As filed
with the Securities and Exchange Commission on January 21,
2010
Registration
No. 333-129321
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
______________________________
FORM
S-1/A
Post-
Effective Amendment No. 6
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GOLD
RESOURCE CORPORATION
(Exact name of Registrant as specified in its charter)
______________________________
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Colorado
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1041
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84-1473173
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(State
or other jurisdiction of
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(Primary
Standard Industrial
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(I.R.S.
Employer
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incorporation
or organization)
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Classification
Code Number)
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Identification
No.)
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222
Milwaukee Street, Suite 301, Denver, Colorado 80206
(303)
320-7708
(Address
and telephone number of principal executive offices)
222
Milwaukee Street, Suite 301, Denver, Colorado 80206
(Address
of principal place of business or intended place of business)
William
W. Reid, President
Gold
Resource Corporation
222
Milwaukee Street, Denver, Colorado 80206
(303)
320-7708
(Name,
address and telephone number of agent for service)
With
a copy to:
David
J. Babiarz, Esq.
Jessica
M. Browne, Esq.
Dufford
& Brown, P.C.
1700
Broadway, Suite 2100
Denver,
Colorado 80290-2101
(303)
861-8013
Approximate
date of commencement of proposed sale to public: As soon as practical after the
effective date of this Registration Statement.
If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated
filer o Accelerated
filer x
Non-accelerated
filer o Smaller
reporting company o
The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
EXPLANATORY
NOTE
The
registrant hereby files this sisth post-effective amendment to its registration
statement on Form SB-2 (File No. 333-129321) as originally filed with the
Securities and Exchange Commission on October 28, 2005. The amendment is filed
to include information required by Section 10(a)(3) of the Securities Act of
1933, as amended (the “Securities Act”).
The
registrant previously paid a registration fee of $1,929.19 in connection with
the filing of the initial registration statement.
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The
information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state
where the offer or sale is not
permitted.
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SUBJECT
TO COMPLETION, DATED JANUARY 21, 2010
PROSPECTUS
GOLD
RESOURCE CORPORATION
___________________
7,293,407
Shares
of
Common Stock
Offered
by
Selling
Shareholders
Certain
of our shareholders identified in the section of this prospectus titled “SELLING SHAREHOLDERS” may
offer and sell from time to time up to 7,293,407 shares of our common stock
owned by those shareholders, their transferees, pledges, donees or successors in
interest. The shares may be offered at prices prevailing in the market or at
privately negotiated prices. We will not receive the proceeds from the sale of
those shares. The selling shareholders may sell these securities to or through
one or more underwriters, broker-dealers or agents, or directly to purchasers on
a continuous or delayed basis. The names of any underwriters or agents will be
included in a post-effective amendment to the registration statement of which
this prospectus is a part, as required. See “PLAN OF DISTRIBUTION” on page
50 for additional information.
Our
common stock currently trades over the counter and is quoted on the OTC Bulletin
Board (“OTCBB”) under the symbol “GORO.” On January 20,
2010 closing price of our common stock was $10.92.
___________________
Investing
in our common stock involves risks that are described in the "RISK FACTORS"
section beginning on page 4 of this prospectus.
__________________
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of our common stock or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
The
date of this prospectus is _____________, 2010
TABLE OF CONTENTS
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Page
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Additional
Information
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This
prospectus contains descriptions of certain contracts, agreements or other
documents affecting our business. These descriptions are not necessarily
complete. For the complete text of these documents, you can refer to the
exhibits filed with the registration statement of which this prospectus is a
part. (See “WHERE YOU CAN FIND MORE
INFORMATION”).
You
should rely only on the information contained in this prospectus, or to which we
have referred you. We have not authorized anyone to provide you with information
other than as contained or referred to in this prospectus. This document may
only be used where it is legal to sell these securities. The information in this
document may only be accurate as of the date of this document.
Special
Note Regarding Forward-Looking Statements
Please
see the note under “RISK
FACTORS” for
a description of special factors potentially affecting forward-looking
statements included in this prospectus
SUMMARY
The
following summary highlights information contained elsewhere in this prospectus.
It does not contain all of the information you should consider before investing
in our stock. You should read the entire prospectus carefully,
including the sections entitled “RISK FACTORS” and “FINANCIAL
STATEMENTS.”
As used
in this prospectus, unless the context requires otherwise, the terms “Gold
Resource,” “we,” “our” or “us” refer to Gold Resource Corporation and where the
context requires, our consolidated subsidiaries.
Our
Company
We are an
exploration stage company organized in Colorado on August 24, 1998 to search for
gold and silver. We currently have an interest in five properties
located in the southern state of Oaxaca, Mexico. Our five properties
are called the El
Aguila property, the Las Margaritas property, the
El Rey property, the
Solaga property and the
Alta Gracia
property. Our exploration efforts and development activities
to date are primarily focused on the El Aguila property and El Rey
property. We have yet to commence exploration activity on the Las Margaritas property, the
Solaga property or the
Alta Gracia
property.
We leased
an interest in several mineral claims in 2002. We hold a 100%
interest in these claims which total approximately 1,896 hectares (4,685
acres)1 and which comprise the El Aguila property and Las Margaritas
property. In response to what we perceive to be promising drilling
results at the El
Aguila property, we moved forward with our plans to develop this property
for mineral production, which we now refer to as the “El Aguila
Project.” We are nearing completion of the mill facility and other
infrastructure required to commence production, including an access road and
tailings impoundment facility. To date, we have committed or spent
approximately $27,000,000 on construction of a mill and an additional $6,000,000
on infrastructure. We anticipate that the facility we are building
will process 850 tonnes of ore per day through a flotation circuit and 150
tonnes of ore per day through an agitated leach circuit. We began
commissioning the mill in December 2009 and estimate production of concentrate
in early 2010, but we cannot predict the exact date since the progress depends
on the performance of multiple contractors.
We expect
that mining in the first year of production will take place at the El Aguila near-surface
mineralization open pit mine and have commenced pre-stripping of the open pit
mine area. Mining in the second year is anticipated to come from
another area of mineralized material we refer to as the La Arista vein, and will
require development of an underground mine.
Through
September 30, 2009, we have drilled approximately 379 holes totaling 57,233
meters (187,723 feet) at the El Aguila
property. We are continuing our exploration efforts on this property,
in addition to expanding our exploration efforts at the El Rey
property. To date, we have drilled 48 holes totaling 5,293 meters
(17,361 feet) at El
Rey.
1
Please see the Glossary appearing at the end of the section titled “BUSINESS AND PROPERTIES” for a
description of certain terms used in this prospectus, including conversion of
metric units.
1
Our operations in Mexico are conducted through our wholly-owned Mexican
subsidiaries, Don David Gold, S.A. de C.V., Golden Trump S. A. de C.V. and
Oaxaca Servicios Mineros, S.A. de C.V. All references to us or our
company in this prospectus include our subsidiaries.
Our
principal executive offices are located at 222 Milwaukee Street, Suite 301,
Denver, Colorado 80206, and our telephone number is (303)
320-7708. We maintain a website at www.goldresourcecorp.com and
through a link on our website you can view the periodic filings that we make
with the SEC. The information contained on our website is not a part
of this prospectus.
Recent
Events
Strategic
Alliance. In December 2008, we entered into a strategic
alliance agreement with Hochschild Mining Holdings Limited (“Hochschild”), a
Peruvian based precious metals producer operating primarily in the
Americas. Pursuant to the terms of the strategic alliance agreement,
we sold Hochschild 1,670,000 shares of our common stock for gross proceeds of
$5,010,000 in a private placement. We also granted Hochschild an
80-day option to purchase 4,330,000 additional shares of our common stock for
gross proceeds of $12,990,000, which was exercised on February 25,
2009. We also agreed, among other things, to offer Hochschild a right
of first refusal to participate in future equity financings solicited by us
prior to commencement of commercial production.
In June
and December 2009, pursuant to its right of first refusal, Hochschild subscribed
to purchase a total of 6,954,795 additional shares of our common stock for gross
proceeds of $36,000,000. We have used the proceeds of the June
financing to continue developing the El Aguila Project and for working
capital, and expect to use a portion of the December financing in a similar
fashion. In addition, $8,000,000 of the proceeds of the financings
have been reserved to develop the decline ramp and related infrastructure
necessary to develop the La
Arista vein on our El
Aguila Project and $4,000,000 of the proceeds have been reserved to be
used solely for additional exploration. See “BUSINESS AND PROPERTIES – Recent
Developments” for additional information.
Permitting. In
August 2009, we received the final federal permit from the Mexican government
necessary to commence mining activity at the El Aguila
Project. We expect to begin commercial mineral production in
2010. In December 2009, we received the permit to commence
development of the La Arista
vein at the Project.
The
Offering
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Common
Stock outstanding before the Offering
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48,050,284
shares(1)(2)(3)
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Common
Stock outstanding after the Offering
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48,050,284
shares(1)(2)(3)
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Common
Stock offered by the Selling Shareholders
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7,293,407
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Use
of Proceeds
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We
will not receive any proceeds from the sale of common stock by the selling
shareholders
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Stock
Symbol
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“GORO”
on the OTCBB
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___________________________________________________
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(1)
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Adjusted
to reflect a two for one stock split effective February 21,
2005. All references in this prospectus have been adjusted to
reflect the results of that split.
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(2)
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Excludes
3,500,000 shares of common stock underlying options which are presently
exercisable.
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(3)
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Includes
shares to be offered by the selling
shareholders.
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2
Risk
Factors
An investment in our common stock is
subject to a number of risks. Risk factors relating to our company
include a history of operating losses, lack of proven or probable reserves,
location of our properties in a foreign country and dependence on key
personnel. Risk factors relating to our common stock include our
limited trading market, lack of dividends and volatility of our stock
price. See
“RISK FACTORS” for a
full discussion of these and other risks.
Summary
Financial Data
The
following tables present certain selected historical consolidated financial data
about our company. Historical consolidated financial information as
of and for the years ended December 31, 2008 and 2007 has been derived from our
consolidated financial statements, which have been audited by Stark Winter
Schenkein & Co., LLP, our independent registered public accounting
firm. The financial information for the nine months ended September
30, 2009 and 2008 is unaudited. All amounts included in these tables
and elsewhere in this prospectus are stated in United States
dollars. You should read the data set forth below in conjunction with
the section entitled “MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” our financial
statements and related notes included elsewhere in this prospectus.
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Balance Sheet Data
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|||||||||||||
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September 30,
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December 31,
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December 31,
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|||||||||||
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2009
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2008
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2007
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(unaudited)
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Cash
and Cash Equivalents
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$ | 7,230,370 | $ | 3,534,578 | $ | 22,007,216 | |||||||
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Total
Assets
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12,712,964 | 4,781,018 | 22,557,576 | ||||||||||
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Current
Liabilities
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589,747 | 1,753,285 | 768,452 | ||||||||||
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Total
Liabilities
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589,747 | 1,753,285 | 768,452 | ||||||||||
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Shareholders’
Equity
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12,123,217 | 3,027,733 | 21,789,124 | ||||||||||
| Operating Data | ||||||||||||||||||||||
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Nine
months ended
September
30,
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Year ended
December 31,
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|||||||||||||||||||||
| 2009 |
2008
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2008 | 2007 |
2006
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Other
Income
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$ | 25,140 | $ | 319,433 | $ | 333,609 | $ | 242,513 | $ | 57,089 | ||||||||||||
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Property
Exploration and Evaluation
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3,871,821 | 5,214,597 | 8,171,396 | 5,711,190 | 528,851 | |||||||||||||||||
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Engineering
and Construction
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18,889,528 | 6,026,827 | 14,501,461 | -- | -- | |||||||||||||||||
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General
and Administrative Expenses
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4,215,011 | 3,102,826 | 3,552,007 | 2,539,604 | 2,096,961 | |||||||||||||||||
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Total
costs and expenses
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27,089,222 | 14,440,119 | 26,348,812 | 8,318,855 | 2,743,851 | |||||||||||||||||
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Net
Comprehensive (Loss)
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(26,648,547 | ) | (14,233,982 | ) | (25,951,667 | ) | (8,166,281 | ) | (2,667,218 | ) | ||||||||||||
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Net
(Loss) per Share
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$ | (0.65 | ) | $ | (0.41 | ) | $ | (0.76 | ) | $ | (0.28 | ) | $ | (0.13 | ) | |||||||
3
RISK FACTORS
Investment
in our common stock involves a high degree of risk and could result in a loss of
your entire investment. Prior to making an investment decision, you
should carefully consider all of the information in this prospectus and, in
particular, you should evaluate the risk factors set forth
below. Additional risks and uncertainties not currently known to us
or that we currently deem to be immaterial may also impair our business
operations. The following information summarizes all material risks
known to us as of the date of this prospectus.
Risks
Relating to Our Company
Since we have no
operating history, investors have no basis to evaluate our ability to operate
profitably. We were organized in 1998 but have had no revenue
from operations since our inception. Our activities to date have been
limited to organizational efforts, raising financing, acquiring mining
properties, conducting limited exploration and preparation for production at the
El Aguila
Project. We have never produced gold or other metals and have
received no revenue from operations to date. We face all of the risks
commonly encountered by other businesses that lack an established operating
history, including the need for additional capital and personnel, and intense
competition. There is no assurance that our business plan will be
successful. In particular, there can be no assurance that commercial
production at our El
Aguila Project will be achieved in the time frames estimated, at the
rates and costs estimated, if at all.
We have a history
of losses and may incur losses in the future. We have incurred
losses since inception and may incur losses in the future. We
incurred the following losses from operations during each of the following
periods:
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·
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Approximately
$27,100,000 for the nine months ended September 30,
2009;
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·
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Approximately
$26,349,000 for the year ended December 31, 2008;
and
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·
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Approximately
$8,319,000 for the year ended December 31,
2007.
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We had an
accumulated deficit of approximately $68,000,000 as of September 30,
2009. We expect to continue to incur losses unless and until such
time as one of our properties enters into commercial production and generates
sufficient revenues to fund continuing operations.
We have no proven
or probable reserves, and the probability of an individual prospect having
reserves is extremely remote. Therefore, in all
likelihood, our properties do not contain any reserves, and any funds spent by
us on exploration or development could be lost. We have not
established the presence of any proven or probable mineral reserves, as defined
by the SEC, at any of our properties. The SEC has defined a “reserve”
as that part of a mineral deposit which could be economically and legally
extracted or produced at the time of the reserve determination. Any
mineralized material discovered by us should not be considered proven or
probable reserves.
In order
to demonstrate the existence of proven or probable reserves, it would be
necessary for us to continue exploration to demonstrate the existence of
sufficient mineralized material with satisfactory continuity and then obtain a
positive feasibility study. Exploration is inherently risky, with few
properties ultimately proving economically successful. We do not
intend to pursue additional exploration for the purpose of establishing proven
or probable reserves.
4
Establishing
reserves requires a feasibility study demonstrating with reasonable certainty
that the deposit can be economically extracted and produced. We have
not completed a feasibility study with regard to all or a portion of any of our
properties, nor do we intend to perform such feasibility study at this
time.
Since we have no
proven or probable reserves, our investment in mineral properties is not
reported as an asset in our financial statements which may have a negative
impact on the price of our stock. We prepare our financial
statements in accordance with accounting principles generally accepted in the
United States of America and intend to report substantially all exploration and
construction expenditures as expenses until we are able to establish proven or
probable reserves. If we are able to establish proven or probable
reserves, we would report development expenditures as an asset subject to future
amortization using the units-of-production method. Since it is
uncertain when, if ever, we will establish proven or probable reserves, it is
uncertain whether we will ever report these expenditures as an
asset. Accordingly, our financial statements report fewer assets and
greater expenses than would be the case if we had proven or probable reserves,
which could have a negative impact on our stock price.
If we are unable
to achieve gold and silver production levels anticipated from our El Aguila
Project, our financial condition and results of operation will be adversely
affected. We are proceeding with the construction of the El Aguila Project based on
estimates of mineralized material identified in our drilling program and
estimates of gold and silver recovery based on test work developed during our
scoping study. However, risks related to metallurgy are inherent when
working with extractable minerals. Sales of gold and silver, if any,
that we realize from future mining activity will be less than anticipated if the
mined material does not contain the concentration of gold and silver predicted
by our geological exploration. This risk may be increased since we
have not sought or obtained a feasibility study or reserve report with regard to
any of our properties. If sales of gold and silver are less than
anticipated, we may not be able to recover our investment in our property and
our operations may be adversely affected.
We may require
significant additional capital to fund our business plan. We
will require additional capital for exploration of one or more of our existing
properties or to acquire additional properties. It may be the case
that we will require additional capital in addition to the funds already raised
in our private placements to fund the completion of construction of the mill and
startup of the El
Aguila Project. We will be required to hire additional
staff. In addition, we may require additional working capital to
continue to fund operations pending sale of any gold or other
metals. Our ability to obtain necessary funding for these purposes,
in turn, depends upon a number of factors, including the status of the national
and worldwide economy and the price of gold and other precious
metals. Capital markets worldwide have been adversely affected by
substantial losses by financial institutions, in turn caused by investments in
asset-backed securities. We may not be successful in obtaining the
required financing, or if we can obtain such financing, such financing may not
be on terms that are favorable to us. Failure to obtain such
additional financing could result in delay or indefinite postponement of further
exploration or development and the possible, partial or total loss of our
potential interest in our properties.
Estimates of
mineralized material are based on interpretation and assumptions and may yield
less mineral production under actual conditions than is currently
estimated. Unless otherwise indicated, mineralized material
presented in our filings with securities regulatory authorities, including the
SEC, press releases and other public statements that may be made from time to
time are based upon estimates made by our consultants. When making
determinations about whether to advance any of our projects to development, we
must rely upon such estimated calculations as to the mineralized material on our
properties. Until mineralized material is actually mined and
processed, it must be considered an estimate only.
These
estimates are imprecise and depend on geological interpretation and statistical
inferences drawn from drilling and sampling analysis, which may prove to be
unreliable. We cannot assure you that these mineralized material
estimates will be accurate or that this mineralized material can be mined or
processed profitably.
5
Any
material changes in estimates of mineralized material will affect the economic
viability of placing a property into production and such property’s return on
capital. There can be no assurance that minerals recovered in small
scale tests will be recovered at production scale.
The
mineralized material estimates have been determined and valued based on assumed
future prices, cut-off grades and operating costs that may prove
inaccurate. Extended declines in market prices for gold and silver
may render portions of our mineralized material uneconomic and adversely affect
the commercial viability of one or more of our properties and could have a
material adverse effect on our results of operations or financial
condition.
Should we
successfully commence mining operations at our El Aguila Project, our ability to
remain profitable long-term will depend on our ability to identify, explore, and
develop additional properties. Gold and silver properties are
wasting assets. They eventually become depleted or uneconomical to
continue mining. The acquisition of gold and silver properties and
their exploration and development are subject to intense
competition. Companies with greater financial resources, larger
staff, more experience and more equipment for exploration and development may be
in a better position than us to compete for such mineral
properties. If we are unable to find, develop, and economically mine
new properties, we most likely will not be able to be profitable on a long term
basis.
The construction
of our mine and mill are subject to all of the risks inherent in
construction. These risks include potential delays, cost
overruns, shortages of material or labor, construction defects, and injuries to
persons and property. We have retained Lyntek, Inc. of Denver,
Colorado as a consultant to act as our general contractor for construction of
the mill. We expect that Lyntek will engage a combination of American
and Mexican subcontractors and material suppliers in connection with the
project. While we anticipate taking all measures which we deem
reasonable and prudent in connection with construction of the mill, there is no
assurance that the risks described above will not cause delays or cost overruns
in connection with such construction. Any delay would postpone our
anticipated receipt of revenue and adversely affect our
operations. Cost overruns would likely require that we obtain
additional capital in order to commence production. Any of these
occurrences may adversely affect our ability to generate revenues and the price
of our stock.
Our operations
are subject to permitting requirements which could require us to delay, suspend
or terminate our operations. Our operations, including our
ongoing exploration drilling program and proposed production plan at the El Aguila Project, require
permits from the government. We may be unable to obtain these permits
in a timely manner, on reasonable terms, or at all. If we cannot
obtain or maintain the necessary permits, or if there is a delay in receiving
these permits, our timetable and business plan for exploration of our property
or commercial production will be adversely affected.
Our properties
are located in Mexico and are subject to changes in political conditions and
regulations in that country. Our existing properties are
located in Mexico. In the past, Mexico has been subject to political
and social instability, changes and uncertainties which may cause changes to
existing government regulations affecting mineral exploration and mining
activities. Civil or political unrest could disrupt our operations at
any time. Our mineral exploration and mining activities in Mexico may
be adversely affected in varying degrees by changing governmental regulations
relating to the mining industry or shifts in political conditions that increase
the costs related to our activities or maintaining our
properties. Finally, Mexico's status as a developing country may make
it more difficult for us to obtain required financing for our
project.
6
Our business
operations may be adversely affected by social and political unrest in
Oaxaca. The properties which we are currently exploring for
mineralization and the mill we are building are located in the State of Oaxaca,
Mexico. Oaxaca City, the capital of the State of Oaxaca, experienced
a period of social and political unrest in 2006. Certain civilian
groups seeking political reform staged protests and demonstrations in various
locations in Oaxaca City, including schools, government offices and major
roadways. Although our property is roughly a 90 minute drive from
Oaxaca City and the civil disturbances appear to have dissipated, our business
operations could be negatively impacted if Oaxaca experiences another such
event. Our exploration and construction program may be interrupted if
we are unable to hire qualified personnel or if we are denied access to the site
where our property is located. We may also be required to make
additional expenditures to provide increased security in order to protect
property or personnel located at our exploration and construction
sites. Significant delays in exploration or increases in expenditures
will likely have a material adverse affect on our financial condition and
results of operations.
Our ability to
continue exploration and extract any minerals that we discover is subject to
payment of concession fees and if we fail to make these payments, we may lose
our interest in the properties. Mining concessions in Mexico
are subject to payment of concession fees to the federal government or lease
payments to the owner of the concessions. The payments are based on
the size of the property we are exploring. Our failure or inability
to pay the concession fees to the government may cause us to lose our interest
in one or more of our properties.
Our primary
exploration target is subject to a lease in favor of a third party which
provides for royalties on production. We lease our El Aguila property from a
third party. Our lease for the El Aguila property is subject
to a net smelter return royalty of 4% where production is sold in the form of
gold/silver dorè and 5% where production is sold in concentrate
form. The requirement to pay royalties to the owner of the
concessions at our El
Aguila property will reduce our profitability, if any, if we commence
commercial production of gold or other precious metals.
Our ability to
develop our property is subject to the rights of the Ejido (local inhabitants)
to surface use for agricultural purposes. Our ability to mine
minerals is subject to making satisfactory arrangements with the Ejido for access and surface
disturbances. Ejidos are groups of local
inhabitants who were granted rights to conduct agricultural activities on the
property. We must negotiate and maintain a satisfactory arrangement
with these inhabitants in order to disturb or discontinue their rights to
farm. While we have successfully negotiated and signed such
agreements to enable us to begin construction at the El Aguila Project, our
inability to maintain these agreements could impair or impede our ability to
successfully mine the properties.
The volatility of
the price of gold could adversely affect our future operations and, if
warranted, our ability to develop our properties. The
potential for profitability of our operations, the value of our properties and
our ability to raise funding to conduct continued exploration and development,
if warranted, are directly related to the market price of gold and other
precious metals. The price of gold may also have a significant
influence on the market price of our common stock and the value of our
properties. Our decision to put a mine into production and to commit
the funds necessary for that purpose must be made long before the first revenue
from production would be received. A decrease in the price of gold
may prevent our property from being economically mined or result in the writeoff
of assets whose value is impaired as a result of lower gold
prices. The price of gold is affected by numerous factors beyond our
control, including inflation, fluctuation of the United States Dollar and
foreign currencies, global and regional demand, the sale of gold by central
banks, and the political and economic conditions of major gold producing
countries throughout the world. During the last five years, the
average annual market price of gold has fluctuated between $445 per ounce and
$972 per ounce, based on the daily London P.M. fix, as shown in the table
below:
7
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2005
|
2006
|
2007
|
2008
|
2009
|
|
$445
|
$604
|
$696
|
$872
|
$972
|
The
volatility of mineral prices represents a substantial risk which no amount of
planning or technical expertise can fully eliminate. In the event
gold prices decline or remain low for prolonged periods of time, we might be
unable to develop our properties, which may adversely affect our results of
operations, financial performance and cash flows.
Competition in
the mining industry is intense, and we have limited financial and personnel
resources with which to compete. Competition in the mining
industry for desirable properties, investment capital and personnel is
intense. Numerous companies headquartered in the United States,
Canada and elsewhere throughout the world compete for properties on a global
basis. We are an insignificant participant in the gold mining
industry due to our limited financial and personnel resources. We
presently operate with a limited number of personnel and we anticipate that we
will compete with other companies in our industry to hire additional qualified
personnel which will be required to successfully operate our mine and mill
site. We may be unable to attract the necessary investment capital or
personnel to fully explore and if warranted, develop our properties and be
unable to acquire other desirable properties.
An adequate
supply of water may not be available to undertake mining and production at our
property. Water rights are owned by the Mexican nation and are
administered by a Mexican government agency. This agency has granted
water concessions to private parties throughout the area defined as the Oaxaca
Hydrologic Basin, however there is no assurance that we will be granted such
concessions. We have purchased water rights which we believe will be
sufficient for our anticipated production needs. However, we have no
assurance these water rights will continue to produce enough water for our
activities. Accordingly, we may not have access to the amount of
water needed to operate a mine at the property.
Since most of our
expenses are paid in Mexican pesos, and we anticipate selling any production
from our properties in United States dollars, we are subject to adverse changes
in currency values that will be difficult to prevent. Our
operations in the future could be affected by changes in the value of the
Mexican peso against the United States dollar. At the present time,
since we have no production, we have no plans or policies to utilize forward
sales contracts or currency options to minimize this exposure. If and
when these measures are implemented, there is no assurance they will be cost
effective or be able to fully offset the effect of any currency
fluctuations.
Our activities in
Mexico are subject to significant environmental regulations, which could raise
the cost of doing business. Mining operations are subject to
environmental regulation by SEMARNAT, the environmental protection agency of
Mexico. Regulations require that an environmental impact statement,
known in Mexico as a Manifiestacion de Impacto
Ambiental, be prepared by a third party contractor for submission to
SEMARNAT. Studies required to support this impact statement include a
detailed analysis of many subject areas, including soil, water, vegetation,
wildlife, cultural resources and socio-economic impacts. We may also
be required to submit proof of local community support for a project to obtain
final approval. Significant environmental legislation exists in
Mexico, including fines and penalties for spills, release of emissions into the
air, seepage and other environmental damage.
The nature of
mineral exploration and production activities involves a high degree of risk and
the possibility of uninsured losses. Exploration for and the
production of minerals is highly speculative and involves greater risk than many
other businesses. Many exploration programs do not result in the
discovery of mineralization, and any mineralization discovered may not be of
sufficient quantity or quality to be profitably mined. Our operations
are, and any future development or mining operations we may conduct will be,
subject to all of the operating hazards and risks normally incident to exploring
for and development of mineral properties, such as, but not limited
to:
8
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economically
insufficient mineralized material;
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·
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fluctuation
in production costs that make mining
uneconomical;
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·
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labor
disputes;
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·
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unanticipated
variations in grade and other geologic
problems;
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·
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environmental
hazards;
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·
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water
conditions;
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·
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difficult
surface or underground conditions;
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·
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industrial
accidents;
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·
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metallurgic
and other processing problems;
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·
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mechanical
and equipment performance problems;
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·
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failure
of pit walls or dams;
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·
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unusual
or unexpected rock formations;
|
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·
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personal
injury, fire, flooding, cave-ins and landslides;
and
|
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·
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decrease
in the value of mineralized material due to lower gold and silver
prices.
|
Any of
these risks can materially and adversely affect, among other things, the
development of properties, production quantities and rates, costs and
expenditures, potential revenues and production dates. We currently
have no insurance to guard against any of these risks. If we
determine that capitalized costs associated with any of our mineral interests
are not likely to be recovered, we would incur a writedown of our investment in
these interests. All of these factors may result in losses in
relation to amounts spent which are not recoverable.
We depend upon a
limited number of personnel and the loss of any of these individuals could
adversely affect our business. If any of our current executive
employees, our principal consultant in Mexico or our principal financial
consultant were to die, become disabled or leave the company, we would be forced
to identify and retain individuals to replace
them. Messrs. William, David and Jason Reid and Mr. Jorge
Sanchez del Toro are our critical employees at this time. Jose Perez
Reynoso is our consultant in Mexico who oversees our properties and
operations. Frank L. Jennings is a financial consultant who provides
services to us as chief financial officer. There is no assurance that
we can find suitable individuals to replace them or to add to our employee base
if that becomes necessary. We are entirely dependent on these
individuals as our critical personnel at this time. We have no life
insurance on any individual, and we may be unable to hire a suitable replacement
for them on favorable terms, should that become necessary.
In the event of a
dispute regarding title to our property or any facet of our operations, it will
likely be necessary for us to resolve the dispute in Mexico, where we would be
faced with unfamiliar laws and procedures. The resolution of
disputes in foreign countries can be costly and time consuming, similar to the
situation in the United States. However, in a foreign country, we
face the additional burden of understanding unfamiliar laws and
procedures. We may not be entitled to a jury trial, as we might be in
the United States. Further, to litigate in any foreign country, we
would be faced with the necessity of hiring lawyers and other professionals who
are familiar with the foreign laws. For these reasons, we may incur
unforeseen losses if we are forced to resolve a dispute in Mexico or any other
foreign country.
9
We are required to annually evaluate our internal control over financial
reporting under Section 404 of the Sarbanes-Oxley Act of 2002 and any adverse
results from such evaluation could result in a loss of investor confidence in
our financial reports and have a material adverse effect on the price of our
common stock. Under Section 404 of the Sarbanes-Oxley Act of
2002, we are required to furnish a report by our management on internal control
over financial reporting commencing with the fiscal year ended December 31,
2008. Such a report must contain, among other matters, an assessment
of the effectiveness of our internal control over financial reporting, including
a statement as to whether or not our internal control over financial reporting
is effective. This assessment must include disclosure of any material
weaknesses in our internal control over financial reporting identified by our
management. In addition, our evaluation of the effectiveness of our
internal controls will be subject to an annual audit by our independent
registered public accounting firm and there is no assurance that they will agree
with our assessment. If we are unable to maintain and to assert that
our internal control over financial reporting is effective, or if we disclose
material weaknesses in our internal control over financial reporting, or if our
independent registered public accounting firm does not agree with our
assessment, investors could lose confidence in the accuracy and completeness of
our financial reports, which could have a material adverse effect on our stock
price.
Our securities
are not presently registered under the Securities Exchange Act of 1934, meaning
that investors will have less information available about our
company. Our common stock is presently registered with the SEC
only under the Securities Act of 1933, as amended. Because we have
not registered our common stock under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), we may not be required to file information reports
such as Forms 10-K and 10-Q with the SEC, although we expect to voluntarily file
certain reports even if we are not required to do so. Additionally,
our directors and officers are not required to file reports under Section 16 of
the Exchange Act. As a result, there is less information available to
the public regarding our corporate affairs and insider transactions in our
common stock than other companies that have registered common stock under the
Exchange Act. In the future, we could cease filing information
reports with the SEC at any time. If we are required to register
under the Exchange Act or decide to do so voluntarily, the disclosure of
additional required information may cause the price of our stock to drop and
investors in this offering may suffer.
The laws of the
State of Colorado and our Articles of Incorporation may protect our directors
from certain types of lawsuits. The laws of the State of
Colorado provide that our directors will not be liable to us or our shareholders
for monetary damages for all but certain types of conduct as directors of the
company. Our Articles of Incorporation permit us to indemnify our
directors and officers against all damages incurred in connection with our
business to the fullest extent provided or allowed by law. The
exculpation provisions may have the effect of preventing shareholders from
recovering damages against our directors caused by their negligence, poor
judgment or other circumstances. The indemnification provisions may
require us to use our limited assets to defend our directors and officers
against claims, including claims arising out of their negligence, poor judgment,
or other circumstances.
Risks
Related to Our Common Stock
Our stock price
may be volatile and as a result you could lose all or part of your
investment. In addition to volatility associated with over the
counter securities in general, the value of your investment could decline due to
the impact of any of the following factors upon the market price of our common
stock:
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·
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Changes
in the worldwide price for gold;
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·
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Disappointing
results from our exploration
efforts;
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·
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Failure
to reach commercial production or producing at rates lower than those
targeted;
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·
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Failure
to meet our revenue or profit goals or operating
budget;
|
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·
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Decline
in demand for our common stock;
|
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·
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Downward
revisions in securities analysts' estimates or changes in general market
conditions;
|
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·
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Technological
innovations by competitors or in competing
technologies;
|
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·
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Investor
perception of our industry or our prospects;
and
|
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·
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General
economic trends.
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10
In
addition, stock markets have experienced extreme price and volume fluctuations
and the market prices of securities have been highly volatile. These
fluctuations are often unrelated to operating performance and may adversely
affect the market price of our common stock. As a result, investors
may be unable to resell their shares at a fair price.
Since there is
presently a limited trading market for our common stock, purchasers of our
common stock may have difficulty selling their shares, should they desire to do
so. Due to a number of factors, including the lack of listing
of our common stock on a national securities exchange, the trading volume in our
common stock is limited. Our trading volume on the OTC Bulletin Board
over the past three months has averaged approximately 168,000 shares per
day. As a result, the sale of a significant amount of common stock by
the selling shareholders may depress the price of our common stock and you may
lose all or a portion of your investment.
A small number of
existing shareholders own a significant amount of our common stock, which could
limit your ability to influence the outcome of any shareholder
vote. Our executive officers and directors beneficially own
approximately 22% of our common stock and our largest shareholder owns
approximately 27% of our common stock as of the date of this
prospectus. Under our Articles of Incorporation and Colorado law, the
vote of a majority of the shares outstanding is generally required to approve
most shareholder action. As a result, this group may be able to
influence the outcome of shareholder votes for the foreseeable future, including
votes concerning the election of directors, amendments to our Articles of
Incorporation or proposed mergers or other significant corporate
transactions. We have no existing agreements or plans for mergers or
other corporate transactions that would require a shareholder vote at this
time. However, shareholders should be aware that they may have
limited ability to influence the outcome of any vote in the
future. See
“SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS” for additional information.
Since our common
stock is not presently listed on a national securities exchange, trading in our
shares may be subject to rules governing “penny stocks,” which will impair
trading activity in our shares. Our common stock may be
subject to rules adopted by the SEC regulating broker-dealer practices in
connection with transactions in penny stocks. Those disclosure rules
applicable to penny stocks require a broker-dealer, prior to a transaction in a
penny stock not otherwise exempt from the rules, to deliver a standardized
disclosure document required by the SEC. These rules also require a
cooling off period before the transaction can be finalized. These
requirements may have the effect of reducing the level of trading activity in
any secondary market for our common stock. Many brokers may be
unwilling to engage in transactions in our common stock because of the added
disclosure requirements, thereby making it more difficult for stockholders to
dispose of their shares.
Issuances of our
stock in the future could dilute existing shareholders and adversely affect the
market price of our common stock. We have the authority to
issue up to 60,000,000 shares of common stock, 5,000,000 shares of preferred
stock, and to issue options and warrants to purchase shares of our common stock
without stockholder approval. Because our common stock is not
currently listed on an exchange, we are not required to solicit shareholder
approval prior to issuing large blocks of our stock. These future
issuances could be at values substantially below the price paid for our common
stock by our current shareholders. In addition, we could issue large
blocks of our common stock to fend off unwanted tender offers or hostile
takeovers without further stockholder approval. Because we believe
that trading in our common stock is limited, the issuance of our stock may have
a disproportionately large impact on its price compared to larger
companies.
We have never
paid dividends on our common stock. We have not paid dividends
on our common stock to date, and we may not be in a position to pay dividends
for the foreseeable future. Our ability to pay dividends will depend
on our ability to successfully develop one or more properties and generate
earnings from operations. Further, our initial earnings, if any, will
likely be retained to finance our operations. Any future dividends
will depend upon our earnings, our then-existing financial requirements and
other factors, and will be at the discretion of our Board of
Directors.
11
Forward-Looking Statements
This
prospectus contains or incorporates by reference forward-looking statements
within the meaning of the United States Private Securities Litigation Reform Act
of 1995 concerning our future business plans and strategies, the proposed
exploration and development of our property, the receipt of working capital,
future revenues and other statements that are not historical in nature. In this
prospectus, forward-looking statements are often identified by the words
“anticipate,” “plan,” “believe,” “expect,” “estimate,” and the like. These
forward-looking statements reflect our current beliefs, expectations and
opinions with respect to future events, and involve future risks and
uncertainties which could cause actual results to differ materially from those
expressed or implied.
In
addition to the specific factors identified under “RISK FACTORS” above, other
uncertainties that could affect the accuracy of forward-looking statements
include:
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decisions
of foreign countries and banks within those
countries;
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technological
changes in the mining industry;
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our
costs;
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the
level of demand for our products;
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changes
in our business strategy;
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●
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interpretation
of drill hole results and the geology, grade and continuity of
mineralization;
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●
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the
uncertainty of reserve estimates and timing of development expenditures;
and
|
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●
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commodity
price fluctuations.
|
This
list, together with the factors identified under “RISK FACTORS,” is not
exhaustive of the factors that may affect any of our forward-looking statements.
You should read this prospectus completely and with the understanding that our
actual future results may be materially different from what we expect. These
forward-looking statements represent our beliefs, expectations and opinions only
as of the date of this prospectus. We do not intend to update these forward
looking statements except as required by law. We qualify all of our
forward-looking statements by these cautionary statements.
Prospective
investors are urged not to put undue reliance on forward-looking
statements.
BUSINESS
AND PROPERTIES
History
and Organization
We are
engaged in the exploration of gold and silver properties, primarily in Mexico,
with a goal of production in the near future. We were organized under
the laws of the State of Colorado in 1998. We pursue exploration of
gold and silver projects that we believe feature low operating costs and have
the potential to produce a high return on the capital invested. We
hold a 100% interest in five properties in Mexico's southern State of
Oaxaca. See
“--Our Properties” below
for more information about our properties. We have constructed a mill
and a mine at our flagship property, the El Aguila Project, which
will be our first mine upon successful start-up, which is targeted for early
2010.
We
completed our IPO in August 2006 at a price of $1.00 per share and received
gross proceeds of $4,600,000. We have raised additional capital
pursuant to several private placements of our common stock since that
time. We used the proceeds of our IPO and a private placement
conducted in 2006 to conduct exploration activities at the El Aguila
property. We decided to move forward with efforts to construct a mill
and a mine at the El
Aguila Project on April 11, 2007. We used the funds from
subsequent private placements to construct a mine and mill at the El Aguila
Project. We anticipate using the funds provided by the most recent
private placement, discussed in more detail below, to continue these efforts, as
well as to undertake additional construction and exploration
activities. See
“MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION” for more
information.
12
Our
principal executive office is located at 222 Milwaukee Street, Suite 301,
Denver, Colorado 80206, and our telephone number is (303)
320-7708. Our operations in Mexico are conducted through our
wholly-owned Mexican subsidiaries, Don David Gold, S.A. de C.V., Golden Trump
Resources S. A. de C.V. and Oaxaca Servicios Mineros, S.A. de
C.V. We maintain a website at www.goldresourcecorp.com and
through a link on our website you can view the periodic filings that we make
with the Securities and Exchange Commission (“SEC”).
Please
refer to page 20 of this prospectus for a glossary of certain terms used
herein.
Recent
Developments
Exploration. Our
flagship property, the El
Aguila property, was the primary focus of our exploration program during
2008. Using funds obtained from a private placement in 2007, we
focused exploration drilling on three areas: the El Aguila near-surface
mineralized area, the El
Aire vein area, which is located along the same structural zone two
kilometers from the near-surface mineralized area, and a new discovery of
mineralization near El
Aire which we call the La Arista
area. Our drilling has shown that each of these areas have gold and
silver mineralized material and, except for the El Aguila near-surface
mineralized area, have base metal mineralization of copper, lead and
zinc. As a result of encouraging exploration results and our belief
that the mineralized material can be extracted and processed economically, we
made a decision in 2007 to begin preparing El Aguila for production,
targeting to begin production in 2009. A substantial amount of our
business activities during 2008 and 2009 were focused toward that
goal. From January 1 to September 30, 2009, we completed a total of
57,233 meters (187,723 feet) in exploration drilling and spent approximately
$22,760,000 in exploration and construction costs at our properties in
Mexico. However, we have not established proven or probable reserves
as defined by regulation of the SEC on our El Aguila Project or any of
our other properties.
Construction at El Aguila
Project. The engineering firm of Lyntek Inc. of Denver,
Colorado has designed the mill and infrastructure requirements at the El Aguila Project on our
behalf. The facility is designed to process 850 tonnes of ore per day
through a flotation circuit and 150 tonnes of ore per day through an agitated
leach circuit. We substantially completed the mill in the fourth
quarter of 2009 and we began commissioning it in December 2009. We
hope to produce concentrate in early 2010.
During
2008, we received permits from the Mexican government for construction of the
access road, the mill facility and the tailings impoundment. In
August 2009, we received the open pit mine permit which will allow us to begin
mining the mineralized material from the open pit mine at the El Aguila
Project.
We expect
that mining in the first year of production will take place at the El Aguila near-surface
mineralization open pit mine and have commenced pre-stripping of the open pit
mine area. Mining in the second year is anticipated to come from the
La Arista vein
mineralized material and will require development of an underground mine. We
received the permit to develop the underground mine at La Arista in December 2009
and expect to begin construction of the decline ramp and underground mine in
2010.
13
In
October 2007, we acquired an additional parcel of land which comprises
approximately five hectares and is located adjacent to the community of San Jose de
Gracia. During 2008, we completed construction of an employee
housing facility for the El
Aguila Project, as well as a health clinic which will be available to
employees and local residents. The facility encompasses 10 buildings,
including a cafeteria, and can house approximately 50 people. See “--Our Properties” below for
additional information.
Strategic Alliance with
Hochschild. In December 2008, we entered into a strategic
alliance agreement with Hochschild Mining Holdings Limited (“Hochschild”), a
Peruvian-based precious metals producer operating primarily in the
Americas. Pursuant to the terms of the strategic alliance agreement,
we sold Hochschild 1,670,000 shares of our common stock for gross proceeds of
$5,010,000 in a private placement in 2008. We also granted Hochschild
an 80-day option to purchase 4,330,000 additional shares of our common stock for
gross proceeds of $12,990,000, which was exercised on February 25,
2009. We also have agreed, among other things, to the
following:
|
•
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To
offer Hochschild a right of first refusal to participate in future equity
financings solicited by us prior to commencement of commercial
production;
|
|
•
|
To
afford it a first right of refusal to participate in any joint ventures we
might pursue with regard to any of our
properties;
|
|
•
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To
grant Hochschild preemptive rights to participate in certain financing
transactions; and
|
|
•
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To
appoint one individual nominated by Hochschild to our Board of Directors
under certain conditions.
|
Hochschild
also has the right to purchase additional shares of our common stock in the
market, however, it has agreed to a standstill for two years where it will not
exceed 40% total ownership in our company. Certain of the rights
discussed above will be forfeited by Hochschild at such time as its percentage
ownership in our company decreases below 14.5%.
During
the first half of 2009, we used the proceeds of the Hochschild private placement
to continue construction at the El Aguila Project. We
determined to seek additional equity financing for the El Aguila Project and Hochschild
exercised its right of first refusal under the Strategic Alliance Agreement to
provide such financing.
In June
2009, Hochschild subscribed to purchase a total of 5,000,000 shares of our
common stock for gross proceeds of $20,000,000 and in December 2009, Hochschild
subscribed to purchase an additional 1,954,795 shares of common stock for
$16,000,000. We expect to use the proceeds of the second financing
transaction with Hochschild to continue developing the El Aguila Project and for working
capital. In addition, $8,000,000 of the proceeds have been reserved
for construction of the decline ramp and related infrastructure at the La Arista vein and $4,000,000
of the proceeds have been reserved to be used solely for additional
exploration. See “MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” for additional
information.
Acquisition of Alta Gracia
property. In August 2009, we filed mineral concessions with
the Mexican government concerning an additional 5,175 hectares (12,782 acres)
adjacent to the Las
Margaritas property, which we refer to as the Alta Gracia
property.
Competitive
Business Conditions
The
exploration for, and the acquisition of gold and silver properties, are subject
to intense competition. Due to our limited capital and personnel, we
are at a competitive disadvantage compared to other companies with regard to
exploration and, if warranted, development. Our present limited
funding means that our ability to compete for properties to be explored and
developed is limited. We believe that competition for acquiring
mineral prospects will continue to be intense in the future.
14
The
availability of funds for exploration is sometimes limited, and we may find it
difficult to compete with larger and more well-known companies for
capital. Our inability to develop our mining properties due to lack
of funding, even if warranted, could have a material adverse effect on our
operation and financial position.
Government
Regulations and Permits
In
connection with mining, milling and exploration activities, we are subject to
extensive Mexican federal, state and local laws and regulations governing the
protection of the environment, including laws and regulations relating to
protection of air and water quality, hazardous waste management and mine
reclamation as well as the protection of endangered or threatened
species. The department responsible for environmental protection in
Mexico is SEMARNAT, which is similar to the United States Environmental
Protection Agency. SEMARNAT has broad authority to shut down and/or
levy fines against facilities that do not comply with its environmental
regulations or standards. Potential areas of environmental
consideration for mining companies, including ours if we are successful in
commencing mining operations, include, but are not limited to, acid rock
drainage, cyanide containment and handling, contamination of water courses, dust
and noise.
Prior to
the commencement of any mining operations at the El Aguila Project, if any, we
have and will continue to secure various regulatory permits from federal, state
and local agencies. These governmental and regulatory permits
generally govern the processes being used to operate, the stipulations
concerning air quality and water issues, and the plans and obligations for
reclamation of the properties at the conclusion of
operations. Regulations require that an environmental impact
statement, known in Mexico as a Manifiestacion de Impacto
Ambiental (“MIA”), be prepared by a third-party contractor for submission
to SEMARNAT. We have submitted our MIA to
SEMARNAT for their review and it has been approved. Studies required to
support the MIA include a detailed analysis of these areas, among others: soil,
water, vegetation, wildlife, cultural resources and socio-economic
impacts. Although the regulatory process in Mexico has a public
review component, proof of local community support for a project is required to
gain final MIA approval. We have received the required local
community support.
We
received a federal permit granting permission to construct a road at the El Aguila
Project. We completed construction of this road during
2008. Additionally, during 2008, we received permits allowing us to
construct our mill facilities and tailings impoundment
facility. Construction of these structures is presently
underway. We received a permit from SEMARNAT in August 2009 which
will allow us to begin open pit mining at the El Aguila
Project.
We
purchased a permitted water well for the mill site at the El Aguila
Project. We believe the water provided by this well will be
adequate to meet the needs for any mining activity for the foreseeable
future.
We have
obtained, and will obtain at the appropriate time, environmental permits,
licenses or approvals required for operations. We are not aware of
any material violations of environmental permits, licenses or approvals issued
with respect to our operations.
Employees
We
currently have four full-time employees, three of whom serve as our executive
officers. These individuals devote all of their business time to our
affairs. In addition to our executive officers, we employ
approximately 50 Mexican nationals, including one who serves as our El Aguila Project Manager,
through one of our Mexican subsidiaries. We also engage two
significant consultants, one to generally oversee our property and activities in
Mexico and one to assist with our administrative and financial
affairs. Our consultant in Mexico serves on a full-time basis and our
financial consultant provides his services to us as necessary.
15
Our
Properties
We
currently have an interest in five properties, the El Aguila property, the Las Margaritas property, the
El Rey property, the
Solaga property and the
Alta Gracia
property. We lease certain claims comprising the El Aguila property and the
Las Margaritas property
from an individual who serves as our consultant in Mexico and the Solaga property from an
entity partially owned by the same consultant. We own mining
concessions for the El
Rey property and the Alta Gracia property, and for
certain other claims at the El
Aguila property. All of these properties are in the
exploration stage and have no proven or probable reserves. The map
below shows the general location of our four properties in Oaxaca,
Mexico:
The
El Aguila Project
Background. Effective
October 14, 2002, we leased three mining concessions, El Aguila, El Aire and La Tehuana, totaling 1,896
hectares, from Jose Perez Reynoso, a consultant to our company. The
lease agreement is subject to a 4% net smelter return royalty where production
is sold in the form of gold/silver dore and 5% for production sold in
concentrate form. We have made periodic advance royalty payments
under the lease totaling $260,000 and no further advance royalty payments are
due. Subject to minimum exploration requirements, there is no
expiration term for the lease. We may terminate it at any time upon
written notice to the lessor and the lessor may terminate it if we fail to
fulfill any of our obligations. The El Aguila and El Aire concessions make up
the El Aguila Project
and the La Tehuana
concession makes up the Las
Margaritas property.
We have
filed for and received additional concessions for the El Aguila Project that total
an additional 8,492 hectares. These additional concessions are not
part of the concessions leased from our consultant, and bring our interest in
the El Aguila Project
to an aggregate of 9,463 hectares. The mineral concessions making up
the El Aguila Project
are located within the San
Pedro Totolapam Ejido.
Location and
Access. The El Aguila Project is located
in the Sierra Madre del
Sur of southern Mexico, in the central part of the State of
Oaxaca. Access to the property is by way of the Pan American Highway
(Highway # 190), approximately 120 kilometers (75 miles) southeast of Oaxaca
City, the state's capital city. At the village of San Jose de Gracia, a gravel
road goes approximately four kilometers northwest to the property. We
have completed construction to upgrade this road to make it better suited for
our construction and potential mining activities.
16
The
climate of the El
Aguila area is dry and warm to very warm with most rainfall occurring in
the summer and annual precipitation averaging only 423.7 mm (17
inches). The average yearly temperature is 26.6 degrees centigrade
(80° F). The area is very rocky with scarce
vegetation. Subsistence farming occurs and the main agricultural crop
is agave cactus that is cultivated for the production of mescal.
Exploration
Activities. The early history of activity at the El Aguila property, as known
by us, is prospecting and limited mining for gold and silver from the early
1900's to the mid 1960's. In 1998, Mr. Perez Reynoso acquired
the concessions and leased them to Apex Silver Corporation of Denver,
Colorado. Apex carried out an exploration program involving geologic
mapping, surface sampling and an 11-hole drilling program (1,242 meters, or
4,074 feet). The results did not meet Apex's expectations so it
cancelled its lease on the property in 2002. We leased the property
from Mr. Perez Reynoso in October 2002.
In August
2003, we entered into an exploration agreement with Canyon Resources Corporation
pertaining to our interest in the El Aguila property whereby
Canyon loaned us $500,000 for exploration costs, and subsequently converted its
note into 1,200,000 shares of our common stock in 2004. The drilling
program was completed in 2004 and included approximately 3,900 meters (12,795
feet) of drilling in 69 holes focused on one target area of the
property.
We have
carried out more recent exploration on the El Aguila Project that has
included geologic mapping, surface sampling, geochemical sampling, a geomagnetic
survey and exploratory drilling. Since inception, we have drilled a
total of 379 holes equaling 57,233 meters (187,723 feet) at our El Aguila property, including 8 holes for
4,430 meters (14,530 feet) from January 1 through September 30,
2009.
Construction
Activities. We made a decision in April 2007 to undertake
efforts to place the El
Aguila Project into commercial production. At our request,
Lyntek Inc., an engineering firm in Denver, Colorado, designed the mill and
infrastructure requirements. The mill is designed to process 850
tonnes of ore per day through a flotation section and 150 tonnes of ore per day
through an agitated leach section. The flotation process produces a
mineral concentrate through the use of chemical conditioning agents to float or
depress certain minerals from a mineral rich foam concentrate created by
agitation. The flotation circuit is complete and we began
commissioning the mill in December 2009. Subsequently, we anticipate
using an agitated leach section to produce a doré bar of gold and silver from
oxide ore; completion of the agitated leach section of the mill is expected in
the first quarter of 2010.
We
received the permit granting permission to construct the mill in June 2008 and
the mill, excluding the leach section, is substantially complete. We
have also completed construction on a large and small dam for our tailings
impoundment after receiving a federal permit for the tailings facility in
October 2008. We began pre-stripping activity at the near-surface
open pit area in conjunction with construction of the tailings
impoundment. In August, 2009, we received the necessary permit from
the Mexican federal agency granting us approval to begin mining the mineralized
material.
During
our first year of anticipated production, we expect that we will conduct open
pit mining at the El
Aguila near-surface mineralized material area. We are
targeting the La Arista
vein area for mining during our second year of production, which would require
construction of an underground mine.
We plan
to generate our own electrical power for the mill through diesel generators,
although the federal power grid, located along the Pan American Highway, may be
utilized in certain aspects of operations. We purchased a permitted
water well to supply water for our mining activities, however the water will
require pumping to the site approximately 4 kilometers away.
17
In
October 2007, we acquired an additional parcel of land which is approximately
five hectares in size and adjacent to the community of San Jose de
Gracia. The land cost us $152,522. We have
completed construction of an employee housing facility on this parcel that
includes 10 buildings and will house approximately 50 people.
Geology and
Mineralization. The El Aguila Project is located
in the San Jose de
Gracia Mining District in the Sierra Madre del Sur of
southern Mexico. Multiple volcanic domes of various scales, and
probably non-vented intrusive domes, dominate the district
geology. These volcanogenic features are imposed on a pre-volcanic
basement of sedimentary rocks. Gold and silver mineralization in this
district is related to the manifestations of this classic volcanogenic system
and is considered epithermal in character.
Certain
deposits on the El
Aguila property are primarily hosted in a quartz rich, stratiform zone
(manto). The main manto drilled to date that forms our initial El Aguila shallow
mineralization, which we hope to mine by an open pit, is conformable with the
ryholitic volcanic rock above and below the manto. It varies in
thickness from less than two meters (6.6 feet) to more than 30 meters (98.4
feet). The gold and silver mineralization is considered low
sulfidation, epithermal in character. There appear to be several
other prospective manto units on the property.
Surface
sampling yielded anomalous gold and silver values from early district-wide
exploration where silicified zones were encountered. In addition, a
small, shallow adit and winze provided limited sampling underground, yielding
indications of gold values in a silicified, sub-horizontal
manto. Based on these early anomalous exploration samples, a drilling
program was carried out by us that in fact resulted in defining a central zone
of continuous, shallow, sub-horizontal mineralized material. The fact
that the mineralization is relatively shallow will make mining less difficult
and less expensive from an open pit mine compared to an underground
mine. This mineralized material at the El Aguila is near surface and
lends itself to open pit mining.
Our 2008
drilling program continued to explore a relatively new area of mineralization at
the El Aguila Project
that we call the La
Arista vein area, approximately two kilometers from the mill
site. This mineralized material is different from the El Aguila near surface
mineralization in that it is polymetallic in character. This
polymetallic mineralization contains gold and silver plus the base metals
copper, lead and zinc. The character of this mineralization is also
epithermal but considered intermediate sulfidation. We anticipate
that this mineralized material would be mined underground and mining activity in
this area is targeted for year two and beyond of our production
plan.
The
El Rey Property
We have
acquired claims in another area in the state of Oaxaca by filing concessions
under the Mexican mining laws, referred to by us as the El Rey
property. These concessions total 892 hectares. We have
conducted minimal exploration and drilling on this property to
date.
The El Rey property is an
exploration stage property with no known reserves. It is
approximately 64.4 kilometers (40 miles) from the El Aguila
Project. There is no plant or equipment on the El Rey
property. If exploration is successful, any mining would
probably require an underground mine but any mineralized material could be
processed at the El
Aguila Project mill.
18
Limited
drilling at El Rey has
encountered gold and silver mineralization up to 1 meter of 132.5 g/tonne gold
(4.25 ounces/tonne) and 1.5 meters of 958 g/tonne silver. We have
drilled 48 holes for a total of 5,293 meters (17,361 feet) at the El Rey
property. Additional exploration drilling is planned.
The
Las Margaritas Property
The Las Margaritas property is
made up of the La
Tehuana concession. We leased this in October 2002 from Mr.
Reynoso. It is comprised of approximately 925 hectares located
adjacent to the El
Aguila property. To date, we have conducted limited surface
sampling, but no other significant exploration activities at the
property.
The
Solaga Property
In
February 2007, we leased a 100% interest in a property known as the Solaga property, which totals
618 hectares, and is located approximately 120 kilometers (75 miles) from the
El Aguila
project. A dormant silver mine is located on the Solaga property which was in
production as recently as the 1980's. However, we cannot estimate if
or when we will reopen the mine. The lease requires us to perform
$25,000 in additional work and is subject to a 4% net smelter return royalty on
any production. We have not conducted any exploration activities at
the property.
The Alta Gracia Property
In August
2009, we acquired claims adjacent to the Las Margaritas property in
the Alta Gracia Mining
District by filing concessions under the Mexican mining laws. We
refer to this property as the Alta Gracia
property. These concessions are comprised of three mining claims, the
David 1, the David 2 and La Hurradura. The
concessions total 5,175 hectares, and the acquisition of these claims extended
our land position along what is known as the San Jose structural corridor
to just over 16 kilometers. To date, we have not conducted
significant exploration activities at the property.
Mineral
Concessions
Mineral
rights in Mexico belong to the Mexican government and are administered pursuant
to Article 27 of the Mexican Constitution. Exploitation concessions
may be granted or transferred to Mexican citizens and
corporations. Our leases or concessions are held by our Mexican
subsidiaries. Exploitation concessions have a term of 50 years and
can be renewed for another 50 years. Concessions grant the holder the
right to explore and exploit all minerals found in the
ground. Maintenance of concessions requires the semi-annual payment
of mining duties (due in January and July) and the performance of assessment
work, on a calendar year basis, with assessment work reports required to be
filed in the month of May for the preceding calendar year. The amount
of mining duties and annual assessment are set by regulation and may increase
over the life of the concession and include periodic adjustments for
inflation. Mining concessions are registered at the Public Registry
of Mining in Mexico City and in regional offices in Mexico.
Ejido Lands and Surface Right
Acquisitions
Surface
lands at the El Aguila
Project area are Ejido
lands (agrarian cooperative lands granted by the federal government to groups of
Campesinos pursuant to
Article 27 of the Mexican Constitution of 1917). Prior to January 1,
1994, Ejidos could not
transfer Ejido lands
into private ownership. Amendments to Article 27 of the Mexican
Constitution in 1994 now allow individual property ownership within Ejidos and allow Ejidos to enter into
commercial ventures with individuals or entities, including foreign
corporations. We have an agreement with the local San Pedro TotolapamEjido allowing exploration
and exploitation of mineralization at the El Aguila
Project.
19
Mexican
law recognizes mining as a land use generally superior to
agricultural. However, the law also recognizes the rights of the
Ejidos to compensation
in the event mining activity interrupts or discontinues their use of the
agricultural lands. Compensation is typically made in the form of a
cash payment to the holder of the agricultural rights. The amount of
such compensation is generally related to the perceived value of the
agricultural rights as negotiated in the first instance between the Ejidos and the owner of the
mineral rights. If the parties are unable to reach agreement on the
amount of the compensation, the decision will be referred to the
government.
We have
established surface rights agreements with the San Pedro TotolapamEjido and the individuals
impacted by our proposed operations which allow disturbance of the surface where
necessary for our proposed mining operations.
Office
Facilities
Effective
October 1, 2005, we leased approximately 1,000 square feet of office space under
a three year agreement with an independent third party. In May 2007, we amended
the lease to add approximately 300 square feet and extended the lease term
through April 30, 2010. Monthly rent payments under this lease, including
parking and operating expenses, will average $2,470 per month through
April 30, 2010, when the lease expires. We believe this space is adequate
for our needs for the foreseeable future.
Legal
Proceedings
We are
not currently subject to any legal proceedings, and to the best of our
knowledge, no such proceeding is threatened, the results of which would have a
material impact on our properties, results of operation, or financial condition.
Nor, to the best of our knowledge, are any of our officers or directors involved
in any legal proceedings in which we are an adverse party.
Glossary
|
Adit:
|
A
more or less horizontal drive (walk-in mine) into a hill that is usually
driven for the purpose of intersecting or mining an ore
body. An adit may also be driven into a hill to intersect or
connect a shaft for the purpose of dewatering. Adits were
commonly driven on a slight incline to enable loaded mine trucks to have
the advantage of a downhill run out, while the empty (lighter) truck was
pushed uphill back into the hill. The incline also allows water
to drain out of the adit. An adit only becomes a tunnel if it
comes out again on the hill somewhere, like a train tunnel.
|
||||
|
Andesite:
|
A
gray to black volcanic rock with between about 52 to 63 weight percent
silica (SiO2). Andesite
magma commonly erupts from stratovolcanoes as thick lava flows, some
reaching several km in length.
|
||||
|
Cretaceous
period:
|
Flowering
plants appeared and dinosaurs were at their height during the Cretaceous
period. 146-65 million years ago. There was a mass
extinction (the K-T extinction) at the end of the Cretaceous, marking the
end of the dinosaurs and many other species.
|
||||
|
Doré:
|
Unrefined
gold and silver bars usually containing more than 90% precious
metal.
|
||||
|
Epithermal:
|
Used
to describe gold deposits found on or just below the surface close to
vents or volcanoes, formed at low temperature and pressure.
|
||||
20
|
Felsic:
|
The
minerals feldspar and quartz or an igneous rock or metamorphic rock made
predominantly of feldspar and quartz; poor in iron and magnesium.
Light-colored.
|
||||
|
Gram:
|
A
metric unit of weight and mass, equal to 1/1000th
of a kilogram. One gram equals .035 ounces. One
ounce equals 31.103 grams.
|
||||
|
Hectare:
|
Another
metric unit of measurement, for surface area. One hectare
equals 1/200th
of a square kilometer, 10,000 square meters, or 2.47 acres. A hectare is
approximately the size of a soccer field.
|
||||
|
Horst-graben:
|
Horst
and graben are formed by widespread block faults giving rise to a mountain
and valley topography that owes its origin in part at least to regional
block faulting.
|
||||
|
Kilometer:
|
Another
metric unit of measurement, for distance. The prefix “kilo”
means 1000, so one kilometer equals 1,000 meters, one kilometer equals
3,280.84 feet, which equals 1,093.6 yards, which equals 0.6214
miles.
|
||||
|
Manto:
|
A
mineralogy term meaning a layer or stratum.
|
||||
|
Minerals
or Mineralized Material:
|
Any
mass of host rock in which minerals of potential commercial value
occur.
|
||||
|
Net
Smelter Return Royalty:
|
A
share of the net revenue generated from the sale of metal produced by the
mine.
|
||||
|
Ore
or Ore Deposit:
|
Rocks
that contain economic amounts of minerals in them and that are expected to
be profitably mined.
|
||||
|
Rhyolite:
|
A
type of volcanic lava or rock that is usually light in color: it contains
greater than 68% silica, by weight, and is high in potassium and
sodium.
|
||||
|
Silicified:
|
Is
combined or impregnated with silicon or silica.
|
||||
|
Tertiary
period:
|
This
period lasted from 65 to 1.8 million years ago. It followed the
Cretaceous period (the end of the Mesozoic Era) and the K-T
extinction. Many mammals developed then, including primitive
whales, rodents, pigs, cats, rhinos, etc.
|
||||
|
Tonne:
|
A
metric ton. One tonne equals 1000kg. It
is approximately equal to 2,204.62 pounds.
|
||||
|
Volcanogenic:
|
Of
volcanic origin.
|
||||
|
Volcanic
domes:
|
These
are mounds that form when viscous lava is erupted slowly and piles up over
the vent, rather than moving away as lava flow. The sides of
most domes are very steep and typically are mantled with unstable rock
debris formed during or shortly after dome emplacement. Most
domes are composed of silica-rich lava which may contain enough
pressurized gas to cause explosions during dome extrusion.
|
||||
|
Winze:
|
Secondary
or tertiary vertical or near-vertical opening sunk from a point inside a
mine for the purpose of connecting with a lower level or of exploring the
ground for a limited depth below a level.
|
||||
21
|
Conversion
Table
|
||
|
Metric System
|
Imperial System
|
|
|
1
metre (m)
|
=
|
3.2808
feet (ft)
|
|
1
kilometer (km)
|
=
|
0.6214
mile (mi)
|
|
1
square kilometer (km2)
|
=
|
0.3861
square mile (mi2)
|
|
1
square kilometer (km2)
|
=
|
100
hectares (has)
|
|
1
hectare (ha)
|
=
|
2.471
acres (ac)
|
|
1
gram (g)
|
=
|
0.0322
troy ounce (oz)
|
|
1
kilogram (kg)
|
=
|
2.2046
pounds (lbs)
|
|
1
tonne (t)
|
=
|
1.1023
tons (t)
|
|
1
gram/tonne (g/t)
|
=
|
0.0292
ounce/ton (oz/t)
|
MARKET
FOR COMMON STOCK AND
RELATED STOCKHOLDER INFORMATION
Market
Information
Our
common stock trades over-the-counter and is quoted on the OTCBB under the symbol
“GORO.” The table below sets forth the high and low bid prices for
our common stock as reflected on the OTCBB for the last two fiscal
years. Quotations represent prices between dealers, do not include
retail markups, markdowns or commissions, and do not necessarily represent
prices at which actual transactions were effected.
|
Year
Ending
|
High
|
Low
|
||||||
|
December 31, 2009
|
||||||||
|
First
Quarter
|
$ | 5.75 | $ | 3.15 | ||||
|
Second
Quarter
|
5.45 | 3.85 | ||||||
|
Third
Quarter
|
7.47 | 4.13 | ||||||
|
Fourth
Quarter
|
11.21 | 7.00 | ||||||
|
December 31, 2008
|
||||||||
|
First
Quarter
|
$ | 4.70 | $ | 3.27 | ||||
|
Second
Quarter
|
6.09 | 4.28 | ||||||
|
Third
Quarter
|
5.65 | 2.36 | ||||||
|
Fourth
Quarter
|
3.88 | 2.00 | ||||||
On
January 20, 2010, the high and low sales price of our common stock on the OTCBB
were $11.12 and $10.78, respectively, and we had approximately 91 holders of
record of our common stock.
Penny
Stock Rules
Due to
the price of our common stock, as well as the fact that we are not listed on
Nasdaq or a national securities exchange, our stock may be characterized as a
“penny stock” under applicable securities regulations. If our stock
is or becomes a penny stock, we will be subject to rules adopted by the SEC
regulating broker-dealer practices in connection with transactions in penny
stocks. The broker or dealer proposing to effect a transaction in a
penny stock must furnish his customer a document containing information
prescribed by the SEC and obtain from the customer an executed acknowledgment of
receipt of that document. The broker or dealer must also provide the
customer with pricing information regarding the security prior to the
transaction and with the written confirmation of the transaction. The
broker or dealer must also disclose the aggregate amount of any compensation
received or receivable by him in connection with such transaction prior to
consummating the transaction and with the written confirmation of the
trade. The broker or dealer must also send an account statement to
each customer for which he has executed a transaction in a penny stock each
month in which such security is held for the customer's account. The
existence of these rules may have an effect on the price of our stock, and the
willingness of certain brokers to effect transactions in our stock.
22
Transfer
Agent
We have
appointed Corporate Stock Transfer, Inc. (“CST”) as the transfer agent for our
common stock. The principal office of CST is located at 3200 Cherry
Creek Drive South, Suite 430, Denver, CO 80209 and its telephone
number is (303) 282-4800.
Dividend
Policy
We have never declared or paid
dividends on our common stock. Payment of future dividends, if any,
will be at the discretion of our Board of Directors after taking into account
various factors, including the terms of any credit arrangements, our financial
condition, operating results, current and anticipated cash needs and plans for
expansion. At the present time, we are not party to any agreement
that would limit our ability to pay dividends.
Securities
Authorized for Issuance Under Equity Compensation Plans
Our
Non-Qualified Stock Option and Stock Grant Plan (also referred to as the “Plan”)
was adopted by us effective March 4, 1999. The Plan, as amended,
terminates by its terms on February 28, 2019. Under the Plan, as
approved by shareholders on March 4, 2005, a total of 6,000,000 shares of common
stock are reserved for issuance thereunder. Set forth below is
information as of December 31, 2009 with respect to compensation plans
(including individual compensation arrangements) under which our equity
securities are authorized for issuance.
Non-Qualified
Stock Option and Stock Grant Plan Information
|
Plan Category
|
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a)
|
Weighted-
average exercise
price of
outstanding
options,
warrants and
rights
(b)
|
Number of
securities remaining
available for future
issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
(c)
|
|||||||||
|
Equity
compensation plans approved by shareholders
|
3,745,000 | $2.40 | 755,000 | |||||||||
|
Equity
compensation plans not approved by shareholders
|
50,000 | $3.68 | 0 | |||||||||
|
TOTAL
|
3,795,000 | 755,000 | ||||||||||
Under the
Plan, non-qualified stock options and/or grants of our common stock may be
issued to key persons. Key persons include officers, directors,
employees, consultants and others providing service to us. The Plan
was established to advance the interests of our company and our stockholders by
affording key persons, upon whose judgment, initiative and efforts we may rely
for the successful conduct of our businesses, an opportunity for investment in
our company and the incentive advantages inherent in stock ownership in our
company. This Plan gives our Board of Directors broad authority to
grant options and make stock grants to key persons selected by the Board while
considering criteria such as employment position or other relationship with us,
duties and responsibilities, ability, productivity, length of service or
association, morale, interest in us, recommendations by supervisors, and other
matters, and to set the option price, term of option, and other broad
authorities. Options may not be granted at less than the fair market
value at the date of grant and may not have a term in excess of 10
years.
23
Options
granted under the Plan do not generally give rise to taxable income to the
recipient or any tax consequence to us, since the Plan requires that the options
be issued at a price not less than the fair market value of the common stock on
the date of grant. However, when an option is exercised, the holder
is subject to tax on the difference between the exercise price of the option and
the fair market value of the stock on the date of exercise. We
receive a corresponding deduction for income tax purposes. Recipients
of stock grants are subject to tax on the fair market value of the stock on the
date of grant and we receive a corresponding deduction. The foregoing
is intended as a summary of the income tax consequences to an individual
recipient of an option or stock grant, and should not be construed as tax
advice. Holders of stock options or common stock should consult their
own tax advisors.
Shares
issued upon exercise of options or upon stock grants under the Plan are
“restricted securities” as defined under the Securities Act unless a
registration statement covering such shares is effective. Restricted
shares cannot be freely sold and must be sold pursuant to an exemption from
registration (such as Rule 144) which exemptions typically impose conditions on
the sale of the shares.
SELECTED FINANCIAL DATA
The following table sets forth selected
consolidated financial data for our company for the last five completed fiscal
years for which information is available:
|
Year
Ended December 31,
|
||||||||||||||||||||
|
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||
|
Operating
Data
|
||||||||||||||||||||
|
Net
loss from operations
|
$ | (26,348,812 | ) | $ | (8,318,855 | ) | $ | (2,743,851 | ) | $ | (1,224,085 | ) | $ | (853,706 | ) | |||||
|
Other
income
|
333,609 | 242,513 | 57,089 | 6,174 | 113 | |||||||||||||||
|
Net
loss
|
(26,015,203 | ) | (8,076,342 | ) | (2,686,762 | ) | (1,217,711 | ) | (853,593 | ) | ||||||||||
|
Basic
& diluted loss per share
|
(0.76 | ) | $ | (0.28 | ) | $ | (0.13 | ) | $ | (0.08 | ) | $ | (0.08 | ) | ||||||
|
Weighted
average shares
|
34,393,854 | 28,645,038 | 20,218,659 | 16,164,715 | 10,827,672 | |||||||||||||||
|
Balance
Sheet Data
|
||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 3,534,578 | $ | 22,007,216 | $ | 7,660,258 | $ | 176,182 | $ | 9,560 | ||||||||||
|
Total
current assets
|
3,737,468 | 22,051,156 | 7,866,370 | 191,159 | 9,560 | |||||||||||||||
|
Property
and equipment, net
|
812,219 | 352,429 | 96,279 | 54,352 | -- | |||||||||||||||
|
Land
and mineral rights
|
226,610 | 152,522 | -- | -- | -- | |||||||||||||||
|
Total
assets
|
4,781,018 | 22,557,576 | 7,964,118 | 246,980 | 11,141 | |||||||||||||||
|
Current
liabilities
|
1,753,285 | 768,452 | 451,163 | 33,607 | 408,476 | |||||||||||||||
|
Long-term
obligations
|
-- | -- | -- | -- | -- | |||||||||||||||
|
Shareholders’
equity (deficit)
|
3,027,733 | 21,789,124 | 7,512,955 | 213,373 | (397,335 | ) | ||||||||||||||
24
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
This
discussion updates our business plan for the balance of 2010. It also
analyzes our financial condition at September 30, 2009 and compares it to our
financial condition at December 31, 2008. It also compares our
financial condition at December 31, 2008 and 2007. This discussion
summarizes the results of our operations for the nine months ended September 30,
2009 and compares those results to the nine months ended September 30, 2008 and
the years ended December 31, 2008, 2007 and 2006. This discussion and
analysis should be read in conjunction with our audited financial statements for
the three years ended December 31, 2008, including footnotes, and the discussion
and analysis included in our Form 10-Ks for the years ended December 31, 2008
and 2007, as amended.
Overview
We are a
company engaged in the exploration of gold and silver properties in Mexico, with
a goal of production in the near future. We pursue exploration of
gold and silver projects that we believe feature low operating costs and have
the potential to produce a high return on the capital invested. We
hold a 100% interest in five properties in Mexico's southern State of
Oaxaca. Mineral exploration requires significant capital and our
assets and resources are limited. We have never received revenue from
operations and have relied on equity financing to fund our operations to
date.
Since
August 2006, we raised capital through various sales of common stock, yielding
gross proceeds of approximately $86,000,000. Our most recent
financings were part of a strategic alliance with Hochschild, pursuant to which
Hochschild purchased 1,670,000 shares of our common stock for gross proceeds of
$5,010,000 in December 2008, 4,330,000 shares of our common stock for
$12,990,000 in February 2009, 5,000,000 shares of our common stock for gross
proceeds of $20,000,000 in June 2009 and 1,954,795 shares of common stock for
gross proceeds of $16,000,000 in December 2009. We have used the
funds primarily to fund exploration and construction at the El Aguila
Project. In 2007, we commenced activities that we hope will allow us
to mine the deposits at El
Aguila, including the construction of a processing mill and other
infrastructure.
During
2009, we continued efforts to construct our mine and mill and complete other
activities necessary to place our El Aguila Project into
production. We began commissioning those facilities in late 2009 and
hope to generate revenue from the sale of precious metals in 2010.
We
continue to refine our capital requirements. As an exploration stage
company, there is significant uncertainty in our estimates regarding both future
costs and future revenue. We may require additional capital resources
to complete our plans.
Exploration Stage
Company. We are considered an exploration stage company for
accounting purposes, since we have not demonstrated the existence of proven or
probable reserves. In accordance with accounting principles generally
accepted in the United States, all expenditures for exploration and evaluation
of our properties have been expensed as incurred. Furthermore, unless
mineralized material is classified as proven or probable reserves, substantially
all expenditures for mine and mill construction have been or will be expensed as
incurred. Certain expenditures, such as for rolling stock or other
general purpose equipment, may be capitalized, subject to our evaluation of the
future recoverability of the asset. Since substantially all of our
expenditures to date have been expensed and we expect to expense additional
expenditures during 2009, most of our investment in mining properties and
equipment does not appear as an asset on our balance sheet.
We
accelerated exploration of our properties in late 2006, and have continued our
activities into 2009. From inception to September 30, 2009, we
expensed approximately $20,545,660 on the exploration and evaluation of our
various properties, substantially all of which has been spent on the currently
active property known as El
Aguila. In addition, we have expensed, from inception to
September 30, 2009, approximately $33,391,000 in design, engineering, and
construction costs, all of which apply to the El Aguila
Project.
25
Plan
of Operation
In April
2007, we decided to undertake construction at the El Aguila Project in an
effort to commence commercial production. Our decision was made based
upon drilling data that we believe provides evidence of mineralized material in
amounts sufficient to proceed with construction activities. However,
we have not commenced a feasibility study that would allow us to classify any of
our mineralized material as proven or probable reserves, as those terms are
defined by the SEC in Industry
Guide 7, “Description of Property by Issuers Engaged or to Be Engaged in
Significant Mining Operations.” The SEC definition of reserve is
“that part of a mineral deposit which could be economically and legally
extracted or produced at the time of the reserve determination.”
Our
ability to demonstrate the existence of proven or probable reserves would
require us to conduct additional exploration drilling that demonstrated the
existence of sufficient mineralized material and to complete a positive
feasibility study. A feasibility study must demonstrate with
reasonable certainty that the deposit can be legally and economically extracted
and produced. At this time, we have neither undertaken these
additional activities nor implemented plans to undertake these activities in the
future. Accordingly, the mineralized material identified by us should
not be considered proven or probable mineral reserves. Additionally,
the assumptions used by us in our decision to undertake construction of the mill
and mine may prove to be inaccurate. Thus, we may never be able to
recover sufficient mineralized material to become profitable.
Anticipated
Production. While we intend to continue exploration at the
El Aguila Project for
the foreseeable future, we are moving forward with our plans to improve the
property for anticipated production. This includes acquisition of
equipment and construction of a mill. We engaged Lyntek, Inc. of
Denver, Colorado to design and build the mill at the El Aguila
Project. We have commenced mining by open pit and commissioning a
mill that is designed to process 850 tonnes of ore per day through a flotation
section and 150 tonnes of ore per day through an agitated leach
section. We expect the mining to be done under contract with a third
party contractor. Only after a mine and a mill are constructed and
operational do we expect to generate any revenue. In August 2009, we
received the open pit mine permit which is required before we commence
production.
Our
primary target for production in 2010 will be gold from the near-surface
mineralization at El Aguila
to be mined as an open pit. Any silver contained in the
mineralization will be produced as a by-product, any revenue from which will
help offset the costs of producing the gold. In the following year,
if activities go as planned, we intend to undertake production of gold from an
underground mine at the nearby La Arista vein. Our plan to
construct the underground mine includes driving a decline ramp. A
portion of the proceeds from our equity financing in December 2009 are dedicated
for this purpose. Since we believe the La Arista vein area also
contains base metals such as copper, lead, and zinc, we intend to produce those
metals as by-products, any revenue from which would help offset the costs of
producing gold and silver. We expect that the ore from both the
near-surface deposit and the anticipated underground mine will be processed at
the mill at the El
Aguila Project.
From
inception to date, we have committed or spent approximately $27,000,000 on
construction of the mill and an additional $6,000,000 on infrastructure and an
employee housing complex. We completed construction of a road to the
mine site to improve access and facilitate delivery of equipment and
construction of the mill and mine. Construction of the tailings
facility for Phase 1 is complete. The buildings are erected and
the mill, excluding the agitated leach circuit, is substantially
complete. We began commissioning the flotation circuit of the mill in
December 2009 and hope to produce concentrate in early 2010.
In
October 2007, we acquired an additional parcel of land which comprises
approximately five hectares and is located adjacent to the community of San Jose de
Gracia. During 2008, we completed construction of an employee
housing facility for the El
Aguila Project, as well as a health clinic which will be available to
employees and local residents. The facility encompasses 10 buildings,
including a cafeteria, and can house approximately 50 people.
26
Construction at the La Arista
Vein. In an effort to commence underground mining at the La Arista vein on our El Aguila Project, it will be
necessary for us to construct a decline ramp and related infrastructure to gain
access to the vein. We expect to commence this construction in
2010. As of January 2010, the engineering is underway and we are
reviewing bids from several contractors to assist with
construction.
A portion
of the proceeds of the most recent private placement, in the amount of
$8,000,000, have been reserved for construction of the underground
facilities. However, since we are still in the process of planning
the design and construction of those facilities, we have not determined whether
that amount will be sufficient to complete the necessary work. If we
are successful in completing the underground facilities and commencing mining at
this portion of our property, we expect that the ore will be processed at our
nearby mill.
Liquidity
and Capital Resources
As of
September 30, 2009, we had a working capital balance of $10,683,947, consisting
of current assets of $11,273,694 and current liabilities of
$589,747. This represents an increase of $8,699,764 from the working
capital balance of $1,984,183 at December 31, 2008. Our current
assets consist primarily of cash which is deposited in short term, interest
bearing accounts. Consistent with our plans, most of our cash at
September 30 was consumed to fund our exploration and construction activities
and to a lesser extent, general and administrative expenses. This
necessitated another sale of our common stock in December 2009 to raise
additional working capital.
We have
never received revenue from gold or other mineral sales. We currently
expect to commence sales of gold and silver upon commissioning of our El Aguila processing facility
during 2010, but we cannot guarantee that we will meet our expected
timetable. Any revenue generated from the sale of gold or silver will
be used to supplement our existing cash for construction of the underground
mine, additional exploration and other working capital needs.
We have
historically relied on equity financings to fund our operations. From
inception through September 30, 2009, we received $79,466,898 in cash, services
and other consideration through issuance of our common stock. We
raised another $16,000,000 in December 2009 through the sale of our common stock
to Hochschild. As of September 30, 2009, we did not have any
outstanding debt, as all previous borrowings have been repaid or converted into
equity. We believe that we will continue to fund our future working
capital requirements through the sale of equity, and eventually through cash
flow from operations. However, we may consider debt financing if
market conditions allow.
In
December 2008, we entered into a strategic alliance agreement with
Hochschild. Pursuant to the strategic alliance agreement, Hochschild
was granted an option to purchase shares of our restricted common stock and a
first right of refusal to participate in any future equity financing
transactions we undertake. Hochschild exercised its option in
February 2009 and we sold 4,330,000 shares of restricted common stock to
Hochschild at a price of $3.00 per share for total proceeds of
$12,990,000. Hochschild also exercised its first right of refusal to
provide us with additional equity financing and on June 30, 2009, we entered
into a subscription agreement with Hochschild to sell 5,000,000 shares of
restricted common stock at a price of $4.00 per share, or a total of
$20,000,000. That transaction was completed in two tranches, the last
of which closed in July 2009. We agreed to reserve $4,000,000 of the
proceeds for exploration activities and the $4,000,000 was deposited into a
restricted cash account. Of the $16,000,000 obtained in December
2009, $8,000,000 was reserved for the decline ramp and related work on an
underground mine.
27
During
the nine months ended September 30, 2009, we spent $3,871,821 on the exploration
and evaluation of our properties, predominantly at our El Aguila
Project. This compares to $5,214,597 spent during the nine months
ended September 30, 2008. While we continued our exploration program
to further delineate the area of mineralized material, our emphasis has shifted
to construction of the mine and mill. During the nine months ended
September 30, 2009, we spent $18,889,528 on engineering and construction
activities. This compares to $6,026,827 spent during the nine months
ended September 30, 2008, and reflects the acceleration of
construction.
Our most
significant expenditures for 2009 were for the construction of the mill and
associated infrastructure. We spent approximately $13,000,000 on the
engineering and construction of the mill, including the tailings dam, and we
purchased approximately $4,000,000 of processing equipment that has been
installed at the mill. Infrastructure costs totaled approximately
$2,000,000 and included continued construction at the employee village,
construction of the lab and work on the water and electrical
systems.
Our most
significant expenditures for the remainder of 2009 are expected to be costs of
completing the mill at El
Aguila and costs of our production start-up phase which we estimate will
total approximately $7,000,000. Furthermore, we continue to incur
operating expenses approximating $162,000 per month for salaries and other
corporate overhead. We expect to continue depleting our working
capital until such time, if ever, we successfully commence production and
generate cash flow from the production and sale of gold and other
metals.
Net cash
used in operating activities during the nine months ended September 30, 2009 was
$24,783,998, compared to $11,792,842 during the comparable period of 2008, an
increase of $12,991,156. We accelerated our expenditures in 2009
consistent with our plan to commence production.
Net cash
used in investing activities for the nine months ended September 30, 2009 was
$4,510,210, compared to $4,498,875 for the nine months ended September 30,
2008. Capital expenditures during 2009 were $504,731 compared to
$4,498,875 for 2008. Although most of our exploration stage
expenditures are recorded as an expense rather than an investment, we capitalize
the acquisition cost of land and mineral rights and certain equipment that has
alternative future uses or significant salvage value, including rolling stock,
furniture, and electronics. During 2009, we acquired additional
vehicles and capital equipment, and we filed mineral concessions with the
Mexican government in August concerning an additional 5,175 hectares (12,782
acres) adjacent to the Las
Margaritas property, which we refer to as the Alta Gracia
property. During 2008, our capital expenditures primarily
included rolling stock, earth moving equipment and construction in
progress. During 2008, we recorded as construction in progress
payments totaling $3,945,053 consisting of deposits, advance payments, and
progress payments for mill equipment. Substantially all equipment
initially recorded as construction in progress is subsequently expensed at the
time it is installed at the mill site, as the application of exploration stage
accounting principles requires us to expense substantially all expenditures that
do not have an alternative future use or significant salvage value.
Net cash
provided by financing activities for the nine months ended September 30, 2009
was $32,990,000, consisting of proceeds from the Hochschild financings
previously discussed. For the nine months ended September 30, 2008,
financing activities provided cash of $100,000 from the exercise of stock
options.
The
balance of cash and equivalents as of September 30, 2009 increased to
$7,230,370, from $3,534,578 as of December 31, 2008, a net increase in cash of
$3,695,792. We expect to continue our plan of raising funds from
equity sales if necessary and to expend our cash for exploration stage
activities until such time, if ever, we successfully commence production and
generate cash flow from the production and sale of gold and other
metals.
28
December 31, 2008.
At December 31, 2008, we had working capital of $1,984,210, consisting of
current assets of $3,737,468 and current liabilities of
$1,753,258. Our current assets consisted primarily of
cash.
During
the year ended December 31, 2008, our cash decreased by $18,472,638 as a
result of our operating and investment activities. Operating expenses
totaled $26,348,812, which, reduced by non-cash expenses such as stock-based
compensation, amortization of equipment, and changes in assets and liabilities,
resulted in $23,005,822 of net cash used in operating activities. The
significant amount of cash used in operating activities is attributable to our
decision to begin constructing the mill and related facilities at our El Aguila
Project. Cash used in investing activities totaled $657,816
resulting solely from capital expenditures. We received $5,191,000 as a
result of financing activities in 2008.
December 31, 2007.
At December 31, 2007, we had working capital of $21,282,704, consisting of
current assets of $22,051,156 and current liabilities of $768,452. Our current
assets consisted primarily of cash.
During
the year ended December 31, 2007, our cash increased by $14,346,948,
primarily representing the proceeds of the private placement financing completed
in the fourth quarter of that year. In that financing, we issued an aggregate of
5,558,500 shares of our common stock at a price of $4.00 for gross proceeds of
$21,712,000.
The
increase in cash from our financing activities was offset by cash used in
operations of $6,908,890. The cash related to our net loss for the year of
$8,076,342 was partially reduced by non-cash items such as stock-based
compensation of $730,450, and an increase in accounts payable and accrued
liabilities of $317,289, among others. We expect that our operations will
continue to consume cash until such time, if ever, we are successful in placing
one or more of our properties into production.
Results
of Operations – Nine Months Ended September 30, 2009 Compared to Nine Months
Ended September 30, 2008
For the
nine months ended September 30, 2009, we reported a net loss of $27,064,082 or
$0.65 per share, compared to a net loss of $14,120,686 or $0.41 per share for
the nine months ended September 30, 2008.
Total
costs and expenses in the nine months ended September 30, 2009 were $27,089,222
compared to $14,440,119 in the comparable period of 2008, an increase of
$12,649,103, or 88%. The additional expenditures reflect our
increasing activities at the El Aguila
Project. Total mineral property costs increased $11,519,925, or 103%,
from $11,241,424 for the nine months ended September 30, 2008 to $22,761,349 for
the nine months ended September 30, 2009. The property exploration
and evaluation component decreased $1,342,776, or 26%, from $5,214,597 for the
nine months ended September 30, 2008 to $3,871,821 for the nine months ended
September 30, 2009. Our exploration activity temporarily decreased as
we focused our efforts on engineering and construction.
The
engineering and construction cost component during the nine months ended
September 30, 2009 was $18,889,528, compared to $6,026,827 during the comparable
period in 2008. As more fully described in the preceding discussions
of our liquidity and capital resources, we accelerated construction of the mine
and mill site and infrastructure during 2009.
General
and administrative expenses for the nine months ended September 30, 2009
increased to $4,215,011 compared to $3,102,826 during the comparable period in
2008, a difference of $1,112,185, or 36%. As explained below, there
was a significant increase in stock option compensation.
29
The
component of general and administrative expense representing stock option
compensation expense was $2,754,031 for the nine months ended September 30,
2009, compared to $1,897,130 for the comparable period in
2008. During 2009, we granted options to officers and directors to
purchase 1,000,000 shares of common stock at an exercise price of $3.95 per
share, all of which vested immediately. The estimated value of those
options using the Black-Scholes-Merton model was $2,575,000, all of which was
recognized in 2009. We also granted options to an employee to
purchase 75,000 shares of common stock at an exercise price of $7.00 per
share. The estimated value of those options using the
Black-Scholes-Merton model was $331,787 which will be recognized on a pro-rata
basis over the three year vesting period. During 2009, we also
recognized a portion of the fair value of options issued during previous
periods, pro-rated over the vesting period. During the nine months
ended September 30, 2008, we granted a total of 1,050,000 stock options with an
estimated value of $1,870,680 using the Black-Scholes-Merton model. We granted
options to officers and directors to purchase 1,000,000 shares of common stock
at an exercise price of $3.40 per share, all of which vested
immediately. We also granted stock options to an investor relations
consultant to purchase 50,000 shares of common stock at an exercise price of
$4.45 per share, all of which vested immediately.
We also
record share-based compensation for shares of common stock issued in exchange
for goods and services. During the nine months ended September 30,
2009, we did not grant any shares of common stock as
compensation. During the nine months ended September 30, 2008, we
issued 10,000 shares of common stock valued at $42,470 as partial compensation
for investor relations services.
The other
components of general and administrative expense, including salaries and
benefits, professional fees, investor relations, and travel, increased to
$1,460,981 during the nine months ended September 30, 2009 from $1,163,226
during the comparable period in 2008, an increase of $297,755, or
26%. We have increased activity levels as we prepare the El Aguila Project for
production. We anticipate these costs may further increase if we
commence commercial production.
Interest
income for the nine months ended September 30, 2009 decreased to $25,140
compared to $319,433 for the comparable period of 2008, a decrease of $294,293,
or 92%, representing lower deposits in short term interest bearing accounts and
lower interest rates.
For the
nine months ended September 30, 2009 and 2008, we recorded a currency
translation gain of $415,535 and a loss of $113,296, respectively.
Results
of Operations – Year Ended December 31, 2008 Compared to Year Ended December 31,
2007
For the
year ended December 31, 2008, we reported a net loss of $26,015,203, or $(0.76)
per share, compared to a net loss of $8,076,342, or $(0.28) per share for 2007.
We expect to incur losses until such time, if ever, we begin generating
significant revenue from operations.
In
neither year did we report any revenue from the sale of gold or other
minerals. Our only revenue since inception has consisted of interest
income. We currently expect to commence sales of gold and silver upon
commissioning of our El
Aguila processing facility during 2009, but we cannot guarantee that we
will meet our expected timetable.
Total
costs and expenses were $26,348,812 in 2008 compared to $8,318,855 in 2007, an
increase of $18,029,957 or 217%. The additional expenditures reflect
our increasing activities at the El Aguila Project. Mineral
property costs, including exploration and evaluation, increased $2,439,625 from
$5,731,771 for the year ended December 31, 2007 to $8,171,396 for the year ended
December 31, 2008. We continued our exploration of the El Aguila
property. We conducted limited exploration on the El Rey property.
30
Engineering
and construction costs were $14,501,461 in 2008 compared to nil in
2007. As more fully described in the preceding discussions of our
expenditures, we commenced construction of the mine and mill site and other
infrastructure during 2008.
General
and administrative expense for the year ended December 31, 2008 increased to
$3,552,007 compared to $2,539,604 during 2007, an increase of $1,012,403 or
40%. As explained below, there was a significant increase in non-cash
stock option compensation, partially reduced by decreases in other
items.
General
and administrative expense includes recognition of non-cash compensation expense
for grants of stock options and grants of common stock.
The
component of general and administrative expense representing non-cash stock
option compensation expense was $1,956,806 for the year ended December 31, 2008,
compared to $99,482 for 2007. We use an option pricing model to
estimate the value of stock options granted to officers, directors, employees
and consultants. It is difficult to estimate the value of options
that we grant. The options are subject to significant restrictions
and cannot be purchased or sold on the open market. Therefore, there
is no objective and independent valuation measurement for them. We
use the Black-Scholes-Merton model, which requires considerable judgment
selecting the subjective assumptions that are critical to the results produced
by the model, to calculate the estimated fair value. We record the
estimated fair value as an expense on a pro-rata basis over the vesting period
of the options.
During
2008, we granted a total of 1,320,000 stock options with an estimated value of
$2,508,114. We granted options to officers and directors to purchase
1,000,000 shares of common stock at an exercise price of $3.40 per share, all of
which vested immediately. We also granted stock options to an
investor relations consultant to purchase 50,000 shares of common stock at an
exercise price of $4.45 per share, all of which vested
immediately. We also granted options to employees covering 270,000
shares of common stock at a weighted average price of $3.91. Those
options will vest over the next three years.
During
the year ended December 31, 2007, we granted stock options to a public relations
consultant to purchase 50,000 shares of common stock at an exercise price of
$3.68 per share, all of which vested in 2007. The estimated fair
value of those options was $83,192.
The
component of general and administrative expense representing a non-cash expense
for grants of common stock was $42,470 for the year ended December 31, 2008
compared to $630,968 for 2007. Shares of common stock issued by us in
exchange for services are recorded as an expense, the amount of which is
determined by reference to the market prices of our stock reported by the OTC
Bulletin Board.
During
the year ended December 31, 2008, we issued 10,000 shares of common stock valued
at $42,470 as partial compensation for investor relations
services. During the year ended December 31, 2007, we issued 185,000
shares of common stock valued at $630,968 as partial compensation for consulting
services.
Cash
compensation costs included in general and administrative expense decreased to
$716,057 during 2008 from $880,098 during 2007. Certain cash
compensation attributed to 2007 was replaced by non-cash compensation during
2008. Professional fees increased to $368,975 in 2008 compared to
$234,154 in 2007, an increase of $134,821, which reflects our increasing
activities. Investor relations expenses decreased to $167,732 during 2008 from
$342,083 during 2007. There were investor relations costs associated
with the private placement in December 2007 that were not repeated in
2008.
31
Interest
income increased to $333,609 for the year ended December 31, 2008 compared to
$242,513 for 2007, an increase of $91,096, or 38%, representing higher deposits
in short term interest bearing accounts pending utilization in our exploration,
construction and operating activities.
Our
mining operations are located in Mexico and we primarily transact business in
Mexican pesos. Our reporting currency is the US
dollar. Changes in the rate of currency exchange between the Mexican
peso and the US dollar create translation gains and losses, which are reported
as a component of other comprehensive income. For the years ended
December 31, 2008 and 2007, we recorded currency translation gains (losses) of
$63,536 and ($89,939), respectively.
Results
of Operations – Year Ended December 31, 2007 Compared to Year Ended December 31,
2006
For the
year ended December 31, 2007 we reported a net loss of $8,076,342, or $(0.28)
per share, compared to a net loss of $2,686,762, or $(0.13) per share for
2006. In neither year did we report any revenue except interest
income. We expect to incur losses until such time, if ever, as we
begin generating revenue from operations. We are considered an
exploration stage company for accounting purposes, since we have not received
any revenue from mineral sales.
Total
costs and expenses were $8,318,855 in 2007 compared to $2,743,851 in 2006, an
increase of $5,575,004 or 203%. Mineral property costs for the year
ended December 31, 2007, including acquisition and exploration costs, increased
$5,102,920 from $628,851 in 2006 to $5,731,771 in 2007. The increase
reflects our increasing exploration and construction activities at our various
properties located in and around the El Aguila
Project. During the latter part of 2006, we began to increase our
exploration spending and committed to an initial exploratory drilling contract
for $300,000. We subsequently expanded our drilling program and
aggregate drilling costs during 2007 were approximately $2,700,000.
General
and administrative expense for the year ended December 31, 2007 increased to
$1,809,154 compared to $1,470,061 during 2006. The increase of
$339,093 primarily reflects increased wage and salary costs of approximately
$30,000, an increase of $28,000 in legal and accounting fees associated with SEC
reporting requirements, and $211,500 of investor relations expenses necessary to
disseminate information to potential and existing investors. Travel
expenses increased from $103,241 to $173,559. The increase represents
increased travel to the mineral properties in Mexico, as well as meetings with
investors.
We
incurred stock compensation expenses of $730,450 for the year ended December 31,
2007 compared to $626,900 for 2006. During 2007, we issued 170,000
restricted shares of common stock as partial compensation for investor relations
services valued at a weighted average price of $3.39. We also issued
15,000 shares of common stock valued at $3.68 per share in recognition of
consulting services performed in Mexico. The cost of shares issued
was determined using quoted market values either at the time of the stock grant
or at the average stock price during the period of service.
During
2006, we issued 100,000 restricted shares of common stock valued at $1.00 per
share to a director as partial compensation for his service to the Board of
Directors. We also issued 35,000 shares of common stock valued at
$1.71 to two employees for their services. We also issued 250,000
restricted shares of common stock valued at $1.10 to a firm that provided
investor relations services and we issued 30,000 shares of restricted common
stock valued at $1.45 to a consultant who provided investor relations
services.
32
During
the year ended December 31, 2007, we also granted stock options to a public
relations consultant to purchase 50,000 shares of common stock at an exercise
price of $3.68 per share, all of which vested in 2007. We used an
option pricing model to value the options at $83,192. Total
compensation expense related to option grants recorded during 2007 was $99,482,
including all options issued during 2007 and options issued during prior years
that required the allocation of certain amounts to 2007.
During
the year ended December 31, 2006 we granted stock options to purchase 1,200,000
shares of common stock at an exercise price of $1.00 per share, of which
1,150,000 vested in 2006 and 50,000 vested in 2007. We used an option
pricing model to value the options. The 1,200,000 options were valued
at $163,340 and the expense was allocated partially to 2007 ($16,290) and
partially to 2006 ($147,050).
Interest
income increased to $242,513 in 2007 compared to $57,089 in 2006, an increase of
$185,424, or 325%. The increase is due to the proceeds from our 2007
and 2006 private placement financings which have been deposited in short term
interest bearing accounts. Monthly interest earnings from invested
cash is expected to decline in future months as we utilize the cash balances for
operating and exploration activities.
Off-Balance
Sheet Arrangements
As of and
subsequent to September 30, 2009, we had no off-balance sheet
arrangements.
Contractual
Obligations
Our known
obligations at fiscal year end are set forth in the table below:
|
Contractual
Obligations
|
Total
|
Less
than 1
year
|
1-3
years
|
3-5
years
|
More
than 5
years
|
|||||||||||||||
|
Operating
lease obligations
|
$ | 40,000 | $ | 30,000 | $ | 10,000 | -- | -- | ||||||||||||
|
Purchase
Obligations(1)
|
1,324,000 | 662,000 | 662,000 | -- | -- | |||||||||||||||
|
Total
|
$ | 1,364,000 | $ | 692,000 | $ | 672,000 | -- | -- | ||||||||||||
________________________________
(1) Represents
amounts due to our executive officers pursuant to their respective employment
agreements with our company.
Critical
Accounting Policies
Estimates. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States (“US GAAP”) requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of expenses during the
reporting period. Management routinely makes judgments and estimates
about the effects of matters that are inherently
uncertain. Management bases its estimates on historical experience
and on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Estimates and assumptions are revised periodically and
the effects of revisions are reflected in the financial statements in the period
it is determined to be necessary. Actual results could differ from
these estimates.
33
We
believe that application of the following accounting policies, which are
critical to our financial position and results of operations, requires
significant judgments and estimates on the part of management.
Proven and Probable
Reserves. The definition of proven and probable reserves is
set forth in SEC Industry Guide 7. Proven reserves are reserves for
which (a) quantity is computed from dimensions revealed in outcrops, trenches,
workings or drill holes; grade and/or quality are computed from the results of
detailed sampling and (b) the sites for inspection, sampling and measurement are
spaced so closely and the geologic character is so well defined that size,
shape, depth and mineral content of reserves are
well-established. Probable reserves are reserves for which quantity
and grade and/or quality are computed from information similar to that used for
proven reserves, but the sites for inspection, sampling, and measurement are
farther apart or are otherwise less adequately spaced. The degree of
assurance, although lower than that for proven reserves, is high enough to
assume continuity between points of observation. In addition,
reserves cannot be considered proven and probable until they are supported by a
feasibility study, indicating that the reserves have had the requisite geologic,
technical and economic work performed and are economically and legally
extractable at the time of the reserve determination.
Mineral Acquisition
Costs. The costs of acquiring land and mineral rights are
considered tangible assets. Significant acquisition payments are
capitalized. General, administrative and holding costs to maintain an
exploration property are expensed as incurred. If a mineable ore body
is discovered, such costs are amortized when production begins using the
units-of-production method. If no mineable ore body is discovered or
such rights are otherwise determined to have diminished value, such costs are
expensed in the period in which the determination is made.
Exploration
Costs. Exploration costs are charged to expense as
incurred. Costs to identify new mineral resources, to evaluate
potential resources, and to convert mineral resources into proven and probable
reserves are considered exploration costs.
Design, Construction, and
Development Costs. Certain costs to design and construct mine
and processing facilities may be incurred prior to establishing proven and
probable reserves. Under these circumstances, we classify the project
as an exploration stage project and expense substantially all costs, including
design, engineering, construction, and installation of
equipment. Certain types of equipment, which have alternative uses or
significant salvage value, may be capitalized. After a project is
determined to contain proven and probable reserves, costs incurred prospectively
can be capitalized. Such costs include development drilling to
further delineate the ore body, removing overburden during the pre-production
phase, building access ways, constructing facilities, and installing
equipment. Interest costs, if any, incurred during the development
phase would be capitalized until the assets are ready for their intended
use. The cost of start-up activities and on-going costs to maintain
production are expensed as incurred. Costs of abandoned projects are
charged to operations upon abandonment.
After a
project commences commercial production, amortization and depletion of
capitalized costs is computed on a unit-of–production basis over the expected
life of the project based on estimated recoverable gold equivalent
ounces.
Impairment of Long-Lived
Assets. We evaluate our long-lived assets for
impairment. If impairment indicators exist, we perform additional
analysis to quantify the amount by which capitalized costs exceed recoverable
value. The periodic evaluation of capitalized costs is based upon
expected future cash flows, including estimated salvage values. As of
December 31, 2008, our mineral resources do not meet the definition of proven or
probable reserves or value beyond proven and probable reserves and any potential
revenue has been excluded from the cash flow
assumptions. Accordingly, recoverability of capitalized cost is based
primarily on estimated salvage values.
34
Property Retirement
Obligation. Our policy requires the fair value of a liability
for an asset retirement obligation to be recognized in the period that it is
incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset.
Stock Based
Compensation. Our accounting policy requires the recognition
of compensation costs for stock options determined in accordance with a fair
value based methodology. We estimate the fair value of stock options
at their grant date by using the Black-Scholes-Merton option pricing model and
provides for expense recognition over the vesting period, if any, of the stock
option.
Foreign Currency
Translation. The local currency, the Mexican peso, is the
functional currency for our subsidiaries. Current assets and
liabilities are translated using the exchange rate in effect at the balance
sheet date. Other assets and liabilities are translated using
historical rates. Revenues and expenses are translated at the average
exchange rate for the year. Translation adjustments are reported as a
separate component of shareholders’ equity.
Income Taxes. We
account for income taxes under the accounting method which requires
recognition of deferred tax assets and liabilities for temporary differences and
the effect of net operating losses based upon the enacted tax rates in effect
for the year in which the differences are expected to
reverse. Temporary differences are differences between the tax basis
of assets and liabilities and their reported amounts in the financial statements
that will result in taxable or deductible amounts in future years. A
valuation allowance is established when necessary to reduce deferred tax assets
to the amount expected to be realized.
The
impact of an uncertain income tax position on the income tax return
is recognized at the largest amount that is more-likely-than-not to be
sustained upon audit by the relevant taxing authority. An uncertain
income tax position will not be recognized if it has less than a 50% likelihood
of being sustained.
Recent
Accounting Pronouncements
We
monitor pronouncements issued by the various authoritative sources that serve to
define and clarify US GAAP, including statements issued by the Financial
Accounting Standards Board (“FASB”), the SEC, and the Emerging Issues Task Force
(“EITF”), among others.
35
In June
2009, the Accounting Standards Codification (“ASC”) guidance for consolidation
accounting was updated to require an entity to perform a qualitative analysis to
determine whether the enterprise’s variable interest gives it a controlling
financial interest in a variable interest entity (“VIE”). This
analysis identifies a primary beneficiary of a VIE as the entity that has both
of the following characteristics: (i) the power to direct the activities of a
VIE that most significantly impact the entity’s economic performance
and (ii) the obligation to absorb losses or receive benefits from the
entity that could potentially be significant to the VIE. The updated
guidance also requires ongoing reassessments of the primary beneficiary of a
VIE. The updated guidance is effective for our fiscal year beginning
January 1, 2010. We are currently evaluating the potential impact of
adopting this guidance on our consolidated financial position, results of
operations and cash flows.
In August
2009, the ASC guidance for fair value measurements and disclosure was updated to
further define fair value of liabilities. This update provides
clarification for circumstances in which: (i) a quoted price in an active market
for the identical liability is not available, (ii) the liability has a
restriction that prevents its transfer, and (iii) the identical liability is
traded as an asset in an active market in which no adjustments to the quoted
price of an asset are required. The updated guidance is effective for
our interim reporting period beginning October 1, 2009. We are
evaluating the potential impact of adopting this guidance on our consolidated
financial position, results of operations and cash flows.
There
were no other accounting standards and interpretations recently issued which are
expected to a have a material impact on our financial position, results of
operations or cash flows.
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
There
have been no changes in or disagreements with our independent registered public
accounting firm on accounting and financial disclosure.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Our exposure to market risks includes,
but is not limited to, the following risks: changes in foreign currency exchange
rates, changes in interest rates, equity price risks, commodity price
fluctuations, and country risk. We do not use derivative financial
instruments as part of an overall strategy to manage market risk; however, we
may consider such arrangements in the future as we evaluate our business and
financial strategy.
Foreign
Currency Risk
We
transact a significant amount of our business in Mexican pesos. As a
result, currency exchange fluctuations may impact our operating
costs. The appreciation of non-US dollar currencies such as the peso
against the US dollar increases expenses and the cost of purchasing capital
assets in US dollar terms in Mexico, which can adversely impact our operating
results and cash flows. Conversely, a depreciation of non-US dollar
currencies usually decreases operating costs and capital asset purchases in US
dollar terms.
The value
of cash and cash equivalents denominated in foreign currencies also fluctuates
with changes in currency exchange rates. Appreciation of non-US
dollar currencies results in a foreign currency gain on such investments and a
decrease in non-US dollar currencies results in a loss. We have not
utilized market risk sensitive instruments to manage our exposure to foreign
currency exchange rates but may in the future actively manage our exposure to
foreign currency exchange rate risk. We also hold portions of our
cash reserves in non-US dollar currencies.
Interest
Rate Risk
We have
no debt outstanding nor do we have any investment in debt instruments other than
highly liquid short-term investments. Accordingly, we consider our interest rate
risk exposure to be insignificant at this time.
36
Equity
Price Risk
We have
in the past sought and may in the future seek to acquire additional funding by
sale of common stock and other equity. Movements in the price of our common
stock have been volatile in the past and may also be volatile in the future. As
a result, there is a risk that we may not be able to sell our common stock at an
acceptable price should the need for new equity funding arise.
Commodity
Price Risk
We
currently do not have any production but expect to produce gold and silver in
the near future. If we commence production and sales, changes in the
price of gold and other minerals could significantly affect our results of
operations and cash flows in the future. We do not presently expect
to hedge the sale of any of our anticipated production.
Country
Risk
All of
our mineral properties are located in Mexico. In the past, that country
has been subject to political instability, changes and uncertainties which may
cause changes to existing government regulations affecting mineral exploration
and mining activities. Civil or political unrest could disrupt our
operations at any time. Our exploration and mining activities may be
adversely affected in varying degrees by changing government regulations
relating to the mining industry or shifts in political conditions that could
increase the costs related to our activities or maintaining our
properties. Finally, Mexico’s status as a developing country may make it
more difficult for us to obtain required financing for our
properties.
MANAGEMENT
Directors
and Executive Officers
The
following individuals presently serve as our officers and
directors:
|
Name
|
Age
|
Positions
With the Company
|
Board
Position
Held
Since
|
||||||
|
William
W. Reid
|
61 |
President,
Chief Executive Officer and Director
|
1998 | ||||||
|
David
C. Reid
|
59 |
Vice
President, Secretary, Treasurer and Director
|
1998 | ||||||
|
Bill
M. Conrad
|
53 |
Director
|
2006 | ||||||
|
Isac
Burstein
|
42 |
Director
|
2009 | ||||||
|
Frank
L. Jennings
|
59 |
Chief
Financial Officer
|
N/A | ||||||
|
Jason
D. Reid
|
37 |
Vice
President of Corporate Development
|
N/A | ||||||
Each of
our directors is serving a term which expires at the next annual meeting of
shareholders and until his successor is elected and qualified or until he
resigns or is removed. Our officers serve at the will of our Board of
Directors.
37
Messrs.
William and David Reid should be considered founders of our company, as each has
taken initiative in the organization of our business. William Reid
and David Reid are brothers. Jason Reid is the son of William
Reid.
The
following information summarizes the business experience of each of our officers
and directors for at least the last five years:
William W.
Reid. Mr. Reid has served as a director and our President and
Chief Executive Officer since our inception in 1998. Since August
2005, Mr. Reid has devoted all of his business time to our affairs, averaging 40
hours per week. Mr. Reid received a Bachelor of Science in physics in
1970 and a Master's in Economic Geology in 1972 from Purdue
University. From 1977 to August 18, 2005, he served as the president,
chief executive officer and chairman of the board of directors of US Gold
Corporation, a Colorado corporation engaged in the exploration of gold mining
properties. During his tenure with US Gold, that entity acquired,
developed and produced gold from five different mines, but has not produced any
revenue since 1990. The securities of US Gold are traded on the NYSE
Alternext.
David C. Reid. Mr.
David Reid has served as a director and our Vice President since our inception
in 1998. Since August 2005, he has devoted all of his time to our
business and affairs, also averaging 40 hours per week. From 1977 to
August 18, 2005, he was the vice president and a director of US Gold during the
time that it acquired, developed and produced gold. Mr. Reid received
a Bachelor of Science degree in geology from Ball State University in
1972.
Bill M.
Conrad. Mr. Conrad was elected to the Board of Directors on
June 1, 2006. From its inception in May 2005 until September 2008,
Mr. Conrad served as the vice-president and secretary of Brishlin Resources,
Inc., formerly Blue Star Energy, Inc. and now known as Synergy Resources
Corporation, a Colorado corporation engaged in the energy
industry. Mr. Conrad continues to serve as a director of Synergy
Resources, a position he has held since the company’s inception. From
February 2002 until June 2005, Mr. Conrad served as president and a director of
Wyoming Oil & Minerals, Inc., and from May 2000 until April 2003, he served
as vice president and a director of New Frontier Energy, Inc. The
securities of Wyoming Oil & Mineral, now known as Sun Motor International
Inc., New Frontier Energy, and Synergy Resources are quoted on the
OTCBB. In 1990, Mr. Conrad co-founded MCM Capital Management Inc. and
has served as vice president since that time.
Isac
Burstein. Isac Burstein was appointed to the Board of
Directors on April 1, 2009. Mr. Burstein is presently the Corporate
Manager of Business Development for Hochschild Mining Plc, where he has been
employed since 1995. Prior to his current position, Mr. Burstein
served as Manager for Project Evaluation, Exploration Manager for Mexico from
July 2000 to May 2009, and Exploration Geologist for Hochschild from January
1996 to July 2000. He holds a BSc in Geological Engineering from the
Universidad Nacional de Ingenieria, an MSc in Geology from the University of
Missouri and an MBA from Krannert School of Management, Purdue
University. Mr. Burstein was nominated as a director by Hochschild
and appointed to the Board pursuant to the terms of our strategic alliance
agreement with Hochschild.
Frank L.
Jennings. Mr. Jennings was appointed to serve as our principal
financial officer on June 1, 2006. He is primarily responsible for
financial reporting of our company and with our CEO, oversight of our internal
controls. Mr. Jennings serves our company on a part-time basis as his
services are deemed necessary. Since 2001, Mr. Jennings has been a
financial consultant and provides management and financial consulting services
primarily to smaller public companies. From April 2001 to December
2005, he served as the chief financial officer and a director of Global Casinos,
Inc., a publicly traded Utah corporation, and from April 2001 to April 2005, he
served as the chief financial officer and a director of OnSource Corporation,
now known as Ceragenix Pharmaceuticals, Inc., a publicly traded Delaware
corporation. During his tenure with Global Casinos and Ceragenix
Pharmaceuticals, each company was engaged in the gaming industry and each had
common stock quoted on the OTCBB.
38
Jason D. Reid. Mr.
Reid was promoted to Vice President of Corporate Development effective January
2, 2008. He is responsible for formulating corporate growth
strategies, retail and institutional marketing of our securities, assisting the
CEO with oversight of our financing requirements and overseeing our investor
relations programs. Mr. Reid joined our company in May 2006 as the
Corporate Development Assistant. Mr. Reid received a Bachelor of
Science degree in Anthropology with an emphasis on Archaeology in 1995 from Fort
Lewis College. From January 1996 until he joined our company in May
2006, Mr. Reid served as president of Reid Farrier, Inc., formerly known as Reid
Fencing, Inc., a business he founded which focused operations in the equine and
construction industries.
Other
Significant Employees or Consultants
In
addition to our officers and directors, we also utilize the services of the
following significant consultants:
Jose Perez
Reynoso. Mr. Reynoso, a Mexican national, has served our
company as a full time consultant since 2002. In that capacity, he
oversees all our operations in Mexico, and provides advice in relations with the
Mexican Government, primarily related to permitting, personnel and mine
development. From 1995 to 2002, he was a consulting geologist for
mining companies operating in Mexico. Mr. Reynoso received an
undergraduate degree in geology and engineering in 1974 and a master's degree in
economic geology in 1979 from the National University of Mexico. We
leased the El Aguila
property from Mr. Reynoso in 2002.
Jorge Luis Sanchez Del
Toro. In August 2008, Mr. Sanchez, a Mexican national,
accepted a position with our Mexican subsidiary, Golden Trump Resources, to
serve as the Project Manager for the El Aguila
Project. Mr. Sanchez has over 33 years of experience in the mining
industry and is responsible for overseeing the entire El Aguila Project, including
our labor relations and construction progress. From 2001 until he
joined our company, Mr. Sanchez was the general manager for Ingenieria Y
Trituracion, a company that consulted with various companies regarding open pit
and underground mining operations and crushing plants. Mr. Sanchez
graduated from the University of Autonoma of Mexico with a degree in mining
engineering in 1975.
Director
Independence
Bill
Conrad and Isac Burstein are our independent directors under the definition set
forth in Rule 5605 of the Nasdaq Stock Market Rules. Mr. Conrad
is chairman of the Audit Committee and a member of the Compensation
Committee. William Reid, our Chief Executive Officer, is a member of
the Audit Committee and the Nominating Committee. David Reid, our
Executive Vice President, is a member of the Nominating and Compensation
Committee. By virtue of their service as our executive officers,
neither of these individuals meets the independence standards for committee
members set forth in the Nasdaq Stock Market Rules.
Compensation
Discussion and Analysis
The
individuals who served as our principal executive officer and principal
financial officer during the year ended December 31, 2009, as well as the other
individuals included on the Summary Compensation Table below, are referred to as
“named executive officers” throughout this Compensation Discussion and
Analysis.
39
Overview of Compensation Philosophy,
Objectives and Policies. We attempted to meet two main
objectives when we designed our executive and employee
compensation. First, the program is intended to be fully competitive
so that we may attract, motivate and retain talented executives and key
employees. Second, the program is intended to create an alignment of
interests between our executives and key employees, on the one hand, and our
shareholders, on the other, such that a portion of each executive’s or key
employee’s compensation consists of awards of stock options or restricted stock
grants. In this manner, if the price of our stock increases over
time, our executive officers, key employees and our shareholders will
benefit. The compensation program is designed to reward performance
that supports our principles of building shareholder value, and may also
recognize individual performance from time to time. The Compensation
Committee is vested with the authority to review and recommend the compensation
program structure and level of compensation for the executive officers,
directors and key employees of our company.
Our
present compensation structure for the named executive officers generally
consists of salary and incentive compensation. The incentive
component consists of a short-term cash portion and a long-term equity
portion. We believe the present structure achieves our compensation
objectives; however, the Compensation Committee is presently exploring
additional ways to ensure consistency and enhance our company’s compensation
program and may add additional components or policies in order to assist our
company in achieving its compensation goals more effectively or
efficiently. We believe that the present compensation structure
appropriately aligns the interests of the executives and key employees with our
shareholders by encouraging equity ownership through awards of stock options and
stock grants to executive officers and key employees and to motivate our named
executive officers and other key employees to contribute to an increase in
shareholder value. While equity ownership is highly encouraged, we do
not presently have a policy that requires our named executive officers or
directors to own shares of our stock.
Each
January, the Compensation Committee reviews and recommends to the Board the
level of compensation for the named executive officers and key
employees. Our Chief Executive Officer reports to the Committee
regarding the individual performance of the other named executive
officers. Additionally, the Committee considers recommendations from
the named executive officers regarding incentive compensation for key employees
who report to that executive officer.
Elements and Mix of
Compensation. Our consideration of base salary ranges for the
named executive officers are based upon a review of broad-based information
obtained from third parties as well as publicly disclosed compensation
information of members of our peer group. The Committee also takes
into account work experience, performance, level of responsibility, impact on
the business, tenure and potential for advancement within the organization when
making decisions about individual compensation packages. Annual
salaries for newly-hired executives are determined at the time of hire taking
into account the above factors other than tenure.
Cash
bonuses are a form of short-term incentive compensation which may be recommended
by the Compensation Committee in its discretion, based on individual and overall
company performance. There is no specific bonus plan or policy in
place setting forth timing of awards or establishing specific performance
objectives. The Compensation Committee, in its discretion, determines
and recommends the amounts and timing of any bonus awards. If
applicable and in the sole discretion of the Committee, a “merit-based” bonus
may be recommended based on criteria such as exceptional performance, assuming
additional responsibility without an increase in base compensation, or such
other criteria which the Committee may determine from time to time.
40
The
long-term equity compensation component of our compensation program is comprised
of equity awards and makes up a significant part of our named executive
officers’ compensation package. Under our Non-Qualified Stock Option
and Stock Grant Plan (“Plan”), we are authorized to issue non-qualified stock
options, to make grants of stock and award grants of restricted stock to the
officers, directors and key employees of our company, including the named
executive officers. There is no specific policy or procedure in place
setting forth timing or amount of awards, although the outstanding awards and
future compensation are reviewed at least annually. The Compensation
Committee, in its discretion, determines and recommends the amounts and timing
of any equity awards. The stock options are priced based on the
closing market price of our common stock on the grant date, which is the date
the Board approves the award. Due to our status as an exploration
stage company with no revenue, and our need to conserve working capital, we
believe our compensation structure is weighted more toward equity compensation
and less toward salary and other forms of cash compensation, with the exception
of our current Chief Financial Officer, who we contract with on an hourly basis
and who does not receive equity compensation.
Additional
benefits provided to executive officers and key employees as part of their
compensation packages include health, life and disability
insurance. To the extent the named executive officers participate in
these programs, they do so generally on the same basis as our other
employees. Our named executive officers do not receive perquisites
and we do not maintain any non-equity incentive plans or deferred compensation
plans.
The
compensation for our directors is structured similar to that of our named
executive officers. Specifically, the directors receive a combination
of cash and equity incentives in the form of stock grants or options to purchase
our common stock. The Compensation Committee reviews the form and
amount of such compensation periodically to insure that it is competitive and
meeting our objectives discussed above.
Specific Compensation
Decisions. Each of our named executive officers except our
Chief Financial Officer receives an annual salary under their terms of his
respective employment agreements. In addition, each of our named
executive officers except our Chief Financial Officer has received stock options
as part of their current compensation package.
In 2008,
our Compensation Committee recommended that we increase the base salaries of our
President and Chief Executive Officer and our Vice Presidents to remain
competitive amongst our peer group. As a result of this decision,
William Reid’s base salary increased from $240,000 to $300,000, David Reid’s
base salary increased from $170,000 to $212,000 and Jason Reid’s base salary
increased from $100,000 to $150,000. This was due primarily to a
sizeable increase in their responsibilities and workload due to the acceleration
of our commercial production timetable. The Compensation Committee
considered these increased demands and recommended we further compensate these
individuals with cash bonuses and equity compensation in the form of stock
options. The base salaries of the named executive officers (except
our Chief Financial Officer) are fixed pursuant to employment agreements with
the individuals and remained unchanged in 2009. No cash bonuses were
awarded during 2009.
On April
23, 2009, the Board approved the Compensation Committee’s recommendation of
additional equity compensation to the named executive officers in response to
the individuals’ efforts, as well as to further motivate them to increase
shareholder value. William Reid received 300,000 stock options, David
Reid received 250,000 stock options and Jason Reid received 200,000 stock
options. All of the 2009 awards consisted of non-qualified stock
options which vested immediately and expire 10 years from the date of
grant.
We
believe that these compensation packages, consisting of cash and equity
incentive compensation, will meet the objectives set forth
above. Specifically, we believe that the cash salary is competitive
and will serve to retain the individuals for the foreseeable
future. The stock options are designed to reward the individuals and
the inherent value in the options will help motivate him to further the
interests of our shareholders. The Compensation Committee also has
the ability to award discretionary cash incentive compensation in the form of
bonuses to the named executive officers.
41
Executive
Compensation
The
following table summarizes the total compensation of our named executive
officers for the three fiscal years ended December 31, 2009
:
Summary
Compensation Table
|
Name and
Principal Position
|
Year
|
Salary
|
Bonus
|
Stock
Awards
|
Option
Awards(2)
|
Non-Equity
Incentive
Plan
Compensation
|
All
Other
Compensation
|
Total
|
|||||||||||||||||||||
|
William
W. Reid,
|
2009
|
$ | 300,000 | $ | — | $ | — | $ | 772,551 | $ | — | $ | — | $ | 1,072,551 | ||||||||||||||
|
Chairman,
CEO
|
2008
|
300,000 | 100,000 | — | 450,848 | — | — | 850,848 | |||||||||||||||||||||
|
and
President(1)
|
2007
|
240,000 | 150,000 | — | — | — | — | 390,000 | |||||||||||||||||||||
|
Frank
L. Jennings,
|
2009
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | 115,117 | $ | 115,117 | ||||||||||||||
|
CFO
|
2008
|
— | — | — | — | — | 82,256 | 82,256 | |||||||||||||||||||||
|
2007
|
— | — | — | — | — | 49,185 | 49,185 | ||||||||||||||||||||||
|
David
C. Reid,
|
2009
|
$ | 212,000 | $ | — | $ | — | $ | 643,793 | $ | — | $ | — | $ | 855,793 | ||||||||||||||
|
Vice
President and
|
2008
|
212,000 | 100,000 | — | 450,848 | — | — | 762,848 | |||||||||||||||||||||
|
Director(1)
|
2007
|
170,000 | 100,000 | — | — | — | — | 270,000 | |||||||||||||||||||||
|
Jason
D. Reid
|
2009
|
$ | 150,000 | $ | — | $ | — | $ | 515,034 | $ | — | $ | — | $ | 665,034 | ||||||||||||||
|
Vice
President,
|
2008
|
150,000 | 100,000 | — | 721,357 | — | — | 971,357 | |||||||||||||||||||||
|
Corp.
Develop.
|
2007
|
100,000 | 75,000 | — | — | — | — | 175,000 | |||||||||||||||||||||
|
|
___________________
|
|
(1)
|
The
executive officer did not receive additional compensation for his service
as a director of our company.
|
|
(2)
|
Valued
using the Black-Scholes-Merton option pricing model. All
of the options awarded in 2009 and 2008 vested
immediately. Please refer to Note 6 of the consolidated
financial statements dated December 31, 2008, 2007 and 2006 and Note
5 of the consolidated financial statements dated September 30, 2009
included herein for certain assumptions made in connection with these
estimates.
|
Effective
January 1, 2008, in light of our successful progress to date and the additional
workload required as a result of our company’s construction and financing
activities, we amended our employment agreements with Messrs. William and David
Reid, and memorialized our employment arrangement with Jason Reid into a written
agreement. Each employment agreement is effective for a three-year
term. Pursuant to the terms of the agreements, William Reid is
entitled to an annual salary of $300,000, David Reid is entitled to an annual
salary of $212,000 and Jason Reid is entitled to an annual salary of $150,000.
Each individual
also participates in health and other insurance programs that we
maintain. The employment agreements are automatically renewable for
one-year terms on each successive anniversary of the expiration date unless
either party gives notice to the other that they do not wish to renew the
agreement, not less than 120 days prior to expiration.
Pursuant
to the terms of the employment agreements, the employee would be entitled to
certain payments in the event their employment is terminated under certain
circumstances. If we terminate the agreement without cause, or if the
executive officer terminates the agreement “with good reason,” we would be
obligated to pay thirty-five months’ of compensation in accordance with our
regular pay schedule. Termination by an executive officer with good
reason includes a “change in control.”
In 2008
and 2007, each of our executive officers was awarded a cash bonus. No
cash bonuses were awarded in 2009. We do not maintain a bonus plan
and the awards were granted at the discretion of the Board of
Directors. The Compensation Committee of the Board recommended that
bonuses were merited primarily because each officer made a significant
individual contribution in an effort to advance our property toward production
and to secure the requisite funding. The awards for each of Messrs.
William and David Reid were approved by the disinterested members of the
Board.
42
On April
23, 2009, we granted non-qualified stock options to each of our executive
officers in accordance with our Plan. William Reid received 300,000
options, David Reid received 250,000 options and Jason Reid received 200,000
options to purchase shares of our common stock for $3.95 per
share. All of the 2009 awards vested immediately and expire 10 years
from the date of grant. Non-qualified stock options were also awarded
to our executive officers on February 22, 2008. William and David
Reid each received 250,000 options and Jason Reid received 400,000 options to
purchase shares of our common stock for $3.40 per share. Those
options also vested immediately and expire 10 years from the date of
grant. The value of these awards, determined using the
Black-Scholes-Merton option pricing model, is included in each officer’s total
compensation as set forth in the table above.
In
addition to our executive officers, we engage two consultants on a regular
basis. Jose Perez Reynoso is the manager of our operations in Mexico
and is paid at the rate of $10,000 per month. Frank Jennings, our
financial consultant, is paid on an hourly basis. We do not have a
written agreement with either consultant.
Grants
of Plan-Based Awards
The
grants of plan-based awards under our Plan to each named executive officer
during the year ended December 31, 2009 are as follows:
|
Estimated
Future Payouts
Under
Non-Equity Incentive
Plan
Awards
|
Estimated
Future Payouts
Under
Equity Incentive
Plan
Awards
|
|||||||||||||||||||||||||||||||||||||||||
|
Name
|
Grant
Date
|
Threshold
|
Target
|
Maximum
|
Threshold(1)
|
Target
|
Maximum
|
All
Other
Stock
Awards:
Number
of
Shares
of
Stocks
or
Units
|
All
Other
Option
Awards:
Number
of
Securities
Underlying
Options
|
Exercise
or
Base
Price
of
Option
Awards
|
Grant
Date
Fair
Value
of
Stock
and
Option
Awards(2)
|
|||||||||||||||||||||||||||||||
|
($)
|
($)
|
($)
|
(#) | (#) | (#) | (#) | (#) |
($/sh)
|
($)
|
|||||||||||||||||||||||||||||||||
|
William
W. Reid
|
4/23/2009
|
— | — | — | 300,000 | 300,000 | — | — | — | $ | 3.95 | $ | 772,551 | |||||||||||||||||||||||||||||
|
David
C. Reid
|
4/23/2009
|
— | — | — | 250,000 | 250,000 | — | — | — | 3.95 | 643,793 | |||||||||||||||||||||||||||||||
|
Jason
D. Reid
|
4/23/2009
|
— | — | — | 200,000 | 200,000 | — | — | — | 3.95 | 515,034 | |||||||||||||||||||||||||||||||
___________________
|
(1)
|
All
of the options granted in 2009 vested
immediately.
|
|
(2)
|
Calculated
using the Black-Scholes-Merton option pricing model based on the maximum
number of options that may vest under the award. Please see
Note 6 to the consolidated financial statements dated
December 31, 2008, 2007 and 2006 and Note 5 to the consolidated
financial statements dated September 30, 2009 included herein for a
description of certain assumptions made in connection with the valuation
of these option awards.
|
As
discussed above, each named executive officer was awarded stock options during
2009 to purchase shares of our common stock for $3.95 per share. The
options vested immediately and expire 10 years from the date of
grant.
Outstanding
Equity Awards at Fiscal Year-End
The
following table summarizes the amount of our executive officers' equity-based
compensation outstanding at the fiscal year ended December 31,
2009:
43
|
Option
Awards
|
Stock
Awards
|
||||||||||||||||||||||||||||||||
|
Name
|
Number
of Securities Underlying Unexercised Options Exercisable(1)
|
Number
of Securities Underlying Unexercised Options
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
|
Option
Exercise
Price
|
Option
Expiration
Date
|
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
|
Market
Value
of
Shares
Or
Units That Have Not Vested
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
That Have Not Vested
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
Other Rights That Have Not Vested
|
||||||||||||||||||||||||
| (#) | (#) | (#) |
($)
|
(#) | (#) | (#) |
($)
|
||||||||||||||||||||||||||
|
William
W. Reid
|
400,000 | 0 | 0 | $0.25 |
10/9/2013
|
— | — | — | — | ||||||||||||||||||||||||
|
William
W. Reid
|
400,000 | 0 | 0 | 0.25 |
4/22/2014
|
— | — | — | — | ||||||||||||||||||||||||
|
William
W. Reid
|
250,000 | 0 | 0 | 3.40 |
2/22/2018
|
— | — | — | — | ||||||||||||||||||||||||
|
William
W. Reid
|
300,000 | 0 | 0 | 3.95 |
4/23/2019
|
— | — | — | — | ||||||||||||||||||||||||
|
David
C. Reid
|
400,000 | 0 | 0 | 0.25 |
10/9/2013
|
— | — | — | — | ||||||||||||||||||||||||
|
David
C. Reid
|
200,000 | 0 | 0 | 0.25 |
4/22/2014
|
— | — | — | — | ||||||||||||||||||||||||
|
David
C. Reid
|
250,000 | 0 | 0 | 3.40 |
2/22/2018
|
— | — | — | — | ||||||||||||||||||||||||
|
David
C. Reid
|
250,000 | 0 | 0 | 3.95 |
4/23/2019
|
— | — | — | — | ||||||||||||||||||||||||
|
Jason
D. Reid
|
400,000 | 0 | 0 | 3.40 |
2/22/2018
|
— | — | — | — | ||||||||||||||||||||||||
|
Jason
D. Reid
|
200,000 | 0 | 0 | 3.95 |
4/23/2019
|
— | — | — | — | ||||||||||||||||||||||||
|
|
___________________
|
|
(1)
|
The
options vested immediately as of the date of
grant.
|
In 2003,
William and David Reid each received a stock option award of 400,000 options to
purchase shares of common stock for $0.25 per share. The options
vested immediately and expire 10 years from the date of grant. In
2004, William Reid received a stock option award of 400,000 additional options
and David Reid received a stock option award of 200,000 additional options to
purchase common stock for $0.25 per share. Each option award vested
immediately and expires 10 years from the date of grant. Messrs.
William and David Reid have not exercised any of these options.
On May
30, 2006, Jason Reid was granted 600,000 options to purchase our common stock
for $1.00 per share prior to March 3, 2009 upon accepting employment as
Corporate Development Assistant. The options vested
immediately. Jason Reid exercised 87,000 options during 2008 and the
remainder of these options in 2009.
On
February 22, 2008, we granted stock options to each of our executive
officers. William and David Reid each received 250,000 options and
Jason Reid received 400,000 options to purchase shares of our common stock for
$3.40 per share. The options vested immediately and expire 10 years
from the date of grant. These options were given as additional compensation to
these individuals in recognition of their efforts to build value for the
company.
On April
23, 2009, we granted stock options to each executive officer. William
Reid received 300,000 options, David Reid received 250,000 options and Jason
Reid received 200,000 options to purchase shares of our common stock for $3.95
per share. All of the 2009 awards consisted of non-qualified stock
options which vested immediately and expire 10 years from the date of
grant.
44
Option
Exercises and Stock Vested
The
following table summarizes the option exercises by and stock awards vested for
the benefit of the named executive officers during the fiscal year ended
December 31, 2009:
|
Option
Awards
|
Stock
Awards
|
|||||||||||||||
|
Name
|
Number
of Shares Acquired on Exercise
|
Value
Realized
on Exercise
|
Number
of Shares Acquired on Vesting
|
Value
Realized
on Vesting
|
||||||||||||
| (#) |
($)
|
(#) |
($)
|
|||||||||||||
|
Jason
D. Reid
|
513,000 | $1,796,956 | — | — | ||||||||||||
Director
Compensation
In June
2006, we retained Bill Conrad to serve on our Board of Directors. At
the time of his appointment, Mr. Conrad received a stock grant of 100,000 shares
of unrestricted common stock valued at $1.00 per share and options to acquire up
to 500,000 shares of stock exercisable on or before March 3, 2009 for $1.00 per
share, all of which immediately vested. Mr. Conrad exercised 100,000
options during 2008 and exercised the remaining options in 2009. In
April 2009, Isac Burstein was appointed to our Board. In connection
with his appointment, we granted 100,000 options to Mr. Burstein to purchase
shares of our common stock for $3.95 per share. The options were
immediately vested and expire 10 years from the grant date.
We pay
our directors who are not also one of our executive officers a monthly cash
retainer fee. Mr. Conrad receives $5,000 per month and Mr. Burstein
receives $3,000 per month. On April 23, 2009, we also granted to Mr.
Conrad 150,000 stock options to purchase shares of our common stock for $3.95
per share. The options vested immediately and expire 10 years from
the date of grant. This option was awarded to Mr. Conrad in
recognition of his significant contribution to building value for the
company. No cash bonuses were awarded to our directors during
2009.
The table
below summarizes the compensation of our directors who are not also one of our
executive officers and whose compensation is not disclosed in the Summary
Compensation Table, for the fiscal year ended December 31, 2009:
|
Name
|
Fees
Earned or Paid
in
Cash
|
Stock
Awards
|
Option Awards(1)
|
Non-Equity
Incentive Plan Compensation
|
All
Other
Compensation
|
Total
|
||||||||||||||||||
|
Bill
M. Conrad
|
$ | 60,000 | $ | — | $ | 386,276 | $ | — | $ | — | $ | 446,276 | ||||||||||||
|
Isac
Burstein
|
27,000 | — | 257,517 | — | — | 284,517 | ||||||||||||||||||
|
|
___________________
|
|
(1)
|
Valued
using the Black-Scholes-Merton option pricing model. Please
refer to Note 6 to the consolidated financial statements dated
December 31, 2008, 2007 and 2006 and Note 5 to the consolidated
financial statements dated September 30, 2009 included in this prospectus
for certain assumptions made in connection with these
estimates. Mr. Conrad received 100,000 options which vested
immediately in 2008.
|
All
directors are reimbursed for reasonable and necessary expenses incurred in their
capacities as such.
Compensation
Committee Interlocks and Insider Participation
The
Compensation Committee is comprised of David Reid and Bill
Conrad. During the last completed fiscal year, David Reid served as
our executive vice president.
45
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
As of
January 20, 2010, there are a total of 48,050,284 shares of our common stock
outstanding, our only class of voting securities currently
outstanding. The following table describes the ownership of our
voting securities by: (i) each of our officers and directors; (ii) all of our
officers and directors as a group; and (iii) each shareholder known to us to own
beneficially more than 5% of our common stock. Unless otherwise
stated, the address of each of the individuals is our address, 222 Milwaukee
Street, Suite 301, Denver, Colorado 80206. All ownership is direct,
unless otherwise stated.
In
calculating the percentage ownership for each shareholder, we assumed that any
options owned by an individual exercisable within 60 days is exercised, but not
the options owned by any other individual. Certain information
regarding the ownership of shareholders believed to beneficially own more than
5% of our common stock has been obtained from reports filed by these
shareholders with the SEC.
|
Shares
Beneficially Owned
|
||||||||
|
Name and Address of Beneficial
Owner
|
Number
|
Percentage (%)
|
||||||
|
William
W. Reid(1)
|
4,789,150 | (4)(5) | 9.7% | |||||
|
David
C. Reid(1)
|
4,589,439 | (6) | 9.3% | |||||
|
Bill
M. Conrad(2)
|
532,860 | (7) | 1.1% | |||||
|
Isac
Burstein (2)
Calle
La Colonia 180
Surco,
Lima 33, Peru
|
100,000 | (8) | 0.2% | |||||
|
Frank
Jennings
(3)
|
0 | 0% | ||||||
|
Jason
Reid(3)
|
1,221,043 | (9)(10) | 2.5% | |||||
|
Beth
Reid
|
4,789,150 | (11) | 9.7% | |||||
|
Tocqueville
Asset Management, L.P.
40
West 57th Street, 19th Floor
New
York, NY 10019
|
3,652,476 | 7.6% | ||||||
|
Hochschild
Mining Holdings Limited
Calle
La Colonia 180
Surco,
Lima 33, Peru
|
12,954,795 | 27.0% | ||||||
|
All
officers and directors as a group (6 persons)
|
11,232,492 | (4)(5)(6)(7)(8)(9)(10) | 21.8% | |||||
___________________
| (1) |
Officer
and director.
|
| (2) |
Director.
|
| (3) |
Officer.
|
| (4) |
Includes
options to purchase 1,350,000 shares which are currently
exercisable.
|
| (5) |
Includes
1,258,556 shares owned by the reporting person's spouse, of which he
disclaims beneficial ownership.
|
| (6) |
Includes
options to purchase 1,100,000 shares which are currently
exercisable.
|
| (7) |
Includes
options to purchase 250,000 shares which are currently
exercisable.
|
| (8) |
Includes
options to purchase 100,000 shares which are currently
exercisable.
|
| (9) |
Includes
options to purchase 600,000 shares which are currently
exercisable.
|
| (10) |
Includes
200,682 shares owned by the reporting person's spouse, of which he
disclaims beneficial ownership.
|
| (11) |
Includes
2,180,594 shares and 1,350,000 shares underlying options owned by the
reporting person's spouse, of which she disclaims beneficial
ownership.
|
46
Changes
in Control
We
entered into a strategic alliance agreement with Hochschild, a significant
shareholder of our company, in 2008. Pursuant to the terms of the
strategic alliance, Hochschild has the right to acquire our common stock in the
market over the next two years such that the ownership of Hochschild, including
stock acquired from us, does not execeed 40% in the aggregate. We
also agreed to appoint up to two nominees of Hochschild to our Board of
Directors, depending upon its level of ownership. Hochschild has a
right of first refusal to participate in future financing transactions, and
after the expiration of a two-year standstill provision, Hochschild is not
restricted from acquiring additional shares of our common stock, which may
result in a change in control of our company.
Certain
Relationships and Related Transactions
There
were no related party transactions or proposed transactions during our most
recently completed fiscal year.
Our
Articles of Incorporation and Bylaws provide that we must indemnify, to the
fullest extent permitted by Colorado law, any of our directors, officers,
employees or agents made or threatened to be made a party to a proceeding, by
reason of the person serving or having served in a capacity as such, against
judgments, penalties, fines, settlements and reasonable expenses incurred by the
person in connection with the proceeding if certain standards are met. At
present, there is no pending litigation or proceeding involving any of our
directors, officers, employees or agents where indemnification will be required
or permitted. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and controlling
persons pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
The
Colorado Business Corporation Act (the “CBCA”) allows indemnification of
directors, officers, employees and agents of a company against liabilities
incurred in any proceeding in which an individual is made a party because he was
a director, officer, employee or agent of the company if such person conducted
himself in good faith and reasonably believed his actions were in, or not
opposed to, the best interests of the company, and with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. A person must be found to be entitled to indemnification under this
statutory standard by procedures designed to assure that disinterested members
of the board of directors have approved indemnification or that, absent the
ability to obtain sufficient numbers of disinterested directors, independent
counsel or shareholders have approved the indemnification based on a finding
that the person has met the standard. Indemnification is limited to reasonable
expenses.
Our
Articles of Incorporation limit the liability of our directors to the fullest
extent permitted by the CBCA. Specifically, our directors will not be personally
liable for monetary damages for breach of fiduciary duty as directors, except
for:
|
·
|
any
breach of the duty of loyalty to our company or our
stockholders;
|
|
·
|
acts
or omissions not in good faith or that involved intentional misconduct or
a knowing violation of law;
|
|
·
|
dividends
or other distributions of corporate assets that are in contravention of
certain statutory or contractual
restrictions;
|
|
·
|
violations
of certain laws; or
|
|
·
|
any
transaction from which the director derives an improper personal
benefit.
|
Liability
under federal securities law is not limited by the Articles.
47
On behalf
of certain of our shareholders, we have agreed to file a registration statement
with the SEC covering the resale of our common stock as described in the table
below. At the time of the filing of the original registration statement relating
to this amendment, the shares offered by the selling shareholders were all of
our outstanding shares that had been held by our shareholders for less than two
years except some of the shares held by our officers and a member of their
family. We have also agreed to use our best efforts to keep the registration
statement effective and update the prospectus until the securities owned by the
selling shareholders have been sold or may be sold without registration or
prospectus delivery requirements under the Securities Act. We will pay the costs
and fees of registering the shares, but the selling shareholders will pay any
brokerage commissions, discounts or other expenses relating to the sale of the
shares.
The
registration statement which we have filed with the SEC, of which this
prospectus forms a part, covers the resale of our common stock by the selling
shareholders from time to time under Rule 415 of the Securities Act. Our
agreement with the selling shareholders is designed to provide those
shareholders some liquidity in their ownership of common stock and to permit
secondary public trading of our securities. The selling shareholders may offer
our securities covered under this prospectus for resale from time to time. The
selling shareholders may also sell, transfer or otherwise dispose of all or a
portion of our securities in transactions exempt from the registration
requirements of the Securities Act. (See “PLAN OF
DISTRIBUTION”).
The table
below presents information as of January 20, 2010 regarding the selling
shareholders and our common stock that the selling shareholders may offer and
sell from time to time under this prospectus. The table is prepared based on
information supplied to us by those shareholders. Although we have assumed, for
purposes of the table below, that the selling shareholders will sell all of the
securities offered by this prospectus, because they may offer all or some of the
securities in transactions covered by this prospectus or in another manner, no
assurance can be given as to the actual number of shares that will be resold by
the selling shareholders. Information covering the selling shareholders may
change from time to time, and changed information will be presented in a
supplement to this prospectus if and when required. If we are advised of a
change in selling shareholders and the new selling shareholders, any pledges,
donees or transferees wish to rely upon this prospectus in the resale of their
shares, we will file an amendment to the registration statement of which this
prospectus is a part. Except as described above, there are no agreements,
arrangements or understandings with respect to resale of any of the securities
covered by this prospectus.
|
Number
of Shares Owned Prior
|
Number
of Shares to be
|
Shares
Owned
After
Offering
|
|||||
|
Name
of Selling Shareholder
|
to
the Offering
|
Offered(1)
|
Number
(#)
|
Percent
%)
|
|||
|
Beth
Reid(2)
|
1,540,200
|
(3)
|
340,200
|
1,200,000
|
3.5
|
||
|
David
C. Reid(4)
|
3,554,039
|
(5)
|
842,500
|
2,711,539
|
7.9
|
||
|
Heemskirk
Consolidated Limited(6)
|
1,350,000
|
1,350,000
|
0
|
*
|
|||
|
William
F. Pass(7)
|
1,321,207
|
(5)
|
1,321,207
|
0
|
*
|
||
|
ROYTOR
& CO.(8)
|
1,200,000
|
1,200,000
|
0
|
*
|
|||
|
Jose
Perez Reynoso(9)
|
485,000
|
485,000
|
0
|
*
|
|||
|
Don
I. and Dorothera Philips
|
480,000
|
240,000
|
240,000
|
*
|
|||
|
Philip
Katz
|
400,000
|
400,000
|
0
|
*
|
|||
|
David
F. Wersebe
|
256,000
|
176,000
|
80,000
|
*
|
|||
|
Declan
J. Costelloe
|
218,500
|
178,500
|
40,000
|
*
|
|||
|
J.
Paul Consulting Corporation(10)
|
200,000
|
200,000
|
0
|
*
|
|||
|
Ciliamarie
F. McGinnis Trust(11)
|
120,000
|
20,000
|
100,000
|
*
|
48
|
Patrick
Bartz
|
52,000
|
40,000
|
12,000
|
*
|
|||
|
Thomas
W. and Marjorie G. Clarke
|
50,000
|
50,000
|
0
|
*
|
|||
|
Jeff
Bailey
|
75,000
|
15,000
|
60,000
|
*
|
|||
|
Jack
Noble
|
40,000
|
40,000
|
0
|
*
|
|||
|
Don
I. and Thomas Phillips
|
40,000
|
28,000
|
12,000
|
*
|
|||
|
Virgil
and Jeane Lamb
|
40,000
|
40,000
|
0
|
*
|
|||
|
Anthony
R. McGinnis
|
30,000
|
10,000
|
20,000
|
*
|
|||
|
Lee
C. Pegorsch
|
20,000
|
20,000
|
0
|
*
|
|||
|
R.
Brock Silverstein
|
20,000
|
20,000
|
0
|
*
|
|||
|
Carolyn
P. McFarland
|
10,000
|
10,000
|
0
|
*
|
|||
|
Allee
Messina
|
10,000
|
10,000
|
0
|
*
|
|||
|
Jeffrey
R. Pass
|
37,000
|
37,000
|
0
|
*
|
|||
|
Daniel
C. Pass
|
36,500
|
36,500
|
0
|
*
|
|||
|
Molly
B. Pass
|
36,500
|
36,500
|
0
|
*
|
|||
|
Claude
W. & Elizabeth Pass
|
5,000
|
5,000
|
0
|
*
|
|||
|
John
T. Upmeier
|
2,500
|
2,500
|
0
|
*
|
|||
|
Tim
Sullivan
|
15,000
|
15,000
|
0
|
*
|
|||
|
Darleen
M. Upmeier
|
2,500
|
2,500
|
0
|
*
|
|||
|
Jennifer
A.C. Eis
|
2,500
|
2,500
|
0
|
*
|
|||
|
Deborah
M. Bangoli
|
2,500
|
2,500
|
0
|
*
|
|||
|
Rebecca
Perez Reynoso
|
95,000
|
95,000
|
0
|
*
|
|||
|
Kennith
D. & Martha E. Pearson
|
20,000
|
20,000
|
0
|
*
|
|||
|
Sean
C. McGinnis
|
2,000
|
2,000
|
0
|
*
|
|||
|
TOTAL:
|
7,293,407
|
|
|
____________________
|
|
*
|
Less than
1%
|
|
(1)
|
Assumes that all of the shares
offered hereby are sold, of which there is no
assurance.
|
|
(2)
|
Beth Reid is the spouse of
William Reid. William Reid has been an officer and director of our company
since inception.
|
|
(3)
|
Excludes shares owned by the
selling shareholder's
spouse.
|
|
(4)
|
David Reid has been an officer
and director of our company since
inception.
|
|
(5)
|
Excludes stock options owned by
the selling shareholder.
|
|
(6)
|
The selling shareholder has
identified Kevin Robinson as the individual with the power to vote and
dispose of these shares.
|
|
(7)
|
William
Pass is a former financial consultant to our
company.
|
(8) ROYTOR has identified Frode Aschim as
the individual with the power to vote and dispose of these
shares.
|
(9)
|
Jose Perez Reynoso acts as a
consultant to our company.
|
|
(10)
|
The selling shareholder has
identified Jeff Ploen as the individual with the power to vote and dispose
of these shares.
|
|
(11)
|
The selling shareholder has
identified Ciliamarie F. McGinnis as the individual with the power to vote
and dispose of these shares.
|
___________________________
Except as
otherwise noted in the table above and to the best of our knowledge, the selling
shareholders are not associated with or affiliates of United States
broker-dealers, and at the time of purchase the selling shareholders purchased
the securities in the ordinary course of business and did not have any
agreements or understandings, directly or indirectly, with any persons to
distribute or dispose of the securities. Further, except as otherwise
stated, none of the selling shareholders have any relationship to our company,
except as a shareholder.
49
The
selling shareholders and their pledgees, donees, transferees or other successors
in interest may offer the shares of our common stock from time to time after the
date of this prospectus and will determine the time, manner and size of each
sale in the over the counter market, in privately negotiated transactions or
otherwise. The shares may be offered at prices prevailing in the
market or at privately negotiated prices. The selling shareholders
may negotiate, and may pay, brokers or dealers commissions, discounts or
concessions for their services. In effecting sales, brokers or
dealers engaged by the selling shareholders may allow other brokers or dealers
to participate. However, the selling shareholders and any brokers or
dealers involved in the sale or resale of the shares may qualify as
“underwriters” within the meaning of Section 2(a)(11) of the Securities Act. In
addition, the brokers’ or dealers’ commissions, discounts or concessions may
qualify as underwriters' compensation under the Securities Act.
The
methods by which the selling shareholders may sell the shares of our common
stock include:
|
·
|
A
block trade in which a broker or dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block, as
principal, in order to facilitate the transaction;
|
|
·
|
Sales
to a broker or dealer, as principal, in a market maker capacity or
otherwise and resale by the broker or dealer for its
account;
|
|
·
|
Ordinary
brokerage transactions and transactions in which a broker solicits
purchases;
|
|
·
|
Privately
negotiated transactions;
|
|
·
|
Short
sales;
|
|
·
|
Any
combination of these methods of sale;
or
|
|
·
|
Any
other legal method.
|
In
addition to selling their shares under this prospectus, the selling shareholders
may transfer their shares in other ways not involving market makers or
established trading markets, including directly by gift, distribution, or other
transfer, or sell their shares under Rule 144 of the Securities Act rather than
under this prospectus, if the transaction meets the requirements of Rule
144. Any selling shareholder who uses this prospectus to sell his
shares will be subject to the prospectus delivery requirements of the Securities
Act.
Regulation
M under the Securities Exchange Act of 1934 provides that during the period that
any person is engaged in the distribution of our shares of common stock, as
defined in Regulation M, such person generally may not purchase our common
stock. The selling shareholders are subject to these restrictions,
which may limit the timing of purchases and sales of our common stock by the
selling shareholders. This may affect the marketability of our common
stock.
The
selling shareholders may use agents to sell the shares. If this happens, the
agents may receive discounts or commissions. The selling shareholders
do not expect these discounts and commissions to exceed what is customary for
the type of transaction involved. If required, a supplement to his prospectus
will set forth the applicable commission or discount, if any, and the names of
any underwriters, brokers, dealers or agents involved in the sale of the
shares. The selling shareholders and any underwriters, brokers,
dealers or agents that participate in the distribution of our common stock
offered hereby may be deemed to be “underwriters” within the meaning of the
Securities Act, and any profit on the sale of shares by them and any discounts,
commissions, concessions or other compensation received by them may be deemed to
be underwriting discounts and commissions under the Securities
Act. The selling shareholders may agree to indemnify any broker or
dealer or agent against certain liabilities relating to the selling of the
shares, including liabilities arising under the Securities Act.
50
Upon
notification by the selling shareholders that any material arrangement has been
entered into with a broker or dealer for the sale of the shares through a block
trade, special offering, exchange distribution or secondary distribution or a
purchase by a broker or dealer, we will file a supplement to this prospectus, if
required, pursuant to Rule 424(b) under the Securities Act, disclosing the
material terms of the transaction.
Our
authorized capital consists of 60,000,000 shares of common stock, $.001 par
value per share, and 5,000,000 shares of preferred stock, $.001 per
share. As of January 20, 2010, we had 48,050,284 shares of common
stock issued and outstanding, and no shares of preferred stock
outstanding.
The
following discussion summarizes the rights and privileges of our capital
stock. This summary is not complete, and you should refer to our
Articles of Incorporation, as amended, which have been filed as an exhibit to
the registration statement of which this prospectus forms a part.
Common
Stock
The
holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to stockholders, including the election of
directors. Cumulative voting for directors is not
permitted. Except as provided by special agreement, the holders of
common stock are not entitled to any preemptive rights and the shares are not
redeemable or convertible. All outstanding common stock is, and all
common stock offered hereby will be, when issued and paid for, fully paid and
nonassessable. The number of authorized shares of common stock may be
increased or decreased (but not below the number of shares then outstanding or
otherwise reserved under obligations for issuance by us) by the affirmative vote
of a majority of shares cast at a meeting of our shareholders at which a quorum
is present.
Our
Articles of Incorporation and Bylaws do not include any provision that would
delay, defer or prevent a change in control of our company. However,
as a matter of Colorado law, certain significant transactions would require the
affirmative vote of a majority of the shares eligible to vote at a meeting of
shareholders which requirement could result in delays to or greater cost
associated with a change in control of the company.
The
holders of our common stock are entitled to dividends if, as and when declared
by our Board of Directors from legally available funds, subject to the
preferential rights of the holders of any outstanding preferred
stock. Upon any voluntary or involuntary liquidation, dissolution or
winding up of our affairs, the holders of our common stock are entitled to
share, on a pro rata basis, all assets remaining after payment to creditors and
prior to distribution rights, if any, of any series of outstanding preferred
stock.
Preferred
Stock
Our
Articles of Incorporation vest our Board of Directors with authority to divide
the preferred stock into series and to fix and determine the relative rights and
preferences of the shares of any such series so established to the full extent
permitted by the laws of the State of Colorado and our Articles of Incorporation
in respect to, among other things, (i) the number of shares to constitute such
series and the distinctive designations thereof; (ii) the rate and preference of
dividends, if any, the time of payment of dividends, whether dividends are
cumulative and the date from which any dividend shall accrue; (iii) whether
preferred stock may be redeemed and, if so, the redemption price and the terms
and conditions of redemption; (iv) the liquidation preferences payable on
preferred stock in the event of involuntary or voluntary liquidation; (v)
sinking fund or other provisions, if any, for redemption or purchase of
preferred stock; (vi) the terms and conditions by which preferred stock may be
converted, if the preferred stock of any series are issued with the privilege of
conversion; and (vii) voting rights, if any.
51
As of the
date of this prospectus, we have not designated or authorized any preferred
stock for issuance.
Restrictions on Future Sales of Our
Common Stock
Under the
terms of our strategic alliance agreement with Hochschild, we are obligated to
offer that entity the first right of refusal to participate in future equity
financing solicited by us at any time prior to commencement of commercial
mineral production. Additionally, we granted Hochschild preemptive
rights to participate in certain transactions involving the sale of our equity
securities to purchase an amount of additional common stock equal at any time to
its pro rata interest in our company at that time. Hochschild’s
preemptive rights apply to any future equity financings other than (i) under any
stock option plan; (ii) pursuant to the exercise of options under any stock
option plan; (iii) upon the exercise, exchange or conversion of any convertible
securities; or (iv) for property other than money.
Sales of
substantial amounts of common stock (including shares issued upon the exercise
of outstanding options) in the public market after this offering could cause the
market price of our common stock to decline. Those sales also might
make it more difficult for us to sell equity-related securities in the future or
reduce the price at which we could sell any equity-related
securities.
In May
2006, the SEC declared effective a registration statement covering the resale of
approximately 8,900,000 shares of common stock by the selling shareholders named
in this prospectus, as well as 4,600,000 shares sold by us. In
February 2007 and January 2008, the SEC also declared effective registration
statements covering the resale of approximately 5,860,000 and 11,133,000 shares
of common stock, respectively, by the selling shareholders named
therein. In December 2008 and on several occasions in 2009, we issued
a total of 12,954,795 shares of restricted common stock to Hochschild as part of
a strategic alliance agreement. Of the outstanding shares which were
not registered in this prospectus or the February 2007 and February 2008
registrations, all of our outstanding shares of common stock except the shares
issued to Hochschild are immediately eligible for sale under Rule
144.
Rule
144
In
general, under Rule 144 as currently in effect, a person who is not an affiliate
of our company holding restricted securities that were not acquired from us or
an affiliate of our company within the previous year would be entitled to sell
those shares free of any restrictions. An affiliate of our company
would be entitled to sell, within any three-month period, a number of shares
that does not exceed the greater of:
|
·
|
1%
of the then outstanding shares of our common stock,
or
|
|
·
|
the
average weekly trading volume of our common stock during the four calendar
weeks preceding the date of proposed
sale.
|
Sales by
affiliates under Rule 144 are also subject to requirements relating to manner of
sale and filing of notice with the SEC.
52
You may
read and copy any document we file at the SEC's Public Reference Rooms at 100 F
Street, N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the Public Reference
Rooms. You can also obtain copies of our SEC filings by going to the
SEC's website at http://www.sec.gov.
We have
filed with the SEC a registration statement on Form SB-2 to register the shares
of our common stock. This prospectus is part of that registration
statement and, as permitted by the SEC's rules, does not contain all of the
information set forth in the registration statement. For further
information about us or our common stock, you may refer to the registration
statement and to the exhibits filed as part of the registration
statement. The description of all agreements or the terms of those
agreements contained in this prospectus are specifically qualified by reference
to the agreements, filed or incorporated by reference in the registration
statement.
We will
provide copies of our reports and other information which we file with the SEC
without charge to each person who receives a copy of this
prospectus. Your request for this information should be directed to
our President, William Reid, at our corporate office in Denver,
Colorado. You can also review this information at the public
reference rooms of the SEC and on the SEC's website as described
above.
We have
been advised on the legality of the shares included in this prospectus by
Dufford & Brown, P.C., of Denver, Colorado.
Our
financial statements as of December 31, 2008 and for the three years then ended
included in this prospectus have been included in reliance on the reports of
Stark Winter Schenkein & Co., LLP, our independent registered public
accounting firm. These financial statements have been included on the
authority of this firm as an expert in auditing and accounting.
53
GOLD RESOURCE CORPORATION AND SUBSIDIARIES
GOLD RESOURCE CORPORATION AND SUBSIDIARIES
GOLD RESOURCE CORPORATION AND SUBSIDIARIES
GOLD RESOURCE CORPORATION AND SUBSIDIARIES
GOLD RESOURCE CORPORATION AND SUBSIDIARIES
GOLD RESOURCE CORPORATION AND SUBSIDIARIES
GOLD RESOURCE CORPORATION AND SUBSIDIARIES
GOLD RESOURCE CORPORATION AND SUBSIDIARIES
F-23
F-24
F-25
F-26
F-27
F-28
F-29
F-32
F-33
II-1
INDEX TO FINANCIAL STATEMENTS
F-1
GOLD RESOURCE CORPORATION AND SUBSIDIARIES
(An Exploration Stage
Company)
CONSOLIDTED BALANCE
SHEETS
|
September
30,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
(unaudited)
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 7,230,370 | $ | 3,534,578 | ||||
|
Restricted
cash
|
4,005,479 | - | ||||||
|
Other
current assets
|
37,845 | 202,890 | ||||||
|
Total
current assets
|
11,273,694 | 3,737,468 | ||||||
|
Land
and mineral rights
|
273,477 | 226,610 | ||||||
|
Property
and equipment - net
|
1,157,221 | 812,219 | ||||||
|
Other
assets
|
8,572 | 4,721 | ||||||
|
Total
assets
|
$ | 12,712,964 | $ | 4,781,018 | ||||
|
LIABILITIES AND SHAREHOLDERS'
EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable and accrued expenses
|
$ | 589,747 | $ | 1,753,285 | ||||
|
Total
current liabilities
|
589,747 | 1,753,285 | ||||||
|
Shareholders'
equity:
|
||||||||
|
Preferred
stock - $0.001 par value, 5,000,000 shares authorized:
|
||||||||
|
no
shares issued and outstanding
|
- | - | ||||||
|
Common
stock - $0.001 par value, 60,000,000 shares authorized:
|
||||||||
|
46,095,489
and 36,087,556 shares issued and outstanding, respectively
|
46,095 | 36,088 | ||||||
|
Additional
paid-in capital
|
79,420,803 | 43,686,779 | ||||||
|
(Deficit)
accumulated during the exploration stage
|
(67,752,496 | ) | (40,688,414 | ) | ||||
|
Other
comprehensive income (loss):
|
||||||||
|
Currency
translation adjustment
|
408,815 | (6,720 | ) | |||||
|
Total
shareholders' equity
|
12,123,217 | 3,027,733 | ||||||
|
Total
liabilities and shareholders' equity
|
$ | 12,712,964 | $ | 4,781,018 | ||||
The accompanying notes are an integral part of
these financial statements.
F-2
GOLD RESOURCE CORPORATION AND
SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF
OPERATIONS
for
the three months ended September 30, 2009 and 2008
(Unaudited)
|
2009
|
2008
|
|||||||
|
Revenues:
|
||||||||
|
Gold
sales
|
$ | - | $ | - | ||||
|
Costs
and Expenses:
|
||||||||
|
Property
exploration and evaluation
|
1,888,828 | 2,376,136 | ||||||
|
Engineering
and construction
|
7,132,056 | 2,429,956 | ||||||
|
General
and administrative
|
578,544 | 370,887 | ||||||
|
Depreciation
|
41,926 | 40,446 | ||||||
|
Total
costs and expenses
|
9,641,354 | 5,217,425 | ||||||
|
Operating
(loss)
|
(9,641,354 | ) | (5,217,425 | ) | ||||
|
Other
income:
|
||||||||
|
Interest
income
|
16,221 | 54,483 | ||||||
|
(Loss)
before income taxes
|
(9,625,133 | ) | (5,162,942 | ) | ||||
|
Provision
for income taxes
|
- | - | ||||||
|
Net
(loss)
|
(9,625,133 | ) | (5,162,942 | ) | ||||
|
Other
comprehensive income:
|
||||||||
|
Currency
translation gain (loss)
|
342,569 | (55,288 | ) | |||||
|
Net
comprehensive (loss)
|
$ | (9,282,564 | ) | $ | (5,218,230 | ) | ||
|
Net
(loss) per common share:
|
||||||||
|
Basic
and Diluted
|
$ | (0.21 | ) | $ | (0.15 | ) | ||
|
Weighted
average shares outstanding:
|
||||||||
|
Basic
and Diluted
|
45,280,272 | 34,294,242 | ||||||
The
accompanying notes are an integral part of these financial
statements.
F-3
GOLD RESOURCE CORPORATION AND
SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF
OPERATIONS
for
the nine months ended September 30, 2009 and 2008
and
for the period from Inception (August 24, 1998) to September 30,
2009
(Unaudited)
|
Inception
|
||||||||||||
|
(August
24, 1998) to
|
||||||||||||
|
2009
|
2008
|
September
30, 2009
|
||||||||||
|
Revenues:
|
||||||||||||
|
Gold
sales
|
$ | - | $ | - | $ | - | ||||||
|
Costs
and Expenses:
|
||||||||||||
|
Property
exploration and evaluation
|
3,871,821 | 5,214,597 | 20,545,660 | |||||||||
|
Engineering
and construction
|
18,889,528 | 6,026,827 | 33,390,989 | |||||||||
|
Management
contract - U S Gold, related party
|
- | - | 752,191 | |||||||||
|
General
and administrative
|
4,215,011 | 3,102,826 | 13,420,389 | |||||||||
|
Depreciation
|
112,862 | 95,869 | 309,577 | |||||||||
|
Total
costs and expenses
|
27,089,222 | 14,440,119 | 68,418,806 | |||||||||
|
Operating
(loss)
|
(27,089,222 | ) | (14,440,119 | ) | (68,418,806 | ) | ||||||
|
Other
income:
|
||||||||||||
|
Interest
income
|
25,140 | 319,433 | 666,310 | |||||||||
|
(Loss)
before income taxes
|
(27,064,082 | ) | (14,120,686 | ) | (67,752,496 | ) | ||||||
|
Provision
for income taxes
|
- | - | - | |||||||||
|
Net
(loss)
|
(27,064,082 | ) | (14,120,686 | ) | (67,752,496 | ) | ||||||
|
Other
comprehensive income:
|
||||||||||||
|
Currency
translation gain (loss)
|
415,535 | (113,296 | ) | 408,815 | ||||||||
|
Net
comprehensive (loss)
|
$ | (26,648,547 | ) | $ | (14,233,982 | ) | $ | (67,343,681 | ) | |||
|
Net
(loss) per common share:
|
||||||||||||
|
Basic
and Diluted
|
$ | (0.65 | ) | $ | (0.41 | ) | ||||||
|
Weighted
average shares outstanding:
|
||||||||||||
|
Basic
and Diluted
|
41,529,857 | 34,231,498 | ||||||||||
The
accompanying notes are an integral part of these financial
statements.
F-4
GOLD RESOURCE CORPORATION AND
SUBSIDIARIES
(An Exploration Stage
Company)
CONSOLIDATED STATEMENTS OF CASH
FLOWS
for
the nine months ended September 30, 2009 and 2008
and
for the period from Inception (August 24, 1998) to September 30,
2009
(Unaudited)
|
Inception
|
||||||||||||
|
(August
24, 1998) to
|
||||||||||||
|
2009
|
2008
|
September
30, 2009
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
(loss)
|
$ | (27,064,082 | ) | $ | (14,120,686 | ) | $ | (67,752,496 | ) | |||
|
Adjustments
to reconcile net (loss) to net cash
|
||||||||||||
|
(used
in) operating activities:
|
||||||||||||
|
Depreciation
|
112,862 | 95,869 | 309,577 | |||||||||
|
Stock
compensation
|
2,754,031 | 1,939,600 | 6,698,157 | |||||||||
|
Management
fee paid in stock
|
- | - | 392,191 | |||||||||
|
Related
party payable paid in stock
|
- | - | 320,000 | |||||||||
|
Foreign
currency translation adjustment
|
415,535 | (113,296 | ) | 408,815 | ||||||||
|
Issuance
cost forgiven
|
- | - | 25,327 | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Operating
assets
|
161,195 | (7,344 | ) | (44,957 | ) | |||||||
|
Accounts
payable and accrued liabilities
|
(1,163,539 | ) | 413,015 | 589,746 | ||||||||
|
Other
|
- | - | (4,569 | ) | ||||||||
|
Total
adjustments
|
2,280,084 | 2,327,844 | 8,694,287 | |||||||||
|
Net
cash (used in) operating activities
|
(24,783,998 | ) | (11,792,842 | ) | (59,058,209 | ) | ||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Capital
expenditures
|
(504,731 | ) | (4,498,875 | ) | (1,740,265 | ) | ||||||
|
Restricted
cash
|
(4,005,479 | ) | - | (4,005,479 | ) | |||||||
|
Net
cash (used in) investing activities
|
(4,510,210 | ) | (4,498,875 | ) | (5,745,744 | ) | ||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from initial public stock offering
|
- | - | 4,351,200 | |||||||||
|
Proceeds
from other sales of stock
|
32,990,000 | - | 66,889,623 | |||||||||
|
Proceeds
from exercise of options
|
- | 100,000 | 243,500 | |||||||||
|
Proceeds
from debentures - founders
|
- | - | 50,000 | |||||||||
|
Proceeds
from exploration funding agreement - Canyon Resources
|
- | - | 500,000 | |||||||||
|
Net
cash provided by financing activities
|
32,990,000 | 100,000 | 72,034,323 | |||||||||
|
Net
increase (decrease) in cash and equivalents
|
3,695,792 | (16,191,717 | ) | 7,230,370 | ||||||||
|
Cash
and equivalents at beginning of period
|
3,534,578 | 22,007,216 | - | |||||||||
|
Cash
and equivalents at end of period
|
$ | 7,230,370 | $ | 5,815,499 | $ | 7,230,370 | ||||||
|
Supplemental
Cash Flow Information
|
||||||||||||
|
Interest
paid
|
$ | - | $ | - | $ | - | ||||||
|
Income
taxes paid
|
$ | - | $ | - | $ | - | ||||||
|
Non-cash
investing and financing activities:
|
||||||||||||
|
Conversion
of Canyon Resources funding into
|
||||||||||||
|
common
stock
|
$ | - | $ | - | $ | 500,000 | ||||||
|
Conversion
of founders debentures into
|
||||||||||||
|
common
stock
|
$ | - | $ | - | $ | 50,000 | ||||||
The
accompanying notes are an integral part of these financial
statements.
F-5
GOLD RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
1. Summary
of Significant Accounting Policies
Gold
Resource Corporation (the "Company") was organized under the laws of the State
of Colorado on August 24, 1998. The Company has been engaged in the
exploration for precious and base metals, primarily in Mexico, as an exploration
stage company. The Company has not generated any revenue from
operations.
Basis of
Presentation. The interim consolidated financial statements
included herein have been prepared by the Company, without audit, in accordance
with the rules and regulations of the Securities and Exchange Commission ("SEC")
pursuant to Item 210 of Regulation S-X and are expressed in United States
dollars, the Company’s reporting currency. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America ("US GAAP") have been condensed or omitted pursuant to such SEC rules
and regulations, although the Company believes that the disclosures included are
adequate to make the information presented not misleading.
In
management’s opinion, the consolidated balance sheet as of September 30, 2009
(unaudited) and the unaudited consolidated statements of operations and cash
flows for the interim periods ended September 30, 2009 and 2008, contained
herein, reflect all adjustments, consisting solely of normal recurring items,
which are necessary for the fair presentation of our financial position, results
of operations, and cash flows on a basis consistent with that of our prior
audited consolidated financial statements. However, the results of
operations for interim periods may not be indicative of results to be expected
for the full fiscal year. Therefore, these financial statements
should be read in conjunction with the audited financial statements and notes
thereto and summary of significant accounting policies included in the Company's
Form 10-K for the year ended December 31, 2008.
Basis of
Consolidation. The consolidated financial statements include
the accounts of the Company and its wholly owned Mexican subsidiaries, Don David
Gold S.A. de C.V., Golden Trump Resources S.A. de C.V., and Oaxaca Servicios
Mineros S.A. de C.V. The expenditures of Don David Gold, Golden
Trump Resources and Oaxaca Servicios Mineros are generally incurred in Mexican
pesos. Significant inter-company accounts and transactions have been
eliminated.
Reclassifications. Certain
amounts previously presented for prior periods have been reclassified to conform
with the current presentation. The reclassifications had no effect on
net loss, total assets, or total shareholders’ equity.
Restricted Cash. On
July 20, 2009, under a subscription agreement with Hochschild Mining Holdings
Ltd. ("Hochschild"), the Company sold 3,750,000 shares of common stock for gross
proceeds of $15,000,000. The Company agreed to reserve $4,000,000 of the
$15,000,000 gross proceeds from the closing for exploration
activities. Cash restricted by this agreement was placed in a
separate bank account which requires the joint signatures of the Company and
Hochschild.
F-6
GOLD RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
Estimates. The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of expenses during
the reporting period. Management routinely makes judgments and
estimates about the effects of matters that are inherently
uncertain. Estimates that are critical to the accompanying
consolidated financial statements include the identification and valuation of
proven and probable reserves, classification of expenditures as either an asset
or an expense, valuation of deferred tax assets, and the likelihood of loss
contingencies. Management bases its estimates and judgments on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Estimates and assumptions
are revised periodically and the effects of revisions are reflected in the
financial statements in the period it is determined to be
necessary. Actual results could differ from these
estimates.
Per Share
Amounts. Accounting Standards Codification 260 "Earnings Per
Share," provides for the calculation of "Basic" and "Diluted" earnings per
share. Basic earnings per share includes no dilution and is computed
by dividing income available to common shareholders by the weighted-average
number of shares outstanding during the period. Diluted earnings per
share reflect the potential dilution of securities that could share in the
earnings of the Company, similar to fully diluted earnings per
share. Potentially dilutive securities, such as common stock options,
are excluded from the calculation when their effect would be
anti-dilutive. For the interim periods ended September 30, 2009 and
2008, outstanding options to purchase common stock would have an anti-dilutive
effect and were therefore excluded from the calculation.
Exploration
Costs. Exploration costs are charged to expense as
incurred. Costs to identify new mineralized material, to evaluate
potential mineralized material, and to convert mineralized material into proven
and probable reserves are considered exploration costs.
Design, Construction, and Development
Costs. Certain costs to design and construct mine and
processing facilities may be incurred prior to establishing proven and probable
reserves. Under these circumstances, the Company classifies the
project as an exploration stage project and expenses substantially all costs,
including design, engineering, construction, and installation of
equipment. Certain types of equipment, which have alternative uses or
significant salvage value, may be capitalized. If a project is
determined to contain proven and probable reserves, costs incurred in
anticipation of production can be capitalized. Such costs include
development drilling to further delineate the ore body, removing overburden
during the pre-production phase, building access ways, constructing facilities,
and installing equipment. Interest costs, if any, incurred during the
development phase, would be capitalized until the assets are ready for their
intended use. The cost of start-up activities and on-going costs to
maintain production are expensed as incurred. Costs of abandoned
projects are charged to operations upon abandonment.
If a
project commences commercial production, amortization and depletion of
capitalized costs is computed on a unit-of-production basis over the expected
reserves of the project based on estimated recoverable gold equivalent
ounces.
Foreign Currency
Translation. The local currency where the Company’s properties
are located, the Mexican peso, is the functional currency for the Company's
subsidiaries. Current assets and liabilities are translated into the
Company’s reporting currency using the exchange rate in effect at the balance
sheet date. Certain items, such as equity, are translated using
historical rates. Revenues and expenses are translated at the average
exchange rate for the period. Translation adjustments are reported as
a separate component of shareholders' equity.
F-7
GOLD RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
Recently Adopted Accounting
Standards. The Company evaluates the pronouncements of various
authoritative accounting organizations, primarily the Financial Accounting
Standards Board (“FASB”), the SEC, and the Emerging Issues Task Force (“EITF”),
to determine the impact of new pronouncements on US GAAP and the impact on the
Company. The Company has adopted the following new accounting
standards during 2009:
Accounting Standards Codification
- In June 2009, FASB established the FASB Accounting Standards
Codification (“ASC”) as the single source of authoritative GAAP. The
ASC is a new structure which took existing accounting pronouncements and
organized them by accounting topic. Relevant authoritative literature issued by
the SEC and select SEC staff interpretations and administrative literature was
also included in the ASC. All other accounting guidance not included in the ASC
is non-authoritative. The ASC is effective for interim and annual reporting
periods ending after September 15, 2009. The adoption of the ASC did not have an
impact on the Company’s consolidated financial position, results of operations
or cash flows.
Subsequent Events - In
May 2009, the ASC guidance for subsequent events was updated to establish
accounting and reporting standards for events that occur after the balance sheet
date but before financial statements are issued or are available to be issued.
The update sets forth: (i) the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements, (ii) the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet in its financial
statements, and (iii) the disclosures that an entity should make about
events or transactions occurring after the balance sheet date in its financial
statements. The new guidance requires the disclosure of the date through which
subsequent events have been evaluated. The Company adopted the updated guidance
during the 2009 fiscal year. The adoption had no impact on the Company’s
consolidated financial position, results of operations or cash
flows.
Accounting for the Useful Life of
Intangible Assets - In April 2008, the ASC guidance for Goodwill and
Other Intangibles was updated to amend the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset. The intent of this update is to improve the
consistency between the useful life of a recognized intangible asset and the
period of expected cash flows used to measure the fair value of the asset under
guidance for business combinations. The updated guidance was effective for the
Company’s fiscal year beginning January 1, 2009 and will be applied
prospectively to intangible assets acquired after the effective date. The
adoption had no impact on the Company’s consolidated financial position, results
of operations or cash flows.
Derivative Instruments - In
March 2008, the ASC guidance for derivatives and hedging was updated for
enhanced disclosures about how and why an entity uses derivative instruments,
how derivative instruments and the related hedged items are accounted for, and
how derivative instruments and the related hedged items affect an entity’s
financial position, financial performance and cash flows. The Company adopted
the updated guidance on January 1, 2009. The adoption had no impact on the
Company’s consolidated financial position, results of operations or cash
flows.
F-8
GOLD RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
Business Combinations - In
December 2007, the ASC guidance for business combinations was updated to
provide new guidance for recognizing and measuring identifiable assets and
goodwill acquired, liabilities assumed, and any non-controlling interest in the
acquiree. The updated guidance also provides disclosure requirements to enable
users of the financial statements to evaluate the nature and financial effects
of the business combination. The Company adopted the updated guidance on January
1, 2009 and it will be applied to any future acquisitions.
Non-controlling Interests –
In December 2007, the ASC guidance for Non-controlling Interests was
updated to establish accounting and reporting standards pertaining to:
(i) ownership interests in subsidiaries held by parties other than the
parent (“non-controlling interest”), (ii) the amount of net income
attributable to the parent and to the non-controlling interest,
(iii) changes in a parent’s ownership interest, and (iv) the valuation
of any retained non-controlling equity investment when a subsidiary is
deconsolidated. If a subsidiary is deconsolidated, any retained
non-controlling equity investment in the former subsidiary is measured at fair
value and a gain or loss is recognized in net income based on such fair
value. For presentation and disclosure purposes, the guidance
requires non-controlling interests (formerly referred to as minority interest)
to be classified as a separate component of equity. The Company adopted the
updated guidance on January 1, 2009. The adoption had no impact
on the Company’s consolidated financial position, results of operations or cash
flows.
Recent Accounting
Pronouncements. There were various accounting standards and
interpretations recently issued which have not yet been adopted,
including:
Fair Value Accounting - In
August 2009, the ASC guidance for fair value measurements and disclosure
was updated to further define fair value of liabilities. This update provides
clarification for circumstances in which: (i) a quoted price in an active
market for the identical liability is not available, (ii) the liability has a
restriction that prevents its transfer, and (iii) the identical liability
is traded as an asset in an active market in which no adjustments to the quoted
price of an asset are required. The updated guidance is effective for the
Company’s interim reporting period beginning October 1, 2009. The Company
is evaluating the potential impact of adopting this guidance on the Company’s
consolidated financial position, results of operations and cash
flows.
Variable Interest Entities -
In June 2009, the ASC guidance for consolidation accounting was updated to
require an entity to perform a qualitative analysis to determine whether the
enterprise’s variable interest gives it a controlling financial interest in a
variable interest entity (“VIE”). This analysis identifies a primary beneficiary
of a VIE as the entity that has both of the following characteristics:
(i) the power to direct the activities of a VIE that most significantly
impact the entity’s economic performance and (ii) the obligation to absorb
losses or receive benefits from the entity that could potentially be significant
to the VIE. The updated guidance also requires ongoing reassessments of the
primary beneficiary of a VIE. The updated guidance is effective for the
Company’s fiscal year beginning January 1, 2010. The Company currently is
evaluating the potential impact of adopting this guidance on the Company’s
consolidated financial position, results of operations and cash
flows.
There
were no other accounting standards and interpretations recently issued which are
expected to a have a material impact on the Company's financial position,
results of operations or cash flows.
F-9
GOLD RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
2.
Mineral Properties
The
Company currently has an interest in five properties, the El Aguila project, the El Rey property, the Las Margaritas property, the
Solaga property and the
Alta Gracia
property.
The El
Aguila
Project. Effective October 14, 2002, the Company leased three
mining concessions, El Aguila, El Aire, and
La Tehuana from Jose
Perez Reynoso, a consultant to the Company. The lease agreement is
subject to a 4% net smelter return royalty where production is sold in the form
of gold/silver dore and 5% for production sold in concentrate
form. The Company has made periodic advance royalty payments under
the lease totaling $260,000 and no further advance royalty payments are
due. Subject to minimum exploration requirements, there is no
expiration term for the lease. The Company may terminate it at any
time upon written notice to the lessor and the lessor may terminate it if the
Company fails to fulfill any of its obligations. The El Aguila and El Aire concessions make up
the El Aguila project
and the La Tehuana
concession makes up the Las
Margaritas property.
The
Company has filed for and received additional concessions for the El Aguila project that total
an additional 8,492 hectares. These additional concessions are not
part of the concessions leased from our consultant, and bring our interest in
the El Aguila project
to an aggregate of 9,463 hectares. The mineral concessions making up
the El Aguila project
are located within the Mexican State of Oaxaca.
The El
Rey
Property. The Company has acquired claims in another area in
the state of Oaxaca by filing concessions under the Mexican mining laws,
referred to by us as the El
Rey property. These concessions total 892 hectares and are
subject to a 2% royalty on production payable to Mr. Reynoso. The
Company has conducted minimal exploration and drilling on this property to
date.
The El Rey property is an
exploration stage property with no known reserves. It is
approximately 64.4 kilometers (40 miles) from the El Aguila
project. There is no plant or equipment on the El Rey
property. If exploration is successful, any mining would probably
require an underground mine but any mineralized material could be processed at
the El Aguila project
mill if it is successfully completed.
The Las
Margaritas
Property. The Las Margaritas property is
made up of the La
Tehuana concession. The Company leased this property in
October 2002 from Mr. Reynoso. It is comprised of approximately 925
hectares located adjacent to the El Aguila
project. To date, the Company has conducted limited surface
sampling, but no other significant exploration activities at the
property.
The Solaga Property. In
February 2007, the Company leased a 100% interest in a property known as the
Solaga property from an
entity partially owned by Mr. Reynoso. The property totals 618
hectares, and is located approximately 120 kilometers (75 miles) from the El Aguila
project. A dormant silver mine is located on the Solaga property which was in
production as recently as the 1980’s, however we cannot estimate if or when we
will reopen the mine. The lease requires the Company to perform
$25,000 in additional work and is subject to a 4% net smelter return royalty on
any production. The Company has not conducted any exploration
activities at the property.
The Alta Gracia
Property. In August 2009,
the Company acquired claims adjacent to the Las Margaritas property in
the Alta Gracia Mining
District by filing concessions under the Mexican mining
laws. This property is known as the Alta Gracia
property. These concessions are comprised of three mining
claims, the David 1,
the David 2 and La Hurradura. The
concessions total 5,175 hectares, and the acquisition of these claims extended
the Company’s land position along what is known as the San Jose structural corridor
to just over 16 kilometers. To date, the Company has not conducted
significant exploration activities
at the property.
F-10
GOLD RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
As of
September 30, 2009, none of the mineralized material at the Company’s properties
met the SEC’s definition of proven or probable reserves.
3.
Property and Equipment
At
September 30, 2009 and December 31, 2008, property and equipment consisted of
the following:
|
September 30, 2009
|
December 31, 2008
|
|||||||
|
Trucks
and autos
|
$ | 437,355 | $ | 291,876 | ||||
|
Office
furniture and equipment
|
221,647 | 137,678 | ||||||
|
Exploration
equipment
|
799,210 | 570,794 | ||||||
|
Subtotal
|
1,458,212 | 1,000,348 | ||||||
|
Accumulated
depreciation
|
(300,991 | ) | (188,129 | ) | ||||
|
Total
|
$ | 1,157,221 | $ | 812,219 | ||||
4.
Shareholders' Equity
On
February 25, 2009, the Company issued 4,330,000 restricted shares of common
stock at $3.00 per share to Hochschild Mining Holdings Limited (“Hochschild”)
pursuant to a strategic alliance agreement dated December 5,
2008. The Company received cash proceeds of $12,990,000.
On June
30, 2009, the Company entered into a subscription agreement with Hochschild to
sell 5,000,000 shares of its restricted common stock at a price of $4.00 per
share, or a total of $20,000,000. The transaction was completed in
two tranches. Simultaneously with the execution of the subscription agreement,
the Company sold 1,250,000 shares of common stock for gross proceeds of
$5,000,000. The closing for the remaining 3,750,000 shares of common
stock was held on July 20, 2009. The Company agreed to reserve $4,000,000 of the
$15,000,000 gross proceeds from the second closing solely for exploration
activities. Cash restricted by this agreement was placed in a
separate bank account which requires the joint signatures of the Company and
Hochschild.
During
the nine months ended September 30, 2009, the Company issued 677,933 shares of
common stock pursuant to the exercise of stock options. Two
option-holders exercised 913,000 options using the “cashless exercise” method
for payment, whereby each option-holder immediately surrendered shares of common
stock that he would have otherwise been entitled to receive. In the
aggregate, the option-holders exercised 913,000 options and immediately
surrendered 235,067 shares of common stock, resulting in a net issuance of
677,933 shares of common stock. The Company received no cash proceeds
in the transactions.
F-11
GOLD RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
5.
Stock Based Compensation
The
Company has a non-qualified stock option and stock grant plan under which equity
awards may be granted to key employees, directors and others (the
"Plan"). The Plan is administered by the Board of Directors which
determines the terms pursuant to which any option is granted. The
maximum number of common shares subject to grant under the Plan is
6,000,000.
The fair
value of each option award is estimated on the date of grant using the
Black-Scholes-Merton option pricing model. The option pricing model
requires the input of subjective assumptions which are based on several
different criteria. Expected volatility is based on the historical
price volatility of the Company’s common stock. Expected dividend
yield is assumed to be nil, as the Company has not paid dividends since
inception. Forfeitures are assumed to be nil, as the Company has not
experienced forfeitures during its history. The expected life of the
options is estimated in accordance with Staff Accounting Bulletin No. 107,
“Share-Based Payment” for plain vanilla options. Risk free interest
rates are based on US government obligations with a term approximating the
expected life of the option.
The fair
value of stock option grants is amortized over the respective vesting period, if
any. Total non-cash compensation expense related to stock options
included in general and administrative expense for the interim periods ended
September 30, 2009 and 2008 was $2,754,031 and $1,897,130,
respectively. The estimated unrecognized compensation cost from
unvested options as of September 30, 2009 was approximately $701,913, which is
expected to be recognized over the remaining vesting period of 3
years.
Effective
April 23, 2009, grants covering 1,000,000 shares of common stock were issued to
officers and directors at an exercise price of $3.95 and a term of ten
years. The options vested upon issuance. The grant date
fair value was calculated as $2,575,000 ($2.575 per option) using the following
assumptions: expected life of five years, stock price of $3.95 at
date of grant, dividend yield of 0%, interest rate of 1.9%, and volatility of
81%.
Effective
September 23, 2009, grants covering 75,000 shares of common stock were
issued to an employee at an exercise price of $7.00 and a term of ten
years. The options vest over a three year period. The
grant date fair value was calculated as $331,787 ($4.423 per option) using the
following assumptions: expected life of five years, stock price of
$7.00 at grant date, dividend yield of 0%, interest rate at 1.5%, and volatility
of 78%.
F-12
GOLD RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
The
following table summarizes activity for compensatory stock options during the
interim period ended September 30, 2009:
|
Number
of Shares
|
Weighted
Average Exercise Price
|
Aggregate
Intrinsic Value
|
Number
of Shares Exercisable
|
|||||||||||||
|
Outstanding,
January 1, 2009
|
3,683,000 | $1.66 | $6,932,500 | 3,413,000 | ||||||||||||
|
Granted
|
1,075,000 | $4.16 | -- | 1,000,000 | ||||||||||||
|
Exercised
|
(913,000 | ) | $1.00 | $2,726,000 | (913,000 | ) | ||||||||||
|
Expired
|
(50,000 | ) | $4.45 | $145,000 | (50,000 | ) | ||||||||||
|
Outstanding,
September 30, 2009
|
3,795,000 | $2.49 | $18,257,850 | 3,450,000 | ||||||||||||
The
following table summarizes information about outstanding compensatory
stock options as of September 30, 2009:
|
Exercise
Prices
|
Number
of Shares
|
Remaining
Contractual Life (in years)
|
Weighted
Average Exercise Price
|
Number
Exercisable
|
||||
|
$0.25
|
1,400,000
|
4.3
|
$0.25
|
1,400,000
|
||||
|
$3.40
|
1,000,000
|
8.4
|
$3.40
|
1,000,000
|
||||
|
$3.68
|
50,000
|
0.1
|
$3.68
|
50,000
|
||||
|
$3.74
-$4.51
|
270,000
|
8.6
|
$3.91
|
--
|
||||
|
$3.95
|
1,000,000
|
9.6
|
$3.95
|
1,000,000
|
||||
|
$7.00
|
75,000
|
9.9
|
$7.00
|
--
|
||||
|
3,795,000
|
$2.49
|
3,450,000
|
||||||
6.
General and Administrative Expenses
General
and administrative expenses included the following components for the interim
periods ended September 30, 2009 and 2008, and for the period from inception
(August 24, 1998) through September 30, 2009:
|
2009
|
2008
|
Inception
to
September 30, 2009
|
||||||||||
|
Salaries
and benefits
|
$ | 598,918 | $ | 536,450 | $ | 3,185,997 | ||||||
|
Legal
and accounting
|
472,510 | 274,052 | 1,394,190 | |||||||||
|
Investor
relations
|
92,900 | 132,814 | 755,700 | |||||||||
|
Travel
related
|
113,016 | 55,237 | 556,100 | |||||||||
|
Stock
awards
|
-- | 42,470 | 1,740,788 | |||||||||
|
Grant
of stock options
|
2,754,031 | 1,897,130 | 4,957,369 | |||||||||
|
Other
|
183,637 | 164,673 | 830,246 | |||||||||
|
Total
|
$ | 4,215,011 | $ | 3,102,826 | $ | 13,420,389 | ||||||
F-13
GOLD RESOURCE CORPORATION
MANAGEMENT'S
REPORT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting.
The
Securities Exchange Act of 1934 defines internal control over financial
reporting in Rules 13a-15(f) and 15d-15(f) as a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that:
|
-
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and disposition of
assets;
|
|
-
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being
made only in accordance with authorizations of management and our
directors; and
|
|
-
|
Provide
reasonable assurance regarding prevention and timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a material effect on our financial
statements.
|
Internal
control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems that are determined to be
effective provide only reasonable assurance with respect to financial statement
preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management
assessed the effectiveness of our internal control over financial reporting
based on criteria for effective internal control over financial reporting
described in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
Based on
its assessment, management concluded that we maintained effective internal
control over financial reporting as of December 31,
2008. Management’s assessment of the effectiveness of our internal
control over financial reporting as of December 31, 2008 has been audited by
Stark Winter Schenkein & Co., LLP, an independent registered public
accounting firm, as stated in their report which appears herein.
F-14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
Board of
Directors and Shareholders
Gold
Resource Corporation
Denver,
Colorado
We have
audited Gold Resource Corporation’s internal control over financial reporting as
of December 31, 2008, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Gold Resource Corporation’s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Controls
over Financial Reporting. Our responsibility is to express an opinion
on the Company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our
opinion, Gold Resource Corporation maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets and the related
consolidated statements of operations, changes in stockholders’ equity, and cash
flows of Gold Resource Corporation, and our report dated April 9, 2009 expressed
an unqualified opinion.
Denver,
Colorado
December
24, 2009
F-15
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors and Shareholders
Gold
Resource Corporation
Denver,
Colorado
We have
audited the accompanying consolidated balance sheets of Gold Resource
Corporation as of December 31, 2008 and 2007, and the related consolidated
statements of operations, changes in shareholders’ equity and cash flows for the
years ended December 31, 2008 and 2007, and the period August 24, 1998
(inception) to December 31, 2008. These consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based upon our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Gold Resource Corporation as
of December 31, 2008 and 2007, and the results of its operations and its cash
flows for the years ended December 31, 2008 and 2007, and the period August 24,
1998 (inception) to December 31, 2008, in conformity with accounting principles
generally accepted in the United States of America.
April 9,
2009
Denver,
Colorado
F-16
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors and Shareholders
Gold
Resource Corporation
Denver,
Colorado
We have
audited the accompanying consolidated balance sheets of Gold Resource
Corporation as of December 31, 2007 and 2006, and the related consolidated
statements of operations, changes in shareholders’ equity and cash flows for the
years ended December 31, 2006 and 2007, and the period August 24, 1998
(inception) to December 31, 2007. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based upon our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Gold Resource Corporation as
of December 31, 2007 and 2006, and the results of its operations and its cash
flows for the years ended December 31, 2006 and 2007, and the period August 24,
1998 (inception) to December 31, 2007, in conformity with accounting principles
generally accepted in the United States of America.
April 10,
2008
Denver,
Colorado
F-17
|
GOLD RESOURCE CORPORATION AND
SUBSIDIARIES
|
||||||||
|
(An Exploration Stage
Company)
|
||||||||
|
CONSOLIDATED BALANCE
SHEETS
|
||||||||
|
as
of December 31, 2008 and 2007
|
||||||||
|
2008
|
2007
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 3,534,578 | $ | 22,007,216 | ||||
|
Other
current assets
|
202,890 | 43,940 | ||||||
|
Total
current assets
|
3,737,468 | 22,051,156 | ||||||
|
Land
and mineral rights
|
226,610 | 152,522 | ||||||
|
Property
and equipment - net
|
812,219 | 352,429 | ||||||
|
Other
assets
|
4,721 | 1,469 | ||||||
|
Total
assets
|
$ | 4,781,018 | $ | 22,557,576 | ||||
|
LIABILITIES AND SHAREHOLDERS'
EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable and accrued expenses
|
$ | 1,753,285 | $ | 768,452 | ||||
|
Total
current liabilities
|
1,753,285 | 768,452 | ||||||
|
Shareholders'
equity:
|
||||||||
|
Preferred
stock - $0.001 par value, 5,000,000 shares authorized:
|
||||||||
|
no
shares issued and outstanding
|
- | - | ||||||
|
Common
stock - $0.001 par value, 60,000,000 shares authorized:
|
||||||||
|
36,087,556
and 34,146,952 shares issued and outstanding, respectively
|
36,088 | 34,147 | ||||||
|
Additional
paid-in capital
|
43,686,779 | 36,498,444 | ||||||
|
(Deficit)
accumulated during the exploration stage
|
(40,688,414 | ) | (14,673,211 | ) | ||||
|
Other
comprehensive income:
|
||||||||
|
Currency
translation adjustment
|
(6,720 | ) | (70,256 | ) | ||||
|
Total
shareholders' equity
|
3,027,733 | 21,789,124 | ||||||
|
Total
liabilities and shareholders' equity
|
$ | 4,781,018 | $ | 22,557,576 | ||||
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
||||||||
F-18
|
GOLD RESOURCE CORPORATION AND
SUBSIDIARIES
|
||||||||||||||||
|
(An Exploration Stage
Company)
|
||||||||||||||||
|
CONSOLIDATED STATEMENTS OF
OPERATIONS
|
||||||||||||||||
|
for
the years ended December 31, 2008, 2007 and 2006,
|
||||||||||||||||
|
and
for the period from Inception (August 24, 1998) to December 31,
2008
|
||||||||||||||||
|
Inception
|
||||||||||||||||
|
(August
24, 1998) to
|
||||||||||||||||
|
2008
|
2007
|
2006
|
December
31, 2008
|
|||||||||||||
|
Revenues:
|
||||||||||||||||
|
Gold
sales
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
Costs
and Expenses:
|
||||||||||||||||
|
Property
exploration and evaluation
|
8,171,396 | 5,711,190 | 528,851 | 16,194,577 | ||||||||||||
|
Other
mineral property costs
|
- | 20,581 | 100,000 | 479,262 | ||||||||||||
|
Engineering
and construction
|
14,501,461 | - | - | 14,501,461 | ||||||||||||
|
Management
contract - U. S. Gold, related party
|
- | - | - | 752,191 | ||||||||||||
|
General
and administrative
|
3,552,007 | 2,539,604 | 2,096,961 | 9,205,378 | ||||||||||||
|
Depreciation
|
123,948 | 47,480 | 18,039 | 196,715 | ||||||||||||
|
Total
costs and expenses
|
26,348,812 | 8,318,855 | 2,743,851 | 41,329,584 | ||||||||||||
|
Operating
(loss)
|
(26,348,812 | ) | (8,318,855 | ) | (2,743,851 | ) | (41,329,584 | ) | ||||||||
|
Other
income:
|
||||||||||||||||
|
Interest
income
|
333,609 | 242,513 | 57,089 | 641,170 | ||||||||||||
|
(Loss)
before income taxes
|
(26,015,203 | ) | (8,076,342 | ) | (2,686,762 | ) | (40,688,414 | ) | ||||||||
|
Provision
for income taxes
|
- | - | - | - | ||||||||||||
|
Net
(loss)
|
(26,015,203 | ) | (8,076,342 | ) | (2,686,762 | ) | (40,688,414 | ) | ||||||||
|
Other
comprehensive income:
|
||||||||||||||||
|
Currency
translation gain (loss)
|
63,536 | (89,939 | ) | 19,544 | (6,720 | ) | ||||||||||
|
Net
comprehensive (loss)
|
$ | (25,951,667 | ) | $ | (8,166,281 | ) | $ | (2,667,218 | ) | $ | (40,695,134 | ) | ||||
|
Net
(loss) per common share:
|
||||||||||||||||
|
Basic
and Diluted
|
$ | (0.76 | ) | $ | (0.28 | ) | $ | (0.13 | ) | |||||||
|
Weighted
average shares outstanding:
|
||||||||||||||||
|
Basic
and Diluted
|
34,393,854 | 28,645,038 | 20,218,659 | |||||||||||||
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
||||||||||||||||
F-19
|
GOLD RESOURCE CORPORATION AND
SUBSIDIARIES
|
||||||||||||||||
|
(An Exploration Stage
Company)
|
||||||||||||||||
|
CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
||||||||||||||||
|
for
the years ended December 31, 2008, 2007, and 2006,
|
||||||||||||||||
|
and
for the period from Inception (August 24, 1998) to December 31,
2008
|
||||||||||||||||
|
Inception
|
||||||||||||||||
|
(August
24, 1998) to
|
||||||||||||||||
|
2008
|
2007
|
2006
|
December
31, 2008
|
|||||||||||||
|
Cash
flows from operating activities:
|
||||||||||||||||
|
Net
(loss)
|
$ | (26,015,203 | ) | $ | (8,076,342 | ) | $ | (2,686,762 | ) | $ | (40,688,414 | ) | ||||
|
Adjustments
to reconcile net (loss) to net cash
|
||||||||||||||||
|
used
by operating activities:
|
||||||||||||||||
|
Depreciation
|
123,948 | 47,480 | 18,039 | 196,715 | ||||||||||||
|
Stock
compensation
|
1,999,276 | 730,450 | 626,900 | 3,944,126 | ||||||||||||
|
Management
fee paid in stock
|
- | - | - | 392,191 | ||||||||||||
|
Related
party payable paid in stock
|
- | - | - | 320,000 | ||||||||||||
|
Foreign
currency translation adjustment
|
63,536 | (89,939 | ) | 19,544 | (6,720 | ) | ||||||||||
|
Issuance
cost forgiven
|
- | - | - | 25,327 | ||||||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||||||
|
Operating
assets
|
(162,212 | ) | 162,172 | (191,135 | ) | (206,152 | ) | |||||||||
|
Accounts
payable and accrued liabilites
|
984,833 | 317,289 | 426,326 | 1,753,285 | ||||||||||||
|
Other
|
- | - | (8,770 | ) | (4,569 | ) | ||||||||||
|
Total
adjustments
|
3,009,381 | 1,167,452 | 890,904 | 6,414,203 | ||||||||||||
|
Net
cash (used in) operating activities
|
(23,005,822 | ) | (6,908,890 | ) | (1,795,858 | ) | (34,274,211 | ) | ||||||||
|
Cash
flows from investing activities:
|
||||||||||||||||
|
Capital
expenditures
|
(657,816 | ) | (456,152 | ) | (59,966 | ) | (1,235,534 | ) | ||||||||
|
Net
cash (used in) investing activities
|
(657,816 | ) | (456,152 | ) | (59,966 | ) | (1,235,534 | ) | ||||||||
|
Cash
flows from financing activities:
|
||||||||||||||||
|
Cash
proceeds from initial public stock offering
|
- | - | 4,351,200 | 4,351,200 | ||||||||||||
|
Cash
proceeds from other sales of stock
|
5,010,000 | 21,712,000 | 4,928,700 | 33,899,623 | ||||||||||||
|
Cash
proceeds from exercise of options
|
181,000 | - | 60,000 | 243,500 | ||||||||||||
|
Proceeds
from debentures - founders
|
- | - | - | 50,000 | ||||||||||||
|
Proceeds
from exploration funding agreement - Canyon Resources
|
- | - | - | 500,000 | ||||||||||||
|
Net
cash provided by financing activities
|
5,191,000 | 21,712,000 | 9,339,900 | 39,044,323 | ||||||||||||
|
Net
increase (decrease) in cash and equivalents
|
(18,472,638 | ) | 14,346,958 | 7,484,076 | 3,534,578 | |||||||||||
|
Cash
and equivalents at beginning of period
|
22,007,216 | 7,660,258 | 176,182 | - | ||||||||||||
|
Cash
and equivalents at end of Period
|
$ | 3,534,578 | $ | 22,007,216 | $ | 7,660,258 | $ | 3,534,578 | ||||||||
|
Supplemental
Cash Flow Information
|
||||||||||||||||
|
Interest
paid
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
Income
taxes paid
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
Non-cash
investing and financing activities:
|
||||||||||||||||
|
Conversion
of Canyon Resources funding into
|
||||||||||||||||
|
common
stock
|
$ | - | $ | - | $ | - | $ | 500,000 | ||||||||
|
Conversion
of founders debentures into
|
||||||||||||||||
|
common
stock
|
$ | - | $ | - | $ | - | $ | 50,000 | ||||||||
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
||||||||||||||||
F-20
|
GOLD RESOURCE CORPORATION
|
||||||||||||||||||||||||
|
(An
Exploration Stage Company)
|
||||||||||||||||||||||||
|
CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
|
||||||||||||||||||||||||
|
For
the period from Inception (August 24, 1998) to December 31,
2008
|
||||||||||||||||||||||||
|
Number
of
|
Par
Value of
|
Additional
|
Comprehensive
|
Total
|
||||||||||||||||||||
|
Common
|
Common
|
Paid
- in
|
Accumulated
|
Income
|
Shareholders'
|
|||||||||||||||||||
|
Shares
|
Shares
|
Capital
|
(Deficit)
|
(Loss)
|
Equity
(Deficit)
|
|||||||||||||||||||
|
Balance
at Inception, August 24, 1998
|
- | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||
|
Shares
for contributed capital at $0.005
|
2,800,000 | 2,800 | (1,400 | ) | - | - | 1,400 | |||||||||||||||||
| per share - related parties | ||||||||||||||||||||||||
|
Net
(loss)
|
- | - | - | (1,657 | ) | - | (1,657 | ) | ||||||||||||||||
|
Balance,
December 31, 1998
|
2,800,000 | 2,800 | (1,400 | ) | (1,657 | ) | - | (257 | ) | |||||||||||||||
|
Shares
for contributed capital at $0.005
|
1,000,000 | 1,000 | (500 | ) | - | - | 500 | |||||||||||||||||
| per share - related parties | ||||||||||||||||||||||||
|
Net
(loss)
|
- | - | - | (663 | ) | - | (663 | ) | ||||||||||||||||
|
Balance,
December 31, 1999
|
3,800,000 | 3,800 | (1,900 | ) | (2,320 | ) | - | (420 | ) | |||||||||||||||
|
Shares
issued for management contract at
|
1,226,666 | 1,226 | 202,578 | - | - | 203,804 | ||||||||||||||||||
| $0.17 per share - related party | ||||||||||||||||||||||||
|
Net (loss)
|
- | - | - | (205,110 | ) | - | (205,110 | ) | ||||||||||||||||
|
Balance,
December 31, 2000
|
5,026,666 | 5,026 | 200,678 | (207,430 | ) | - | (1,726 | ) | ||||||||||||||||
|
Shares
issued for management contract at
|
1,333,334 | 1,334 | 187,053 | - | - | 188,387 | ||||||||||||||||||
| $0.14 per share - related party | ||||||||||||||||||||||||
|
Conversion
of debentures at $0.25
|
200,000 | 200 | 49,800 | - | - | 50,000 | ||||||||||||||||||
|
per
share - related
parties
|
||||||||||||||||||||||||
|
Sale
of shares for cash at $0.25 per share
|
820,000 | 820 | 204,180 | - | - | 205,000 | ||||||||||||||||||
|
Net
(loss)
|
- | - | - | (346,498 | ) | - | (346,498 | ) | ||||||||||||||||
|
Balance,
December 31, 2001
|
7,380,000 | 7,380 | 641,711 | (553,928 | ) | - | 95,163 | |||||||||||||||||
|
Shares
issued for cash at $0.25 per share
|
392,000 | 392 | 97,608 | - | - | 98,000 | ||||||||||||||||||
|
Shares
issued for cash at $0.17 per share
|
1,351,352 | 1,351 | 223,322 | - | - | 224,673 | ||||||||||||||||||
|
Net
(loss)
|
- | - | - | (788,629 | ) | (17 | ) | (788,646 | ) | |||||||||||||||
|
Balance,
December 31, 2002
|
9,123,352 | 9,123 | 962,641 | (1,342,557 | ) | (17 | ) | (370,810 | ) | |||||||||||||||
|
Shares
issued for cash at $0.25 per share
|
577,000 | 577 | 143,673 | - | - | 144,250 | ||||||||||||||||||
|
Share
issuance costs forgiven
|
- | - | 25,327 | - | - | 25,327 | ||||||||||||||||||
|
Net
(loss)
|
- | - | - | (496,046 | ) | 29 | (496,017 | ) | ||||||||||||||||
|
Balance,
December 31, 2003
|
9,700,352 | 9,700 | 1,131,641 | (1,838,603 | ) | 12 | (697,250 | ) | ||||||||||||||||
|
Shares
issued for cash at $0.25 per share
|
608,000 | 608 | 151,392 | - | - | 152,000 | ||||||||||||||||||
|
Shares
issued in repayment of loan related to
|
1,200,000 | 1,200 | 498,800 | - | - | 500,000 | ||||||||||||||||||
| exploration agreement at $0.42 per share | ||||||||||||||||||||||||
|
Shares
issued as stock grant at $0.25 per share
|
600,000 | 600 | 149,400 | - | - | 150,000 | ||||||||||||||||||
|
Net
(loss)
|
- | - | - | (853,593 | ) | (73 | ) | (853,666 | ) | |||||||||||||||
|
Balance,
December 31, 2004
|
12,108,352 | 12,108 | 1,931,233 | (2,692,196 | ) | (61 | ) | (748,916 | ) | |||||||||||||||
|
Stock
grant at $0.25 per share
|
1,750,000 | 1,750 | 435,750 | - | - | 437,500 | ||||||||||||||||||
|
Stock
option exercised at $0.25 per share
|
10,000 | 10 | 2,490 | - | - | 2,500 | ||||||||||||||||||
|
Stock
issued for cash at $0.25 per share
|
276,000 | 276 | 68,724 | - | - | 69,000 | ||||||||||||||||||
|
Stock
issued for satisfaction of payables
|
1,280,000 | 1,280 | 318,720 | - | - | 320,000 | ||||||||||||||||||
|
at
$0.25 per share
|
||||||||||||||||||||||||
|
Shares
issued for cash at $0.47 per share
|
2,728,500 | 2,729 | 1,272,271 | - | - | 1,275,000 | ||||||||||||||||||
|
Shares
issued for cash at $0.50 per share
|
122,000 | 122 | 60,878 | - | - | 61,000 | ||||||||||||||||||
|
Shares
issued for cash at $0.50 per share
|
30,000 | 30 | 14,970 | - | - | 15,000 | ||||||||||||||||||
|
Net
(loss)
|
- | - | - | (1,217,911 | ) | 200 | (1,217,711 | ) | ||||||||||||||||
|
Balance,
December 31, 2005
|
18,304,852 | 18,305 | 4,105,036 | (3,910,107 | ) | 139 | 213,373 | |||||||||||||||||
|
Stock
options exercised at $0.25 per share
|
240,000 | 240 | 59,760 | - | - | 60,000 | ||||||||||||||||||
|
Stock
options granted
|
- | - | 147,050 | - | - | 147,050 | ||||||||||||||||||
|
Director
stock grant at $1.00 per share
|
100,000 | 100 | 99,900 | - | - | 100,000 | ||||||||||||||||||
|
Shares
issued for cash at $1.00 per share,
|
4,600,000 | 4,600 | 4,346,600 | - | - | 4,351,200 | ||||||||||||||||||
|
net of issue costs
|
||||||||||||||||||||||||
|
Shares
issued for investor relations
|
280,000 | 280 | 319,720 | - | - | 320,000 | ||||||||||||||||||
| services at $1.14 per share | ||||||||||||||||||||||||
|
Shares
issued for cash at $1.20 per share,
|
4,322,000 | 4,322 | 4,924,378 | - | - | 4,928,700 | ||||||||||||||||||
| net of issue costs | ||||||||||||||||||||||||
|
Shares
issued for investment banking
|
257,700 | 257 | (257 | ) | - | - | - | |||||||||||||||||
| services at $1.20 per share | ||||||||||||||||||||||||
|
Employee
stock grants at $1.71 per share
|
35,000 | 35 | 59,815 | - | - | 59,850 | ||||||||||||||||||
|
Net
(loss)
|
- | - | - | (2,686,762 | ) | 19,544 | (2,667,218 | ) | ||||||||||||||||
|
Balance,
December 31, 2006
|
28,139,552 | 28,139 | 14,062,002 | (6,596,869 | ) | 19,683 | 7,512,955 | |||||||||||||||||
|
Shares
issued for investor relations services
|
170,000 | 170 | 575,598 | - | - | 575,768 | ||||||||||||||||||
| at weighted average price of $3.39 per share | ||||||||||||||||||||||||
|
Shares
issued for consulting services in
|
15,000 | 15 | 55,185 | - | - | 55,200 | ||||||||||||||||||
| Mexico at $3.68 per share | ||||||||||||||||||||||||
|
Stock
options granted
|
- | - | 99,482 | - | - | 99,482 | ||||||||||||||||||
|
Shares
issued for cash at $4.00 per share,
|
5,558,500 | 5,559 | 21,706,441 | - | - | 21,712,000 | ||||||||||||||||||
| net of issue costs | ||||||||||||||||||||||||
|
Shares
issued for investment banking services
|
263,900 | 264 | (264 | ) | - | - | - | |||||||||||||||||
|
Net
(loss)
|
- | - | - | (8,076,342 | ) | (89,939 | ) | (8,166,281 | ) | |||||||||||||||
|
Balance,
December 31, 2007
|
34,146,952 | 34,147 | 36,498,444 | (14,673,211 | ) | (70,256 | ) | 21,789,124 | ||||||||||||||||
|
Stock
options granted
|
- | - | 1,956,806 | - | - | 1,956,806 | ||||||||||||||||||
|
Shares
issued for investor relations services
|
10,000 | 10 | 42,460 | - | - | 42,470 | ||||||||||||||||||
| at $4.25 per share | ||||||||||||||||||||||||
|
Stock
options exercised at $1.00 per share
|
260,604 | 261 | 180,739 | - | - | 181,000 | ||||||||||||||||||
|
Shares
issued for cash at $3.00 per share
|
1,670,000 | 1,670 | 5,008,330 | - | - | 5,010,000 | ||||||||||||||||||
|
Net
(loss)
|
- | - | - | (26,015,203 | ) | 63,536 | (25,951,667 | ) | ||||||||||||||||
|
Balance,
December 31, 2008
|
36,087,556 | $ | 36,088 | $ | 43,686,779 | $ | (40,688,414 | ) | $ | (6,720 | ) | $ | 3,027,733 | |||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-21
GOLD RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2008, 2007 and 2006
1. Summary
of Significant Accounting Policies
Basis of
Presentation. Gold Resource Corporation (the
"Company") was organized under the laws of the State of Colorado on
August 24, 1998. The Company has been engaged in the exploration
for precious and base metals, primarily in Mexico, as an exploration stage
company. It plans to develop mineral properties and ultimately become
a producer of gold, silver, and base metals. The Company has not
generated any revenues from operations. The consolidated financial
statements included herein are expressed in United States dollars, the Company's
reporting currency. The accounting policies conform to accounting
principles generally accepted in the United States of America (“US GAAP”), as
promulgated by the Financial Accounting Standards Board (“FASB”), the Securities
and Exchange Commission (“SEC”), and the Emerging Issues Task Force (“EITF”),
among others.
Basis of
Consolidation. The consolidated financial
statements include the accounts of the Company and its wholly owned Mexican
subsidiaries, Don David Gold S.A. de C.V. and Golden Trump Resources S.A. de
C.V. The expenditures of Don David Gold and Golden Trump Resources
are generally incurred in Mexican pesos. Significant intercompany
accounts and transactions have been eliminated.
Reclassifications. Certain
amounts previously presented for prior periods have been reclassified to conform
with the current presentation. The reclassifications had no effect on
net loss, total assets or total shareholders’ equity.
Estimates. The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of expenses during
the reporting period. Management routinely makes judgments and
estimates about the effects of matters that are inherently
uncertain. Estimates that are critical to the accompanying
consolidated financial statements include the identification and valuation of
proven and probable reserves, classification of expenditures as either an asset
or an expense, valuation of deferred tax assets, and the likelihood of loss
contingencies Management bases its estimates and judgements on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Estimates and
assumptions are revised periodically and the effects of revisions are reflected
in the financial statements in the period it is determined to be
necessary. Actual results could differ from these
estimates.
Statements of Cash
Flows. The Company considers cash in banks,
deposits in transit, and highly liquid debt instruments purchased with original
maturities of three months or less to be cash and cash equivalents.
Proven and Probable
Reserves. The definition of proven and probable
reserves is set forth in SEC Industry Guide 7. Proven reserves are
reserves for which (a) quantity is computed from dimensions revealed in
outcrops, trenches, workings or drill holes; grade and/or quality are computed
from the results of detailed sampling and (b) the sites for inspection, sampling
and measurement are spaced so closely and the geologic character is so well
defined that size, shape, depth and mineral content of reserves are
well-established. Probable reserves are reserves for which quantity
and grade and/or quality are computed from information similar to that used for
proven reserves, but the sites for inspection, sampling, and measurement are
farther apart or are otherwise less adequately spaced. The degree of
assurance, although lower than that for proven reserves, is high enough to
assume continuity between points of observation. In addition,
reserves cannot be considered proven and probable until they are supported by a
feasibility study, indicating that the reserves have had the requisite geologic,
technical and economic work performed and are economically and legally
extractable at the time of the reserve determination.
F-22
As of
December 31, 2008, none of the Company’s mineral resources met the definition of
proven or probable reserves.
Mineral Acquisition
Costs. The costs of acquiring land and mineral
rights are considered tangible assets pursuant to EITF Issue No. 04-2, “Whether
Mineral Rights are Tangible or Intangible Assets.” Significant
acquisition payments are capitalized. General, administrative and
holding costs to maintain an exploration property are expensed as
incurred. If a mineable ore body is discovered, such costs are
amortized when production begins using the units-of-production
method. If no mineable ore body is discovered or such rights are
otherwise determined to have diminished value, such costs are expensed in the
period in which the determination is made.
Exploration
Costs. Exploration costs are charged to expense as
incurred. Costs to identify new mineral resources, to evaluate
potential resources, and to convert mineral resources into proven and probable
reserves are considered exploration costs.
Design, Construction, and Development
Costs. Certain costs to design and construct mine
and processing facilities may be incurred prior to establishing proven and
probable reserves. Under these circumstances, the Company classifies
the project as an exploration stage project and expenses substantially all
costs, including design, engineering, construction, and installation of
equipment. Certain types of equipment, which have alternative uses or
significant salvage value, may be capitalized. After a project is
determined to contain proven and probable reserves, costs incurred prospectively
can be capitalized. Such costs include development drilling to
further delineate the ore body, removing overburden during the pre-production
phase, building access ways, constructing facilities, and installing
equipment. Interest costs, if any, incurred during the development
phase would be capitalized until the assets are ready for their intended
use. The cost of start-up activities and on-going costs to maintain
production are expensed as incurred. Costs of abandoned projects are
charged to operations upon abandonment.
After a
project commences commercial production, amortization and depletion of
capitalized costs is computed on a unit-of–production basis over the expected
life of the project based on estimated recoverable gold equivalent
ounces.
Impairment of Long-Lived
Assets. The Company evaluates its long-lived
assets for impairment in accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal
of Long-Lived Assets” (“SFAS 144”), and EITF Issue No. 04-3,
“Mining Assets: Impairment and Business Combinations.” If impairment
indicators exist, the Company performs additional analysis to quantify the
amount by which capitalized costs exceed recoverable value. The
periodic evaluation of capitalized costs is based upon expected future cash
flows, including estimated salvage values. As of December 31, 2008,
the Company’s mineral resources do not meet the definition of proven or probable
reserves or value beyond proven and probable reserves and any potential revenue
has been excluded from the cash flow assumptions. Accordingly,
recoverability of capitalized cost is based primarily on estimated salvage
values.
Property and
Equipment. All items of property and equipment are
carried at cost not in excess of their estimated net realizable
value. Normal maintenance and repairs are charged to earnings while
expenditures for major maintenance and betterments are
capitalized. Gains or losses on disposition are recognized in
operations.
F-23
Depreciation. Depreciation
of property and equipment is computed using straight-line methods over the
estimated economic lives, as follows:
|
Trucks
and autos
|
4
to 5 years
|
|
Office
furniture and equipment
|
5
to 10 years
|
|
Computer
hardware and software
|
3
years
|
|
Exploration
equipment
|
6
to 8 years
|
Property Retirement
Obligation. The Company follows
SFAS No. 143, "Accounting for Asset Retirement Obligations,"
(“SFAS 143”), which requires the fair value of a liability for an asset
retirement obligation to be recognized in the period that it is incurred if a
reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. The Company has determined that it has no material
property retirement obligations as of December 31, 2008.
Stock Based
Compensation. The Company accounts for stock-based
compensation in accordance with SFAS No. 123 (Revised 2004), “Share Based
Payment” (“SFAS 123R”), which requires the recognition of compensation costs for
stock options determined in accordance with a fair value based
methodology. The Company estimates the fair value of stock options at
their grant date by using the Black-Scholes-Merton option pricing model and
provides for expense recognition over the vesting period, if any, of the stock
option.
Per Share
Amounts. SFAS No. 128, "Earnings Per
Share," provides for the calculation of "Basic" and "Diluted" earnings per
share. Basic earnings per share includes no dilution and is computed
by dividing income available to common shareholders by the weighted-average
number of shares outstanding during the period (34,393,854 for 2008 and
28,645,038 for 2007). Diluted earnings per share reflect the
potential dilution of securities that could share in the earnings of the
Company, similar to fully diluted earnings per share. Potentially
dilutive securities, such as common stock options, are excluded from the
calculation when their effect would be anti-dilutive. For the period
ended December 31, 2008, outstanding options to purchase 3,683,000 shares of
common stock would have an anti-dilutive effect and were therefore excluded from
the calculation.
Income
Taxes. The Company accounts for income taxes under
SFAS No. 109, "Accounting for Income Taxes"
(“SFAS 109”). SFAS 109 requires recognition of deferred tax
assets and liabilities for temporary differences and the effect of net operating
losses based upon the enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary differences are
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements that will result in taxable or deductible
amounts in future years. A valuation allowance is established when
necessary to reduce deferred tax assets to the amount expected to be
realized.
FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an
Interpretation of FASB Statement No. 109 (“FIN 48”), clarifies the accounting
for uncertainty in income taxes recognized in an entity’s financial statements
in accordance with SFAS 109, and prescribes a recognition threshold and
measurement attributes for financial statement disclosure of tax positions taken
or expected to be taken on a tax return. Under FIN 48, the impact of
an uncertain income tax position on the income tax return must be recognized at
the largest amount that is more-likely-than-not to be sustained upon audit by
the relevant taxing authority. An uncertain income tax position will
not be recognized if it has less than a 50% likelihood of being
sustained. Additionally, FIN 48 provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. The Company adopted the provisions of FIN
48 on January 1, 2007, which did not have a material impact on the consolidated
financial statements.
Business
Risks. The Company continually reviews the mining
and political risks it encounters in its operations. It mitigates the
likelihood and potential severity of these risks through the application of high
operating standards. The Company may be affected to various degrees
by changes in environmental regulations, including those for future site
restoration and reclamation costs. The mining industry is subject to
extensive licensing, permitting, governmental legislation, control and
regulations. The Company endeavors to be in compliance with these
regulations at all times.
F-24
Fair Value of Financial
Instruments. SFAS No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments. SFAS No. 157,
“Fair Value Measurements” (“SFAS 157”), defines fair value, establishes a
framework for measuring fair value in accordance with generally accepted
accounting principles, and expands disclosures about fair value
measurements. Fair value estimates discussed herein are based upon
certain market assumptions and pertinent information available to management as
of December 31, 2008.
The
respective carrying value of certain on-balance-sheet financial instruments
approximate their fair values. These financial instruments include
cash, cash equivalents, prepaid expenses, accounts payable and accrued
liabilities. Fair values were assumed to approximate carrying values for these
financial instruments since they are short term in nature and their carrying
amounts approximate fair value, or they are receivable or payable on
demand.
Concentration of Credit
Risk. The Company's operating cash balances are
maintained in two primary financial institutions and currently exceed federally
insured limits. The Company believes that the financial strength of
these institutions mitigates the underlying risk of loss. To date,
these concentrations of credit risk have not had a significant impact on the
Company’s financial position or results of operations.
Foreign
Operations. The Company's present mining
activities are in Mexico. As with all types of international business
operations, currency fluctuations, exchange controls, restrictions on foreign
investment, changes to tax regimes, political action and political instability
could impair the value of the Company's investments.
Foreign Currency
Translation. The local currency, the Mexican peso,
is the functional currency for the Company's subsidiaries. Current
assets and current liabilities are translated using the exchange rate in effect
at the balance sheet date. Other assets and liabilities are
translated using historical rates. Revenues and expenses are
translated at the average exchange rate for the year. Translation
adjustments are reported as a separate component of shareholders'
equity.
Recent
Pronouncements. In December 2007, the FASB issued
SFAS No. 141 (revised 2007), “Business Combinations”
(“SFAS 141R”). This statement replaces FAS No. 141,
which was effective July 1, 2001. The statement provides guidance for
how the acquirer recognizes and measures the identifiable assets acquired,
liabilities assumed and any non-controlling interest in the acquiree.
SFAS 141R provides for how the acquirer recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain
purchase. The statement provides for disclosures to enable users to
be able to evaluate the nature and financial effects of the business
combination. The provisions of SFAS 141R are effective for the
first annual reporting period beginning on or after December 15, 2008, and must
be applied prospectively to business combinations completed after that
date. Early adoption is prohibited. Management is
currently evaluating the impact of adopting this statement.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements” (“SFAS 160”), which becomes effective
for annual periods beginning after December 15, 2008. This standard
establishes accounting and reporting standards for ownership interests in
subsidiaries held by parties other than the parent, the amount of consolidated
net income attributable to the parent and to the noncontrolling interest,
changes in a parent’s ownership interest and the valuation of retained
non-controlling equity investments when a subsidiary is
deconsolidated. The Statement also establishes reporting requirements
that provide sufficient disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the non-controlling
owners. Management is currently evaluating the impact of adopting
this statement.
F-25
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities – an Amendment of FASB Statement No. 133” (“SFAS 161”),
which becomes effective for periods beginning after November 15,
2008. This standard changes the disclosure requirements for
derivative instruments and hedging activities. Entities are required
to provide enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity's financial
position, financial performance, and cash flows. Management is
currently evaluating the impact of adopting this statement.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”), which identifies the sources of accounting
and the framework for selecting the principles to be used in the preparation of
financial statements that are presented in conformity with US
GAAP. SFAS 162 will be effective 60 days following the SEC’s approval
of the Public Company Accounting Oversight Board amendments to AU Section 411,
“The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.” Management does not expect this statement to change any
of the Company’s existing accounting principles.
There
were various other accounting standards and interpretations recently issued,
none of which are expected to a have a material impact on the Company's
consolidated financial position, operations or cash flows.
2. Mineral
Properties
The
Company currently has an interest in four properties, the El Aguila project, the El Rey property, the Las Margaritas property, and
the Solaga
property.
The El
Aguila
Project. Effective October 14, 2002, the Company leased three
mining concessions, El Aguila, El Aire, and La Tehuana, from Jose Perez
Reynoso, a consultant to the Company. The lease agreement is subject
to a 4% net smelter return royalty where production is sold in the form of
gold/silver dore and 5% for production sold in concentrate form. The
Company has made periodic advance royalty payments under the lease totaling
$260,000 and no further advance royalty payments are due. Subject to
minimum exploration requirements, there is no expiration term for the
lease. The Company may terminate it at any time upon written notice
to the lessor and the lessor may terminate it if the Company fails to fulfill
any of its obligations. The El Aguila and El Aire concessions make up
the El Aguila project
and the La Tehuana
concession makes up the Las
Margaritas property.
The
Company has filed for and received additional concessions for the El Aguila project that total
an additional 8,492 hectares. These additional concessions are not
part of the concessions leased from the consultant, and bring the Company’s
interest in the El
Aguila project to an aggregate of 9,463 hectares. The mineral
concessions making up the El
Aguila project are located within the Mexican State of
Oaxaca.
F-26
The El
Rey
Property. The Company has acquired claims in another area in
the state of Oaxaca by filing concessions under the Mexican mining laws,
referred to as the El
Rey property. These concessions total 892 hectares and are
subject to a 2% royalty on production payable to Mr. Reynoso. The
Company has conducted minimal exploration and drilling on this property to
date.
The El Rey property is an
exploration stage property with no known reserves. It is
approximately 64.4 kilometers (40 miles) from the El Aguila
Project. There is no plant or equipment on the El Rey
property. If exploration is successful, any mining would probably
require an underground mine but any mineralized material could be processed at
the El Aguila Project
mill if it is successfully constructed.
The Las
Margaritas
Property. The Las Margaritas property is
made up of the La
Tehuana concession, and is an exploration stage property with no known
reserves. The Company leased this property in October 2002 from Mr.
Reynoso. It is comprised of approximately 925 hectares located
adjacent to the El
Aguila property. To date, the Company has conducted limited
surface sampling, but no other significant exploration activities at the
property.
The Solaga Property. In
February 2007, the Company leased a 100% interest in a property known as the
Solaga property from an
entity partially owned by Mr. Reynoso. The property totals 618
hectares, and is located approximately 120 kilometers (75 miles) from the El Aguila
project. The property is an exploration property with no known
reserves. A dormant silver mine is located on the Solaga property which was in
production as recently as the 1980’s, however the Company cannot estimate if or
when it will reopen the mine. The lease requires the Company to
perform $25,000 in additional work and is subject to a 4% net smelter return
royalty on any production. The Company has not conducted any
exploration activities at the property.
3. Property
and Equipment
At
December 31, 2008, property and equipment consisted of the
following:
|
2008
|
2007
|
|||||||
|
Trucks
and autos
|
$ | 291,876 | $ | 131,509 | ||||
|
Office
furniture and equipment
|
137,678 | 88,385 | ||||||
|
Exploration
equipment
|
570,794 | 205,302 | ||||||
|
Subtotal
|
1,000,348 | 425,196 | ||||||
|
Accumulated
depreciation
|
(188,129 | ) | (72,767 | ) | ||||
|
Total
|
$ | 812,219 | $ | 352,429 | ||||
4. Income
Taxes
Loss
before income taxes, segregated as to the U. S. and foreign components, is as
follows:
|
2008
|
2007
|
2006
|
||||||||||
|
U.
S.
|
$ | (12,697,644 | ) | $ | (3,002,018 | ) | $ | (2,173,601 | ) | |||
|
Foreign
|
(13,317,559 | ) | (5,074,324 | ) | (513,161 | ) | ||||||
|
Total
|
$ | (26,015,203 | ) | $ | (8,076,342 | ) | $ | (2,686,762 | ) | |||
At
December 31, 2008, the Company has tax loss carryforwards for U. S. tax purposes
approximating $8,810,000, which primarily expire from 2026 to 2028. The
principle difference between the net loss reported for book purposes and the
loss reported for tax purposes relates to the taxation of foreign
subsidiaries. Secondly, stock based compensation expenses are
generally deductible in different periods and in different amounts than the
expense recognized for book purposes. Finally, certain expenditures
for property and equipment are capitalized for tax purposes, but not for book
purposes.
F-27
The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets at December 31, 2008 and 2007 are presented
below:
|
2008
|
2007
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Tax
loss carryforward – U. S.
|
$ | 2,996,000 | $ | 2,537,000 | ||||
|
Tax
loss carryforward – Foreign
|
7,877,000 | 2,167,000 | ||||||
|
Stock
based compensation
|
814,000 | 278,000 | ||||||
|
Property
and equipment
|
2,188,000 | -- | ||||||
|
Total
deferred tax assets
|
13,875,000 | 4,982,000 | ||||||
|
Valuation
allowance
|
(13,875,000 | ) | (4,982,000 | ) | ||||
|
Net
deferred tax asset
|
$ | -- | $ | -- | ||||
At this
time, the Company is unable to determine if it will be able to benefit from its
deferred tax asset. There are limitations on the utilization of net
operating loss carryforwards, including a requirement that losses be offset
against future taxable income, if any. In addition, there are
limitations imposed by certain transactions which are deemed to be ownership
changes. Accordingly, a valuation allowance has been established for
the entire deferred tax asset. The change in the valuation allowance
was approximately $8,893,000 during 2008.
|
2008
|
2007
|
2006
|
||||||||||
|
Tax
at statutory rates
|
$ | (8,845,000 | ) | $ | (2,746,000 | ) | $ | (1,040,000 | ) | |||
|
Increase
(reduction) in taxes due to:
|
||||||||||||
|
Stock
based compensation
|
-- | 34,000 | 318,000 | |||||||||
|
Valuation
allowance
|
8,845,000 | 2,712,000 | 722,000 | |||||||||
|
Tax
provision
|
$ | -- | $ | -- | $ | -- | ||||||
5. Shareholders'
Equity (Deficit)
Effective
February 21, 2005, the Company declared and effected a 100% forward stock
split where one additional share of common stock, par value $.001, was issued
for each common share outstanding as of that date. All of the financial
information in the financial statements has been adjusted to reflect this
two-for-one stock split.
The
Company was formed on August 24, 1998 by William W. Reid and David C. Reid
(the "Founders"). During 1998 and 1999, the Founders received
3,800,000 shares of common stock valued at $1,900 for administrative and
organization expenses paid on behalf of the Company. The Company
remained generally inactive through 1999.
Commencing
July 1, 2000, the Company and US Gold, a publicly traded Colorado
corporation, entered into a management contract whereby US Gold provided general
management of the business activities of the Company through December 31,
2001. Under this management contract, US Gold was issued 2,560,000
shares of common stock of the Company. The 2,560,000 shares were
valued at $392,191 or approximately $0.15 per share. Through this
arrangement, the Company benefited from experienced management without the
need to raise cash funding for the related cost of such management and
administration. The Company was, however, responsible for all
additional funding needed.
During
2001, the Founders made convertible debenture loans to the Company and then
converted $50,000 in convertible debentures into 200,000 shares of common stock
of the Company at a conversion price of $0.25 per share.
F-28
In
September 2001, the Company commenced the sale of its common shares under
exemptions offered by federal and state securities
regulations. During 2001 the Company sold 820,000 shares at $0.25 per
share (a total of $205,000).
During
2002, the Company sold 392,000 shares at $0.25 per share (a total of $98,000) to
various parties and 1,351,352 shares at approximately $0.17 per share (a total
of $224,673) to an institutional investor, RMB International (Dublin) Limited
("RMB").
During
2003, the Company sold 577,000 shares at $0.25 per share raising net proceeds of
$144,250. Effective September 30, 2003, US Gold acquired the RMB
shares in exchange for US Gold shares, and terminated the obligation of the
Company to pay RMB approximately $25,327 in transaction costs, which was added
back into paid-in-capital.
During
2004, the Company sold 608,000 shares at $0.25 per share raising net proceeds of
$152,000. Also during 2004, the Company issued 1,200,000 shares
valued at approximately $0.42 per share to Canyon Resource Corporation for
repayment of a loan for funding of exploration cost at the El Aguila
property. Also during 2004, the Company made a stock grant of 600,000
shares valued at $0.25 per share or $150,000 to Jose Perez Reynoso, a consultant
of the Company.
Effective
January 2, 2005, the Company made common stock awards to its two executive
officers and a consultant of an aggregate 1,750,000 shares for services
performed during 2004 and 2005. The shares were valued at $437,500
(or $0.25 per share) which was recorded as stock based compensation expense of
$350,000 in 2004 and $87,500 in 2005. In this issuance of common
stock, William W. Reid received 1,000,000 shares, David C. Reid received
500,000 shares and William F. Pass received 250,000 shares. Also
effective January 2, 2005, a stock option issued to William F. Pass
covering 400,000 shares of common stock at exercise price of $0.25 per share was
reduced by 250,000 shares leaving 150,000 shares remaining subject to
option.
During
2005 an individual exercised stock options for 10,000 shares for
$2,500. In June 2005, the Company issued 1,280,000 shares to US Gold
Corporation in satisfaction of $320,000 owed for a prior year management
contract.
During
2005, the Company sold 428,000 shares to individual investors for cash proceeds
of $145,000 (276,000 shares at $0.25 per share and 152,000 shares at $0.50 per
share).
In
addition, during July and August 2005, the Company closed transactions under a
Subscription Agreement and Stock Purchase Option Agreement with Heemskirk
Consolidated Limited ("Heemskirk"), an Australian global mining house, whereby
Heemskirk purchased 2,000,000 shares of common stock of the Company at $0.50 per
share. A finder’s fee of 140,000 shares was paid to a third party (resulting in
a net value of $0.47 per share). Heemskirk had previously purchased
(in April, 2005) 150,000 shares of common stock at $0.50 per share and the
Company had paid a finder’s fee of 10,500 shares. The Company agreed
to give Heemskirk a first right of offer for any financings, including sale of
equity, the Company may pursue. In a similar transaction during
August 2005, the Company sold 400,000 shares to another investor raising
$200,000 and paid a finder’s fee to a third party of 28,000
shares. These transactions resulted in the issuance of 2,728,500
shares for net cash proceeds of $1,275,000 ($0.47 per share).
During
2006, the Company sold 4,600,000 shares of common stock at $1.00 per share in a
public offering under a Form SB-2 registration statement that was declared
effective on May 15, 2006. The Company received cash proceeds of
$4,351,200 (net of finders’ fees of $248,800).
During
2006, the Company completed a private placement of 4,322,000 shares of common
stock at $1.20 per share, and received net cash proceeds of $4,928,700, after
deducting finders’ fees of $257,700. The Company also issued 257,700
shares of common stock as finders’ fees in connection with this private
placement.
F-29
During
2006, the Company received cash proceeds of $60,000 pursuant to the exercise of
options to purchase 240,000 shares at $0.25 per share.
In May
2006, the Company made a common stock award of 100,000 shares to a director.
These shares were valued at $100,000. In December 2006, the Company
made a common stock award of 35,000 shares to two employees. These
shares were valued at $59,850. In October 2006, the Company issued
250,000 shares of restricted common stock in exchange for investor relations
services. These shares were valued at $275,000.
Pursuant
to a contract effective November 1, 2006, the Company agreed to issue shares of
common stock to a consultant performing investor relations work on its
behalf. The 30,000 shares issued in 2006 were valued at $1.50 per
share, or $45,000. The 30,000 shares issued in February 2007 were
valued at $2.428 per share, or $72,840. The 30,000 shares issued in
May 2007 were valued at $3.39 per share or $101,670. In November
2007, 30,000 shares were issued at a value of $4.14 per share or $124,310, and
20,000 shares were issued at a value of $4.235 per share or
$84,703. The Company agreed to issue an additional 10,000 shares for
services performed during December 2007 valued at $4.375 per share or
$43,745.
On May 1,
2007, the Company entered into an investor relations contract for international
investors that required the issuance of 50,000 shares of restricted common stock
during the second quarter of 2007. These shares were valued at
$148,500.
On
October 2, 2007, the Company agreed to issue 15,000 shares of common stock for
consulting services performed in Mexico. These shares were valued at
$3.68 per share, or $55,200, and were recorded as stock compensation during the
year ended December 31, 2007.
On
December 5, 2007, the Company completed the sale of 5,558,500 shares of common
stock in a private placement for a price of $4.00 per share, for aggregate gross
proceeds of $22,234,000. In connection with the private placement,
the Company agreed to pay finders’ fees of $522,000 in cash and 263,900 shares
of common stock.
Effective
January 13, 2008, the Company agreed to issue 10,000 restricted shares of common
stock for investor relations consulting services. The 10,000 shares
were valued at $4.247 per share or $42,470.
During
the year ended December 31, 2008, a director of the Company exercised options to
purchase 100,000 shares of the Company's common stock at the exercise price of
$1.00 per share for total cash proceeds of $100,000.
Effective
July 28, 2008, an officer exercised options to purchase 87,000 shares of common
stock at $1.00 per share. The officer elected the “cashless exercise”
method for payment, under which he immediately surrendered 19,333 shares of
common stock that he would have otherwise been entitled to. These
shares were valued at $4.50 per share, for a total valuation of
$87,000. The transaction resulted in a net increase of 67,667 common
shares outstanding.
Effective
October 12, 2008, a consultant exercised options to purchase 81,000 shares of
restricted common stock at $1.00 per share for cash proceeds of
$81,000. In addition, the consultant exercised options to purchase
19,000 shares using the “cashless exercise” method of payment, under which he
immediately surrendered 7,063 shares of common stock that he would have
otherwise been entitled to receive. The 7,063 shares were valued at
$2.69 per share, for a total valuation of $19,000 and resulting in a net
issuance of 11,937 shares. As a result of both transactions, common
shares outstanding increased by 92,937 shares.
F-30
On
December 5, 2008, the Company entered into a subscription agreement and a
strategic alliance agreement with Hochschild Mining Holdings Limited
(“Hochschild”). Under the terms of the subscription agreement, the
Company sold 1,670,000 restricted shares of its common stock to Hochschild at
$3.00 per share for total cash proceeds of $5,010,000. Under the
terms of the strategic alliance agreement, the Company granted Hochschild an
option to purchase an additional 4,330,000 shares of its restricted common stock
at a price of $3.00 per share for total cash proceeds of
$12,990,000. The option expired on March 1, 2009, eighty days after
the closing of the subscription agreement. As discussed in Note 10
below, the option was exercised on February 25, 2009. The strategic
alliance agreement also contains a number of additional covenants between the
parties.
6. Stock
Options
The
Company has a non-qualified stock option and stock grant plan under which equity
awards may be granted to key employees, directors and others (the
"Plan"). The Plan is administered by the Board of Directors which
determines the terms pursuant to which any option is granted. The
maximum number of common shares subject to grant under the Plan is
6,000,000.
The fair
value of each option award is estimated on the date of grant using the
Black-Scholes-Merton option pricing model. The option pricing model
requires the input of subjective assumptions which are based on several
different criteria. Expected volatility is based on the historical
price volatility of the Company’s common stock. Expected dividend
yield is assumed to be nil, as the Company has not paid dividends since
inception. Forfeitures are assumed to be zero, as the Company has not
experienced forfeitures during its history. The expected life is
estimated in accordance with Staff Accounting Bulletin No. 107, “Share-Based
Payment” for plain vanilla options. Risk free interest rates are
based on US government obligations with a term approximating the expected life
of the option.
The fair
value of stock option grants is amortized over the respective vesting period.
Total non-cash compensation expense related to stock options included in general
and administrative expense for the years ended December 31, 2008, 2007, and 2006
was $1,956,806, $99,482, and $147,050 respectively. The estimated
unrecognized compensation cost from unvested options as of December 31, 2008 was
approximately $551,000, which is expected to be recognized over the remaining
vesting period of 2.4 years.
During
the year ended December 31, 2006, stock options were granted to purchase
1,200,000 shares of common stock. Grants covering 1,100,000 shares
were issued to an employee and a director at an exercise price of $1.00 and a
term of thirty-three months, and all of these options vested in
2006. Stock option compensation expense of $141,350 was recorded
based upon a fair value calculation using the following
assumptions: expected life of 2.75 years, stock price of $1.00 at
date of grant, dividend yield of 0%, and interest rate of 5%. Grants
covering 100,000 shares were issued to a service provider with an exercise price
of $1.00 per share and a term of twenty-four months. Of these,
options covering 50,000 shares vested in 2006 and options covering 50,000 shares
vested in 2007. Stock option compensation expense of $5,700 for 2006
and $16,290 for 2007 was recorded for these options based upon a fair value
calculation using the following assumptions: expected life of two
years, stock price of $1.00 at date of grant, dividend yield of 0%, and interest
rate of 5%.
During
the year ended December 31, 2007, the Company granted stock options to a public
relations consultant to purchase 50,000 shares of common stock at an exercise
price of $3.68 per share and a term of two years. The options vested
upon issuance. The grant date fair value was calculated as $83,192
($1.66 per option) using the following
assumptions: expected life of two years, stock price of $3.68 at date
of grant, dividend yield of 0%, interest rate of 4%, and volatility of
80%.
F-31
Effective
February 22, 2008, grants covering 1,000,000 shares of common stock were issued
to officers and directors at an exercise price of $3.40 and a term of ten years.
The options vested upon issuance. The grant date fair value was
calculated as $1,803,400 ($1.80 per option) using the following
assumptions: expected life of five years, stock price of $3.40 at
date of grant, dividend yield of 0%, interest rate of 2.1%, and volatility of
61%.
During
the year ended December 31, 2008, the Company granted options to employees
covering 270,000 shares of common stock at exercise prices ranging from $3.74 to
$4.51 and a term of ten years. The options vest over a three year
period. The grant date fair value was calculated as $637,434 ($2.36
per option) using the following assumptions: expected life of six
years, stock price equal to exercise price at date of grant, dividend yield of
0%, interest rate of 3.38%, and volatility of 61%.
Effective
January 9, 2008, the Company entered into an investor relations consulting
services contract which included the issuance of options to purchase 50,000
shares of common stock at an exercise price of $4.45 and a term of eighteen
months. The options vested upon issuance. The grant date
fair value was calculated as $67,280 ($1.35 per option) using the following
assumptions: expected life of eighteen months, stock price of $4.45
at date of grant, dividend yield of 0%, interest rate of 2.1%, and volatility of
61%.
The
weighted average grant date fair value of options granted was $1.90 per option
during 2008, $1.66 per option during 2007, and $0.14 per option during
2006. The weighted average grant date fair value of options vested
was $1.78 per option during 2008,$0.94 per option during 2007, and $0.13 per
option during 2006.
The
following table summarizes annual activity for all stock options for each of the
two years ended December 31, 2008:
|
Number
of Shares
|
Weighted
Average Exercise Price
|
Aggregate
Intrinsic Value
|
Number
of Shares Exercisable
|
|||||||||||||
|
Outstanding,
January 1, 2006
|
1,640,000 | $0.25 | - | - | ||||||||||||
|
Granted
|
1,200,000 | $1.00 | - | - | ||||||||||||
|
Exercised
|
(240,000) | $0.25 | - | - | ||||||||||||
|
Outstanding,
December 31, 2006
|
2,600,000 | $0.60 | $3,130,000 | 2,550,000 | ||||||||||||
|
Granted
|
50,000 | $3.68 | ||||||||||||||
|
Outstanding,
December 31, 2007
|
2,650,000 | $0.65 | $10,058,500 | 2,650,000 | ||||||||||||
|
Granted
|
1,320,000 | $3.54 | ||||||||||||||
|
Exercised
|
(287,000) | $1.00 | $717,500 | |||||||||||||
|
Outstanding,
December 31, 2008
|
3,683,000 | $1.66 | $6,932,500 | 3,413,000 | ||||||||||||
F-32
The
following table summarizes information about outstanding stock options as of
December 31, 2008:
|
Exercise
Prices
|
Number
of Shares
|
Remaining
Contractual Life (in years)
|
Weighted
Average Exercise Price
|
Number
Exercisable
|
||||
|
$0.25
|
1,400,000
|
5.0
|
$0.25
|
1,400,000
|
||||
|
$1.00
|
913,000
|
.2
|
$1.00
|
913,000
|
||||
|
$3.40
|
1,000,000
|
9.2
|
$3.40
|
1,000,000
|
||||
|
$3.68-$4.45
|
100,000
|
.6
|
$4.06
|
100,000
|
||||
|
$3.74
-$4.51
|
270,000
|
9.6
|
$3.91
|
--
|
||||
|
3,683,000
|
$1.66
|
3,413,000
|
||||||
7. Rental
Expense and Commitments and Contingencies
In May
2007, the Company amended its lease on office space in Denver, Colorado to
increase the space and extend the term of the lease to April
2010. Required payments approximate $2,470 per
month. Remaining minimum lease obligations for future calendar years
will be $29,640 in 2009 and $9,880 in 2010. Rent expense for 2008,
2007, and 2006 was $29,900, $27,000, and $17,000, respectively.
Effective
January 1, 2008, the Company entered into amended employment agreements
with William W. Reid, President and Chief Executive Officer, and David C. Reid,
Vice President. The employment agreements have a three year term and
increase William Reid’s base salary to $300,000 annually and increase David
Reid’s base salary to $212,000 annually. In addition, the period for
severance payments under certain circumstances was increased to 35
months.
Effective
January 1, 2008, the Company executed a formal written employment agreement with
Jason D. Reid, who will serve as Vice President of Corporate Development for a
three year term at an annual base salary of $150,000.
The
employment agreements all provide that the officers are each eligible to receive
incentive compensation such as stock options or bonuses solely in the discretion
of the Board of Directors. Each officer is entitled to certain
payments in the event his employment is terminated under certain
circumstances. If the Company terminates the agreement “without
cause”, or the officer terminates the agreement "with good reason," the Company
would be obligated to pay 35 months of compensation in accordance with its
regular pay periods. Termination of the employment contract by an
officer “with good reason” includes a change in control.
8. Related
Party Transactions
Jose
Perez Reynoso. The Company has certain contractual
business arrangements with Jose Perez Reynoso, a Mexican national and consultant
to the Company. Mr. Reynoso has been retained as a full-time
consultant to the Company at $9,000 per month through July 2007 and $10,000 per
month effective August 2007 under a month-to-month arrangement. The
Company also leased the El Aguila Property from Mr. Reynoso under
terms which required advance royalty payments to Mr. Reynoso aggregating
$260,000.
F-33
9.
General and Administrative Expenses
General
and administrative expenses included the following for the years ended December
31, 2008, 2007, and 2006 and for the period from inception (August
24, 1998) through December 31, 2008:
|
2008
|
2007
|
2006
|
Inception
to
December
31, 2008
|
|||||||||||||
|
Salaries
and benefits
|
$ | 716,057 | $ | 880,098 | $ | 850,490 | $ | 2,587,079 | ||||||||
|
Legal
and accounting
|
368,975 | 234,154 | 206,465 | 921,680 | ||||||||||||
|
Investor
relations
|
167,732 | 342,083 | 130,583 | 662,800 | ||||||||||||
|
Travel
related
|
91,520 | 173,559 | 103,241 | 443,084 | ||||||||||||
|
Stock
awards
|
42,470 | 630,968 | 479,850 | 1,740,788 | ||||||||||||
|
Grant
of stock options
|
1,956,806 | 99,482 | 147,050 | 2,203,338 | ||||||||||||
|
Other
|
208,447 | 179,260 | 179,282 | 646,609 | ||||||||||||
| $ | 3,552,007 | $ | 2,539,604 | $ | 2,096,961 | $ | 9,205,378 | |||||||||
10. Subsequent
Events
On
February 25, 2009, Hochschild exercised its option to purchase an additional
4,330,000 shares of the Company’s restricted common stock at $3.00 per share for
total cash proceeds of $12,990,000.
Subsequent
to December 31, 2008, the Company issued shares of common stock pursuant to
the exercise of stock options by an officer and a director. The
options were exercised using the “cashless exercise” method for payment, whereby
each individual immediately surrendered shares of common stock that he would
have otherwise been entitled to. In the aggregate, the individuals
exercised 913,000 options and immediately surrendered 235,067 shares of common
stock, resulting in a net issuance of 677,933 shares of common
stock. The Company received no cash proceeds in the
transactions.
F-34
|
You should rely only on the information contained in this
document or that we have referred you to. We have not authorized anyone to
provide you with information that is different. This prospectus is not an
offer to sell common stock and is not soliciting an offer to buy common
stock in any state where the offer or sale is not
permitted.
|
7,293,407
Shares
GOLD
RESOURCE
CORPORATION
|
|
|
Common
Stock
|
||
|
Prospectus
Summary
|
1
|
|
|
Risk
Factors
|
4
|
___________________
|
|
Business
and Properties
|
12
|
|
|
Market
for Common Stock and Related Stockholder Information
|
22
|
|
|
Selected
Financial Data
|
24
|
|
|
Management's
Discussion and of Financial Condition and Results of
Operations
|
25
|
PROSPECTUS
|
|
Quantitative
and Qualitative Disclosures About Market Risk
|
36
|
|
|
Management
|
37
|
____________________
|
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
46
|
|
|
Selling
Shareholders
|
48
|
|
|
Plan
of Distribution
|
50
|
|
|
Description
of Capital Stock
|
51
|
____________,
2010
|
|
Shares
Eligible for Future Sale
|
52
|
|
|
Where
You Can Find More Information
|
53
|
|
|
Legal
Matters
|
53
|
|
|
Experts
|
53
|
|
|
Financial
Statements
|
F-1
|
|
|
About
This Prospectus
|
Back
Cover
|
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
24. Indemnification of Directors and Officers
Included
in the prospectus.
Item 25. Other Expenses of Issuance
and Distribution.
We will
pay all expenses in connection with the issuance and distribution of the
securities being registered except selling discounts and commissions of the
selling shareholders. The following table sets forth expenses and costs related
to this offering (other than underwriting discounts and commissions) expected to
be incurred with the issuance and distribution of the securities described in
this registration statement.
|
SEC
registration fee
|
$
|
1,703.73
|
||
|
Legal
fees
|
40,000.00
|
|||
|
Accounting
fees
|
10,000.00
|
|||
|
Blue
Sky filing fees and expenses
|
500.00
|
|||
|
Printing
and engraving expenses
|
500.00
|
|||
|
Transfer
Agent fees and expenses
|
1,000.00
|
|||
|
Miscellaneous
|
6,296.27
|
|||
|
Total
|
$
|
60,000.00
|
Item
26. RECENT SALES OF UNREGISTERED SECURITIES.
During
the preceding three years, we have issued an aggregate of 11,120,600 shares of
our common stock and 2,200,000 options without registering those securities
under the Securities Act. The following information describes the
transactions in which those securities were issued.
On
October 12, 2006, we issued 250,000 shares of our common stock to Tara Capital
Ventures for services rendered to our company valued at $250,000, or $1.00 per
share. We also granted options to acquire 50,000 shares of common
stock for $1.00 per share to a public relations consultant. We relied
on the exemption provided by Section 4(2) of the Securities Act for each of
these transactions.
Between
November 2006 and November 2007 we issued an aggregate of 140,000 shares of our
common stock to a consultant performing investor relations work on our behalf.
The 30,000 shares issued in November 2006 were valued at $1.45 per share, or
$43,500. The 30,000 shares issued in February 2007 were valued at $2.428 per
share, or $72,840, the 30,000 shares issued in May 2007 were valued at $3.39 or
$101,670 and of the 50,000 shares issued in November 2007, 30,000 shares were
valued at $4.14 or $124,200, 10,000 shares were valued at $4.20 or $42,000, and
10,000 shares would be valued at $4.59 per share based on the closing price of
our common stock on the date of issuance. We relied on the exemption provided by
Section 4(2) of the Securities Act.
On
December 7, 2006, we sold an aggregate of 4,322,000 shares of our common
stock to subscribers in a private placement at a price of $1.20 per share, for
gross proceeds of $5,186,400. We paid aggregate finder’s fees of
$257,700 and 257,700 shares of common stock to certain finders in connection
with the private placement. We relied on the exemption from
registration provided by Regulation 506 of Regulation D for sales made in the
United States and Rule 903 of Regulation S in connection with sales outside the
United States. Each U.S. investor was an “accredited investor” within
the meaning of Rule 501. Further, we did not engage in any
general solicitation or advertising in connection with the offering and
exercised reasonable care to ensure that the purchasers were not underwriters,
including the placement of legends restricting transfer on certificates
representing the securities. The remainder of the shares were sold to
persons who were not in the United States at the time of purchase or who were
not “U.S. persons” as defined in Rule 902. We did not engage in
any directed selling efforts in the United States in connection with the
offering and placed legends on certificates representing the common stock
restricting transfer in accordance with Regulation S.
II-1
In May
2007, we issued 50,000 shares of our common stock to a consultant for
international investor relations services rendered to our company valued at
$2.97 per share, or $148,500. We relied on the exemption provided by Section
4(2) of the Securities Act.
On
October 2, 2007, we granted 50,000 options to purchase our common stock for
$3.68 per share to a public relations consultant which are exercisable until
October 2, 2009. We relied on the exemption provided by Section 4(2) of the
Securities Act.
On
December 5, 2007, we completed the sale of 5,558,500 shares of our common stock
in a private placement for a price of $4.00 per share, for aggregate gross
proceeds of $22,234,000. The sales were made pursuant to a
subscription agreement between the company and each subscriber. In
connection with the private placement, we agreed to pay finders’ fees in certain
instances in connection with the placement in an amount up to 5% of the gross
proceeds in cash and 5% of the number of shares placed in the
offering. As a result we incurred aggregate finders’ fees of
approximately $502,000 cash and 263,900 shares of our common
stock. We relied on the exemption from registration provided by
Regulation 506 of Regulation D for sales made in the United States and Rule 903
of Regulation S in connection with sales outside the United States. Each U.S.
investor was an “accredited investor” within the meaning of Rule 501. Further,
we did not engage in any general solicitation or advertising in connection with
the offering and exercised reasonable care in to ensure that the purchasers were
not underwriters, including the placement of legends restricting transfer on
certificates representing the securities. The remaining shares were sold to
persons who were not in the United States at the time of purchase or who were
not “U.S. persons” as defined in Rule 902. We did not engage in any directed
selling efforts in the United States in connection with the offering and placed
legends on certificates representing the common stock restricting transfer in
accordance with Regulation S.
On
February 22, 2008 we issued 1,000,000 options to acquire common stock to our
executive officers and directors. All of these options and the shares
were issued pursuant to the exemption from registration provided by Section 4(2)
of the Securities Act.
On July
24, 2008 we issued 60,000 options to acquire common stock, and on August 8, 2008
we issued 210,000 options to acquire common stock to a Mexican consultant and
our project manager, respectively. All of these options and the
shares were issued pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act.
On
December 5, 2008, we sold 1,670,000 shares of common stock to Hochschild Mining
Holdings Limited for $3.00 per share, for aggregate gross proceeds of
$5,010,000. In connection with the sale of common stock, we also
issued an option to Hochschild to purchase 4,330,000 additional shares of common
stock for $3.00 per share, for gross proceeds of $12,990,000, which was
subsequently exercised on February 25, 2009. Neither transaction was
registered under the Securities Act.
On June
30, 2009, we agreed to sell Hochschild an additional 5,000,000 shares of common
stock for $4.00 per share, for total gross proceeds of
$20,000,000. We issued 1,250,000 shares on June 30, 2009 and the
remaining 3,750,000 shares of July 20, 2009. We again relied on
Rule 903 of Regulation S of the Securities Act.
II-2
Finally,
on December 17, 2009, the Company sold 1,954,795 shares of its common stock
to Hochschild in a transaction that was not registered under the Securities
Act. Each share of common stock was sold for a price of $8.185, for
gross proceeds to the Company of $15,999,997.10. No underwriter or
placement agent was involved in the sale of common stock to
Hochschild.
In
connection with each of the transactions with Hochschild, we relied on Rule 903
of Regulation S of the Securities Act. No directed selling
efforts were made in the United States, offering restrictions were implemented,
the purchaser of the securities agreed to resell such securities only in
accordance with the provision of Regulation S or pursuant to registration
under the Securities Act or pursuant to an available exemption from
registration, and a legend was placed on the certificates representing the
shares noting the restrictions on transfer in accordance with
Regulation S.
In each
transaction where we relied on Rule 504 or 506, we did not engage in any general
solicitation or advertising. In each case, the subscriber was
provided with a subscription agreement detailing the restrictions on transfer of
the shares. Further, stop transfer restrictions were placed on each
of the certificates issued in connection with the offering. In each
of the offerings conducted pursuant to Rule 504, the offering price for the
securities did not exceed $1 million during the twelve months before the start
of and during that offering. In the offering conducted pursuant to
Rule 506, each purchaser was reasonably believed to be an “accredited investor”
under Rule 501 of the Securities Act.
In each
case where we relied on the exemption provided by Section 4(2) of the Securities
Act, we had a preexisting relationship with the investor and the offering was
made to a very limited number of individuals or entities. We also
took steps to insure that the investors had available the same type of
information that would be included in a registration
statement. Finally, each of certificates representing shares issued
pursuant to that exemption has been inscribed by the restrictive legend required
by Rule 144.
Item
27. EXHIBITS
The
following exhibits are filed with, or incorporated by reference in, this
registration statement:
|
Item No.
|
Description
|
|
3.1
|
Articles
of Incorporation of the Company as filed with the Colorado Secretary of
State on August 24, 1998 (incorporated by reference from our registration
statement on Form SB-2 filed on October 28, 2005, Exhibit 3.1, File No.
333-129321).
|
|
3.1.1
|
Articles
of Amendment to the Articles of Incorporation as filed with the Colorado
Secretary of State on September 16, 2005 (incorporated by reference from
our registration statement on Form SB-2 filed on October 28, 2005, Exhibit
3.1.1, File No. 333-129321).
|
|
3.2
|
Bylaws
of the Company dated August 28, 1998 (incorporated by reference from our
registration statement on Form SB-2 filed on October 28, 2005, Exhibit
3.2, File No. 333-129321).
|
|
4
|
Specimen
stock certificate (incorporated by reference from our amended registration
statement on Form SB-2/A filed on March 27, 2006, Exhibit 4, File No.
333-129321).
|
II-3
|
5
|
Opinion
on Legality.
|
|
10.1
|
Exploitation
and Exploration Agreement between the Company and Jose Perez Reynoso dated
October 14, 2002 (incorporated by reference from our registration
statement on Form SB-2 filed on October 28, 2005, Exhibit 10.1, File No.
333-129321).
|
|
10.2
|
Non-Qualified
Stock Option and Stock Grant Plan (incorporated by reference from our
registration statement on Form SB-2 filed on October 28, 2005, Exhibit
10.2, File No. 333-129321).
|
|
10.3
|
Form
of Stock Option Agreement (incorporated by reference from our registration
statement on Form SB-2 filed on October 28, 2005, Exhibit 10.3, File No.
333-129321).
|
|
10.4
|
Employment
Agreement between the Company and William W. Reid (incorporated by
reference from our amended registration statement on Form SB-2/A filed on
March 27, 2006, Exhibit 10.8, File No. 333-129321).
|
|
10.5
|
Employment
Agreement between the Company and David C. Reid (incorporated by reference
from our amended registration statement on Form SB-2/A filed on March 27,
2006, Exhibit 10.9, File No. 333-129321).
|
|
10.6
|
Form
of Subscription Agreement between the Company and investors in the
December 2007 private placement (incorporated by reference from our report
on Form 8-K dated December 5, 2007, Exhibit 10.1, File No.
333-129321).
|
|
10.7
|
Amended
Employment Agreement between the Company and William W. Reid (incorporated
by reference from our report on Form 10-Q filed on November 19, 2008,
Exhibit 10.1, File No. 333-129321).
|
|
10.8
|
Amended
Employment Agreement between the Company and David C. Reid (incorporated
by reference from our report on Form 10-Q filed on November 19, 2008,
Exhibit 10.2, File No. 333-129321).
|
|
10.9
|
Employment
Agreement between the Company and Jason D. Reid (incorporated by reference
from our report on Form 10-Q filed on November 19, 2008, Exhibit 10.3,
File No. 333-129321).
|
|
10.10
|
Strategic
Alliance Agreement between the Company and Hochschild Mining Holdings
Limited (incorporated by reference from our report on Form 8-K dated
December 5, 2008, Exhibit 10.1, File No. 333-129321).
|
II-4
|
10.11
|
Subscription
Agreement between the Company and Hochschild Mining Holdings Limited dated
December 5, 2008 (incorporated by reference from our report on Form 8-K
dated December 5, 2008, Exhibit 10.2, File No. 333-129321).
|
|
10.12
|
Subscription
Agreement between the Company and Hochschild Mining Holdings Limited dated
February 25, 2009 (incorporated by reference from our report on Form 8-K
dated February 25, 2009, Exhibit 10.2, File No. 333-129321).
|
|
10.13
|
Subscription
Agreement between the Company and Hochschild Mining Holdings Limited dated
June 30, 2009 (incorporated by reference from our report on
Form 8-K dated June 30, 2009, Exhibit 10.1, File
No. 333-129321).
|
| 10.14 |
Subscription
Agreement between the Company and Hochschild Mining Holdings Limited dated
December 17, 2009 (incorporated by reference from our report on
Form 8-K dated December 17, 2009, Exhibit 10.1, File
No. 333-129321).
|
|
21
|
Subsidiaries
of the Company (incorporated by reference from our amended registration
statement on Form SB-2/A filed on January 20, 2006, Exhibit 21, File No.
333-129321).
|
|
|
|
|
23.2
|
Consent
of Dufford & Brown, P.C. (included in Exhibit 5).
|
|
24
|
Power
of Attorney (included on signature
page).
|
|
|
_______________
|
* Filed
herewith.
Item
28. UNDERTAKINGS.
The
undersigned registrant hereby undertakes that it will:
|
1.
|
File,
during any period in which it offers or sells securities, a post-effective
amendment to this registration statement
to:
|
|
i.
|
Include
any prospectus required by section 10(a)(3) of the Securities
Act;
|
|
|
ii.
|
Reflect
in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration
statement; and notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in the volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the
effective registration statement.
|
|
|
iii.
|
Include
any additional or changed material information on the plan of
distribution.
|
|
2.
|
For
determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered, and
the offering of the securities at that time to be the initial bona fide
offering.
|
II-5
|
3.
|
File
a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the
offering.
|
|
4.
|
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question, whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
|
|
5.
|
For
determining liability of the undersigned registrant under the Securities
Act to any purchaser:
|
|
|
i.
|
That
each prospectus filed by the undersigned pursuant to Rule 424(b)(3) shall
be part of the registration statement as of the date the filed prospectus
was deemed part of and included in the registration statement;
and
|
|
|
ii.
|
Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or
(b)(7) as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x)
for the purpose of providing the information required by section 10(a) of
the Securities Act shall be deemed to be part of and included in the
registration statement as of the earlier of the date such form of
prospectus is first used after effectiveness or the date of the first
contract of sale of securities in the offering described in the
prospectus. As provided in Rule 430B, for liability purposes of the issuer
and any person that is at that date an underwriter, such date shall be
deemed to be a new effective date of the registration statement relating
to the securities in the registration statement to which that prospectus
relates, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof. Provided, however, that no
statement made in a registration statement or prospectus that is part of
the registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a
time of contract of sale prior to such effective date, supersede or modify
any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document
immediately prior to such effective
date.
|
|
|
iii.
|
Each
prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements
relying on Rule 430B or other than prospectuses filed in reliance on Rule
430A, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided,
however, that no statement made in a registration statement or prospectus
that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will,
as to a purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or
made in any such document immediately prior to such date of first
use.
|
II-6
|
|
SIGNATURES
|
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and authorize this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Denver, Colorado, on this 20th day of January
2010.
| GOLD RESOURCE CORPORATION | |||
|
(Registrant)
|
|||
|
|
By:
|
/s/ William W. Reid | |
| By: William W. Reid | |||
| President and Chief Executive Officer | |||
In
accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the capacity
and on the dates stated.
|
/s/ William W. Reid
|
President, Chief
Executive Officer and Chairman
of the Board
|
January 20,
2010
|
|
|
William
W. Reid
|
|
||
|
|
|||
|
/s/ William W. Reid, as
attorney-in-fact
|
Principal
Financial and Accounting
Officer
|
January 20,
2010
|
|
|
Frank
L. Jennings
|
|
||
|
/s/ William W. Reid, as
attorney-in-fact
|
Director
|
January 20 ,
2010
|
|
|
Bill
M. Conrad
|
|||
|
/s/ David C. Reid
|
Director
|
January 20,
2010
|
|
|
David
C. Reid
|
|||
II-7
EXHIBIT
INDEX
The
following Exhibits are filed or incorporated by reference as part of this
post-effective amendment to the registration statement on Form S-1.
|
Item No.
|
Description
|
|
3.1
|
Articles
of Incorporation of the Company as filed with the Colorado Secretary of
State on August 24, 1998 (incorporated by reference from our registration
statement on Form SB-2 filed on October 28, 2005, Exhibit 3.1, File No.
333-129321).
|
|
3.1.1
|
Articles
of Amendment to the Articles of Incorporation as filed with the Colorado
Secretary of State on September 16, 2005 (incorporated by reference from
our registration statement on Form SB-2 filed on October 28, 2005, Exhibit
3.1.1, File No. 333-129321).
|
|
3.2
|
Bylaws
of the Company dated August 28, 1998 (incorporated by reference from our
registration statement on Form SB-2 filed on October 28, 2005, Exhibit
3.2, File No. 333-129321).
|
|
4
|
Specimen
stock certificate (incorporated by reference from our amended registration
statement on Form SB-2/A filed on March 27, 2006, Exhibit 4, File No.
333-129321).
|
|
5
|
Opinion
on Legality.
|
|
10.1
|
Exploitation
and Exploration Agreement between the Company and Jose Perez Reynoso dated
October 14, 2002 (incorporated by reference from our registration
statement on Form SB-2 filed on October 28, 2005, Exhibit 10.1, File No.
333-129321).
|
|
10.2
|
Non-Qualified
Stock Option and Stock Grant Plan (incorporated by reference from our
registration statement on Form SB-2 filed on October 28, 2005, Exhibit
10.2, File No. 333-129321).
|
|
10.3
|
Form
of Stock Option Agreement (incorporated by reference from our registration
statement on Form SB-2 filed on October 28, 2005, Exhibit 10.3, File No.
333-129321).
|
|
10.4
|
Employment
Agreement between the Company and William W. Reid (incorporated by
reference from our amended registration statement on Form SB-2/A filed on
March 27, 2006, Exhibit 10.8, File No. 333-129321).
|
|
10.5
|
Employment
Agreement between the Company and David C. Reid (incorporated by reference
from our amended registration statement on Form SB-2/A filed on March 27,
2006, Exhibit 10.9, File No. 333-129321).
|
II-8
|
10.6
|
Form
of Subscription Agreement between the Company and investors in the
December 2007 private placement (incorporated by reference from our report
on Form 8-K dated December 5, 2007, Exhibit 10.1, File No.
333-129321).
|
|
10.7
|
Amended
Employment Agreement between the Company and William W. Reid (incorporated
by reference from our report on Form 10-Q filed on November 19, 2008,
Exhibit 10.1, File No. 333-129321).
|
|
10.8
|
Amended
Employment Agreement between the Company and David C. Reid (incorporated
by reference from our report on Form 10-Q filed on November 19,2 008,
Exhibit 10.2, File No. 333-129321).
|
|
10.9
|
Employment
Agreement between the Company and Jason D. Reid (incorporated by reference
from our report on Form 10-Q filed on November 19, 2008, Exhibit 10.3,
File No. 333-129321).
|
|
10.10
|
Strategic
Alliance Agreement between the Company and Hochschild Mining Holdings
Limited (incorporated by reference from our report on Form 8-K dated
December 5, 2008, Exhibit 10.1, File No. 333-129321).
|
|
10.11
|
Subscription
Agreement between the Company and Hochschild Mining Holdings Limited dated
December 5, 2008 (incorporated by reference from our report on Form 8-K
dated December 5, 2008, Exhibit 10.2, File No. 333-129321).
|
|
10.12
|
Subscription
Agreement between the Company and Hochschild Mining Holdings Limited dated
February 25, 2009 (incorporated by reference from our report on Form 8-K
dated February 25, 2009, Exhibit 10.2, File No. 333-129321).
|
|
10.13
|
Subscription
Agreement between the Company and Hochschild Mining Holdings Limited dated
June 30, 2009 (incorporated by reference from our report on
Form 8-K dated June 30, 2009, Exhibit 10.1, File
No. 333-129321).
|
| 10.14 |
Subscription
Agreement between the Company and Hochschild Mining Holdings Limited dated
December 17, 2009 (incorporated by reference from our report on
Form 8-K dated December 17, 2009, Exhibit 10.1, File
No. 333-129321).
|
|
21
|
Subsidiaries
of the Company (incorporated by reference from our amended registration
statement on Form SB-2/A filed on January 20, 2006, Exhibit 21, File No.
333-129321).
|
|
|
|
|
23.2
|
Consent
of Dufford & Brown, P.C. (included in Exhibit 5).
|
|
24
|
Power
of Attorney (included on signature
page).
|
|
|
_______________
|
* Filed
herewith.
II-9