UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:August 31, 2006
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition periodfrom ___ to ____
Commission File Number0-12132
SILVERADO GOLD MINES LTD.
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
British Columbia, Canada | 98-0045034 |
(State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.) |
organization) | |
1111 West Georgia Street, Suite 505, | |
Vancouver, British Columbia, Canada | V6E 4M3 |
(Address of principal executive offices) | (Zip Code) |
Issuer's telephone number:(604) 689-1535
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Check whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Number of shares outstanding as of October 11, 2006: 612,466,192 common shares.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SILVERADO GOLD MINES LTD.
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
August 31, 2006 and November 30, 2005
(Stated in United States Dollars)
2006 | 2005 | |||||
(Unaudited) | ||||||
ASSETS | ||||||
Current | ||||||
Cash and cash equivalents | $ | 4,568,891 | $ | 408,589 | ||
Gold inventory | 618,611 | 27,916 | ||||
Amounts receivable | 11,090 | 6,594 | ||||
5,198,592 | 443,099 | |||||
Property, plant and equipment | 1,181,574 | 1,285,553 | ||||
$ | 6,380,166 | $ | 1,728,652 | |||
LIABILITIES | ||||||
Current | ||||||
Accounts payable and accrued liabilities | $ | 300,655 | $ | 393,058 | ||
Mineral claims royalty payable | 350,000 | 400,000 | ||||
Payable to related companies | 244,881 | 70,282 | ||||
Convertible debentures, current portion | 140,000 | 176,652 | ||||
Capital lease obligation, current portion | 289,766 | 258,254 | ||||
1,325,302 | 1,298,246 | |||||
Asset retirement obligation | 514,315 | 539,453 | ||||
Capital lease obligations | 169,563 | 463,895 | ||||
2,009,180 | 2,301,594 | |||||
SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||
Capital stock | ||||||
Authorized: unlimited common shares with no par value | ||||||
Issued and outstanding: | ||||||
594,722,333 common shares (2005: 355,054,275) | 81,534,348 | 71,526,738 | ||||
Additional capital stock options | 466,314 | 466,314 | ||||
Shares to be issued | - | 54,500 | ||||
Accumulated deficit during exploration | (77,629,676 | ) | (72,620,494 | ) | ||
4,370,986 | (572,942 | ) | ||||
$ | 6,380,166 | $ | 1,728,652 |
See accompanying notes to financial statement
2
SILVERADO GOLDMINES LTD.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS & OTHER COMPREHENSIVE INCOME
for the nine months ended August 31, 2006 and August 31, 2005
(Stated in United States Dollars)
Period Since | |||||||||||||||
Recommencement | |||||||||||||||
Of Exploration Stage | |||||||||||||||
Three months ended August 31 | Nine months ended August 31 | December 1, 2001 | |||||||||||||
2006 | 2005 | 2006 | 2005 | To | |||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | August 31, 2006 | |||||||||||
General and Administrative Expenses | |||||||||||||||
Accounting and audit | $ | 11,287 | $ | 22,256 | $ | 83,053 | $ | 74,556 | $ | 257,067 | |||||
Advertising and promotion | 36,038 | 44,846 | 218,744 | 181,884 | 1,696,261 | ||||||||||
Consulting fees | 175,724 | 20,085 | 788,501 | 344,246 | 5,171,731 | ||||||||||
Depreciation, accretion and impairment | 57,412 | 95,709 | 167,073 | 199,543 | 1,910,733 | ||||||||||
Exploration expenses | 767,864 | 122,476 | 2,100,326 | 422,073 | 10,727,686 | ||||||||||
Financing activities | - | - | - | 252,003 | 252,003 | ||||||||||
Interest on convertible debentures | 2,800 | 3,258 | 8,400 | 9,774 | 681,807 | ||||||||||
Interest on capital lease obligations | 9,616 | 14,657 | 33,621 | 41,575 | 291,210 | ||||||||||
Legal | 5,775 | 5,396 | 191,237 | 63,717 | 462,725 | ||||||||||
Management services | 263,089 | 337,711 | 745,859 | 626,322 | 2,668,378 | ||||||||||
Office | 84,949 | 87,584 | 569,048 | 315,843 | 2,355,992 | ||||||||||
Other interest and bank charges | 2,560 | 1,719 | 8,143 | 4,751 | 35,780 | ||||||||||
Reporting and investor relations | 96,281 | 28,282 | 164,763 | 44,605 | 279,402 | ||||||||||
Research | 20,441 | 26,537 | 86,358 | 91,436 | 692,037 | ||||||||||
Transfer agent fees and mailing | 8,014 | 6,450 | 27,615 | 18,714 | 118,964 | ||||||||||
Write-off of mineral claim expenditures | - | - | - | - | 1,159,529 | ||||||||||
Write-down of property, plant and equipment | - | - | - | - | 285,875 | ||||||||||
Total General and Administrative Expenses | (1,541,850 | ) | (816,966 | ) | (5,192,741 | ) | (2,691,042 | ) | (29,047,180 | ) | |||||
Interest and other income | 91,531 | 626 | 108,105 | 1,390 | 200,895 | ||||||||||
Cumulative effect of accounting change | - | - | - | - | (153,226 | ) | |||||||||
Other comprehensive income | |||||||||||||||
Gain (loss) on foreign exchange | 840 | 78,835 | 75,454 | (11,228 | ) | 218,527 | |||||||||
Loss and comprehensive loss for the period | $ | (1,449,479 | ) | $ | (737,505 | ) | $ | (5,009,182 | ) | $ | (2,700,880 | ) | $ | (28,780,984 | ) |
Net loss per share | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | |||
Basic and diluted weighted average number of | |||||||||||||||
common shares outstanding | 570,301,569 | 292,906,521 | 506,289,678 | 266,659,207 |
See accompanying notes to financial statements
3
SILVERADO GOLD MINES LTD.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended August 31, 2006 and August 31, 2005
(Stated in United States Dollars)
Period Since | |||||||||
Recommencement | |||||||||
Nine Months Ended August 31 | Of Exploration Stage | ||||||||
2006 | 2005 | December 1, 2001 | |||||||
(Unaudited) | (Unaudited) | to August 31, 2006 | |||||||
Cash Flows used in Operating Activities | |||||||||
Net loss for the period | $ | (5,009,182 | ) | $ | (2,700,880 | ) | $ | (28,780,984 | ) |
Adjustments to reconcile loss to net cash provided | |||||||||
by (used in) operating activities: | |||||||||
Cumulative effect of accounting change | - | - | 153,226 | ||||||
Depreciation, accretion and impairment | 167,073 | 199,543 | 1,910,733 | ||||||
Stock based compensation | - | - | 2,252,950 | ||||||
Stock issued for debenture | - | - | 217,687 | ||||||
Non-cash consulting expense | 663,000 | 284,900 | 1,525,040 | ||||||
Non-cash financing expense | - | 252,003 | 252,003 | ||||||
Interest accrued | - | - | 486,370 | ||||||
Write-off of mineral claim expenditures | - | - | 1,159,529 | ||||||
Write-down of property, plant and equipment | - | - | 285,875 | ||||||
Changes in non-cash operating working capital: | |||||||||
Amounts receivable | (4,496 | ) | 764 | (8,215 | ) | ||||
Gold inventory | (590,695 | ) | 24,384 | (607,471 | ) | ||||
Prepaid expense | - | 122,000 | - | ||||||
Exploration and development advances | - | 147,947 | - | ||||||
Share subscriptions issued | (54,500 | ) | (70,000 | ) | 115,000 | ||||
Accounts payable and accrued liabilities | (137,772 | ) | 61,011 | (341,107 | ) | ||||
Decrease in mineral claims royalty payable | (50,000 | ) | - | 33,500 | |||||
Net cash used in Operating Activities | (5,016,572 | ) | (1,678,328 | ) | (21,345,864 | ) | |||
Cash Flows used in Investing Activities | |||||||||
Purchase of property, plant and equipment | (42,864 | ) | (6,101 | ) | (1,377,569 | ) | |||
Disposal of property, plant and equipment | - | 153,200 | 152,252 | ||||||
Net cash provided (used) from Investing Activities | (42,864 | ) | 147,099 | (1,225,317 | ) | ||||
Cash Flows from Financing Activities | |||||||||
Common stock issued for cash (net of share issue cost) | 9,344,610 | 1,822,490 | 27,952,413 | ||||||
Repayment of convertible debentures | (36,652 | ) | - | (74,999 | ) | ||||
Repayment of loans payable | - | - | (35,729 | ) | |||||
Repayment of capital lease obligations | (262,819 | ) | (144,607 | ) | (672,277 | ) | |||
Due to related party | 174,599 | - | (46,429 | ) | |||||
Net cash provided from Financing Activities | 9,219,738 | 1,677,883 | 27,122,979 | ||||||
Increase (decrease) in cash and cash equivalents | 4,160,302 | 146,654 | 4,551,798 | ||||||
Cash and cash equivalents, beginning of period | 408,589 | 12,828 | 17,093 | ||||||
Cash at end of the period | $ | 4,568,891 | $ | 159,482 | $ | 4,568,891 |
See accompanying notes to financial statements
4
SILVERADO GOLD MINES LTD.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
(Stated in United States Dollars)
Nine months ended August 31, 2006 and August 31, 2005
1. | Basis of presentation: |
The unaudited consolidated financial statements include the accounts of Silverado Gold Mines Ltd. and its wholly-owned subsidiary Silverado Gold Mines Inc. and Silverado Green Fuel Inc. (since its inception on August 14, 2006). These statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information. These financial statements also comply, in all material respects, with generally accepted accounting principles in the United States. | |
The accompanying unaudited consolidated financial statements do not include all information and footnote disclosures required under United States generally accepted accounting principles. In our opinion, all adjustments (consisting solely of normal recurring accruals) considered necessary for a fair presentation of the financial position, results of operations and cash flows as at August 31, 2006, and for all periods presented, have been included. Readers of these financial statements should note that interim results for the nine month periods ended August 31, 2006, and August 31, 2005, are not necessarily indicative of the results that August be expected for the fiscal year as a whole. | |
These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-KSB for the fiscal year ended November 30, 2005. | |
2. | Related party transactions: |
The Company had related party transactions with Tri-Con Mining Ltd., Tri-Con Mining Inc., Tri-Con Mining Alaska Inc. (collectively “Tri-Con”), all of which are controlled by a director of ours. | |
Tri-Con are operations and exploration contractors, and has been employed by the Company under contract since 1972 to carry out all of its fieldwork and to provide administrative and management services. Under our current contract dated January 1, 1997 work is charged at cost plus 25% for exploration and cost plus 15% for development and mining. Cost includes out of pocket or actual cost plus 15% charge for office overhead including stand by and contingencies. There is no mark up on capital purchases. At August 31, 2006, we owe $244,881 to Tri-Con for exploration and administration services to be performed during the current fiscal year on behalf of the Company. Tri-Con‘s services for the current fiscal year are focusing mainly on our Low-Rank Coal-Water Fuel program as well as corporate planning and preparation for year round production on our Nolan property and administration services at both our field and corporate offices. | |
The aggregate amounts paid to Tri-Con each period by category, including amounts relating to the Grant Mine Project and Nolan properties, for disbursements and for services rendered by Tri-Con personnel working on our projects, and including interest charged on outstanding balance at Tri-Con’s borrowing costs are shown below: |
5
SILVERADO GOLD MINES LTD.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
(Stated in United States Dollars)
Nine months ended August 31, 2006 and August 31, 2005
2. | Related party transactions (continued): |
August 31, | August 31, | ||||||
2006 | 2005 | ||||||
Exploration services | $ | 2,100,326 | $ | 366,591 | |||
Administrative and management services | 1,140,150 | 654,711 | |||||
Research | 86,358 | 91,436 | |||||
$ | 3,326,834 | $ | 1,112,738 | ||||
Amount of total charges in excess of Tri-Con’s costs incurred | $ | 504,452 | $ | 91,903 | |||
Excess amount charged as a percentage of actual costs incurred | 15.2% | 8.26% |
3. | Loss per share: |
Basic loss per share has been calculated using the weighted average number of common shares outstanding for each period. Loss per share does not include the effect of the potential exercise of options and warrants and the conversion of debentures as their effect is anti-dilutive. | |
4. | Supplementary cash flow information: |
Supplemental non-cash investing and financing activities: |
August 31, | August 31, | ||||||
2006 | 2005 | ||||||
Sale of fixed assets under capital lease | $ | - | $ | 101,500 | |||
Issuance of shares for: | |||||||
Financing activities | - | 252,003 | |||||
Consulting services | 663,000 | 284,900 | |||||
Capital lease obligation | - | (101,500 | ) |
6
SILVERADO GOLD MINES LTD.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
(Stated in United States Dollars)
Nine months ended August 31, 2006 and August 31, 2005
5. | Debentures: | |
On March 1, 2001, we completed negotiations to restructure our $2,000,000 convertible debentures. We issued replacement debentures in the aggregate amount of $2,564,400 in consideration of cancellation of the $2,000,000 principal amount plus all accrued interest on the original debentures to March 1, 2001. | ||
(a) | As of November 30, 2004 the replacement debentures have been repaid in full. Remaining debentures of $140,000, plus accrued interest of $92,827 are in default, however, it is unclear whether they will be exchanged for replacement debentures as the Company has been unsuccessful in its extensive attempts to locate the holders. | |
(b) | In February 1999 we issued a debenture for $75,000 with interest payable at a rate of 5.0% per annum. The debenture is unsecured and was due May 31, 2003. However, subsequent to February 29, 2003, we began re-payment of the $75,000 debenture and the balance as at August 31, 2006 is $0. |
6. | Lease purchase agreement: |
The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. The assets are amortized over their estimated productive lives which are estimated to be 10 years. Amortization on assets under capital leases charged to expense during the period ended August 31, 2006 was $134,893 (2005: $130,974).
Minimum future lease payments under capital leases as of August 31, 2006 and November 30, 2005
2006 | 2005 | ||||||
November 30, 2005 | $ | - | $ | - | |||
November 30, 2006 | 146,552 | 778,576 | |||||
November 30, 2007 | 346,398 | - | |||||
Total minimum lease payments | 492,950 | 778,576 | |||||
Less: interest | (33,621 | ) | (56,427 | ) | |||
459,329 | 722,149 | ||||||
Less: current portion | (289,766 | ) | (258,254 | ) | |||
Long-term portion | $ | 169,563 | $ | 463,895 |
7
SILVERADO GOLD MINES LTD.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
(Stated in United States Dollars)
Nine months ended August 31, 2006 and August 31, 2005
7. | Common shares: |
During the period ending August 31, 2006 the Company had the following common shares transactions: |
Date | Description | No. of shares | Price per share | Proceeds | ||||||
November 30, 2005 | Balance forward | 355,054,275 | $ | - | $ | 71,526,738 | ||||
December 1, 2005 | Private Placement | 166,667 | 0.0300 | 5,000 | ||||||
December 1, 2005 | Private Placement | 142,858 | 0.0300 | 5,000 | ||||||
December 2, 2005 | Warrants | 1,400,000 | 0.0225 | 31,500 | ||||||
December 6, 2005 | Private Placement | 285,715 | 0.0350 | 10,000 | ||||||
December 8, 2005 | Private Placement | 100,000 | 0.0300 | 3,000 | ||||||
December 8, 2005 | Private Placement | 4,285,715 | 0.0280 | 120,000 | ||||||
December 19, 2005 | Private Placement | 3,076,924 | 0.0325 | 100,000 | ||||||
December 19, 2005 | Private Placement | 516,667 | 0.0300 | 15,500 | ||||||
January 10, 2006 | Private Placement | 700,000 | 0.0325 | 22,750 | ||||||
January 13, 2006 | Private Placement | 85,806,201 | 0.0250 | 2,145,145 | ||||||
January 16, 2006 | Private Placement | 2,500,000 | 0.0300 | 75,000 | ||||||
January 17, 2006 | Private Placement | 300,000 | 0.0325 | 9,750 | ||||||
January 20, 2006 | Private Placement | 1,914,475 | 0.0380 | 72,750 | ||||||
January 20, 2006 | Private Placement | 700,000 | 0.0325 | 22,750 | ||||||
January 24, 2006 | Private Placement | 4,070,000 | 0.0300 | 122,100 | ||||||
February 8, 2006 | Private Placement | 788,782 | 0.1140 | 90,000 | ||||||
March 3, 2006 | Private Placement | 1,250,000 | 0.0800 | 100,000 | ||||||
March 8, 2006 | Private Placement | 6,666,666 | 0.0300 | 200,000 | ||||||
March 29, 2006 | Private Placement | 16,666,668 | 0.0600 | 1,000,000 | ||||||
March 31, 2006 | Private Placement | 27,666,666 | 0.0600 | 1,660,000 | ||||||
March 31, 2006 | Consulting | 500,000 | 0.1300 | 65,000 | ||||||
April 4, 2006 | Private Placement | 16,916,666 | 0.0600 | 1,015,000 | ||||||
April 7, 2006 | Private Placement | 10,376,667 | 0.0600 | 622,600 | ||||||
April 15, 2006 | Consulting | 3,600,000 | 0.1300 | 468,000 | ||||||
April 18, 2006 | Consulting | 200,000 | 0.1300 | 26,000 | ||||||
April 25, 2006 | Private Placement | 9,900,001 | 0.0700 | 693,000 | ||||||
April 25, 2006 | Private Placement | 2,000,000 | 0.0800 | 160,000 |
8
SILVERADO GOLD MINES LTD.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
(Stated in United States Dollars)
Nine months ended August 31, 2006 and August 31, 2005
7. | Common shares (continued): |
Date | Description | No. of Shares | Price per share | Proceeds | ||||||
May 1, 2006 | Private Placement | 2,400,000 | 0.0800 | 192,000 | ||||||
May 16, 2006 | Private Placement | 4,000,000 | 0.1000 | 400,000 | ||||||
May 18, 2006 | Private Placement | 2,000,000 | 0.0400 | 80,000 | ||||||
June 15, 2006 | Consulting | 400,000 | 0.1300 | 52,000 | ||||||
July 6, 2006 | Warrants | 11,081,832 | 0.0690 | 767,000 | ||||||
July 15, 2006 | Consulting | 200,000 | 0.1300 | 26,000 | ||||||
July 31, 2006 | Warrants | 8,888,888 | 0.0400 | 355,556 | ||||||
July 31, 2006 | Warrants | 8,000,000 | 0.0400 | 320,000 | ||||||
August 15, 2006 | Consulting | 200,000 | 0.1300 | 26,000 | ||||||
Share issuance costs | - | - | (1,070,791 | ) | ||||||
August 31, 2006 | 594,722,333 | $ | - | $ | 81,534,348 |
8. | Subsequent events: |
Subsequent to August 31, 2006, the Company issued an aggregate of 200,000 common shares at $0.13 per share totaling $26,000 pursuant to a consulting agreement. | |
Subsequent to August 31, 2006, the Company issued an aggregate of 17,543,859 common shares at $0.0285 totaling $500,000 pursuant to a private placement. |
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
The information in this Quarterly Report on Form 10-QSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business plans and expectations. Such forward-looking statements involve risks and uncertainties regarding the market price of gold, availability of funds, government regulations, common share prices, operating costs, capital costs, outcomes of gold recovery activities and other factors. Forward-looking statements are made, without limitation, in relation to operating plans, property exploration and gold recovery activities, availability of funds, environmental reclamation, operating costs and permit acquisition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including the risks outlined below, and, from time to time, in other reports we file with the SEC. These factors may cause our actual results to differ materially from any forward-looking statement. We disclaim any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. The information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
OVERVIEW
We are engaged in the acquisition and exploration of mineral properties in the State of Alaska. Precious metals, primarily gold, are our main interest. We have more than 30 years of experience in all aspects of the gold mining industry, from grass-roots exploration, to state of the art mining and processing technologies, for both placer and lode gold deposits. Our primary focus is presently on the exploration of our Nolan Gold Project, located 175 miles north of Fairbanks, Alaska. Our plan of operations is to continue with exploration activities at the Nolan Gold Project. These plans include exploration for both placer gold deposits and lode gold deposits at the Nolan Gold Project. Our exploration activities include lode drilling and trenching, geochemical and geophysical surveys, placer drilling, and bulk placer test mining work that we carry out as part of our exploration programs.
We are also seeking financing to enable us to proceed with the retrofitting and operation of our Grant Mill Facility as a demonstration facility to establish the combustion characteristics and marketability of low-rank coal-water fuel to be used as a replacement fuel in oil fired boilers and utility generators. There is no assurance that we will be able to obtain any financing for this project.
We hold interests in four groups of mineral properties in Alaska, as described below:
1. | our Nolan Gold Project; |
2. | our Ester Dome Gold properties; |
3. | our Hammond properties; and |
4. | our Eagle Creek properties. |
We are an exploration stage company. All of our properties are presently in the exploration stage. We do not have any commercially viable reserves on any of our properties. There is no assurance that a commercially viable mineral deposit exists on any of our mineral properties. Further exploration will be required before a final evaluation of the feasibility of commercial mining on any of our properties is determined. There is no assurance that further exploration will result in a final evaluation that determines a commercially viable mineral deposit exists on any of our mineral properties.
10
PLAN OF OPERATIONS
Our plan of operation for the next three months through the remainder of our fiscal year is discussed below:
The Nolan Gold Project
We plan to continue with the exploration at the Nolan Placer and Nolan Lode properties within the Nolan Gold Project. Our planned geological exploration program is described in detail in the section of our Annual Report on Form 10-KSB for the year ended November 30, 2005 entitled Description of Properties – Nolan Gold Project. The objective of this geological exploration program is to further define both placer and lode gold occurrences in order to provide a basis for future exploration activities, including test mining activities, at the Nolan Gold Project. Our lode exploration work is intended to increase our geologic knowledge on the Solomon Shear Trend and other lode gold occurrences on the properties.
We plan to spend approximately $600,000 during the next three months on ourexploration activities for the Nolan Gold Project. Of this amount, we anticipate approximately $400,000 will be spent on test mining activities, with the balance of $200,000 being spent on other exploration activities, including a drilling program on the Mary’s Bench East deposit and continued exploration for lode gold occurrences. The actual amount that we spend on exploration will depend on the actual amount of funds that we have available for exploration. While the costs of exploration and test mining may be off-set by recoveries from sales of gold that we may achieve, these recoveries may not exceed the costs of our exploration programs including our test mining activities. See the discussion of our cash resources and working capital under Liquidity and Financial Condition below and in the section entitled Risk Factors below.
During the past three months, we retro-fitted and expanded our gold sluice plant, and installed the water recycling ponds and pumping systems needed to process our stockpiled gravel extracted last winter from the Swede Channel and what we expect to extract in the 2006/2007 winter for summer of 2007 processing. We began washing the stockpiled gravel on June 28th, and completed on July 20th. The total amount of material processed was 8,896 loose cubic yards of gravel. As of August 31, 2006, 785.22 troy ounces of large jewelry grade gold and collector’s nuggets have been recovered from the coarse and fraction concentrates. 202.18 troy ounces of fine fraction concentrates are secured for delivery to a smelter, and are estimated to contain approximately 153.85 troy ounces.
During July, drilling was started on the Nolan Gold Project, and continued through the quarter. A Reverse Circulation Drill was used to explore for placer gold bearing gravels along the left limit benches of Nolan Creek. Fifteen holes were completed with a total of 987 feet.
Surveyors and geologists were active throughout the summer months on surface work on the company’s mineral claims holdings at the Nolan Gold Project. The company now holds 342 federal lode and 218 federal placer claims in Nolan land package.
The Swede Channel project will continue underground operations once “freeze up” arrives, and is expected to begin during mid October of this year. During the last winter a main haulage way, truck and front end loader turnarounds, explosive storage, ore pad, settling ponds, water delivery systems and roads were installed while exploring and developing the channel. The majority of the Swede channel remains to be mined this upcoming season.
Hammond Property
Drilling commenced on Slisco Bench on the Right Limit of the Hammond River, and through the end of August, 19 drill holes for 3175 feet had been completed. Once survey work is completed, 3-D imaging will be used to enhance the interpretation of locations of potential gold bearing gravel deposits. Other information, such as gold content and value, depth of overburden, and permafrost continuity will be combined to assess the overall development and mining potential of the areas being explored.
11
Reclamation
Reclamation work was carried out during June through August and included the removal of scrap steel and debris which was shipped back to Fairbanks from solid waste disposal. At least one half of the 41 acres of bonded surface disturbed area was reclaimed during June through August. A close working relationship with the Bureau of Land Management is maintained to assure that best management practices are used to accomplish the reclamation work.
Our plan is for the following operations to be carried out over the remainder of the fiscal year.
1. | Continue placer drilling aimed at further development of the Swede Channel and to prospect other areas of the property. | |
2. | Continue reclamation of prior surface disturbances at the Nolan project. | |
3. | Once “freeze-up” has occurred in the fall, re-open the Swede Channel. This work will proceed to stockpile all gold bearing gravel remaining in the Swede Channel to be washed during the summer of 2007. | |
4. | Continue exploration on the “Solomon Shear”. This will be a lode gold exploration program. |
This plan will continue to be modified as new information becomes available.
We do not have any commercially viable reserves on any of our properties that comprise the Nolan Gold Project or any of our other properties. As we have not established commercially viable reserves on the Nolan Gold Project, there is no assurance that any recoveries of gold from test mining activities will be sufficient to pay for the full cost of exploration. There is no assurance that our test mining activities will result in a final evaluation that a commercially viable mineral deposit exists on any of our mineral properties that comprise the Nolan Gold Project.
Low-Rank Coal-Water Fuel Project
We anticipate spending approximately $60,000 during the remaining fiscal year on our work to seek funding from government and private sources in connection with establishment of the demonstration facility at the Grant Mill. There is no assurance that any financing will be obtained from either government or private sources to fund this project.
RESULTS OF OPERATIONS
Nine months ended August 31, 2006 compared to the nine months ended August 31, 2005.
Revenues
We did not earn revenues during the nine months ended August 31, 2006 or August 31, 2005 as commercial production of gold from the Nolan Gold Project was not achieved during either of these periods. Under our accounting policies, any sales of gold recovered as a result of our exploration activities that may be realized will be treated as sales received incidental to exploration activities on the Nolan Gold Project until such time as we have reached commercial levels of gold production from the Nolan Gold Project.
We anticipate that we will not realize revenues during the current fiscal year from the low-rank coal-water fuel component of our plan of operations. We will not be able to realize revenues from this business until we are able to proceed with the construction and operation of a commercial-scale demonstration facility for the low-rank coal-water fuel technology. There is no assurance that we will be able to secure the financing necessary to proceed with construction of this demonstration facility or that the demonstration facility will prove the commercial viability of the process.
12
Expenses
Our expenses increased to $5,192,741 for the nine months ended August 31, 2006 compared to $2,691,042 for the nine months ended August 31, 2005, representing an increase of $2,501,699 or 93%. Our expenses increased to $1,541,850 for the three months ended August 31, 2006 compared to $816,966 for the three months ended August 31, 2005, representing an increase of $724,884 or 89%. The increase in expenses was attributable to increases in exploration, management services, consulting, legal, and office expenses during the period ended August 31, 2006 to facilitate exploration on our Nolan Gold Project.
Increased exploration activity on our mineral properties resulted in an increase of our general exploration expenses to $2,100,326 for the nine months ended August 31, 2006 compared to $422,073 for the nine months ended August 31, 2005. General exploration expenses increased to $767,864 for the three months ended August 31, 2006 compared to $122,476 for the three months ended August 31, 2005. The increase in exploration expenses during the nine months of our current fiscal year was attributable to increased exploration activities at the Nolan Gold Project compared to 2005. These exploration activities included sluicing, drilling and surveying activities on the Nolan Gold Project. We anticipate that our exploration expenses will increase when we continue the test mining program aimed at further development of the Swede Channel and to prospect other areas of the property.
Office expenses increased to $569,048 for the nine months ended August 31, 2006 compared to $315,843 for the nine months ended August 31, 2005, representing an increase of $253,205 or 80%. Office expenses decreased to $84,949 for the three months ended August 31, 2006 compared to $87,584 for the three months ended August 31, 2005, representing a decrease of $2,635 or 3%. The overall increase during the period ending August 31, 2006 reflects an increase in our general office operating costs at our offices in Fairbanks, Alaska due to exploration activities on the Nolan Gold Project.
Management services expenses increased to $745,859 for the nine months ended August 31, 2006 compared to $626,322 for the nine months ended August 31, 2005, representing an increase of $119,537 or 19%. Management services expenses decreased to $263,089 for the three months ended August 31, 2006 compared to $337,711 for the three months ended August 31, 2005 representing a decrease of $74,622 or 22%. The overall increase in management services is a result of increased exploration activity during the period ending August 31, 2006 compared to the period ending August 31, 2005.
Consulting fees increased to $788,501 for the nine months ended August 31, 2006 compared to $344,246 for the nine months ended August 31, 2005, representing an increase of $444,255 or 129%. Consulting fees increased to $175,724 for the three months ended August 31, 2006 compared to $20,085 for three months ended August 31, 2005, representing an increase of $155,639. The increase is largely attributable to engaging consulting services to facilitate our Low-Rank Coal-Water Fuel Project. Consulting fees are attributable to stock based compensation paid to our consultants during the year. Compensation was recorded based on the quoted market price of our shares as of the date of the agreement.
Loss
Our loss and comprehensive loss increased to $5,009,182 for the nine months ended August 31, 2006 compared to $2,700,880 for the nine months ended August 31, 2005 representing an increase of $2,308,302 or 85%. The increase in our loss was primarily attributable to increased exploration, management services, consulting and office expenses during the nine months ended August 31, 2006. We anticipate that we will continue to incur a loss until such time as we can achieve commercial production from the Nolan Gold Project, of which there is no assurance.
LIQUIDITY AND FINANCIAL CONDITION
Cash and Working Capital
The Company had cash and cash equivalents of $4,568,891 as of August 31, 2006, compared to cash of $408,589 as of November 30, 2005. We had working capital of $3,873,290 as of August 31, 2006, compared to a working capital deficiency of $855,147 as of November 30, 2005. The increase in our working capital was
13
primarily the result of increased funding through equity sales of our common shares and extraction of gold during the nine months ended August 31, 2006.
We plan to spend approximately $600,000 in the next three months on ourexploration activities for the Nolan Gold Project. Of this amount, we anticipate approximately $400,000 will be spent on test mining activities, with the balance of $200,000 being spent on other exploration activities, including a drilling program on the Mary’s Bench East deposit and continued exploration for lode gold occurrences. While the costs of exploration and test mining may be off-set by recoveries from sales of gold that we may achieve, these recoveries may not exceed the costs of our exploration programs including our test mining activities. See Risk Factors.
Cash Used in Operating Activities
Cash used in operating activities increased to $5,016,572 for the nine months ended August 31, 2006, compared to $1,678,328 for the nine months ended August 31, 2005, primarily as a result of our increased exploration activity on the Nolan Gold Project. We funded the cash used in operating activities predominantly through equity sales of our common shares.
Investing Activities
Cash paid for investing activities was $42,864 during the nine months ended August 31, 2006 compared to cash provided from investing activities of $147,099 during the nine months ended August 31, 2005. The Company purchased mining and computer equipment during the period ending August 31, 2006.
Financing Activities
Cash provided by financing activities increased to $9,219,738 for the nine months ended August 31, 2006, compared to $1,677,883 for the nine months ended August 31, 2005. Cash provided by financing activities was primarily attributable to share issuances. Cash provided by financing activities was used to fund our operating and investing activities. Equity financings were completed with private purchasers at prices that were reflective of the market price of our common shares as of the date of the financing.
We anticipate continuing to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing shareholders.
Capital Leases
On October 11, 2002, we entered into a lease purchase agreement whereby we would purchase three dump trucks, an underground loader, two surface loaders, and other equipment valued at a total of $1,496,150. The agreement required payment upon signing of $550,000 (paid), $100,000 on or before December 1, 2003 (paid) and 24 equal payments thereafter for the balance of the purchase price plus interest at a rate of 12% per annum.
On February 14, 2003, we entered into a three-year lease agreement whereby we would purchase mining equipment valued at $250,170. The agreement required a payment on signing of $105,000 (paid), $25,000 on or before December 4, 2003 and 24 equal payments for the balance of the purchase price plus interest at a rate of 12% per annum.
On January 28, 2004 the agreements for the above two leases were modified into one agreement. The modified agreement required us to make a one-time payment of $50,000 on acceptance of the agreement and a fixed amount per month specified in the agreement in the following six months. At the same time of accepting the revised agreement, we returned three pieces of equipment under the original capital lease agreement to the lessor as a credit towards the lease liability.
During the year ended November 30, 2004, the Company entered into an agreement to combine the two lease agreements. The new agreement required payment upon signing of $50,000 (paid), and monthly payments of $25,000 for the balance of principal plus interest at a rate of 7.5% per annum.
14
As at August 31, 2006, the total amount outstanding under the revised lease purchase agreements was $492,950, including interest of $33,621. We are required to maintain the equipment in good working order and are also required to maintain adequate insurance on the equipment. We are required to complete future lease payments of $146,552 during fiscal 2006 and $346,398 during fiscal 2007.
Tri-Con
We owe $244,881 to Tri-Con as of August 31, 2006 in connection with planned exploration activities to be carried out on the Nolan Gold Project during fiscal 2006. These activities will be carried out by Tri-Con on behalf of the Company in accordance with our operating agreements with Tri-Con. See Item 12 -- Certain Relationships and Related Transactions of our Annual Report on Form 10-KSB for the year ended November 30, 2005 for further disclosure regarding our operating agreements with the Tri-Con.
Debt
The amount of our convertible debt outstanding was $140,000 as of August 31, 2006. This entire amount is current. This amount consists of a convertible debenture in the amount of $140,000 which is in default and has accrued interest of $95,627. It is unclear as to whether this amount will ever be converted into common shares as we have been unsuccessful in our extensive attempts to locate the holders of these debentures. There is no agreement to exchange this amount of remaining original convertible debentures into replacement debentures.
As of November 30, 2004, we had repaid in full all previously outstanding convertible debentures that we had renegotiated as of March 1, 2001.
Mineral Properties
As of August 31, 2006, we were in arrears of required mineral property claims and option payments of $350,000 in respect of our Hammond Property and therefore the rights to the property were adversely affected. However, we are currently in the process of re-negotiating the terms and conditions of the Agreement with the property owner. The property owner has confirmed that our mineral claims and options are in good standing on the understanding we will use our best efforts to pay the minimum royalty payments, including the payments that are in arrears for the past four years, when business conditions permit. There is however no assurance that we will be able to re-negotiate this agreement.
Low-Rank Coal-Water Fuel Business
In order to proceed with establishing the commercial viability of our low-rank coal-water fuel business, we are currently seeking financing from the U.S. Government and from private sources to achieve the full $20,000,000 funding for this project. There is no assurance that we will be awarded any grant or private funding or that we will be able to complete any additional sales of our equity securities or arrange for debt or other financing to fund this component of our plan of operations.
Future Financings
We require additional financings in order to fund our plan of operations. We anticipate continuing to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing shareholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned exploration activities, including test mining activities.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.
15
CRITICAL ACCOUNTING POLICIES
Exploration Stage Company
The Securities and Exchange Commission’s Securities Act Industry Guide 7 “Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations” requires that mining companies in the exploration stage should not refer to themselves as development stage companies in their financial statements, even though such companies should comply with Financial Accounting Standards Board Statement No. 7, if applicable. We are an exploration stage company under the SEC’s Guide 7 and accordingly, we have not been referred to as a development stage company in our financial statements. Accumulated results of operations are presented from December 1, 2001, the date we re-entered the exploration stage.
Mineral claim payments and exploration costs
We expense all costs related to the acquisition, maintenance and exploration of mineral claims in which we have secured exploration rights prior to establishment of proven and probable reserves. To date, we have not established the commercial feasibility of our exploration prospects; therefore, all costs are being expensed.
Asset retirement obligation
Effective December 1, 2002, we adopted SFAS 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and normal use of the asset.
SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, we will recognize a gain or loss on settlement.
Stock Based Compensation
Effective November 1, 2002, we adopted the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation. Under the modified prospective method of adoption selected by us under the provisions of FASB Statement No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, compensation cost recognized in 2003 is the same as that which would have been recognized had the recognition provisions of Statement 123 been applied from its original effective date. Results for prior years have not been restated. The value of shares issued to non-employees for services is based on the quoted market price of our shares as of the date of issue.
Gold Inventory
Gold inventory is valued at the lower of weighted average cost and estimated net realizable value. Proceeds on gold recoveries from test mining are recorded as a reduction of exploration costs during the period the Company is in the exploration stage.
Note: Historically, the Company has used the spot gold price to value its entire gold inventory. On average, the Company’s test production of past years has yielded 50% gold dust and 50% gold nuggets. Gold dust has brought a sales price equivalent to the spot gold price. Gold nuggets, however, are considered to be gem or jewelry items. They are valued according to weight, purity, character, and relative flatness (wearing quality). Historically, the Company’s gold nuggets have sold in a range of 5 to 350% over the spot gold price. In aggregate, the historical sales price of the Company’s gold nuggets have yielded a realizable value of 67% in excess of the spot gold price.
16
ITEM 3. CONTROLS AND PROCEDURES
(a)Evaluation of Disclosure Controls and Procedures. Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act") require public companies to maintain "disclosure controls and procedures," which are defined to mean a company's controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Exchange Act. Our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on those evaluations, our Chief Executive Officer and Chief Financial Officer concluded that:
(i) that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Exchange Act and that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure; and
(ii) that our disclosure controls and procedures are effective.
(b)Changes in Internal Controls. There were no significant changes in our internal controls or, to our knowledge, in other factors that could significantly affect our internal controls subsequent to the evaluation date.
(1) | While management believes that our disclosure controls and procedures and our internal control over financial reporting are effective, no system of controls can prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with its policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected |
17
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any material pending legal proceedings nor are aware of any contemplated proceedings by a governmental agency.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We have not sold any unregistered securities other than those previously reported on a Current Report on Form 8-K and filed with the Securities and Exchange Commission.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
We are currently in default of obligations pursuant to convertible debentures in the aggregate principal amount of $140,000, plus accrued interest of $92,827. There is no agreement to exchange this amount of remaining original convertible debentures into replacement debentures.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit | ||
Number | Description of Exhibit | |
3.1 | Articles of the Company(1) | |
| ||
3.2 | Amendment to Articles of the Company(2) | |
| ||
3.3 | Altered Memorandum of the Company(3) | |
| ||
3.4 | Amendment to Articles of the Company(8) | |
| ||
4.1 | Share certificate representing common shares of the capital of the Company(1) | |
| ||
10.1 | Agreement for Conditional Purchase and Sale of Mining Property between the Company and Roger C. Burggraf dated October 6, 1978 – Grant Mine Property(1) | |
| ||
10.2 | Agreement for Conditional Purchase and Sale of Mining Property between the Company and Paul Barelka, Donald May and Mark Thoennes dated May 12, 1979 – St. Paul Property(1) | |
| ||
10.3 | Lease of Mining Claims with Option to Purchase between the Company and Alaska Mining Company, Inc. dated February 3, 1995 – Hammond Property(4) | |
| ||
10.4 | Change of Control Agreement between the Company and Garry L. Anselmo dated May, 1995(6) | |
| ||
10.5 | Change of Control Agreement between the Company and James Dixon dated May, 1995(6) | |
| ||
10.6 | Amendment to Change of Control Agreement between the Company and Garry L. Anselmo(6) | |
| ||
10.7 | Operating Agreement between the Company and Tri-Con Mining Ltd. dated January 1, 1997(5) | |
| ||
10.8 | Operating Agreement between the Company and Tri-Con Mining Inc. dated January 1, 1997(6) | |
| ||
10.9 | Operating Agreement between the Company and Tri-Con Mining Alaska Inc. dated January 1, 1997(6) | |
| ||
10.10 | Contract between the Company and Dr. Warrack Willson dated March 19, 2001(6) | |
10.11 | Equipment Lease Agreement between the Company and Airport Equipment Rentals Inc. dated October 11, 2002(6) |
18
10.12 | 2003 Stock Option Plan(7) | |
10.13 | Form of Warrant Exercise Agreement between the Company and certain of the selling security holders(9) | |
10.14 | Consultant Agreement between the Company and CEOcast, Inc. dated April 21, 2004(9) | |
10.15 | Subscription Agreement between the Company and Christoph Bruning dated May 10, 2004(9) | |
10.16 | Consultant Agreement between the Company and Smith Canciglia Consulting, Inc. dated May 16, 2004(9) | |
10.17 | Form of Delay Agreement between the Company and certain of the Selling Shareholders.(9) | |
10.18 | 2004 Stock Option Plan(10) | |
31.1 | Certification Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002 | |
31.2 | Certification Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002 | |
32.1 | ||
32.2 |
(1) | Filed as an exhibit to the Company’s Registration Statement on Form 10 filed initially on May 11, 1984, as amended. |
(2) | Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed on July 15, 1997. |
(3) | Filed as an exhibit to the Company’s Current Report on Form 8-K filed on September 11, 2002. |
(4) | Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended November 30, 1995. |
(5) | Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended November 30, 1996. |
(6) | Filed as an exhibit to the Company’s Annual Report on Form 10-KSB for the year ended November 30, 2002. |
(7) | Filed as an exhibit to the Company’s Schedule 14A Proxy Statement filed April 29, 2003. |
(8) | Filed as an exhibit to the Company’s Current Report on Form 8-K filed on June 13, 2003. |
(9) | Filed as an exhibit to the Company’s Registration Statement on Form SB-2 filed on May 19, 2004; |
(10) | Filed as an exhibit to the Company’s Quarterly Report on Form 10-QSB filed on July 15, 2004. |
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SILVERADO GOLD MINES LTD. | |
DATE:October 16, 2006 | |
/s/ Garry L. Anselmo | |
Garry L. Anselmo | |
President, Chief Executive Officer (Principal | |
Executive Officer), and Chief Financial Officer | |
(Principal Financial and Accounting Officer) |
20