation is characterized by
late-stage extension and southwest tilting.
Property Mineralization
High
grade gold mineralization at San José de Gracia is found in
vein structures hosted within andesite and rhyodacite of the Lower
Volcanic Series (“LVS”) and underlying Paleozoic
sediments as fault breccia veins and crackle breccias that exhibit
multiple stages of reactivation and fluid flow, as evidenced by
crustiform/colloform textures and cross cutting veins.
Locally, veins exhibit sharp, clay gouge hanging wall and
footwall contacts with slickensides, indicating reactivation of
structurally-hosted veins subsequent to mineralization. Gold
grades can also be carried within the mineralized halo adjacent to
the principal veins as quartz-chlorite stockwork. In addition
to vein-hosted mineralization, broad zones of un-mineralized clay
alteration, developed southwest of the main mineralized trends, may
overlie lower-grade, disseminated gold mineralization at
depth.
Alteration
at San José de Gracia is laterally and vertically zoned from
discrete zones of silicification to broad zones of illite to clay
alteration with increasing elevation and/or distance from the main
feeder structures. Faulting and tilting of the mineralization
system has affected the surface distribution of alteration and in
general has exposed deeper portions of the system in the northeast
and exposed shallower, more distal portions of the hydrothermal
system in the southwest part of the property.
The
characterization of the mineralization at San Jose de Gracia can be
described as low sulphidation polymetallic epithermal gold type.
Six principal mineralized trends have been identified at San
José de Gracia, from south to north. These consist of
the:
1.
La Purisima Ridge trend;
3.
La Parilla to Veta Tierra trend (Including San Pablo
East);
6.
Los Hilos to Tres Amigos
trend
.
Licenses and Concessions
The SJG
District is comprised of 33 mining concessions covering 69,121
hectares (170,802 acres) and is located within the Sierra Madre
gold-silver belt, where the majority of hydrothermal deposits in
México are located. The Company’s mining concessions,
all of which are formally held by DynaMéxico, are granted by
the Mexican government, or acquired from previous owners. The
Company’s concessions are comprised of a combination of
exploration concessions and development concessions, are filed in
the Public Registry of Mining, and are scheduled to expire from
2028 through 2058. The concessions can be renewed prior to the
expiry dates. The table below contains a listing of the mineral
concessions currently held by DynaMéxico.
Under
amendments to the
Mining
Act
of México that came into effect on December 2006,
the classifications of Mining Exploration Concessions and Mining
Exploitation Concessions were replaced by a single classification
of Mining Concessions valid for a renewable term of 50 years,
commencing from the initial issuance date. To be converted into
Mining Concessions at the time these amendments came into force,
former exploration and exploitation concessions had to be in good
standing at the time of conversion. All of the SJG concessions were
converted to 50-year Mining Concessions at the time the amendments
to the Mining Act came into effect. To renew the 50-year term,
Mining Concessions must be in good standing at the time application
is filed. An application for renewal must be filed within 5 years
prior to expiration of the term.
To
maintain Mining Concessions in good standing, the registered owner
must (a) pay bi-annual mining duties (“assessment
taxes”) in advance, by January 31 and July 31 each year, (b)
file assessment work reports by May 30 each year, for the preceding
year (some exception rules apply), and (c) file by January 31 each
year, statistical reports on exploration / exploitation work
conducted for the preceding year.
The
Notice of Commencement of Production Activities and Annual
Production Reports must be filed annually by January 31 each year
for those concessions where mineral ore extraction is taking place.
As a general provision, registered owners of Mining Concessions
must follow environmental and labor laws and regulations in order
to maintain their Mining Concessions in good standing.
As of
the date of this Form 10-K, the 33 mining concessions comprising
the SJG Property are in good standing with respect to the payment
of taxes and the filing of assessment work obligations imposed by
the
Mining Act
of
México and its Regulations. Included among the 33 mining
concessions are 32 currently registered in the sole name of
DynaMéxico. DynaMéxico holds one mining concession (San
Miguel t.183504) that in order to produce legal effects requires
the consent or relinquishment of first rights of refusal from
registered owners to the 50% undivided title. See the note
following the table of mining concessions below, describing the
steps needed to be taken by DynaMéxico to obtain title to the
San Miguel mining concession.
Current Mining Concessions - San José de Gracia
Claim Name
|
ClaimNumber
|
Staking date
|
Expiry
|
Hectares
|
Taxes / ha (pesos)
|
AMPL.
SAN NICOLAS
|
183815
|
22/11/1988
|
21/11/2038
|
17.4234
|
111.27
|
AMPL.
SANTA ROSA
|
163592
|
30/10/1978
|
29/10/2028
|
25.0000
|
111.27
|
BUENA
VISTA
|
211087
|
31/03/2000
|
30/03/2050
|
17.9829
|
63.22
|
EL
CASTILLO
|
214519
|
02/10/2001
|
01/10/2051
|
100.0000
|
31.62
|
EL REAL
2
|
216301
|
30/04/2002
|
29/04/2052
|
280.1555
|
31.62
|
FINISTERRE
FRACC. A
|
219001
|
28/01/2003
|
27/01/2053
|
18.7856
|
31.62
|
FINISTERRE
FRACC. B
|
219002
|
28/01/2003
|
27/01/2053
|
174.2004
|
31.62
|
GUADALUPE
|
189470
|
05/12/1990
|
04/12/2040
|
7.0000
|
111.27
|
LA
GRACIA I
|
215958
|
02/04/2002
|
01/04/2052
|
300.0000
|
31.62
|
LA
GRACIA II
|
215959
|
02/04/2002
|
01/04/2052
|
230.0000
|
31.62
|
LA
LIBERTAD
|
172433
|
15/12/1983
|
14/12/2033
|
97.0000
|
111.27
|
LA
NUEVA AURORA
|
215119
|
08/02/2002
|
07/02/2052
|
89.3021
|
31.62
|
LA
NUEVA ESPERANZA
|
226289
|
06/12/2005
|
05/12/2055
|
40.0000
|
7.6
|
LA
UNION
|
176214
|
26/08/1985
|
25/08/2035
|
4.1098
|
111.27
|
LOS
TRES AMIGOS
|
172216
|
27/10/1983
|
26/10/2033
|
23.0000
|
111.27
|
MINA
GRANDE
|
163578
|
10/10/1978
|
09/10/2028
|
6.6588
|
111.27
|
NUEVO
ROSARIO
|
184999
|
13/12/1989
|
12/12/2039
|
32.8781
|
111.27
|
PIEDRAS
DE LUMBRE 2
|
215556
|
05/03/2002
|
04/03/2052
|
34.8493
|
31.62
|
PIEDRAS
DE LUMBRE 3
|
218992
|
28/01/2003
|
27/01/2053
|
4.3098
|
31.62
|
PIEDRAS
DE LUMBRE No.4
|
212349
|
29/09/2000
|
28/09/2050
|
0.2034
|
63.22
|
PIEDRAS
DE LUMBRE UNO
|
215555
|
05/03/2002
|
04/03/2052
|
40.2754
|
31.62
|
SAN
ANDRES
|
212143
|
31/08/2000
|
30/08/2050
|
385.0990
|
63.22
|
SAN
JOSÉ
|
208537
|
24/11/1998
|
23/11/2048
|
27.0000
|
111.27
|
SAN
MIGUEL
(1)
|
183504
|
26/10/1988
|
25/10/2038
|
7.0000
|
111.27
|
SAN
NICOLAS
|
163913
|
14/12/1978
|
13/12/2028
|
55.5490
|
111.27
|
SAN
SEBASTIAN
|
184473
|
08/11/1989
|
07/11/2039
|
40.0000
|
111.27
|
SANTA
MARIA
|
218769
|
17/01/2003
|
16/01/2053
|
4.2030
|
31.62
|
SANTA
ROSA
|
170557
|
13/05/1982
|
12/05/2032
|
31.4887
|
111.27
|
SANTO
TOMAS
|
187348
|
13/08/1986
|
12/08/2036
|
312.0000
|
111.27
|
TRES
AMIGOS 2
|
212142
|
31/08/2000
|
30/08/2050
|
54.4672
|
63.22
|
FINISTERRE
4
|
231166
|
18/01/2008
|
17/01/2058
|
2142.1302
|
5.08
|
FRANCISCO
ARTURO
|
230494
|
06/09/2007
|
27/03/2057
|
62,481.3815
|
5.08
|
TOTAL
|
|
|
|
69,121.4010
|
|
(1)
According to the records of the Mines Registry Office, the
registered owners to 100% undivided title to the San Miguel
(t.183504) mining concession are: Mar’a Trinidad Acosta
Salazar (25%), Miguel López Medina (25%), Josefa González
Castro (25%) and Otilia Tracy Vizcarra (25%). On October 17, 2000
and March 8, 2001, DynaMéxico signed with each of Miguel Lopez
Medina and Josefa Gonzalez Castro, respectively, agreements for the
transfer to DynaMéxico of 50% undivided title to the San
Miguel (t.183504) mining concession (the “San Miguel Transfer
Agreements”).
In
respect to the San Miguel Transfer Agreements, DynaMéxico has
been advised that in order for the San Miguel Transfer Agreements
to produce legal effects and be eligible for registration before
the Mines Registry Office, DynaMéxico is required to first
obtain the legal consent to such transfers, or the written
relinquishment of first rights of refusal, from Mar’a
Trinidad Acosta Salazar and Otilia Tracy Vizcarra (or
court-appointed estate executor). In addition to the San Miguel
Transfer Agreements, DynaMéxico has entered into the following
Promise to Sell and Purchase Agreements (the “San Miguel
Promise to Sell and Purchase Agreements”):
(a)
Promise to Sell and Purchase Agreement signed on March 8, 2001
among DynaMéxico and Maria Trinidad Acosta Salazar, the
registered owner to 25% undivided title to the San Miguel
(t.183504) mining concession, and
(b)
Promise to Sell and Purchase Agreement signed on December 15, 2000
among DynaMéxico and Margarita Tracy Vizcarra, the sister of
the deceased Otilia Tracy Vizcarra.
In
respect to the San Miguel Promise to Sell and Purchase Agreements,
DynaMéxico has been advised that:
(a)
with respect to the Promise to Sell and Purchase Agreement signed
on March 8, 2001 among DynaMéxico and Maria Trinidad Acosta
Salazar, to contact Ms. Mar’a Trinidad Acosta Salazar to
demand compliance with such agreement by executing the definitive
transfer to DynaMéxico of the 25% undivided title to the San
Miguel (t.183504) mining concession registered in her name,
and
(b)
with respect to the Promise to Sell and Purchase Agreement signed
on December 15, 2000 among DynaMéxico and Margarita Tracy
Vizcarra, the sister of the deceased Otilia Tracy
Vizcarra,
the
estate of Otilia Tracy Vizcarra requires the appointment of a
court-appointed executor that would be capable under Mexican law to
formally grant the estate´s consent for the execution of the
San Miguel Transfer Agreements, to relinquish the estate´s
first rights of refusal or to request court approval for the
transfer to DynaMéxico of the 25% undivided interest in the
San Miguel (t.183504) mining concession registered in the name of
the deceased Otilia Tracy Vizcarra.
Surface Lease Rights
In
addition to the surface rights held by DynaMéxico pursuant to
the
Mining Act
of
México and its Regulations (
Ley Minera y su Reglamento
),
DynaMineras maintains access and surface rights to the SJG Project
pursuant to the 20-year Land Lease Agreement (above). The
20 Year
Land Lease Agreement with the Santa Maria Ejido Community
surrounding San Jose de Gracia is dated January 6, 2014 and
continues through 2033. It covers an area of 4,399 hectares
surrounding the main mineral resource areas of SJG and provides for
annual lease payments by DynaMineras of $1,359,443 Pesos (approx.
$74,000 USD as of April 10, 2018), commencing in 2014.
Additionally, under the description of the 20 Year Land Lease,
DynaMineras constructed a Medical Facility at SJG in year
2017.
The
Land Lease Agreement provides DynaMineras with surface access to
the core resource areas of SJG (4,399 hectares), and allows for all
permitted mining, pilot production and exploration activities from
the owners of the surface rights (Santa Maria Ejido
community).
The
Company expects DynaMineras will be successful in expanding the
size and scope of the resources at SJG through continued drilling
and development programs at San Pablo, Tres Amigos, La Ceceña,
Palos Chinos, La Union, La Purisima, and La Prieta. The Company
expects extensions to mineralization in all directions and down dip
from the main target areas.
Mineral Reserves / No Known Reserves
Under U.S. standards, as set forth in SEC Industry Guide 7,
mineralization may not be classified as a “reserve”
unless a determination has been made that the mineralization could
be economically and legally produced or extracted at the time the
reserve determination is made.
The SJG property is without
known reserves. Mineral resources which are not classified as
mineral reserves do not have “demonstrated economic
viability.” The quantity of resources and the quality (grade)
of resources reported as “Indicated” and
“Inferred” mineral resources in the mineral resource
estimate compiled for DynaMéxico is
not disclosed in this Form
10-K
. There has been insufficient exploration to define any
mineral reserves on the property, and it is not certain if further
exploration will result in the definition of mineral
reserves.
Sierra Madre Gold-Silver Belt in México
San Jose de Gracia - History
Historical
production records from San Jose de Gracia (“SJG”)
reported 1,000,000 Oz gold production from a series of underground
workings. The major areas report 471,000 Oz. produced at the La
Purisima area of SJG, at an average grade of 66.7 g/t.; and 215,000
Oz. produced from the La Prieta area, at an average grade of 27.6
g/t. Mineralization at SJG has been traced on surface and
underground over 15 sq. km.
DynaMéxico
was formed in March 2000, for the purpose of acquiring the
concessions comprising the SJG District, and to consolidate all
ownership of SJG under DynaMéxico.
Lack of Historical Surface Disturbance or
Contamination
Historical
production at San Jose de Gracia occurred prior to the Mexican
Revolution (pre-1910). The Company is not aware of any surface
disturbance or contamination issues found on the surface or in the
groundwater due to historical mining activities.
Since
acquisition and consolidation of the project under
DynaResource
de Mexico
SA de CV. (“DynaMéxico”), all activities conducted
at San Jose de Gracia have been permitted in accordance with Mexico
regulations, the specifics of which are described
below:
On June
17, 2013, DynaResource de Mexico received from the Secretaria de
Medio Ambiente Y Recursos Naturales (“Semarnat”), the
federal environmental authority in Mexico, the approval and
permission which allows for the rehabilitation and operation of the
pilot mill facility at San Jose de Gracia (the “Semarnat
Permit”). Under the terms of the Semarnat Permit,
DynaMéxico is responsible for maintaining the San Jose de
Gracia pilot mill facility, as well as the adjacent tailings pond
area, in compliance with Semarnat regulations.
On
September 30, 2013 DynaResource de Mexico also received from
Semarnat, the approval and permission which allows for the
exploitation and mining activities at the San Pablo Area of San
Jose de Gracia (the “Semarnat Exploitation Permit”).
Under the terms of the Semarnat Exploitation Permit,
DynaMéxico’s exploitation and mining activities are
restricted to the San Pablo Area of San Jose de
Gracia.
Drilling – Exploration Programs (1997 –
2000)
A drill
program was conducted at SJG in 1997 to 1998 by a prior majority
owner. Approximately 6,172 meters drilling was completed in 63 core
drill holes. Significant intercepts, including bonanza grades,
outlined the down dip potential of the Northeast section (150 Meter
NE to SW extent of the Drilling) of the Los Hilos to Tres Amigos
Trend of SJG. Surface and underground sampling in 1999 to 2000
confirmed high grades in historic workings and surface exposures
throughout the project area. These high grades outline the presence
of mineralization shoots developed within the veins. The
mineralized shoots appear to be controlled by dilational jogs
and/or vein intersections. A total of 544 samples were collected in
1999 to 2000 and assayed an average 6.51 g/t gold.
Pilot Production Activities (2003 – 2006)
DynaMéxico,
conducting activities through its operating sister companies
DynaMineras and DynaOperaciones, mined high-grade veins at the San
Pablo area of SJG from mid-2003 to June 2006. 18,250 Oz. gold was
produced and sold from mill feed tonnage of 42,000 tonnes, at an
average grade of approximately 15-20 g/t. Production costs were
reported at approximately $175/Oz. gold in this small scale, pilot
production operation. The small-scale mining and production
activities at SJG consisted of improvements to an existing mill,
including the installation of a gravity / flotation processing
circuit, and initial test runs with tailings were completed in
2002. Actual mining at the high-grade San Pablo area of the
property commenced in March 2003.
Mined
and Milled Tonnage
|
42,000
tonnes
|
Production (Oz
Au)
|
18,250
Oz
|
Average
Grade
|
15-20
g/t
|
Recovery Efficiency
(Plant)
|
85%
|
Recovery in
Concentrate (Sales)
|
90%
|
Production Cost
(Average, 4 Years)
|
$175 /
Oz
|
Suspension of Pilot Operations (2006)
The
Company initiated the test mining and pilot mill operations in 2003
and, at that time, gold prices were depressed. Exploration funding
opportunities, while available, were deemed to be too dilutive by
Company management. Subsequently, in 2006, commodities prices were
rising and the Company was able to negotiate acceptable financing
in order to fund exploration activities. Therefore, the Company
suspended its test mining and pilot mill operations in 2006 in
order to focus on the exploration of the vast SJG District. While
the test mining and pilot milling operations were considered
successful (see results in the table above), small scale operations
were not expected to provide the necessary capital in order to fund
exploration of a project the size of SJG.
The
earlier, limited-scope pilot operations provided significant
benefits in terms of confirming production test mining and milling
grades, metallurgy and process, efficiency of recoveries, and
operational costs – all of which is valuable for larger scale
production plans.
Earn In / Option Agreement – Financing of Drilling –
Exploration Programs (2006 – 2011)
The
Company entered into an Earn In / Option Agreement with Goldgroup
Resources Inc., a subsidiary of Goldgroup Mining Inc., Vancouver,
BC. (“Goldgroup”), dated September 1, 2006 (the
“Goldgroup Earn In”). The terms of the Goldgroup Earn
In provided for Goldgroup to contribute $18,000,000
financing to DynaMéxico, in
stages over the 5-year period, for exploration expenditures at SJG,
in exchange for 50% of the outstanding share capital of
DynaMéxico. The Goldgroup Earn In was completed March 15,
2011, and Goldgroup held 50% of outstanding capital of
DynaMéxico at that date.
On June
21, 2013, DynaResource acquired a Certificate for 300 Series
“B” Variable Capital Shares of DynaMéxico, in
exchange for the settlement of accounts receivable from
DynaMéxico in the amount of $31,090,710 Mexican Pesos
(approximately $2.4 M USD). After the issuance and receipt of the
300 Series B Shares, DynaUSA holds 80% of the total outstanding
share capital of DynaMéxico.
Drilling programs (2007 – 2011)
Drilling
programs completed by the Company’s subsidiaries produced a
total of 298 drill holes covering 68,741 meters of drilling from
2007 through March 2011. Results of the drilling activity,
including the results of previous drilling in 1997-1998, appear in
an “SJG Drill Intercepts Summary File through 11-298”,
as Exhibit 99.1 to our Form 10-Q for the period ended June 30, 2011
filed with the SEC on August 22, 2011, and available on EDGAR
at:
http://sec.gov/Archives/edgar/data/1111741/000112178111000241/ex99one.htm.
Additionally,
the updated Drill Summary File is posted on the Company’s web
site at www.dynaresource.com.
Magnetic and IP Surveys (2009)
Magnetic
and IP (“Induced Polarization”) surveys were conducted
throughout the SJG district in 2009, covering an area of
approximately 15 Sq. kilometers. IP is the primary geophysical
target at SJG, and is expected to identify pyrite-based
mineralization hosting gold. Initial Survey Grid lines were located
approximately perpendicular to inferred geologic strike. The data
response from these grid lines indicate one or more IP sources that
dip northwest. Additional grid lines were crossed with the initial
lines, and appear to identify two separate IP sources. Grid lines
to the South appear to indicate an IP source at > 250
Meters.
Correlation between ground magnetic and IP--
In general the
correlation between the Magnetic and IP response and data was
excellent.
Correlation with recent Drilling Programs and known
Mineralization--
The data response of the surveys correlated
to the recent drilling programs and to the areas of known
mineralization at SJG was excellent. Considering this excellent
correlation to known mineralization, additional areas of SJG
showing similar data response could be indicative of additional
target areas.
Identification of Additional Resource Target
Areas--
Significant survey responses were reported for the
following areas and are projected for follow up
drilling:
San
Pablo-Up Dip; San Pablo-Displacement Zone;
Tres
Amigos-Down Dip and Northwest; Tres Amigos-Extension
Northeast;
Orange
Tree-Down Dip; La Prieta
La
Ceceña, Los Hilos, and Tepehauje;
Palos
Chinos;
La
Purisima; Down dip at Southeast end;
Argillic Zone; +
250 M. down dip;
Technical Report According to Canadian National Instrument 43-101
(2012)
In
2012, DynaMéxico commissioned
Servicios y Proyectos Mineros
(“SPM”) for the production of Technical Report 43-101
(“43-101”) at San Jose de Gracia. Additionally,
DynaMéxico commissioned Mr. Robert Sandefur, a senior reserve
analyst for Chlumsky, Armbrust & Meyer LLC, Lakewood, CO
(“CAM”) to produce a mineral resource estimate for the
4 main vein systems at the property.
Parameters Used to Estimate the Mineral Resource
Estimate--
The data base for the San Jose de Gracia Project
consists of 372 drill holes of which 361 are diamond drill holes
(“DDH”) and the remaining 11 were reverse circulation
holes “(RC”), with a total drilling of 75,878 meters.
The NI 43-101 Mineral Resource Estimate, prepared in 2012,
concentrates on four main mineralized vein systems at SJG: Tres
Amigos, San Pablo, La Union, and La Purisima. Of the 372 drill
holes, 368 were drilled to test these four main vein systems and
the remaining four holes tested the Argillic Zone. Technical
personnel of Minop S.A. de C.V. (“Minop”), a subsidiary
(or affiliate) of Goldgroup Mining Inc., built three dimensional
solids to constrain estimation to the interpreted veins in each
swarm. The 172 holes most recently drilled (2009-2011), were
allocated as follows: Tres Amigos (64 holes), San Pablo (49 holes),
La Union (24 holes), La Purisima (32 holes) and Argillic Zone (3
holes). The data base also includes rock and chip sampling,
regional stream sediment sampling, and IP Surveys.
Density--
A total of 5,540 pieces of core were measured for
specific gravity using the weight in air vs. weight in water
method. This represents an additional 3,897 measurements taken in
the 2009-11 drill seasons with density measurements taken from all
mineral zones. Dried samples were coated with paraffin wax before
being measured. The results tabulated have been sorted by lithology
and mineralized veins. The average specific gravity of 5,051 wall
rock samples was 2.59 while the average specific gravity for 489
samples of vein material is 2.68. CAM and Servicios y Proyectos
Mineros have reviewed the procedures and results, and opine that
the results are suitable for use in mineral resource
estimation.
Mineral Resource Estimate - Construction of
Wireframes--
Mineral Resources were estimated by Mr. Sandefur
within wireframes constructed by technical personnel of Minop.
Minop was contracted by Mineras de DynaResource S.A. de C.V.
(“DynaMineras”).
Mineral Resource Estimate - Explanation of Resource
Estimation--
Resource estimation was done in MineSight and
MicroModel computer systems with only those composites that were
inside the wireframe used in the estimate. Estimation was done
using kriging with the omni-directional variogram derived from all
the data in each area for gold using the relative variogram derived
from the log variogram. High grades were restricted by capping the
assays at a breakpoint based on the cumulative frequency curves.
Estimation was done using search radii of 100 x 100 x 50 m
“blocks” oriented subparallel to the general strike and
dip of the vein system in each area. A sector search, corresponding
to the faces of the search box with a maximum of two points per
sector was used in estimation. A density of 2.68 based on within
‘vein density’ samples was used in the resource
estimate. Within each of the four areas there are approximately 20
to 40 veins in the vein swarm. Resources were estimated by kriging
using data from all veins in the swarm. In general, gold accounts
for at least 80% of the value of contained metal at the project, so
the variograms for gold were used in estimation of the four other
metals.
The
veins at San Jose de Gracia have been historically mined for many
years and historic mined volumes are not available. The one
exception is the approximate 42,000 tonnes of ore processed by
DynaMéxico during its pilot production activities in
2003-2006. The resource table is not adjusted for any historic
mining. To validate that historic mining had not significantly
reduced the resource, CAM reviewed the database for all assays
greater than 1 gram per ton gold that were next to missing values
at the bottom of drill holes. Only four assays satisfying this
criterion were found, and on the basis of this review, Mr. Sandefur
does not believe that significant mining has occurred within the
volumes defined by the wireframes.
Servicios y Proyectos Mineros
performed a database review
and considers that a reasonable level of verification has been
completed, and that no material issues have been left unidentified
from the drilling programs undertaken.
Mineral Resource Estimate and 43-101 Technical Report - Data
Verification--
Mr. Ramon Luna Espinoza (“Mr.
Luna”) initially visited the San Jose de Gracia Project in
November 2010 and conducted site inspections at SJG in November
2011 and January 2012. Mr. Sandefur conducted a site inspection of
the SJG Project in January 2012. While at the Property in November
2011, Mr. Luna inspected the areas of Tres Amigos, La Prieta,
Gossan Cap, San Pablo, La Union, and La Purisima, and historic
mining sites. In January 2012, Mr. Sandefur and Mr. Luna inspected
the areas of Tres Amigos, San Pablo, La Union, and La Purisima.
Pictures of the areas were taken. Many of the drill pads for the
drilling programs of 2007 to 2011 were clearly located and
identified. Mr. Luna also inspected San José de Gracia’s
core logging and storage facilities, the geology offices, the
meteorological station, the plant nursery, and the mill. Mr.
Sandefur also inspected San José de Gracia’s core
logging and storage facilities.
The
Company received from DynaMéxico on February 14, 2012, a
National Instrument 43-101 Mineral Resource Estimate for San Jose
de Gracia. The NI 43-101 Resource Estimate was prepared by Mr.
Robert Sandefur, BS, MSc, P.E., a Qualified Person as defined under
NI 43-101, and a senior reserve analyst for Chlumsky, Armbrust
& Meyer LLC, Lakewood, CO (“CAM”). The Resource
Estimate concentrates on four separate main vein systems at SJG:
Tres Amigos, San Pablo, La Union, and La Purisima.
The
mineral resource estimates prepared by Mr. Robert Sandefur for this
Technical Report included Indicated Resources at Tres Amigos and
San Pablo. Table summaries of Indicated and Inferred Resources are
contained in the 2012 DynaMéxico-CAM Mineral Resource
Estimate. The Resource Estimate has been filed, along with the
Technical Report on SEDAR; but is
not disclosed in this Form
10-K
.
Selected Drill Hole Intercepts by Target Area (Excerpt from The
Updated 2012 DynaMéxico Luna-CAM SJG Technical
Report)
Tres Amigos
Drill
hole
|
Area
|
From m
|
To m
|
length (m)
|
Au g/t
|
Ag g/t
|
Cu%
|
Pb%
|
Zn%
|
97-013
|
Tres Amigos
|
95.00
|
107.50
|
12.50
|
20.80
|
21.80
|
0.43
|
0.06
|
0.15
|
97-039
|
Tres Amigos
|
40.20
|
43.20
|
3.00
|
29.50
|
44.60
|
0.58
|
0.95
|
7.45
|
97-045
|
Tres Amigos
|
100.00
|
106.00
|
6.00
|
11.46
|
3.40
|
0.03
|
0.02
|
0.17
|
97-047
|
Tres Amigos
|
124.94
|
132.00
|
7.06
|
7.51
|
15.40
|
0.09
|
0.27
|
3.42
|
08-115
|
Tres Amigos
|
153.30
|
159.00
|
5.70
|
8.31
|
8.30
|
0.17
|
0.00
|
0.07
|
08-116
|
Tres Amigos
|
134.80
|
138.10
|
3.30
|
21.74
|
9.90
|
0.06
|
0.04
|
0.15
|
10-150
|
Tres Amigos
|
285.61
|
288.49
|
2.88
|
10.93
|
14.24
|
0.32
|
0.01
|
0.03
|
10-150
|
Tres Amigos
|
312.80
|
321.81
|
9.01
|
3.97
|
2.35
|
0.09
|
0.00
|
0.03
|
10-151
|
Tres Amigos
|
208.38
|
216.20
|
7.82
|
22.19
|
14.70
|
0.36
|
0.01
|
0.06
|
10-154
|
Tres Amigos
|
73.00
|
74.75
|
1.75
|
21.89
|
9.30
|
0.00
|
0.00
|
0.02
|
10-175
|
Tres Amigos
|
241.59
|
245.40
|
3.81
|
6.37
|
3.41
|
0.02
|
0.00
|
0.03
|
10-177
|
Tres Amigos
|
228.63
|
245.00
|
16.37
|
10.58
|
9.75
|
0.25
|
0.02
|
0.09
|
10-179
|
Tres Amigos
|
75.3
|
77.02
|
1.72
|
105.51
|
49.60
|
0.03
|
0.01
|
0.06
|
10-179
|
Tres Amigos
|
174.85
|
179.52
|
4.67
|
5.70
|
15.89
|
0.11
|
0.00
|
0.16
|
10-226
|
Tres Amigos
|
205.05
|
213.09
|
8.04
|
18.47
|
19.77
|
0.42
|
0.13
|
0.22
|
10-227
|
Tres Amigos
|
176.95
|
186.75
|
9.80
|
8.42
|
11.92
|
0.41
|
0.04
|
0.33
|
10-230
|
Tres Amigos
|
244.91
|
249.45
|
4.54
|
18.09
|
15.48
|
0.53
|
0.02
|
0.03
|
10-234
|
Tres Amigos
|
214.61
|
217.97
|
3.36
|
15.05
|
13.45
|
0.23
|
0.01
|
0.01
|
10-237
|
Tres Amigos
|
92.44
|
92.84
|
0.40
|
883.91
|
195.00
|
0.24
|
0.77
|
5.35
|
11-257
|
Tres Amigos
|
60.84
|
63.33
|
2.49
|
5.37
|
9.28
|
0.25
|
0.01
|
0.40
|
11-257
|
Tres Amigos
|
92.00
|
94.66
|
2.66
|
5.00
|
6.74
|
0.25
|
0.02
|
1.16
|
11-260
|
Tres Amigos
|
63.40
|
71.15
|
7.75
|
7.84
|
10.68
|
0.16
|
0.12
|
2.28
|
11-271
|
Tres Amigos
|
115.40
|
120.15
|
4.75
|
13.93
|
18.56
|
0.54
|
0.02
|
0.14
|
San Pablo
Drill
hole
|
Area
|
From m
|
To m
|
length (m)
|
Au g/t
|
Ag g/t
|
Cu%
|
Pb%
|
Zn%
|
07-012
|
San Pablo
|
19.70
|
23.90
|
4.20
|
10.45
|
10.00
|
0.15
|
0.00
|
0.01
|
07-026
|
San Pablo
|
65.90
|
67.80
|
1.90
|
34.00
|
18.70
|
0.21
|
0.01
|
0.05
|
07-027
|
San Pablo
|
142.80
|
148.85
|
6.05
|
13.72
|
28.60
|
1.06
|
0.02
|
0.04
|
07-031
|
San Pablo
|
94.25
|
98.05
|
3.80
|
31.32
|
69.60
|
1.01
|
0.23
|
0.74
|
08-051
|
San Pablo
|
183.55
|
192.60
|
9.05
|
22.95
|
13.60
|
0.40
|
0.00
|
0.03
|
08-090
|
San Pablo
|
190.70
|
191.90
|
1.20
|
11.55
|
48.50
|
1.00
|
0.02
|
0.02
|
08-092
|
San Pablo
|
124.80
|
125.80
|
1.00
|
23.31
|
0.50
|
0.00
|
0.01
|
0.00
|
08-097
|
San Pablo
|
227.69
|
229.75
|
2.06
|
17.04
|
20.00
|
0.56
|
0.03
|
0.04
|
09-133
|
San Pablo
|
126.80
|
129.80
|
3.00
|
13.10
|
10.25
|
0.32
|
0.00
|
0.02
|
09-138
|
San Pablo
|
150.62
|
153.59
|
2.97
|
8.80
|
10.46
|
0.28
|
0.00
|
0.02
|
09-139
|
San Pablo
|
132.18
|
137.68
|
5.50
|
20.51
|
25.82
|
0.70
|
0.00
|
0.01
|
10-197
|
San Pablo
|
48.15
|
51.82
|
3.67
|
7.96
|
13.18
|
0.49
|
0.00
|
0.03
|
10-203
|
San Pablo
|
70.65
|
76.15
|
5.50
|
332.86
|
143.90
|
0.02
|
0.00
|
0.01
|
10-207
|
San Pablo
|
80.15
|
83.20
|
3.05
|
16.74
|
24.17
|
0.54
|
0.01
|
0.02
|
10-215
|
San Pablo
|
186.80
|
190.27
|
3.47
|
15.82
|
14.68
|
0.41
|
0.03
|
0.02
|
10-221
|
San Pablo
|
69.98
|
71.98
|
2.00
|
13.14
|
23.93
|
0.62
|
0.00
|
0.01
|
10-224
|
San Pablo
|
122.82
|
125.05
|
2.23
|
5.29
|
18.70
|
0.69
|
0.02
|
0.04
|
10-224
|
San Pablo
|
148.60
|
154.95
|
6.35
|
7.04
|
13.31
|
0.57
|
0.00
|
0.01
|
10-236
|
San Pablo
|
112.96
|
117.03
|
4.07
|
11.38
|
22.92
|
0.68
|
0.00
|
0.01
|
11-249
|
San Pablo
|
108.20
|
109.93
|
1.73
|
8.21
|
30.29
|
0.80
|
0.00
|
0.02
|
11-250
|
San Pablo
|
101.72
|
104.81
|
3.09
|
20.15
|
53.44
|
0.88
|
0.24
|
0.54
|
11-268
|
San Pablo
|
92.65
|
94.25
|
1.60
|
11.74
|
21.13
|
0.37
|
0.01
|
0.04
|
San Pablo East
Drill hole
|
Area
|
From m
|
To m
|
length (m)
|
Au g/t
|
Ag g/t
|
Cu%
|
Pb%
|
Zn%
|
08-076
|
San Pablo E
|
32.75
|
34.85
|
2.10
|
36.09
|
47.80
|
0.43
|
0.80
|
1.06
|
10-208
|
San
Pablo E
|
150.61
|
152.67
|
2.06
|
6.60
|
10.30
|
0.40
|
0.00
|
0.01
|
11-252
|
San Pablo E
|
55.25
|
59.70
|
4.45
|
4.26
|
12.05
|
0.37
|
0.01
|
0.04
|
11-256
|
San Pablo E
|
51.61
|
52.85
|
1.24
|
144.08
|
138.60
|
1.06
|
1.61
|
1.78
|
11-256
|
San Pablo E
|
99.93
|
101.29
|
1.36
|
9.04
|
3.30
|
0.01
|
0.00
|
0.01
|
11-298
|
San Pablo E
|
49.15
|
49.85
|
0.7
|
49.39
|
20.80
|
0.20
|
0.01
|
0.03
|
La Purisima
Drill hole
|
Area
|
From m
|
To m
|
length (m)
|
Au g/t
|
Ag g/t
|
Cu%
|
Pb%
|
Zn%
|
07-021
|
La Purisima
|
158.70
|
160.80
|
2.10
|
75.90
|
76.00
|
1.61
|
0.07
|
0.00
|
07-039
|
La Purisima
|
197.55
|
200.80
|
3.25
|
10.93
|
4.60
|
0.04
|
0.00
|
0.01
|
10-161
|
La Purisima
|
87.70
|
99.67
|
11.97
|
3.12
|
4.86
|
0.36
|
0.00
|
0.01
|
10-204
|
La Purisima
|
128.02
|
131.86
|
3.84
|
4.06
|
3.15
|
0.09
|
0.00
|
0.00
|
10-204
|
La Purisima
|
173.15
|
174.58
|
1.43
|
7.21
|
5.57
|
0.08
|
0.00
|
0.01
|
10-206
|
La Purisima
|
121.73
|
124.04
|
2.31
|
14.63
|
3.45
|
0.02
|
0.00
|
0.00
|
11-282
|
La Purisima
|
152.40
|
153.92
|
1.52
|
7.79
|
1.40
|
0.04
|
0.00
|
0.00
|
11-285
|
La Purisima
|
85.06
|
87.92
|
2.86
|
3.93
|
0.80
|
0.03
|
0.00
|
0.00
|
11-285
|
La Purisima
|
98.50
|
102.15
|
3.65
|
6.70
|
3.87
|
0.20
|
0.00
|
0.01
|
11-289
|
La Purisima
|
109.73
|
112.78
|
3.05
|
9.50
|
7.05
|
0.11
|
0.02
|
0.00
|
11-293
|
La Purisima
|
38.11
|
39.27
|
1.16
|
10.06
|
0.50
|
0.01
|
0.00
|
0.00
|
11-293
|
La Purisima
|
158.75
|
160.55
|
1.80
|
12.65
|
2.84
|
0.10
|
0.00
|
0.01
|
Block Model Calculation in Surpac Software--
The Company has
compiled its manual calculation and internal interpretation of the
mineralization at SJG defined by drilling and production to date.
The Company has also built the block model of mineralization at SJG
using Surpac (Gemcom) software. The current block model at SJG
confirms mineralization at San Pablo, Tres Amigos, La Union, Palos
Chinos, and La Purisima, with portions of the mineralization in a
high-grade category, and including mineralization at San Pablo and
Tres Amigos, and is consistent with the CAM SJG Mineral Resource
Estimate described above. The Company will continue this Surpac
modeling work as additional drill programs are planned and
completed.
Exploration and Mining Permit Requirements
(México)
In
respect of permit requirements for mineral exploration and mining
in México, the most relevant applicable laws, regulations and
official technical norms are the following: The
Federal Mining Act
, and its
Regulations, the
Federal
Environmental Protection and Ecological Equilibrium Act
, and
its Regulations, the
Federal
Sustainable Forestry Development Act
and its Regulations,
the
Federal Explosives and
Firearms Act
, the
National
Waters Act
and the
Mexican
Official Norm 120
.
To
carry out mineral exploration activities, holders of mining
concessions in México are required to file at the offices of
the Secretaria de Medio Ambiente Y Recursos Naturales, the Federal
Environmental Authority in México (“SEMARNAT”) a
“Notice of Commencement of Exploration Activities”
under the guidelines of the
Mexican Official Norm 120
(“Norm
120”). SEMARNAT is the office of the Federal Government of
México responsible for the review and issuance of a Change of
Soil Use Permit (“CSUP”), the review of a Technical
Justification Study (referenced below) and the filing of Norm 120.
Norm 120 is a notice to SEMARNAT only and has no processing
time.
If
contemplated mineral exploration activities fall outside of the
parameters defined under Norm 120, a CSUP Application is required
to be filed at the SEMARNAT under the guidelines of the
Federal Sustainable Forestry
Development Act
and its Regulations. To meet the
requirements for issuance of a CSUP, the applicant must also file a
Technical Study (“Technical Justification Study”) to
justify the change of soil use from forestry to mining, to
demonstrate that biodiversity will not be compromised, and to
demonstrate that there will be no soil erosion or water quality
deterioration on completion of the mineral exploration
activities.
As a
pre-requisite for issuance of a CSUP, Article 118 of the
Federal Sustainable Forestry
Development Act
provides for the posting of a bond to the
Mexican Forestry Fund for remediation, restoration and
reforestation of the areas impacted by the mineral exploration
activities.
To
carry out mining activities in México, holders of mining
concessions are also required to file an “Environmental
Impact Assessment Study” (“Environmental Impact
Study”) under the guidelines of the
Federal Environmental Protection and
Ecological Equilibrium Act
and its Regulations, in order to
evaluate the environmental impact of the contemplated mining
activities.
As a
pre-requisite for approval of an Environmental Impact Study, the
Federal Environmental Protection
and Ecological Equilibrium Act
and its Regulations require
the posting of a bond to guarantee remediation and rehabilitation
of the areas impacted by the mining activities.
If the
use of explosives materials is required for execution of mineral
exploration or mining activities, an Application for General Permit
for Use, Consumption and Storage of Explosive (“Explosives
Permit”) is required to be filed at the offices of the
Secretariat of National Defense (“SEDENA”) under the
guidelines of the
Federal
Explosives and Firearms Act.
Under
the
Federal Mining Act,
holders of mining concessions in México have the right to the
use of the water coming from the mining works. However,
certification of water rights and/or issuance of water rights
concessions are required from the National Water Commission
(“CONAGUA”) under the guidelines of the
National Waters Act.
DynaMéxico
Permit Filings / Permits History (2003 – 2017)
●
On February 10,
2003, SEDENA granted DynaMéxico an Explosives Permit for use
and storage of explosives materials in SJG.
●
In June 2006,
DynaMéxico ceased use of explosives materials in its mining
activities at SJG, and requested suspension of the Explosives
Permit. The Explosives Permit has been temporarily suspended by
SEDENA and DynaMéxico will be required to file a re-activation
application to re-activate the Explosives Permit.
●
On June 28, 2010,
DynaMéxico filed a Preventive Exploration Notice at the office
of SEMARNAT in connection with contemplated mineral exploration
activities at the
La
Prieta
,
San Pablo
,
La Pur’sima
,
La Unión
,
Tres Amigos
and
La Ceceña
areas of the San
José de Gracia Project.
●
On July 21, 2010,
SEMARNAT authorized DynaMéxico to conduct the mineral
exploration activities referenced in the Preventive Exploration
Notice, for a term of 36 months, as SEMARNAT determined that such
activities fall within the framework of Norm 120. SEMARNAT’s
approval was subject to the following conditions: (a)
DynaMéxico’s filing of a CSUP Application (referenced
below) and approval thereof by SEMARNAT, and (b) posting of a bond
in the amount of $134,487 Mexican Pesos to guarantee remediation
and rehabilitation measures following the conclusion of the mineral
exploration activities referenced in the Preventive Exploration
Notice. The bond was timely posted by DynaMéxico.
●
On August 9, 2010,
DynaMéxico filed a CSUP Application and a Technical
Justification Study at the offices of SEMARNAT to carry out certain
mineral exploration activities at the La Prieta, San Pablo, La
Pur’sima, La Unión, Tres Amigos and La Ceceña areas
of the San José de Gracia Project.
●
On December 20,
2010, SEMARNAT approved the CSUP Application and Technical
Justification Study filed by DynaMéxico with respect to the
San José de Gracia Project and authorized DynaMéxico to
conduct mineral exploration activities on 5.463 hectares of the San
José de Gracia Project for a term of 36 months.
●
On March 8, 2012,
the Director of Water Administration of CONAGUA certified in
writing the rights of DynaMéxico to use exploit and extract
1,000,000 cubic meters of water per year from the extraction
infrastructure located in San José de Gracia. CONAGUA
determined that DynaMéxico’s water rights are not
subject to any water rights concession or any other water
extraction restriction. Water extracted by DynaMéxico will be
subject to applicable levies imposed by the Mexican tax authorities
under applicable tax laws.
●
On June 17, 2013,
DynaMéxico received from SEMARNAT, the approval and permission
which allows for the rehabilitation and operation of the pilot mill
facility at SJG ("the SEMARNAT-SJG Mill Permit," and, the "SEMARNAT
Permit"). Under the terms of the SEMARNAT-SJG Mill Permit,
DynaMéxico will be responsible to maintain the SJG pilot mill
facility, and including the adjacent tailings pond area, in
compliance with the regulations described in la Norma Oficial
Mexicana ("NOM-141-SEMARNAT-2003).
●
On July 31, 2013,
SEMARNAT authorized DynaMéxico to conduct the mineral
exploration activities referenced in the Preventive Exploration
Notice, for a term of an additional 18 months, extending the
initial term of 36 months as SEMARNAT had determined on July 10,
2010. SEMARNAT determined that such activities fall within the
framework of Norm 120.
●
On December 31,
2013, DynaMéxico received from SEMARNAT the approval and
permission which allows for mining activities and the exploitation
of the San Pablo area of San Jose de Gracia.
●
On January 6, 2014,
DynaMineras entered
into a 20 Year Land
Lease Agreement with the Santa Maria Ejido Community surrounding
San Jose de Gracia. The 20 Year Land Lease Agreement is dated
January 6, 2014 and continues through 2033. It covers an area of
4,399 hectares surrounding the main mineral resource areas of SJG
and provides for annual lease payments by DynaMineras of $1,359,443
Pesos (approx. $74,000 USD as of April 10, 2018), commencing in
2014. Additionally, under the description of the Land Lease
Agreement, DynaMineras constructed a Medical Facility at SJG during
2017.
The land lease agreement provides DynaMineras with
surface access to the core resource areas of SJG (4,399 hectares),
and allows for all permitted test mining, pilot production and
exploration activities from the owners of the surface rights (Santa
Maria Ejido community).
DynaMéxico
Bonding Requirements (2010)
●
Under the
Exploration Permit issued to DynaMéxico on July 21, 2010,
SEMARNAT imposed upon DynaMéxico a bonding obligation in the
amount of $134,487 Mexican Pesos to guarantee remediation and
rehabilitation measures following the conclusion of the mineral
exploration activities referenced in the Preventive Exploration
Notice. The bond was timely posted by DynaMéxico.
●
Under the CSUP
issued to DynaMéxico on December 20, 2010, SEMARNAT imposed
upon DynaMéxico a bonding obligation of $116,911 Mexican Pesos
for reforestation and remediation measures with respect to the San
José de Gracia Project. The bond was timely posted by
DynaMéxico.
Water Concession
The
Company has secured the Water Rights Concession for the area
surrounding SJG. The Director of Water Administration of the
National Water Commission of México (CONAGUA) formally
certified in writing the rights of DynaResource de México,
S.A. de C.V. to legally “use”, exploit and extract
1,000,000 cubic meters of water per year from the DynaMéxico
extraction infrastructure located within the perimeter of the
mining concessions comprising the San Jose de Gracia Mining
Property in Sinaloa State, México. CONAGUA determined that the
DynaMéxico water rights are not subject to any water rights
concession or any other water extraction restriction. Water
extracted by DynaMéxico will be subject to applicable levies
imposed by the Mexican tax authorities in accordance with current
Mexican tax laws.
Test Underground Mining and Pilot Mill Operations
(2015)
In July
2015, the Company commenced a capital investment program designed
to increase tonnage and output from the test mining operations, and
to increase volume and output through the pilot mill facility.
Through DynaMineras, the Company was engaged in the implementation
of this capital investment program from July through December
2015.
Capital Investment (2015
)
The
capital investment program consisted of a net total of $3,565,000
USD and is generally described below:
●
Contract Mining ($713,000);
including
$250,000 Deposit (advance for services), and $513,000 in direct
mining costs, explosives, and payments to contractor;
●
Mine related costs ($290,000
); including
mine plan development, permits, assays, consulting, mine supplies,
and equipment items expensed;
●
Mill and Camp ($613,000);
Improvements
to the Mill and Camp, including pre-operation
expenses;
●
Personnel Costs ($673,000
); including
payroll and consulting expenses;
●
Equipment ($636,000
); long term
equipment purchases including transportation, mine loading and
hauling, generators, compressors and pumps;
●
Overhead ($285,000
); including legal
expenses, consulting, and administration;
●
IVA ($272,000);
Value added taxes paid,
and refundable;
●
Land Use and Rental
($83,000)
;
Year 2017 Improvements and Expansion
During
2017 the Company initiated and completed the following capital
projects at SJG to improve and expand test mining and pilot milling
operations:
●
Medical facility (SJG Clinic):
$107,500;
●
Expanding camp, office, and infrastructures:
$145,500;
●
Expanding tailings pond, installing liners:
$265,000;
●
Improving, setting new foundation, and re-installing the Denver
Mill: $257,500;
●
Installing Mill #3:
$258,000;
●
Machinery &
Equipment:
$200,000;
●
Transportation:
$40,000;
Total:
$1,273,500;
Summary of Test Mining and Pilot Mill Operations for 2015, 2016,
and 2017:
Year
|
Total Tonnes
Mined & Processed
|
Reported Mill Feed Grade
(g/t Au)
|
Reported Recovery
%
|
Gross Gold Concentrates Produced
(Au oz.)
|
Net Gold Concentrates Sold
(Au oz.)
|
2015
|
7,180
|
8.30
|
78.0%
|
1,495
|
1,308
|
2016
|
33,172
|
12.70
|
79.7 %
|
10,836
|
8,668
|
2017
|
35,170
|
12.95
|
85 %
|
12,636
|
10,740
|
DynaMineras
expects to continue to increase its test underground mining
activity and pilot milling operations in 2018; and projects the
increased output to 250 tons/day from the mine and mill during
2018.
Additional Test Mining and Mill Operations Disclosure
The
flow sheet for obtaining and processing mineralized material is
described below:
Contract Mining
: Mineralize material is
mined from San Pablo mine by the contract miner, and according to
the formal mine plan developed by the Company.
Mining Patio:
Freshly mined mineralized
material is transported by the contract miner outside the San Pablo
Mine to the mine patio;
Pilot
Mill Facility – General Description and Flow
Sheet;
Mill Patio:
Mineralized material is
transported by Company dump trucks and articulated dump truck to
the mill patio.
Crushing Circuit:
Freshly mined
mineralized material is loaded from the mill patio into the
crushing circuit, comprised of a jaw crusher and cone crusher; and
1/2” crushed material is fed by conveyor belt to the fine
mineralized material bin. The mineralized material is then sent by
conveyor belt to the primary ball mill, which is a Hardinge conical
mill.
Hardinge Mill:
The mineralized material
is then ground to -100 mesh particle size; and then fed to a
holding tank;
Holding Tank:
The mineralized material
is pumped from the holding tank to the cyclone;
Cyclone:
The course material plus (-100
Mesh) is fed to the Ball Mill #2, the Denver Mill; and fine
material less (-100 Mesh) is fed to another holding
tank.
Fine Screening System (Sweco Screen):
The fine mineralized material is fed from the holding tank to the
Sweco Screen; the fine mineralized material less (-200 Mesh) is fed
to the spirals; the oversized material is fed to Ball Mill#
2.
Denver Mill:
All mineralized material
reground in the Denver Mill, is then fed to the holding tank prior
to the Cyclone.
Spiral Gravity Concentration
:
Approximately 25% of the mineralized material is fed from the
spirals to the Wifley table. Approximately 75% of the mineralized
material is fed from the spiral concentration to the flotation
conditioning tank.
Wifley Shaking Table:
The concentrate
from the spirals feed the Wifley shaking table, producing a
high-grade gravity concentrate. The high-grade gravity concentrate
is bagged and shipped for sale. (There are no chemicals present in
the gravity concentrate.) It is estimated that the gravity
concentrate produced is approx. 40% of the total recovered gold;
and estimated that a 300-400 g/t Au would be the final gravity
concentrate grade.
Flotation Conditioning Tank:
The
tailings from spirals and from the Wifley table are fed to the
flotation conditioning tank. A low calculation of chemicals is
added, with metered feeder, directly to the flotation feed tank.
Sodium sulfide, a granular solid, is added also to the agitated
flotation feed tank.
Flotation Chemicals
: The following
chemicals are added to the flotation feed tank: Na
2
S (Sodium
Sulfide), 400 g/mt (solid); Aero 343 Xanthate Collector 40-80 g/mt
(liquid); Cytec 7249 conditioner 50 g/mt (liquid); Cytec 4037
Conditioner 20–40 g/mt (liquid); and Aerofroth 70 or 73
Frother 30 g/mt (liquid).
Rougher Flotation:
The Rougher flotation
consists of a bank of 8 flotation cells (or Hybrid float cell),
which is fed by the conditioning tank. The rougher concentrate
recovered from the rougher float cells or the first hybrid cell is
bagged for shipment and sale. A very low percentage of chemicals
remains in the rougher concentrate.
Scavenger and Cleaner Concentrate:
The
tailings of the rougher concentrate could be fed to the scavenger
and cleaner float cells (or, a second hybrid cell). The cleaner
concentrate would then be bagged and shipped for sale. A very low
percentage of chemicals remains in the cleaner
concentrate.
Circuit Tailings:
The tailings from the
flotation area are fed to the tailings impoundment area. Less than
10% of chemicals added at the conditioning tank remain in the
tailings slurry. Chemicals do not appear in the water of the
tailings; as confirmed by analysis.
Power:
A 45 KW efficient diesel
generator will supply power to the camp, mill lights and to the
laboratory. Two 50 KW back-up diesel generators (Selmec, Kamag) are
also available for camp use.
The
mill primary generator is a 310 KW Cat Diesel and there is a 455 KW
Cat Diesel mill back-up generator.
Diesel
fuel is stored in a 10,000-liter storage tank that feeds the two
large generators by gravity flow to a common 500-liter head tank.
The fuel storage tank is contained within a secondary cement
impoundment with controlled and oil-trapped drainage.
Electrical:
The Company is in process of
connecting electrical power sufficient to supply electrical power
for the camp and mill.
ITEM
3.
LEGAL
PROCEEDINGS
Arbitration filed by Goldgroup
/
DynaMéxico Complaint against Goldgroup
On March 14, 2014, Goldgroup filed for arbitration in the United
States with
the American Arbitration Association
("AAA")
, citing the Earn In Agreement
dated September 1, 2006 as the basis for the arbitration filing.
The Company filed an answer on April 10, 2014, disputing that any
issues exist which provide for arbitration.
On
December 9, 2014, DynaMéxico filed an Ordinary commercial
lawsuit (Civil Claims) against Goldgroup Mining Inc., its parent
company Goldgroup Resources Inc., and the AAA, in the Thirty Sixth
Civil Court in the Federal District of México, under file 1120
number / 2014 ("the DynaMéxico Trial"). The DynaMéxico
Trial seeks to terminate the U.S.-based arbitration proceedings, as
DynaMéxico believes there is no legal basis for arbitration,
and to nullify the arbitration proceedings since Goldgroup
previously sought recourse in the Mexican courts. In the
DynaMéxico Trial, DynaMéxico also requests that
substantial damages (in the amount of US $50 million) be awarded to
DynaMéxico against Goldgroup for:
a)
wrongfully using
and disseminating confidential information and data belonging to
DynaMéxico;
b)
asserting that
Goldgroup owns any interest in the San Jose de Gracia Project in
northern Sinaloa, México, rather than accurately disclosing
that Goldgroup owns a common shares equity interest
(shareholder’s interest) in DynaMéxico;
c)
improperly
disclosing the percentage of common shares equity interest
(shareholder’s interest) owned by Goldgroup in
DynaMéxico;
d)
improperly
disclosing or implying that Goldgroup is the operator of the San
Jose de Gracia Project;
e)
attempting to
delay, stop, or otherwise impair the financing of, and further
development of, the SJG Project;
f)
making numerous
threats against DynaMéxico management and
officers;
g)
failing to properly
disclose that broad powers of attorney for acting on behalf of
DynaMéxico are held by an individual not affiliated with
Goldgroup.
On
October 5, 2016, in an appellate ruling, the Thirty Sixth Civil
Court of the Superior Court of Justice of the Federal District of
México (Tribunal Superior de Justicia del Distrito Federal),
file number 1120/2014 declared, among other resolutions,
that:
(a)
The AAA must
“cease and desist” from the arbitration
proceeding;
(b)
The AAA does not
have jurisdiction to hear any conflict and/or interpretation
arising from the Earn In/Option Agreement, dated September 1, 2006;
and
(c)
The AAA does not
have jurisdiction to hear disputes arising between shareholders of
DynaMéxico, which disputes do
(d)
not arise
directly and immediately from the Earn In/Option Agreement, dated
September 1, 2006.
$48M Damages Award to DynaMéxico
Also on
October 5, 2015, in an appellate ruling, DynaMéxico was
awarded in excess of US $48 million in damages from Goldgroup
Resources, Inc. by virtue of a Sentencia Definitiva (the
“Definitive Sentence”) issued by the Thirty Sixth Civil
Court of the Superior Court of Justice of the Federal District of
México (Tribunal Superior de Justicia del Distrito Federal),
File number 1120/2014. The Definitive Sentence included the
considerations and resolutions by the Court, and additional
Resolutions were also ordered in favor of DynaMéxico (together
the damages award and the additional Resolutions are referred to
as, the “Oct. 5, 2015 Resolution”).
A
concise translation to English of the Oct. 5, 2015 Resolution (the
resolution portion of the Definitive Sentence) is set forth
below:
FIRST:
The action and
litigation based on commercial law filed by DynaMéxico is
valid and enforceable, and where Goldgroup and the American
Arbitration Association were found to be in default, was
proper.
SECOND:
Goldgroup is
declared in breach of its corporate duties, for failure to refrain
from claiming direct ownership of 50% of the San José de
Gracia Mining Project.
THIRD:
Goldgroup is
condemned and ordered to pay to DynaMéxico the amount of USD
$20,000,000 (Twenty Million Dollars) in damages caused by Goldgroup
to DynaMéxico, deriving from its breach of obligations in
refraining from claiming direct ownership of 50% of the San Jose de
Gracia Mining Project; which amount should be paid within five days
upon execution of this order and resolution.
FOURTH:
Goldgroup is
condemned and ordered to pay to DynaMéxico the amount of USD
$28,280,808.34 (Twenty Eight Million Two Hundred and Eighty
Thousand Eight Hundred and Eight and 34/100 Dollars), for breach of
its corporate duty and covenants with regards to the San Jose de
Gracia mining project, as a result of depriving profits from
DynaMéxico which DynaMéxico could have earned for the
sale of gold produced and extracted during the years 2013 and 2014;
amounts that should be paid within five days upon execution of this
order and resolution.
FIFTH:
Goldgroup is
condemned and ordered to pay losses and damages to DynaMéxico,
which Goldgroup continues to cause, until full payment of the
above-mentioned amounts has been made, which damages and losses
shall be calculated by an expert opinion in a corresponding legal
procedure related to this litigation.
SIXTH:
Pursuant to Article
1424 of the Commercial Code of México, the arbitration
provision established under clause 8.16 of the Earn In/Option
Agreement, dated as of September 1, 2006, is ineffective and
impossible to execute.
SEVENTH:
This Court declares
that any controversy arising from the Earn In/Option Agreement must
be brought and resolved under Mexican Law and by competent Mexican
Courts with proper jurisdiction, in recognition of the waiver and
exclusion of the arbitration clause (contained in the Earn
In/Option Agreement) by both parties.
EIGHT:
This Court declares
that the American Arbitration Association must abstain from hearing
arbitration procedure number 50 501 T 00226 14, or any other
ongoing and/or future arbitration proceeding already filed or that
may be filed by the co-defendant Goldgroup against
DynaResource.
NINTH:
This Court declares
that the American Arbitration Association does not have
jurisdiction to hear any conflict and/or interpretation arising
from the Earn In/Option Agreement, dated September 1,
2006.
TENTH:
This Court
declares, that the American Arbitration Association does not have
jurisdiction to hear disputes arising between shareholders of
DynaMéxico, which disputes do not arise directly and
immediately from the Earn In/Option Agreement, dated September 1,
2006.
ELEVENTH:
This Court
declares, that the American Arbitration Association does not have
jurisdiction to hear any matters where Koy Wilber Diepholz, who is
the President of the Board of Directors of DynaMéxico, and has
been personally sued in relation to the arbitration clause
established under clause 8.16 of the Earn In/Option Agreement,
dated September 1, 2006, since he signed the mentioned instrument
in representation of the Company and not in his personal
capacity.
TWELFTH:
The expenses and
costs associated with these proceedings are hereby
waived.
THIRTEENTH:
LET IT SO BE
PUBLISHED. A Copy of this Order and Sentence shall be found in the
corresponding record.
ORDERED, adjudged and decreed by the Thirty Sixth Civil Judge of
the Superior Court of the Federal District, Mr. JULIO GABRIEL
IGLESIAS GOMEZ.
The
October 5, 2015 Resolution constitutes a public record which may be
reviewed through the Courts in México City.
Mexico City Court Approves Lien on Shares of DynaMéxico owned
by Minority Interest Holder
On
October 5, 2016, the Thirty-Sixth Civil Court of the Superior Court
of Justice of the Federal District of Mexico (Tribunal Superior de
Justicia del Distrito Federal) approved a Lien (referred to by the
court as an “Embargo”), in favor of DynaMéxico,
upon Stock Certificates in the name of Goldgroup Resources Inc.
(“Goldgroup”). The Stock Certificates subject to the
Lien (“Embargo”) constitute Shares of DynaMéxico
(“the Goldgroup DynaMéxico Shares”).
The
Goldgroup DynaMéxico Shares were seized as a partial recovery
of assets by DynaMéxico after DynaMéxico was awarded more
than $ 48 M USD (Forty-Eight Million Dollars) in damages against
Goldgroup (the “Damages against Goldgroup”) on October
05, 2015, as described in a Sentencia Definitiva (the
“Definitive Sentence”) issued by the same court, the
Thirty Sixth Civil Court of the Superior Court of Justice of the
Federal District of México, File number 1120/2014. Excerpts
from the Definitive Sentence appear below. In addition to the
Damages against Goldgroup, the Definitive Sentence also included
additional Resolutions ordered in favor of DynaMéxico (the
Damages against Goldgroup and the additional Resolutions are
together referred to as the “Oct. 5, 2015
Resolution”).
Denial of Amparo Appeal
On
August 24, 2017 a Federal Amparo Judge (“Juzgado de
Distrito”) in the State of Vera Cruz, Mexico, dismissed
Goldgroup Resources Inc’s Amparo Trial Challenge to the $48 M
USD damages award previously granted in favor of DynaMéxico.
Pursuant to the dismissal ruling, the $48M USD damages award,
previously granted to DynaMéxico by the Thirty-Sixth Civil
Court of the Superior Court of Justice of the Federal District of
Mexico on October 5, 2015 – was effectively
confirmed.
Arbitration Ruling
In
direct contradiction to the October 5, 2015 Definitive Sentence
issued by court in México, on August 25, 2016 the American
Arbitration Association - International Centre for Dispute
Resolution, Denver office (the “AAA”) issued an
Arbitration Ruling (the “Arbitration Ruling”) in favor
of Goldgroup Resources Inc. against DynaMéxico and
DynaResource, Inc. The Arbitration Ruling was the result of a
proceeding in which neither DynaMéxico nor DynaResource
participated, since the Definitive Sentence issued by the court in
México effectively prohibited their participation in the
Arbitration proceeding and should have prohibited Goldgroup
Resources Inc. participation as well.
The
Arbitration Ruling provides the following: (i) the Earn In/Option
Agreement is still in force, and consequently Goldgroup may appoint
two directors to the DynaMéxico board, and may participate in
the appointment of a fifth director; (ii) the DynaMéxico
Management Committee is reinstated, and must approve all budgets
and expenditures; (iii) amounts expended by DynaMéxico that
were not approved by the Management Committee are subject to
repayment by DynaResource; (iv) the issuance of additional shares
by DynaMéxico (and consequent dilution of Goldgroup’s
equity interest) was in violation of the Earn In/Option Agreement;
and (v) DynaResource and DynaMéxico are responsible for
Goldgroup’s costs and professional fees associated with the
Arbitration Ruling.
Unlike
the vast majority of arbitration proceedings in the U.S., the
Arbitration Ruling is not final. Since the Arbitration Ruling is
subject to international rules, the ruling may be vacated by U.S.
courts, or simply not recognized by U.S. courts, on a number of
grounds. Accordingly, both DynaMéxico and DynaResource have
timely requested relief from the United States Federal District
Court in Colorado, via the filing of a Petition for Nonrecognition
of Foreign Arbitral Award and/or Motion to Vacate Arbitration Award
(the “Petition for Nonrecognition”), and a supporting
brief. The Petition for Nonrecognition relies heavily upon the
Mexican court’s Definitive Sentence, key excerpts of which
appear immediately below.
The
Mexican court has already ruled that “any controversy arising
from the Earn In/Option Agreement must be brought and resolved
under Mexican Law and by competent Mexican Courts with proper
jurisdiction.” Consequently, the monetary awards against
DynaResource – which are based upon a finding that the Earn
In/Option Agreement is still in force – will not be
enforceable if the Mexican court rules that the Earn In/Option
Agreement is terminated. T
he Company
believes that the potential for the assessment of a material
monetary judgment against
DynaResource
is remote.
SIXTH:
Pursuant to Article
1424 of the Commercial Code of México, the arbitration
provision established under clause 8.16 of the Earn In/Option
Agreement, dated as of September 1, 2006, is ineffective and
impossible to execute.
SEVENTH:
This
Court declares that any controversy arising from the Earn In/Option
Agreement must be brought and resolved under Mexican Law and by
competent Mexican Courts with proper jurisdiction, in recognition
of the waiver and exclusion of the arbitration clause (contained in
the Earn In/Option Agreement) by both parties.
EIGHT:
This
Court declares that the American Arbitration Association must
abstain from hearing arbitration procedure number 50 501 T 00226
14, or any other ongoing and/or future ongoing arbitration already
filed or to be filed by the defendant Goldgroup, based on the Earn
In/Option Agreement dated September 1, 2006.
NINTH:
This
Court declares that the American Arbitration Association does not
have jurisdiction to hear any conflict and/or interpretation
arising from the Earn In/Option Agreement, dated September 1,
2006.
TENTH:
This
Court declares, that the American Arbitration Association does not
have jurisdiction to hear disputes arising between shareholders of
DynaMéxico, which disputes do not arise directly and
immediately from the Earn In/Option Agreement, dated September 1,
2006.
ELEVENTH:
This
Court declares, that the American Arbitration Association does not
have jurisdiction to hear any matters where Koy Wilber Diepholz,
who is the President of the Board of Directors of DynaMéxico,
and has been personally sued in relation to the arbitration clause
established under clause 8.16 of the Earn In/Option Agreement,
dated September 1, 2006, since he signed the mentioned instrument
in representation of the Company and not in his personal
capacity.
(C)
The Arbitration Ruling contains an acknowledgement by the AAA that
the AAA was named as a defendant in the legal demand filed by
DynaMéxico in the Thirty Sixth Civil Court of the Superior
Court of Justice of the Federal District of México (the
“DynaMéxico Legal Demand”). The Arbitration Ruling
also contains a statement that the AAA was not properly served
notice of the DynaMéxico Legal Demand.
(D)
DynaMéxico obeyed the October 5, 2015 Court Order, and did not
attend the Arbitration hearing.
(E)
DynaMéxico will pursue all legal remedies in order to obtain a
full dismissal of the Arbitration Ruling.
(F)
The October 5, 2015 Court Order and the $48 million USD award of
damages against Goldgroup Resources Inc. remains in full force and
effect as issued. DynaMéxico is currently pursuing all
available remedies in order to collect $48 million USD in damages
from Goldgroup Resources Inc. (See Court Approves Lien on Shares of
DynaMéxico owned by Goldgroup Resources, above).
DynaUSA and DynaMéxico filed Motion to Vacate Arbitration
Ruling
On
November 17, 2016, DynaUSA and DynaMéxico filed a Motion to
Vacate the Arbitration Ruling in United States District Court,
District of Colorado.
Recommendation to Vacate Arbitration Ruling issued by United States
Magistrate Judge
On
February 13, 2018 a Recommendation to Vacate the Arbitration Ruling
was issued by a United States Magistrate Judge of the United States
District Court, District of Colorado.
Complaint filed by Goldgroup against the May 17, 2013
Shareholders’ Meeting of DynaMéxico
On
February 2
nd
, 2014, Goldgroup
Resources Inc. filed a petition with the judge, tenth district
Mazatlán, according to record 08/2014, in the ordinary
commercial action, against DynaResource Inc., and DynaResource de
México, S.A. de CV. Goldgroup complains against the results of
the shareholders meeting of May 17, 2013, and petitions for the
nullification of the meeting itself and for the nullification of
the additional shares of the outstanding capital of DynaMéxico
issued to DynaResource, Inc. in satisfaction of debts owed to
DynaResource.
DynaResource
and DynaMéxico filed a response on January 9, 2016, and the
matter is pending. DynaMéxico will vigorously defend against
all such complaints by Goldgroup, as there exists no legal basis
for the complaint by Goldgroup against the May 17, 2013
shareholders meeting of DynaMéxico.
Litigation(s) in México – Company as
Plaintiff
The
Company, and DynaMéxico have filed several legal actions in
México against Goldgroup Mining Inc, Goldgroup Resources Inc.,
certain individuals employed or previously employed by Minop, S.A.
de C.V. (a Company operating in México and associated with
Goldgroup Mining Inc.), and certain individuals retained as agents
of Goldgroup Mining Inc. The Company and DynaMéxico are
plaintiffs in the actions filed in México and the outcomes are
pending.
The
Company believes that no material adverse change will occur as a
result of the actions taken, and the Company further believes that
there is little to no potential for the assessment of a material
monetary judgment against the Company for legal actions it has
filed in México. For purposes of confidentiality, the Company
does not provide more specific disclosure in this Form
10-K.
ITEM
4.
MINE
SAFETY DISCLOSURES
As the
Company has no mines located in the United States or any of its
territories, the disclosure required by this Item is not
applicable.