ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
FORWARD-LOOKING
STATEMENTS
This
quarterly report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended, which we refer to in this quarterly report as the Securities Act, and Section 21E of the Securities Exchange Act of
1934, as amended, which we refer to in this quarterly report as the Exchange Act. Forward-looking statements are not statements
of historical fact but rather reflect our current expectations, estimates and predictions about future results and events. These
statements may use words such as “anticipate,” “believe,” “estimate,” “expect,”
“intend,” “predict,” “project” and similar expressions as they relate to us or our management.
When we make forward-looking statements, we are basing them on our management’s beliefs and assumptions, using information
currently available to us. These forward-looking statements are subject to risks, uncertainties and assumptions, including but
not limited to, risks, uncertainties and assumptions discussed in this quarterly report. Factors that can cause or contribute
to these differences include those described under the headings “Risk Factors” and “Management Discussion and
Analysis and Plan of Operation.”
If
one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual
results may vary materially from what we projected. Any forward-looking statement you read in this quarterly report reflects our
current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to
our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements
attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this paragraph. You are cautioned
not to place undue reliance on forward-looking statements, which speak only as of the date of this quarterly report. The Company
expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect
any change in its views or expectations. The Company can give no assurances that such forward-looking statements will prove to
be correct.
IMPORTANT
NOTE REGARDING CANADIAN DISCLOSURE STANDARDS
The
Company is an “OTC Reporting Issuer” as that term is defined in BC Multilateral Instrument 51-105,
Issuers Quoted
in the U.S. Over-the-Counter Markets
, promulgated by the British Columbia Securities Commission. Accordingly, certain disclosure
in this quarterly report has been prepared in accordance with the requirements of securities laws in effect in Canada, which differ
from the requirements of United States securities laws. In Canada, an issuer is required to provide technical information with
respect to mineralization, including reserves and resources, if any, on its mineral exploration properties in accordance with
Canadian requirements, which differ significantly from the requirements of the United States Securities and Exchange Commission
(the “SEC”) applicable to registration statements and reports filed by United States companies pursuant to the Securities
Act or the Exchange Act. As such, information contained in this quarterly report concerning descriptions of mineralization under
Canadian standards may not be comparable to similar information made public by United States companies subject to the reporting
and disclosure requirements of the SEC and not subject to Canadian securities legislation. This quarterly report may use the terms
“measured mineral resources”, “indicated mineral resources” and “inferred mineral resources”.
While these terms are recognized and required by Canadian securities legislation (under National Instrument 43-101,
Standards
of Disclosure for Mineral Projects
), the SEC does not recognize them. United States investors are cautioned not to assume
that any part or all of the mineral deposits in these categories will ever be converted to reserves. In addition, “inferred
mineral resources” have a great amount of uncertainty as to their existence and economic and legal feasibility. It cannot
be assumed that all or any part of a measured mineral resource, indicated mineral resource or inferred mineral resource will ever
be upgraded to a higher category. Under Canadian securities legislation, estimates of inferred mineral resources may not form
the basis of feasibility or pre-feasibility studies, although they may form, in certain circumstances, the basis of a “preliminary
economic assessment” as that term is defined in National Instrument 43-101,
Standards of Disclosure for Mineral Projects
.
U.S. investors are cautioned not to assume that any part or all of any reported measured, indicated, or inferred mineral resource
estimates referred to herein or in the Technical Report are economically or legally mineable.
COMPANY
DynaResource,
Inc., the Company described herein, is a Delaware corporation, with its corporate offices located at 222 W. Las Colinas Blvd.,
Suite 744 East Tower, Irving, Texas 75039. It can be reached by phone at (972) 868-9066 and by fax at (972) 868-9067. The Company’s
website is www.dynaresource.com.
The
Company is in the business of acquiring, investing in, and developing precious metals properties, and the production and sale
of precious metals.
COMPANY
HISTORY
The
Company was 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”).
In
2000, the Company formed DynaResource de México, S.A. de C.V. (“DynaMéxico”) for the purpose of acquiring
and holding mineral properties in Mexico. DynaMéxico owns a portfolio of mining concessions that currently includes its
interests in the San José de Gracia Project (“SJG”) in northern Sinaloa State, México. The SJG District
covers 69,121 hectares (170,802 acres) on the west side of the Sierra Madre mountain range. The Company currently owns 80% of
the outstanding capital of DynaMéxico.
In
2005, the Company formed Mineras de DynaResource S.A. de C.V. (“MinerasDyna”), a wholly owned subsidiary, and entered
into an operating agreement with DynaMéxico on April 15, 2005. As a consequence of that agreement and subsequent amendments
to that agreement, MinerasDyna is the named exclusive operating entity for the SJG Project.
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 MinerasDyna and, as a consequence of that agreement, is the
exclusive management company for personnel and consultants involved at the SJG Project.
At
incorporation of DynaMéxico, 100 shares of Fixed Capital Series “A” shares were issued with DynaUSA (parent)
receiving 99 shares and its CEO receiving 1 share.
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. Vancouver, BC. (“Goldgroup”), in exchange for
Goldgroup’s total contributions of $18,000,000 to DynaMéxico. At the issuance of the 100 Series B Shares to
Goldgroup, it owned 50% of the outstanding capital shares of DynaMéxico.
On
May 17, 2013, DynaResource agreed to acquire 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 million USD). After the issuance and receipt of the 300 Series B Shares on June 21, 2013, DynaUSA holds 80% of the total
outstanding Capital of DynaMéxico. DynaMéxico owns 100% of the San Jose de Gracia Project in northern Sinaloa, México
("SJG", and the "SJG Property"). (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 attending shareholders
at a meeting of the shareholders of DynaMéxico, held on the second call for shareholder's meeting on May 17, 2013 in Mazatlan,
Sinaloa, México. Of the total amount of $31,090,710 Mexican Pesos exchanged for the 300 Shares, $150,000 Mexican Pesos
was accounted for at the nominal value of $500 Mexican Pesos per share, and the remaining balance of $30,940,710 Mexican Pesos
was accounted for as a premium for the subscription of the shares agreed to be paid by DynaUSA. The date of issuance of the 300
Series B Share Certificate was June 21, 2013. As a result of the issuance and exchange 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
the issuance of the 300 Series B Variable Capital shares of DynaMéxico to DynaUSA as described above, the current outstanding
Capital of DynaMéxico is set forth in the table below:
DynaMéxico Shareholder
|
|
Fixed
Capital
Series "A" Shares
|
|
Variable
Capital
Series "B" Shares
|
|
Total
Capital Shares
(Series A and B)
|
DynaResource,
Inc.
|
|
099
|
|
300
|
|
399
|
Koy
W. Diepholz
|
|
001
|
|
|
|
001
|
Goldgroup
Mining Inc.
|
|
|
|
100
|
|
100
|
|
|
|
|
|
|
|
Total
Capital Issued
|
|
100
|
|
400
|
|
500
|
DynaResource
currently owns 80% of the outstanding capital shares of DynaMéxico.
Exploitation
Amendment Agreement (“EAA”)
On
May 15, 2013, MinerasDyna entered into an Exploitation Amendment Agreement (“EAA”) with DynaMéxico. The EAA
grants to MinerasDyna the right to finance, explore, develop and exploit the SJG Property, in exchange for: (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 MinerasDyna to DynaMéxico; and, (B) After Item (A) above, the receipt by MinerasDyna of
75% of gross receipts received by DynaMéxico from the sale of all minerals produced from SJG, to the point that MinerasDyna
has received 200% of its advanced funds; and, (C) after items (A) and (B) above; the receipt by MinerasDyna of 50% of all gross
receipts received by DynaMéxico from the sale of all minerals produced from SJG, and throughout the term of the EAA; and,
(D) in addition to Items (A), (B), and (C) above, MinerasDyna shall receive a 2.5% NSR (“Net Smelter Royalty”) on
all minerals sold from SJG over the term of the EAA. The total Advances made as of June 30, 2014 is $3,650,000.
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 MinerasDyna with DynaMéxico in April 2005, wherein MinerasDyna
was named the Exclusive Operating Entity at SJG. The Operating Agreement was previously 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).
Exclusive
Operating Entity at San Jose de Gracia
Under
agreement with DynaMéxico, Mineras de DynaResource S.A. de C.V. (“MinerasDyna”) has been named the exclusive
operating entity at the San Jose de Gracia Project. DynaResource owns 100% of MinerasDyna.
DynaMéxico
General Powers of Attorney
The
Chairman-CEO of DynaUSA also serves as the President of DynaMéxico and as the President of MinerasDyna. The President of
DynaMéxico holds broad powers of attorney granted by the shareholders of DynaMéxico which gives the current President
significant and broad authority within DynaMéxico.
Rehabilitation
and Start up of Pilot Mill Facility at San Jose de Gracia
Under
the terms of the Exploitation Amendment Agreement (“EAA”), as described above, MinerasDyna has rehabilitated the pilot
mill facility at SJG. The SJG pilot mill facility (a gravimetric-flotation circuit) is now processing bulk samples mined from
selected target areas of SJG. Operations at SJG are managed by MinerasDyna, and are projected to be similar to those conducted
by DynaMéxico during the 2003-2006 period. See discussion under Properties below.
PROPERTIES
San
Jose de Gracia Mineral Property
DynaMéxico
owns 100% of the mineral concessions at the San Jose de Gracia Property (“SJG”), located in the state of Sinaloa,
México, and 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).
The
SJG is a High-Grade Mineralized System which reports historical production of 1,000,000 Oz. gold (“Au”), from a series
of underground workings. DynaMéxico 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. kilometers area.
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 water 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. Currently,
DynaMéxico
estimates its consumption of water to be approximately 10,000 liters per week.
Accommodations
The
mine site area camp maintains facilities which can accommodate about 50 persons. The village of San José de Gracia maintains
few stores, and 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 quarter 2014, the laboratory has been refurbished by MinerasDyna and is currently utilized
by on site personnel to provide assays for mined material, feed material, gravity and flotation concentrates, and tailings. MinerasDyna
anticipates utilizing the lab facility in the future for providing internal assays to support the exploration, mining, and 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 volcaniclastic 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 hangingwall 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;
|
|
2.
|
Palos
Chinos trend;
|
|
3.
|
La
Parilla to Veta Tierra trend (Including La Union);
|
|
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-Q, all of 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.
Current
Mining Concessions - San José de Gracia
Claim
Name
|
Claim
Number
|
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: María 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 María 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. María 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
), MinerasDyna 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 MinerasDyna of $1,359,443 Pesos (approx. $104,250 USD), commencing in 2014. Additionally, under the description
of the 20 Year Land Lease, MinerasDyna expects to construct a Medical Facility at SJG in year 2014, and a Community Center in
year 2015.
The
Land Lease Agreement provides MinerasDyna with surface access to the core resource areas of SJG (4,399 hectares), and allows for
all permitted mining and exploration activities from the owners of the surface rights (Santa Maria Ejido community).
The
Company expects MinerasDyna 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 Cecena, 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
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 and grade of the “Indicated” and “Inferred” mineral resources
reported in the mineral resource estimate contained in this Form 10 Q are estimates only. There has been insufficient exploration
to define any mineral reserves on the property, and it is not certain if further exploration will result in discovery of mineral
reserves.
Sierra
Madre Gold-Silver Belt in México
San
Jose de Gracia History
Historical
production records from San Jose de Gracia (“SJG”) report 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 a 15 square kilometer area.
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. DynaMéxico focused on acquisition and consolidation work through 2003, and reported a virtually
clear title and consolidated ownership to the district.
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 (“grams
per ton”) gold.
Pilot
Production Activities (2003 – 2006)
DynaMéxico,
conducting activities through its operating sister companies MinerasDyna 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 tons, at
an average grade of approximately 15-20 g/t (“grams per ton”). 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 higher grade San Pablo area of the property commenced in March 2003.
Mined
and Milled Tonnage
|
42,000
tons
|
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 Production Activities (2006)
The
Company initiated the test production activity in 2003 and, at that time, gold prices were depressed. Exploration funding opportunities,
while available, were deemed to be too dilutive by Company management. Therefore, the Company suspended mining activities in 2006.
While the test production was considered successful (see results in the table above), a small scale production activity was not
expected to provide the necessary capital in order to explore a project the size of SJG.
The
earlier, limited-scope pilot production activity provided significant benefits in terms of confirming production grades, metallurgy
and process, efficiency of recoveries, and production costs – all of which is valuable for larger scale production plans.
Earn
In / Option Agreement – Financing of Drilling – Exploration Programs (2006 – 2011)
As
gold prices continued to increase into 2006, exploration financing opportunities improved and the Company negotiated and entered
into an Earn In / Option Agreement with Goldgroup Mining Inc. (“Goldgroup”), dated September 1, 2006. The terms of
the Earn In / Option Agreement provided for Goldgroup to furnish $18,000,000
financing to DynaMéxico
for exploration expenditures at SJG, in exchange for a 50% share interest in DynaMéxico. This Earn In was completed in
March 2011 and Goldgroup held 50% of outstanding capital 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 Capital of
DynaMéxico.
Drilling
programs (2007 – 2011)
Drilling
programs completed by the Company 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
Cecena, Los Hilos, and Tepehauje;
Palos
Chinos;
La
Prieta;
La
Purisima; Down dip at Southeast end;
Argillic
Zone; + 250 M. Down Dip;
Mineral
Resource Estimate and Technical Report 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 2012 DynaMéxico-CAM
SJG Mineral Resource Estimate 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. (“Goldgroup”) 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 the Argillic Zone (3 holes).
The
data base also includes rock and chip sampling and regional stream sediment sampling, as well as 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. (“MinerasDyna”).
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. Mineral
Resources at Tres Amigos and San Pablo were classified as “Indicated” as follows:
|
1)
|
they
were within a vein within the swarm which contained at least 7 drill holes;
|
|
2)
|
they
are within 25 m of the nearest sample point; and,
|
|
3)
|
the
block was estimated by at least three drill holes.
|
All
other Mineral Resources were classified as “Inferred”. Since there are no precise quantitative definitions of Measured,
Indicated and Inferred, resource classification is subjective and depends on the experience and judgment of the Qualified Person
(“QP”) calculating the resource estimate. Mr. Sandefur, QP, allowed indicated material at Tres Amigos and San
Pablo because of (1) the similarity of the variograms, and (2) the fact of recent production by DynaMéxico from San Pablo
of some 42,000 tonnes mill feed at an average grade of approximately 15 g/t (“grams per tonne”). Three of the
individual veins at La Purisima satisfied criterion (1) above, but CAM elected not to include this material in “Indicated”
because of the higher nugget effect at La Purisima, and because there was apparently historic underground mining there. This Mineral
Resource Estimate for SJG does not include any ore loss or dilution outside wireframes, and as currently defined, is probably
most appropriate for a highly selective, small equipment underground operation.
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.
National
Instrument 43-101 (“NI 43-101”) Mineral Resource Estimate for the San Jose de Gracia Property (2012)
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 (the “2012 DynaMéxico-CAM SJG Mineral Resource Estimate”, the “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
include
Indicated
Resources
at
Tres
Amigos
of
893,000
tonnes
with
an
average
grade
of
4.46
g/t
(
128,000
Oz.
Au),
and
at
San
Pablo
of 1,308,000
tonnes
with
an
average
grade
of
6.52
g/t
(274,000
Oz.
Au).
The
estimate
also
includes
an Inferred
Resource
of
3,953,000
tonnes
in
aggregate
for
the
four
vein
systems,
with
an
average
grade
of
5.83
g/t
(741,000
Oz.
Au).
The
resource
estimate
is
reported
using
a 2.0
g/t
cut
off
grade,
with
the
effective
date
of
February
6, 2012
.
The
following
tables
are
summaries
of
the
2012
DynaMéxico-CAM
Mineral
Resource
Estimate
of
the
four
main
vein
systems
and
also
a
table
summary
disclosing
the
aggregate
of
the
mineral
resources
of
those
four
vein
systems.
Mineral
Resource
and
Classification
for
San
Jose
de
Gracia
Project
TRES
AMIGOS
INDICATED
|
Au
Cut
Off
(g/t)
|
Tonnes
|
Au
g/t
|
Au
Oz
|
Ag
g/t
|
Ag
Oz
|
Cu%
|
CuKg
|
Pb%
|
PbKg
|
Zn%
|
ZnKg
|
1.00
|
1,128,000
|
3.85
|
139,000
|
9.18
|
333,000
|
0.19
|
2,137,000
|
0.05
|
570,000
|
0.33
|
3,774,000
|
2.00
|
893,000
|
4.46
|
128,000
|
10.34
|
297,000
|
0.21
|
1,875,000
|
0.06
|
499,000
|
0.37
|
3,276,000
|
3.00
|
608,000
|
5.37
|
105,000
|
11.31
|
221,000
|
0.22
|
1,338,000
|
0.06
|
374,000
|
0.39
|
2,349,000
|
TRES
AMIGOS
INFERRED
|
1.00
|
1,937,000
|
4.91
|
306,000
|
9.46
|
589,000
|
0.21
|
4,028,000
|
0.05
|
981,000
|
0.34
|
6,600,000
|
2.00
|
1,453,000
|
6.05
|
282,000
|
11.01
|
514,000
|
0.23
|
3,390,000
|
0.06
|
802,000
|
0.38
|
5,460,000
|
3.00
|
950,000
|
7.93
|
242,000
|
11.47
|
350,000
|
0.20
|
1,935,000
|
0.07
|
620,000
|
0.43
|
4,107,000
|
SAN
PABLO
INDICATED
|
Au
Cut
Off
(g/t)
|
Tonnes
|
Au
g/t
|
Au
Oz
|
Ag
g/t
|
Ag
Oz
|
Cu%
|
CuKg
|
Pb%
|
PbKg
|
Zn%
|
ZnKg
|
1.00
|
1,482,000
|
5.94
|
283,000
|
11.92
|
568,000
|
0.26
|
3,839,000
|
0.01
|
158,000
|
0.03
|
500,000
|
2.00
|
1,308,000
|
6.52
|
274,000
|
12.72
|
535,000
|
0.28
|
3,607,000
|
0.01
|
147,000
|
0.04
|
458,000
|
3.00
|
1,091,000
|
7.32
|
257,000
|
13.69
|
480,000
|
0.30
|
3,241,000
|
0.01
|
132,000
|
0.04
|
405,000
|
SAN
PABLO
INFERRED
|
1.00
|
756,000
|
4.65
|
113,000
|
9.25
|
225,000
|
0.17
|
1,273,000
|
0.01
|
74,000
|
0.03
|
227,000
|
2.00
|
532,000
|
6.02
|
103,000
|
11.33
|
194,000
|
0.20
|
1,074,000
|
0.01
|
51,000
|
0.03
|
161,000
|
3.00
|
426,000
|
6.92
|
95,000
|
11.89
|
163,000
|
0.22
|
935,000
|
0.01
|
40,000
|
0.03
|
131,000
|
|
LA
UNION
INFERRED
|
|
Au
Cut
Off
(g/t)
|
Tonnes
|
Au
g/t
|
Au
Oz
|
Ag
g/t
|
Ag
Oz
|
Cu%
|
CuKg
|
Pb%
|
PbKg
|
Zn%
|
ZnKg
|
1.00
|
1,221,000
|
4.72
|
185,000
|
12.81
|
503,000
|
0.15
|
1,856,000
|
0.02
|
250,000
|
0.04
|
532,000
|
2.00
|
849,000
|
6.11
|
167,000
|
13.71
|
374,000
|
0.19
|
1,579,000
|
0.03
|
221,000
|
0.05
|
448,000
|
3.00
|
580,000
|
7.79
|
145,000
|
16.51
|
308,000
|
0.23
|
1,340,000
|
0.03
|
196,000
|
0.07
|
403,000
|
LA
PURISIMA
INFERRED
|
Au
Cut
Off
(g/t)
|
Tonnes
|
Au
g/t
|
Au
OZ
|
Ag
g/t
|
Ag
OZ
|
Cu%
|
CuKg
|
Pb%
|
PbKg
|
Zn%
|
ZnKg
|
1.00
|
1,767,000
|
3.83
|
217,000
|
4.64
|
264,000
|
0.08
|
1,454,000
|
0.02
|
293,000
|
0.06
|
1,097,000
|
2.00
|
1,119,000
|
5.25
|
189,000
|
5.63
|
203,000
|
0.10
|
1,150,000
|
0.02
|
209,000
|
0.06
|
707,000
|
3.00
|
801,000
|
6.34
|
163,000
|
5.85
|
151,000
|
0.11
|
916,000
|
0.02
|
164,000
|
0.07
|
585,000
|
SAN
JOSE DE
GRACIA
TOTAL
INDICATED
|
Au
Cut
Off
(g/t)
|
Tonnes
|
Au
g/t
|
Au
OZ
|
Ag
g/t
|
Ag
OZ
|
Cu
%
|
CuKg
|
Pb
%
|
PbKg
|
Zn
%
|
ZnKg
|
1.00
|
2,610,000
|
5.03
|
422,000
|
10.73
|
901,000
|
0.23
|
5,976,000
|
0.03
|
728,000
|
0.16
|
4,273,000
|
2.00
|
2,200,000
|
5.69
|
402,000
|
11.75
|
831,000
|
0.25
|
5,482,000
|
0.03
|
646,000
|
0.17
|
3,733,000
|
3.00
|
1,699,000
|
6.62
|
362,000
|
12.84
|
701,000
|
0.27
|
4,579,000
|
0.03
|
506,000
|
0.16
|
2,754,000
|
SAN
JOSE DE
GRACIA
TOTAL
INFERRED
|
1.00
|
5,681,000
|
4.50
|
822,000
|
8.66
|
1,581,000
|
0.15
|
8,611,000
|
0.03
|
1,599,000
|
0.15
|
8,456,000
|
2.00
|
3,953,000
|
5.83
|
741,000
|
10.11
|
1,285,000
|
0.18
|
7,193,000
|
0.03
|
1,283,000
|
0.17
|
6,776,000
|
3.00
|
2,757,000
|
7.28
|
646,000
|
10.97
|
972,000
|
0.19
|
5,126,000
|
0.04
|
1,021,000
|
0.19
|
5,227,000
|
(Due
to
rounding
the
numbers
in
the
above may
not
check exactly.
This
is
an
estimate
of
in
situ
resources
only
and
there
is
no
assurance
that any
part of
these
resources
can
be
converted
to
reserves. Grades
are
given
to
2
decimals
and
contained metal
to
the
nearest
000
for
comparative
purposes and
do
not
imply
this
degree
of
accuracy.)
All
references
to
ounces
in the
2012
DynaMéxico-CAM
Mineral
Resource
Estimate
are
references
to troy
ounces.
Tonnes,
contained
ounces,
and
contained
kilograms
of
metals
are
given
to
the
nearest
thousand,
and
grades
are
reported
to
two
decimals
for
comparative
purposes
only
and
do not
imply
this
degree
of
accuracy.
National
Instrument 43-101 Technical Report on the San Jose de Gracia Property (2012)
The
Company received from DynaMéxico on March 28, 2012, a National Instrument 43-101 (“NI 43-101”) compliant Technical
Report for the San Jose de Gracia Project (the “2012 DynaMéxico Luna-CAM SJG Technical Report”, the “Technical
Report”), and approved by DynaResource de México, S.A. de C.V. (“DynaMéxico”), the 100% owner
of SJG.
The
2012 DynaMéxico Luna-CAM SJG Technical Report was prepared by Mr. Ramon Luna Espinoza, BS, P.Geo., of
Servicios
y Proyectos Mineros, Hermosillo, México, and
a Qualified Person as defined under NI 43-101; and by Mr. Robert Sandefur,
BS, MSc, P.E., a senior reserve analyst for Chlumsky, Armbrust & Meyer LLC, Lakewood, CO., and a Qualified Person as defined
under NI 43-101. The 2012 DynaMéxico Luna-CAM SJG Technical Report includes as Section Fourteen (14) a Mineral Resource
Estimate for SJG as prepared by Mr. Sandefur (the “2012 DynaMéxico-CAM SJG 43-101 Mineral Resource Estimate”,
the “Resource Estimate”).
The
Company filed the Technical Report on SEDAR (www.sedar.com) on March 28, 2012.
Updated
National Instrument 43-101 Technical Report for San Jose de Gracia
The
Company received from DynaMéxico on December 31, 2012, an updated NI 43-101 compliant Technical Report for the San Jose
de Gracia Project (the “Updated 2012 DynaMéxico Luna-CAM SJG Technical Report”). The updated Technical Report
was approved by DynaMéxico, and filed by the Company on SEDAR on December 31, 2012.
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
Selected drill hole results for San Pablo follow:
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
La
Union
Selected
drill hole results for La Union follow:
Drill
hole
|
Area
|
From
m
|
To
m
|
length
(m)
|
Au
g/t
|
Ag
g/t
|
Cu%
|
Pb%
|
Zn%
|
08-076
|
La
Union
|
32.75
|
34.85
|
2.10
|
36.09
|
47.80
|
0.43
|
0.80
|
1.06
|
10-208
|
La
Union
|
150.61
|
152.67
|
2.06
|
6.60
|
10.30
|
0.40
|
0.00
|
0.01
|
11-252
|
La
Union
|
55.25
|
59.70
|
4.45
|
4.26
|
12.05
|
0.37
|
0.01
|
0.04
|
11-256
|
La
Union
|
51.61
|
52.85
|
1.24
|
144.08
|
138.60
|
1.06
|
1.61
|
1.78
|
11-256
|
La
Union
|
99.93
|
101.29
|
1.36
|
9.04
|
3.30
|
0.01
|
0.00
|
0.01
|
11-298
|
La
Union
|
49.15
|
49.85
|
0.7
|
49.39
|
20.80
|
0.20
|
0.01
|
0.03
|
|
La
Purisima
Selected
drill hole results for La Purisima follow:
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.
Commissioning
of Metallurgical Testing (2012)
During
the fourth quarter 2012, DynaMéxico, through MinerasDyna, engaged Kappes, Cassiday & Associates, Reno, NV. (“KCA”),
for the purpose of designing a metallurgical test program to confirm possible heap leach recoveries of specific mineralized areas
of San Jose de Gracia. This work is pending until the company deems it necessary to continue.
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
–
2014)
|
•
|
On
February 10, 2003, SEDENA granted DynaMéxico an Explosives Permit for the 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 Purísima
,
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 Purísima, 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
September 30, 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, MinerasDyna 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 MinerasDyna of $1,359,443 Pesos (approx.
$104,250 USD), commencing in 2014. Additionally, under the description of the Land Lease
Agreement, MinerasDyna expects to construct a Medical Facility at SJG in year 2014, and
a Community Center in year 2015.
The land lease agreement provides MinerasDyna
with surface access to the core resource areas of SJG (4,399 hectares), and allows for
all permitted mining 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.
San
Jose de Gracia Current Operations
Rehabilitation
and Start-up of Pilot Mill Facility at San Jose de Gracia
Under
the terms of the Exploitation Amendment Agreement (“EAA”), as described above, MinerasDyna has rehabilitated the pilot
mill facility at SJG. The SJG pilot mill facility (a gravimetric-flotation circuit) is now processing bulk samples mined from
selected target areas of SJG. Operations at SJG are managed by MinerasDyna, and are projected to be similar to those conducted
by DynaMéxico during the 2003-2006 Period.
***
General
Activity
for the Three and Six Months Ended June 30, 2014 and 2013
In
the current quarter, MinerasDyna commenced pilot production operations at San Jose de Gracia. The operation has yielded the mining
of approx. 2,500 tons of material, 535 oz. of gold concentrate, and the sale of $586,846 gold product. For the first 3 months
of the year, MinerasDyna was rehabilitating the San Pablo Mine and refurbishing the Pilot Mill Facility and generally preparing
to commence pilot production operations.
In
2013, MinerasDyna, in accordance with the terms of the Exploitation Amendment Agreement, commenced the rehabilitation of the San
Pablo Mine and the refurbishment of the pilot production facility at SJG. DynaMéxico received permits as discussed above
for the rehabilitation and operation of the pilot mill facility and the exploitation and mining of the San Pablo area of SJG.
The basis for the mining activity and the operation of the pilot mill facility are the NI 43-101 Mineral Resource Estimate, the
Technical Report, the block models prepared as a result of the recent drilling activity, and the recent production history of
2003-2006.
Structure
of Company / Operations
Activities
in México are conducted by Mineras de DynaResource S.A. de C.V. (“MinerasDyna”); with the management
of personnel being contracted by MinerasDyna through to the personnel management subsidiary, DynaResource Operaciones, S.A.
de C.V. (“DynaOperaciones”). Management of DynaResource, Inc. and consultants continue to manage the operating
companies in México; while the Chairman/CEO of DynaUSA is the President of each of the operating companies in Mexico.
Fees for Management and administration are charged by MinerasDyna and DynaOperaciones, which are eliminated
in consolidation.
Competitive
Advantage
The
Company, through its subsidiaries, has been conducting business in México since March 2000. During this period the Company
believes it has structured its subsidiaries properly and strategically, and during which time the Company has retained key personnel
and developed key relationships and support. The Company believes its experience and accomplishments and relationships in México
give it a competitive advantage, even though many competitors may be larger and have more capital resources.
Competition
DynaMéxico
retains 100% of the rights to concessions over the area of the San José de Gracia property and it currently sees no competition
for mining on the lands covered by those concessions. The sale of gold and any bi-products would be subject to global market prices,
which prices fluctuate daily. DynaMéxico was successful in selling gold concentrates produced from SJG in prior years,
and the Company expects a competitive market for produced concentrates and/or other mineral products in the future. Actual prices
received by MinerasDyna in the sale of concentrates or other products produced from San Jose de Gracia would depend upon these
global market prices, less deductions.
DynaMéxico
conducted mining and milling operations at SJG from March 2003 through June, 2006. This activity was suspended in order to focus
on the exploration of the vast SJG District. The Company’s operating subsidiaries, MinerasDyna and DynaOperaciones, receive
monthly fees for management of the SJG activities and personnel. These fee amounts are eliminated in consolidation. Other than
those intercompany fees, the Company reported no revenue in 2013 and 2012. The Company has reported revenues from mining and production
activities in 2014.
Capital
Requirements
The
mining industry in general requires significant capital in order to take a property from the exploration, to development to production.
These costs remain a significant barrier to entry for the average company but once in production, there is a ready market for
the final products, In the case of SJG, the final product would be mainly gold, the price of which is determined by global markets,
so there is not a dependence on a customer base.
Gold
Gold
Uses.
Gold generally is used for fabrication or investment. Fabricated gold has a variety of end uses,
including jewelry, electronics, dentistry, industrial and decorative uses, medals, medallions and official coins. Gold investors
buy gold bullion, official coins and jewelry.
Gold
Supply.
A combination of current mine production, recycling and draw-down of existing gold stocks held
by governments, financial institutions, industrial organizations and private individuals make up the annual gold supply. Based
on public information available for the years 2008 through 2014, on average, current mine production has accounted for approximately
64% of the annual gold supply.
Gold
Price.
The following table presents the annual high, low and average daily afternoon fixing prices
for gold over the past ten years on the London Bullion Market ($/ounce):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
High
|
|
|
Low
|
|
|
Average
|
|
2002
|
|
$
|
349
|
|
|
$
|
278
|
|
|
$
|
310
|
|
2003
|
|
$
|
416
|
|
|
$
|
320
|
|
|
$
|
363
|
|
2004
|
|
$
|
454
|
|
|
$
|
375
|
|
|
$
|
410
|
|
2005
|
|
$
|
536
|
|
|
$
|
411
|
|
|
$
|
444
|
|
2006
|
|
$
|
725
|
|
|
$
|
525
|
|
|
$
|
604
|
|
2007
|
|
$
|
841
|
|
|
$
|
608
|
|
|
$
|
695
|
|
2008
|
|
$
|
1,011
|
|
|
$
|
713
|
|
|
$
|
872
|
|
2009
|
|
$
|
1,213
|
|
|
$
|
810
|
|
|
$
|
972
|
|
2010
|
|
$
|
1,421
|
|
|
$
|
1,058
|
|
|
$
|
1,225
|
|
2011
|
|
$
|
1,895
|
|
|
$
|
1,319
|
|
|
$
|
1,572
|
|
2012
|
|
$
|
1,792
|
|
|
$
|
1,540
|
|
|
$
|
1,669
|
|
2013
|
|
$
|
1,694
|
|
|
$
|
1,192
|
|
|
$
|
1,411
|
|
2014
(through August 5, 2014)
|
|
$
|
1,385
|
|
|
$
|
1,221
|
|
|
$
|
1,305
|
|
Source:
Kitco, Reuters and the London Bullion Market Association
On
August 5, 2014, the afternoon fixing gold price on the London Bullion Market was $1,284 per ounce and the spot market gold price
on the New York Commodity Exchange was $1,289 per ounce.
Condition
of Physical Assets and Insurance
Our
business is capital intensive and requires ongoing capital investment for the replacement, modernization or expansion of equipment
and facilities. We, and our subsidiaries, maintain insurance policies against property loss. Such insurance, however, contains
exclusions and limitations on coverage, particularly with respect to environmental liability and political risk. There can be
no assurance that claims would be paid under such insurance policies in connection with a particular event.
Environmental
Matters
Our
activities are largely outside the United States and subject to governmental regulations for the protection of the environment.
We conduct our operations so as to protect public health and the environment and believe our operations are in compliance with
applicable laws and regulations in all material respects. DynaMéxico is involved with reclamation matters with the oversight
of SEMARNAT, the federal environmental agency of México.
Sampling
Process-Core Drill Holes
The
geological data reported from core drill holes contained in this report was verified by an appropriate quality control person
using industry standard quality controls and quality assurance protocols utilized in exploration activities. Standard reference
samples and various duplicates are inserted in each batch of assays. Drill core samples are cut by saw on site and samples splits
are prepared for shipment, sealed and then shipped for assaying. Samples were sent to a certified assayer (Inspectorate Exploration
& Mining Services Ltd., Vancouver, BC.) and analyzed for gold by fire assay and for silver and 34 other trace and major elements
in accordance with standard industry practices.
Drilling
Programs
In
the period September 2006 through December 31, 2011, funding from Goldgroup provided for DynaMéxico’s completing
approximately 68,741 meters drilling at San Jose de Gracia, resulting in a defined NI 43-101 Mineral Resource Estimate as described
in the 2012 DynaMéxico-CAM SJG Mineral Resource Estimate. The Company expects MinerasDyna to plan continued and subsequent
drilling programs at San Pablo, Tres Amigos, La Cecena, Palos Chinos, La Union, La Purisima, and La Prieta / Rosario / Rudolpho.
The Company expects further drilling programs to confirm extensions to mineralization in all directions and down dip from the
main target areas.
Mineralization
at San José de Gracia
The
Company was informed by DynaMéxico that it had outlined significant mineralization from drilling activity at San Pablo,
Tres Amigos, La Union, and La Purisima areas of SJG as described in the recent NI 43-101 2012 DynaMéxico-CAM SJG Mineral
Resource Estimate. Further drilling is expected to outline additional mineralization at these 4 major target areas at SJG, while
additional mineralization are also expected to be defined at La Prieta and the area Northeast of Tres Amigos. Other areas at SJG
indicate clear potential to develop additional mineralization.
RESULTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013
REVENUE.
Revenue for the three and six months ended June 30, 2014 and 2013 was $586,846 and $0, respectively. The Company has begun the
mining and processing of gold product in the current quarter. The Company expects significant revenues from conducting production
activities for the remainder of 2014.
PRODUCTION
COSTS RELATED TO SALES. Production costs related to sales were $105,993 and $0 for the three and six months ended June 30, 2014
and 2013, respectively. These are expenses directly related to the milling, packaging and shipping of gold and other precious
metals product.
MINE
OPERATING COSTS. Mine operating costs were $56,453 and $0 for the three and six months ended June 30, 2014 and 2013, respectively.
These costs are directly related to the extraction of mine tonnage to be processed at the mill.
PROPERTY
HOLDING COSTS. Property holding costs were $143,512 and 0 for the three months ended June 30, 2014 and 2013, respectively. For
the six months ended, the costs were $287,023 and $0, respectively. These costs are concessions taxes, leases on land and other
direct costs of maintaining the property. These costs were accounted for as Exploration Costs in 2013.
PRE-PILOT-PRODUCTION
EXPENSES. Pre Pilot-Production Expenses were $167,344 and $0 for the three months ended June 30, 2014 and 2013, respectively and
$844,179 and $0 for the six months ended June 30, 2014 and 2013, respectively. The increase in expenses was due to the Company
commencing mining and milling operations in 2014. These expenses include refurbishment, facilitation of and cleaning of the mill
and mine operations. The Company was still in development stage in 2013.
EXPLORATION
EXPENSES. Exploration expenses were $0 and $226,001 for the three and six months ended June 30, 2014 and 2013, respectively. The
decrease in costs was due to the Company starting up operations in 2014 and incurring Pre Pilot-Production Costs—see above.
OPERATING
EXPENSES. Operating expenses for the three months ended June 30, 2014 and 2013 were $1,176,226 and $279,474, respectively. Operating
expenses for the six months ended June 30, 2014 were $1,525,651 and 1,021,545, respectively. The increase in expenses is due to
issuance of share based compensation of $625,000 and a general increase in activity due to the start-up and production at the
project. The above expenses include depreciation and amortization amounts of $18,578 and $22,330 for the three months ended June
30, 2014 and 2013, respectively and $36,443 and $44,391 for the six months ended June 30, 2014 and 2013, respectively.
OTHER
INCOME (EXPENSE). Other income, exclusive of currency translation gain or (loss) was $(56,072) and $(46,229) for the three months
ended June 30, 2014 and 2013, respectively. Interest expense is the primary component in this category and increased due to the
additional notes transacted in 2014. For the six months ended June 30, 2014 and 2013, the amounts were $(98,303) and $(46,095),
respectively. Currency translation gain or (loss) was $3,572 and $(401,542) for the three months ended June 30, 2014 and 2013,
respectively. For the six months ended June 30, 2014 and 2013, the amounts were $6,974 and $(52,908), respectively.
NON-CONTROLLING
INTEREST. The non-controlling interest portion of the net loss for the three months ended June 30, 2014 and 2013 was $(146,846)
and $(190,139), respectively. For the six months ended June 30, 2014 and 2013, the amounts were $(286,055) and $(388,559), respectively.
The reduction for the three and six month periods is due primarily to the change in minority interest % from the prior year.
COMPREHENSIVE
(LOSS). Comprehensive loss includes the Company’s net loss plus the unrealized currency translation gain (loss) for the
period. For the three months ended June 30, 2014 and 2013, the Company recorded a loss of $(88,414) and $(28,853), respectively.
For the six months ended June 30, 2014 and 2013, the Company recorded a loss of $(10,270) and a loss of $(31,618), respectively.
Liquidity
and Capital Resources
As
of June 30, 2014, the Company maintained working capital of $698,057, comprised of current assets of $1,490,092 and current liabilities
of $792,035. This represents a decrease of $(260,105) from the working capital maintained by the Company of $958,162 as of December
31, 2013, due primarily to the continued funding of operations in the first six months and expenses related to the refurbishment
of the pilot mill facility and the rehabilitation of the San Pablo mine at San Jose de Gracia.
Net
cash used in operations for the six months ended June 30, 2014 increased to $(2,247,923) from $(1,548,221) in the six months ended
June 30, 2013. Again, this was due to the increased activity relating to the refurbishing of the pilot mill facility and the rehabilitation
of the San Pablo mine, and the preparation for processing bulked mine samples through the pilot mill facility. The pilot mill
facility is now operational and the Company is producing revenue from processing material mined from San Pablo Mine through the
pilot mill facility in 2014, in order to fund continuing operations.
Cash
used in investing activities was primarily for purchase of fixed assets of $23,744 and for the change in Investment in Affiliate
of $54,629 in the six months ended June 30, 2014.
Cash
provided by financing activities for the six months ended June 30, 2014 was $1,592,021 compared to $1,514,995 for the six
months ended June 30, 2013. The primary components for the current year are for issuance of preferred stock, series B for
cash of $1,101,000 and proceeds of notes of $250,000. Proceeds from financing were utilized to refurbish the pilot
mill facility and rehabilitate the San Pablo mine, and to prepare to process bulk mined samples through the mill
facility. In the prior year, the primary component was issuance of notes for cash of $1,545,000.
Note
Receivable – Affiliate
DynaResource
Nevada, Inc., a Nevada Corporation (“DynaNevada”), with one operating subsidiary in México, DynaNevada de México,
S.A. de C.V. (“DynaNevada de México”) have common officers, directors and shareholders. The total amount loaned
by the Company to DynaNevada at December 31, 2010 was $805,760. The terms of the Note Receivable provide for a “Convertible
Loan”, repayable at 5% interest over a 3 year period, and convertible at the Company’s option into Common Stock of
DynaNevada at $0.25 / Share. DynaNevada is a related entity, and through its subsidiary in México (DynaNevada
de México), (“DynaNevada de México”), has entered into an Option agreement with Grupo México
(“IMMSA”) in México, for the exploration and development of approximately 3,000 hectares in the State of San
Luis Potosi (“the Santa Gertrudis Property”). In March, 2010, DynaNevada de México completed the Option with
IMMSA so that it now owns 100% of Santa Gertrudis. In June, 2010, DynaNevada de México acquired an additional 6,000 Hectares
in the State of Sinaloa (“the San Juan Property”). The Company has loaned additional funds to DynaNevada since 2010
for maintenance of concessions and other nominal required fees and expenses.
Advances
to Subsidiaries
DynaResource
de México (“DynaMéxico”)
In
May 2013, the Company acquired additional equity interest in DynaMéxico in exchange for the retirement of accounts receivable
of $2,393,803, which amount was due from DynaMéxico at December 31, 2012. As a result, as of May 17, 2013, the Company
owned 80% of the outstanding equity of DynaMéxico. All intercompany balances eliminate in consolidation.
As
of June 30, 2014, MinerasDyna, the 100% owned subsidiary of DynaUSA, continues to carry an amount receivable from DynaMéxico
of $3,650,000, and MinerasDyna continues to make cash advances to DynaMéxico under the terms of the exploitation amendment
agreement (“EAA”), below.
As
of December 31, 2013, the Company has no receivable from DynaMéxico, however, the Company’s wholly owned subsidiary
MinerasDyna had an accounts receivable due from DynaMéxico in the amount of $2,800,000.
Mineras
de DynaResource (“MinerasDyna”)
As
of June 30, 2014, the Company had advanced $3,950,000 to MinerasDyna and MinerasDyna had advanced $3,650,000 to DynaMéxico.
The total amount of $3,650,000 is a receivable owed to MinerasDyna from DynaMéxico as of June 30, 2014.
As
of December 31, 2012 the Company agreed with DynaMéxico to accrue interest on the total amount receivable until repaid
or otherwise retired. The interest rate to be accrued is agreed to be simple annual interest at the rate quoted by the Bank of
México.
The
receivables from MinerasDyna and DynaMéxico have been eliminated upon consolidation.
Advances
from Goldgroup Mining Inc. (“Goldgroup”)
In
the current year, Goldgroup advanced $111,500. In 2013, Goldgroup advanced $120,000 USD to DynaMéxico. This $231,500 amount
is being carried as a Due to Non-controlling interest.
Future
Advances to MinerasDyna and DynaMéxico from the Company
The
Company expects to make additional advances to MinerasDyna and DynaMéxico. Future advances from MinerasDyna to DynaMéxico
will be made under the terms of the exploitation amendment agreement. Other advances are agreed to be accrued in the same manner
as previous receivables, until or unless otherwise agreed between DynaMéxico and the Company.
Plan
of Operation
The
Plan of operation for the next twelve months includes MinerasDyna continuing the ramping up of the pilot production operation
at SJG. The Company is required to fund its general and administrative expenses in the US. The Company’s operating subsidiaries,
MinerasDyna and DynaOperaciones, receive monthly fees for management of SJG activities and personnel. These amounts are eliminated
in consolidation. The Company believes that cash on hand is adequate to fund its ongoing general and administrative expenses through
2014. The Company plans to seek additional capital funding during the next 12 months depending on results of pilot production
activities, market conditions, and other circumstances.
Capital
Expenditures
The
Company’s primary activities relate to the exploitation of the SJG property through its 100% owned
operating subsidiary, MinerasDyna. MinerasDyna is conducting activities at SJG
under the terms of the Exploitation Amendment Agreement (the “EAA” or “operating agreement”) with
DynaMéxico. The Company plans to acquire necessary or optional equipment in the immediate future, in order to
facilitate the mining and milling operations and is budgeting $1,000,000 for these purposes.
Litigation
On
December 27, 2012, the Company, and DynaMéxico, filed an Original Petition and Application for Temporary Injunction
and Permanent Injunction in the 14
th
Judicial District Court of Dallas, Texas (the “Petition”) against
Defendants Goldgroup Mining Inc., Goldgroup Resources Inc., and certain individuals acting in concert with Goldgroup
(collectively “Goldgroup”). The Petition alleged, among other things, that Goldgroup has wrongfully used
property, confidential information and data belonging to DynaMéxico and consistently failed to disclose several
matters of material importance to the public.
The
Petition requested that Goldgroup be enjoined from: (a) using or disseminating any confidential information belonging to DynaMéxico,
(b) asserting that Goldgroup owns any interest in the San Jose de Gracia Project, rather than owning a common shares equity interest
in DynaMéxico, (c) improperly disclosing that Goldgroup is the operator of the San Jose de Gracia Project, rather than
Mineras de DynaResource SA de C.V. (“MinerasDyna”), and (d) failing to properly disclose that broad powers of attorney
for acting on behalf of DynaMéxico are held by a DynaUSA senior executive.
The
Petition further requested, among other things: (a) a temporary and permanent injunction; (b) declaratory relief; (c) disgorgement
of funds alleged to have been improperly raised as a consequence of Goldgroup’s wrongful actions; (d) cancellation of shares
of DynaMéxico stock held by Goldgroup; and, (d) actual and punitive damages.
At
the time of the filing, the Company believed the Petition to be necessary in order to protect its shareholder interests in DynaMéxico
and in order to protect the property, data, and assets of DynaMéxico.
Although
Goldgroup challenged the jurisdiction to the filed litigation in Texas, Goldgroup has acknowledged that it owns no direct interest
in the San Jose de Gracia Property, and it has acknowledged that Mineras de DynaResource SA de C.V. (“Mineras”), DynaUSA’s
100% owned subsidiary, is the exclusive operator of the San Jose de Gracia Project. Additionally, recent developments in
México in 2013, including: (1) the signing of the Exploitation Amendment Agreement (“EAA”) between Mineras
and DynaMéxico; (2) the signing of a 20 year land lease agreement between Mineras and the Santa Maria Ejido Community surrounding
the San Jose de Gracia Project; and (3) the acquisition by DynaUSA of a majority interest in DynaMéxico; protect against
Goldgroup’s wrongfully obtaining and/or disseminating confidential data and information of DynaMéxico. These
recent developments in México provided that the DynaResource Parties non-suited the Texas action as announced by the Company
on March 14, 2014, without prejudice to asserting or consolidating claims in México, as well as to contemplate additional
claims or regulatory actions against Goldgroup in Canada.
Goldgroup
Arbitration Filing
On
March 14, 2014, Goldgroup filed for arbitration, citing the Earn In Agreement dated September 1, 2006. The Company filed an answer
on April 10, 2104 disputing that any issues exist which provide for arbitration.
Company
Filing in US District Court – District of Colorado
On
May 30, 2014, the Company and DynaMéxico filed a “Verified Complaint for Declaratory and Injunctive Relief” against
Goldgroup in United States District Court, Denver Colorado. Within the verified complaint, the Company and DynaMéxico seek an
order and judgment staying and enjoining Goldgroup, temporarily and permanently, from maintaining the arbitration it has commenced
and generally petitioning against the arbitration proceedings. The Company and DynaMéxico believe that there exists no valid agreement
between the parties which provides for arbitration.
Litigation
in México – Company is 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-Q.
Litigation
– Company and/or Officers and Directors as Defendants
Other
than the Arbitration claim of Goldgroup described above, the Company, nor its Officers and Directors have received any formal
notice of any legal actions filed against them, nor is the Company or its Officers and Directors aware of any legal actions filed
against them.