June 16, 2006
via U.S. mail
Brian Penny
Chief Financial Officer
Western Goldfields, Inc.
1575 Delucchi Lane, Suite 116
Reno, Nevada 89502
Re: Western Goldfields, Inc.
Registration Statement on Form SB-2
Filed May 19, 2006
File No. 333-134269
Form 10-KSB for the Fiscal Year Ended
December 31, 2005
File No. 0-50894
Dear Mr. Penny:
We have limited our review of your filing to those issues we
have addressed in our comments. Where indicated, we think you
should
revise your documents in response to these comments. If you
disagree, we will consider your explanation as to why our comment
is
inapplicable or a revision is unnecessary. Please be as detailed
as
necessary in your explanation. In some of our comments, we may
ask
you to provide us with supplemental information so we may better
understand your disclosure. After reviewing this information, we
may
raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your
filings.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
General
1. As disclosed in the definitive proxy statement filed on May 24,
2006, you sought shareholder approval for an increase in
authorized
shares from 100 million to 500 million. We note also that a
condition to the exercise of the warrants and options issued in
the
February 2006 financing was the approval by shareholders of the
amendment relating to the increase in authorized shares. At the
time of the initial registration statement, such approval was not
yet
obtained.
It appears therefore that the options and warrants you propose to
include in the registration statement were not "outstanding" at
the
time of filing the initial registration statement.
* Provide your analysis of why you believe the sale of shares
underlying such securities had been completed in a private
placement
under Section 4(2) such that it was appropriate to register such
shares for resale at the time of your initial filing.
* Also advise us of the results of the shareholder meeting
scheduled
for June 14, 2006, in which approval was being sought to increase
the
number of authorized shares.
* Lastly, advise us how you propose to address this situation.
We may have further comment.
2. Please revise the disclosure in the Form SB-2 as necessary to
comply with all applicable comments written on your Form 10-KSB.
This will eliminate the need for us to repeat similar comments.
Selling Shareholder, page 37
3. Please disclose if any of the selling shareholders are
registered
broker-dealers or affiliates of a registered broker-dealer. If
you
determine that a selling shareholder is a registered broker-
dealer,
please revise your disclosure to indicate that such selling
shareholder is an underwriter, unless such selling shareholder
received its securities as compensation for investment banking
services. If the selling shareholder is an affiliate of a
registered
broker-dealer, please disclose, if true, that such selling
shareholder acquired its shares in the ordinary course of business
and at the time of the acquisition did not have any arrangements
or
understandings with any person to distribute the securities. If
not,
you must indicate that such selling shareholder is an underwriter.
Form 10-KSB
Financial Statements, page 18
Consolidated Statements of Cash Flows, page 23
4. We note that you report a $3.9 million positive adjustment for
an
apparent decrease in restricted cash in the operating cash flow
section for 2004. Please disclose the nature of the restricted
cash
activity. Since you appear to have had custody of the cash
balance
at December 31, 2003, it would be helpful for you to explain in
your
disclosure the reasons you believe reporting it as a cash inflow
in
2004 is appropriate.
Note 2 - Summary of Significant Accounting Policies, page 24
Metal on Leach Pad and in Metal-in-process Inventory, page 28
5. We note your disclosure suggesting Industry Guide 7 has guided
you
in deciding to assign no value to mineral properties and metal on
your leach pads. Although Industry Guide 7 covers reserve
definitions
and disclosure requirements, it provides no guidance pertaining to
the accounting required for leach pads. Please disclose the
manner
by which you "took over" the Mesquite Mine in November 2003, with
details sufficient to understand the nature of any accompanying
transaction, including the amount and form of consideration
conveyed,
and the amount of expense recognized under the method you
describe.
Please disclose your rationale for not assigning value to the
properties acquired.
Note 10 -Loan Payable, page 34
6. We note your disclosure explaining that you entered into a gold
hedging program under which you sold forward 50 percent of your
expected production for delivery every three months during the
period
from January 2004 through October 2005. However, you explain that
you settle these contracts in cash as they mature for the
difference
between the sales and hedged prices, multiplied by the quantities
you
agreed to deliver, and that you have actually made payments of
$261,768 and $687,480 under this program in periods not specified.
Although we understand that you intended to hedge the forecasted
transactions with your forward contracts, and see that you have
disclosure stating that you concluded that the program is
effective,
it is unclear how your particular arrangement complies with the
guidance in paragraph 28(b) of SFAS 133, requiring that you have a
reasonable expectation for the hedging relationship to be highly
effective in achieving offsetting cash flows attributable to the
hedged risk during the term of your hedge. Please submit the
documentation you had in place at inception of this arrangement
which
you compiled to comply with the requirements of paragraph 28(a) of
SFAS 133, as well as the effectiveness tests you performed each
quarter in arriving at your conclusions.
Note 12 - Preferred Stock, page 35
7. Please disclose the accounting implications of reducing the
conversion price on your Series A Preferred stock in 2005 to $0.17
per share, and indicate the original conversion price prior to
this
action. Also disclose which party may elect conversion and the
periods over which conversion may occur. Tell us the specific
authoritative literature you have applied in making your
accounting
determination in this area.
Exhibit 32.2
8. We note that the individual identified in the body of your
chief
financial officer`s Section 906 certification letter does not
correspond with his signature. Accordingly, please amend your
filing
to provide a revised certification from your chief financial
officer
that eliminates this inconsistency.
Closing Comments
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of an amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
Please contact Donald Delaney at (202) 551-3863 or in his
absence, Karl Hiller, Accounting Branch Chief at (202) 551-3686 if
you have questions regarding comments on the financials statements
and related matters. Please contact Mellissa Campbell Duru, at
(202)
551-3757 or, in her absence, Timothy Levenberg, Special Counsel at
(202) 551-3707, with any other questions.
Sincerely,
H. Roger Schwall
Assistant Director
cc: via facsimile
Henry Rothman, Esq.
Troutman Standers LLP
(212) 704-5950
Mr. Brian Penny
Western Goldfields, Inc.
June 16, 2006
page 6
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-7010
DIVISION OF
CORPORATION FINANCE
MAIL STOP 7010