MAIL STOP
August 21, 2006
Michael McChesney
President
Eastern Goldfields, Inc.
1660 Hotel Circle North, Suite 207
San Diego, CA
92108-2808
RE: Eastern Goldfields, Inc.
Form 10-SB
Filed July 25, 2006
File No. 0-52151
Dear Mr. McChesney:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document 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
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 filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
General
1. According to Instruction 3 of section (b)(3) of Industry Guide
7,
estimates other than for proven or probable reserves shall not be
disclosed. (see
http://www.sec.gov/divisions/corpfin/forms/industry.htm#secguide7.
)
Therefore,
* Report all reserve estimates in terms of the requirements of
Industry Guide 7.
* Estimates of "mineral resources" should be removed from your
disclosure, including financial statements. This includes all
estimates of "measured," "indicated" or "inferred" "mineral
resources," and the use of the mineral resource terminology.
* Remove disclose about other reporting codes, such as SAMREC
(South
African Code for Reporting Mineral Resources and Mineral Reserves)
and JORC (Joint Ore Reserve Committee Code of the Australian
Institute of Mining and Metallurgy). Modify Exhibit 99.1
(Glossary
of Technical Terms) as needed.
2. Mineralization that cannot qualify as "reserves" under
Commission
definitions may be reported as "mineralized material," if it meets
certain qualifications. As the staff use the term, mineralized
material means a mineralized body, which has been delineated by
appropriately spaced drilling and/or underground sampling to
support
a sufficient tonnage and average grade of metals. Such a deposit
does not qualify as a reserve, until a comprehensive evaluation
based
upon unit cost, grade, recoveries, and other material factors
conclude legal and economic feasibility. Note that "mineralized
material" does not include: 1) material reported as reserves, and
2)
volumes and grades estimated by using only geologic inference,
which
are sometimes classed as "inferred" or "possible" by some
evaluators.
Only mineralization that has been sufficiently sampled at close
enough intervals to reasonably assume continuity between samples
within the area of influence of the samples can be called
"mineralized materials." Grade cutoffs used to distinguish
mineralized material from just mineralization should be calculated
based on economically viable factors that are suitable for the
particular site. Generally, mineralized material should be
reported
as "in place" grade and tonnage. Estimates of contained metal or
total ounces in mineralized material should not be reported, as
these
can be confused with reserves.
3. Ensure that all technical experts cited in your disclosure have
provided written consents and the consents are filed as exhibits.
4. You have attached technical studies, including appendices 99.3
and
99.4, as exhibits to your registration statement. Industry Guide
7
(b)(7) specifically does not allow the inclusion of technical
reports, feasibility studies and other highly technical data in
documents filed with the Commission. Please remove these
documents.
5. We may have more engineering comments after we review the
material
requested above.
6. Please update your financial statements to comply with Item
310(g)
of Regulation S-B.
Item 1. Description of Business, page 3
7. We note that prior to September 2005 you had minimal
operations.
Please disclose whether you ever generated revenue from
operations.
8. Please describe the change of control you reference in the
second
paragraph.
9. Please disclose whether Eastern Goldfields SA Limited had
operations prior to your purchase of 100% of its stock.
10. Please disclose the business purpose of Eastern Goldfields SA
Limited`s share exchange with Eastern Goldfields Limited.
11. Please briefly describe the operations of each of Eastern
Goldfields Limited`s three subsidiaries: Makonjwaan Imperial
Mining
Company, Eastern Goldfields Exploration, and Centurion Mining
Company. We note the property description starting on page 28.
12. You have disclosed proven and probable reserves in your
filing.
Furnish to our engineer as supplemental information and not as
part
of the registration statement, information that establishes the
legal, technical and economic feasibility of the materials
designated
as reserves, as required by Section (c)(2) of Industry Guide 7.
This includes:
* Copies of pertinent engineering and geological reports, and
feasibility studies or mine plans concerning your property that
are
needed to establish the existence of reserves as defined in
Industry
Guide 7. These include, but may not be limited to, a complete
copy
of your pre-feasibility study for the Lily mine, including all
appendixes and cash-flow analyses, and any studies completed by
Behre
Dolbear.
* A permitting and government approval schedule for the Lily mine,
particularly identifying the primary construction approval(s) and
your current location on that schedule.
Provide the name and phone number for a technical person our
engineer
may call, if he has technical questions about your reserves.
13. Provide us, as supplemental information, with a table showing
annual revenues, annual operating costs (all operating costs
without
depreciation, depletion or amortization charges) and annual
operating
profits or losses for all mines for which you have designated
"reserves" for any of the last three years. Note that "total cash
cost" is generally not the same as "annual operating costs" as
defined above.
14. Particularly with the removal of the technical studies from
the
appendixes as discussed above, ensure that material information
about
your properties is disclosed, as required by Section (b) of
Industry
Guide 7. Also ensure that your usage of the terms "exploration"
and
"development" meet the standards of Section (a)(4).
15. In your reserve table and supporting narrative, disclose:
* Your proven and probable reserves for the last two reporting
annual
periods.
* Metallurgical recovery, and prices and currency conversion
factors
used to calculate reserves.
* The average drill spacing for each category of reserve, and for
the
mineralized material.
* Cutoff grade and method of estimating reserves.
Company Drilling Program, page 6
16. Please explain what you mean by the fact that there were 25
"deflections."
17. Please explain the use of the terms footwall zone,
intermediate
zone and hanging wall zone as well as the significance of each.
18. Please explain what you mean by the fact that the Lily Mine is
open-ended in depth.
Results of the Company`s Drilling Program, page 8
19. Please disclose the material terms of your agreement with
Hatch
Associates Pty Limited and file it as an exhibit.
20. Please disclose the material terms of your agreement with
Behre
Dolbear.
The Gold Market, page 9
21. Please describe your competitive position in your industry.
Disclose your market share versus that of your nearest
competitors.
State, if true, that you are a relatively small operator in a
fragmented market and/or that the gold mining industry is
dominated
by larger companies with significantly more resources than you
currently have.
Reports to Security Holders, page 10
22. Please disclose the steps you have or plan to take to get
quoted
on the OTC Bulletin Board.
23. Please revise to reflect the new Commission address.
Risk Factors, page 11
24. Please clarify in the last sentence of the first paragraph of
this subsection that you are referring to elsewhere in your
document.
Item 2. Management`s Discussion and Analysis or Plan of Operation,
page 17
25. Expand your production table to include average grade
produced.
26. Clarify during which periods listed your mine was profitable.
We
note your disclosure on page 15 in the first paragraph under
"Overview" that your mine was "operationally profitable."
27. We note your statements on page 19 concerning substantial
doubt
that you will be able to continue as a going concern. We assume
that
this disclosure was made in error, based on your statements on
page
18 and elsewhere that indicate that you will be able to meet your
operational financial requirements for the remainder of 2006
without
obtaining additional financing. We also note that your December
31,
2005 audit opinion did not refer to this substantial doubt.
Please
advise or revise.
28. Either in conjunction with the analysis of your operating
results, or in a MD&A critical accounting policy, please provide
the
following information related to your deferred stripping costs.
For
the Staff`s views on this issue, please refer to the Appendix to
the
minutes to the AICPA International Practices Task Force November
25,
2002 meeting.
* Disclose the waste ore ratio used by each mine for each income
statement period presented.
* Explain significant changes from period to period. To the extent
the changes result in a material change in estimate, include all
disclosure required by paragraph 35 of APB Opinion 20.
* Identify changes in this ratio from period to period; explain
why
the changes occurred and how these changes will impact your
financial
results.
* Disclose the extent to which the life of mine waste-to-ore ratio
differs from the actual waste-to-ore ratio encountered during the
period.
* Indicate whether the deferred stripping accounting resulted in
an
increase or a decrease to the reported ore grade extracted as
compared to the actual ore grade extracted for each period
presented.
Planned Exploration Program on Other Company Properties, page 20
29. Please describe the planned exploration programs on your other
properties and their specific costs in greater detail.
Results of Operations for the Years Ended December 31, 2005 and
2004,
page 20
30. We note your tabular summary of information at the bottom of
this
page and the narrative analysis that follows it. We have the
following comments:
* Please revise the captions seen in this table to conform to the
captions seen on the face of your financial statements. For
example,
the measure called "Cash Operating Costs" appears to correspond to
"Cost of Production" on the face of your income statement.
* The narrative analysis of Cash Operating Costs indicates that
you
are analyzing your operating costs before amortization. It is
unclear to us why you are analyzing this non-GAAP measure instead
of
analyzing your GAAP Costs of Production. Please advise. Please
revise your disclosure to either eliminate your reference to a
non-
GAAP measure, or if you continue to present operating costs before
amortization, provide all of the disclosures required by Item
10(h)
of Regulation S-B.
* It appears that the item in this table called "Cash Operating
Loss"
may be a non-GAAP measure. Please revise this table to either
remove
this item or to provide all of the disclosures required by Item
10(h)
of Regulation S-B.
31. Please clarify that the results of operations stem from work
at
the Lily Mine only.
32. Please explain what a "bench slope failure" is. We note your
disclosure on page 21 in the first bullet point under "Comparative
Results of the Last Two Fiscal Years."
Restructuring, page 22
33. Please clarify that when you state that $3,900,000 of
$4,400,000
due to a shareholder was capitalized, you mean that this amount
owed
was converted into capital stock.
Cost of Production, page 24
34. Please disclose the basis for your statement that the
underground
operation is anticipated to result in approximately 8 grams per
ton
during the first 3 years of operations commencing March 2007.
Results of Quarter Ended March 31, 2006, page 25
35. The analysis of your interim results appears to only address
changes in your revenues. Please revise to also discuss
significant
changes in your costs of production or operating expenses. In
this
regard, it appears that your gross margin for the interim period
improved significantly over the gross margins for fiscal years
2004
and 2005. Please revise to explain the underlying reasons behind
this change.
36. Please revise to provide an analysis of results for the
comparable interim period of the preceding year. Refer to Item
303(b)(2) of Regulation S-B. Also see our comment below
concerning
your interim financial statements.
Item 3. Description of Property, page 25
37. Please explain what you mean by the statement "all such
properties have adequate access to support the Company`s mining
operations."
38. Please disclose how you have specifically been or expect to be
impacted by the South African Mining Legislation. Address, among
other things, the cost of compliance.
Lily Mine Area, page 28
39. We note your statement that "while not yet substantiated, it
is
the Company`s assessment that this area contains a minimum 1
million
ounce gold deposit." Please disclose the basis for this
assessment.
40. Please update to disclose the current status of the amended
Environmental Management Programme and its costs. Please also
revise
to describe in more detail what this is.
Sheba Hills, page 29
41. Please disclose the number of claims you own in the Sheba
Hills
area as well as the nature of the land ownership.
42. Please disclose the costs of your planned exploration of this
area.
Centurion, page 30
43. Due to the dormancy and need for processing facilities in this
area, disclose the costs and anticipated time frame that
development
of this area would take. Please provide similar disclosure for
the
Worcester Mine.
Description of Property - Company`s Prefeasibility Study and
Report
of Consultant, page 31
44. It appears that your disclosures in this section of your
filing
may not be complete. Please advise or revise.
Biographical Information, page 34
45. Please disclose the specific business experience of your
officers
and directors for the past five years, including names and dates
of
employment and directorships held in reporting companies naming
each
company. Refer to Item 401(a)(4)and (5) of Regulation S-B.
46. We note your disclosure in Mr. McChesney`s biography
concerning
his involvement in various mining companies and specifically, gold
mining companies in South Africa. Please disclose the names of
these
mining companies in your revised filing. In addition, please
disclose how the company will handle any conflicts of interest
that
exist or may arise if Mr. McChesney`s involvement in these mining
companies is ongoing.
47. In the biography of Mr. Muftizade, please disclose the name of
the U.S. corporation that conducted gold mining operations in the
Middle East. Also, please disclose the countries in the Middle
East
in which the U.S. corporation conducted these gold mining
operations.
Item 4. Recent Sales of Unregistered Securities, page 42
48. Please disclose the amount of consideration received for the
issuance of 2,736,247 shares of common stock on October 1, 2005.
Please refer to Item 701(c) of Regulation S-B.
Financial Statements for the Year Ended December 31, 2005
Consolidated Statements of Cash Flows, page F-8
49. We note from your balance sheet that the book value of your
Property, plant and mine development, net decreased approximately
$1
million from December 31, 2004 to December 31, 2005. Please help
us
to understand where this decrease is reflected in your cash flow
statement. If the decrease is attributable to non-cash reasons,
please revise your supplemental cash flow disclosures or your
footnotes to clarify this matter.
Note 1 - Organization and History, page F-9
50. We note your disclosures concerning the merger between EGL and
EGSA. We also note your disclosures in Note 11, which indicates
that
the A Class Preference Shares issued by EGSA in this merger are,
in
substance, equity of EGI. We assume from these disclosures that
the
economic substance of this merger was that EGI issued new equity
to
the shareholders of EGL in exchange for 100% of EGL`s outstanding
common stock. We also assume that for accounting purposes this
merger should be accounted for as a reverse acquisition in which
EGL
acquired EGI. Please confirm our assumptions, or tell us why our
assumptions are incorrect. If our assumptions are correct, please
revise your discussion of this merger here and throughout your
filing
to clarify that the substance of the merger was the acquisition of
EGI by EGL.
51. Please supplementally provide us with equity statements for
both
EGL and EGI from January 1, 2004 through the date of the merger.
Based on those equity statements, please help us to understand how
you are reflecting the recapitalization of EGL in your equity
statement. In this regard, we assume that EGL`s historical equity
should be restated based upon the equity that they received from
EGI
in the merger (i.e. the A Class Preference Shares) to give effect
to
the recapitalization in a manner similar to a stock split. Refer
to
SAB Topic 4C. It is unclear to us that this is the manner in
which
you have presented the recapitalization. Please advise.
Note 2 - Summary of Significant Accounting Policies
Property, Plant and Mine Development, page F-10
52. Please tell us if you have capitalized any mine development
costs
other than those related to proven and probable reserves. If so,
please quantify for us the amount of such capitalized costs, and
tell
us the accounting guidance that you relied upon in determining
that
it was appropriate to capitalize these costs.
53. We read that where it is anticipated that the life of the mine
will significantly exceed the proved and probable reserves, the
mine
life is estimated using a methodology that takes account of
current
exploration information to assess the likely recoverable gold from
a
particular area. As indicated in the minutes to the AICPA
International Practices Task Force November 25, 2002 meeting,
specifically the Appendix to those minutes, the SEC staff believes
that reserve quantities used to calculate depreciation, depletion,
and amortization rates should be derived solely from Industry
Guide 7
reserves, i.e. proven and probable reserves. Please revise your
financial statements and disclosure accordingly.
54. Please disclose, if true, that the proven and probable
reserves
quantities used to calculate your depreciation, depletion, and
amortization do not include the proven and probable reserve
quantities attributable to stockpiled inventory. For the Staff`s
views on this issue, please refer to the Appendix to the minutes
to
the AICPA International Practices Task Force November 25, 2002
meeting.
Inventories, page F-13
55. Please clarify your accounting policy for stockpiled inventory
to
more clearly indicate what is included in this category. In this
regard, please revise to clarify, if true, that stockpiled
inventory
represents unprocessed materials containing proven and probable
reserve quantities that have been removed from the mine and for
which
management has reasonable certainty that these reserve quantities
will actually be processed. If this is not your accounting policy
for stockpiled inventory, please explain your accounting policy to
us
and tell us the accounting guidance that you relied upon. For the
Staff`s views on this issue, please refer to the Appendix to the
minutes to the AICPA International Practices Task Force November
25,
2002 meeting.
56. Either here or elsewhere in your filing where you believe it
is
appropriate, please disclose the following related to stockpiled
and
other inventories for each mine. For the Staff`s views on this
issue, please refer to the Appendix to the minutes to the AICPA
International Practices Task Force November 25, 2002 meeting.
* The amount of proven and probable reserve quantities
attributable
to them;
* The time period over which the proven and probability reserve
quantities are expected to be processed; and
* Whether or not costs have been capitalized as inventory in the
balance sheet, and, if so, whether any inventory write-downs have
been recognized.
Deferred Stripping Costs, page F-14
57. We note that your deferred stripping cost asset is classified
on
your balance sheet as part of Property, Plant and Mine
Development.
Please revise your balance sheet to reflect this deferred asset as
a
separate line item. For the Staff`s views on this issue, please
refer to the Appendix to the minutes to the AICPA International
Practices Task Force November 25, 2002 meeting.
58. Please tell us where you have classified the cash activity
associated with deferred stripping costs in your statement of cash
flows. If necessary, please revise to classify these cash
activities
as operating cash flows. For the Staff`s views on this issue,
please
refer to the Appendix to the minutes to the AICPA International
Practices Task Force November 25, 2002 meeting.
59. Please provide the following additional disclosures concerning
your accounting policies for deferred stripping costs. For the
Staff`s views on this issue, please refer to the Appendix to the
minutes to the AICPA International Practices Task Force November
25,
2002 meeting.
* Disclose the accounting methods used to measure and recognize
production stage deferred stripping costs and credits. We expect
this
accounting policy to be disclosed in its own discrete section in
your
accounting policy footnote.
* Clarify when and under which circumstances mining costs
associated
with waste rock removal are deferred.
* Disclose the method used to defer and amortize post-production
stripping costs.
* Define the term waste-to-ore ratio.
* Define the reserve quantities used to develop the waste-to-ore
ratio.
* Disclose how deferred stripping costs or credits are evaluated
for
loss in value.
60. Either here or elsewhere in your footnotes, please provide the
following additional disclosures concerning deferred stripping
costs.
For the Staff`s views on this issue, please refer to the Appendix
to
the minutes to the AICPA International Practices Task Force
November
25, 2002 meeting.
* Indicate whether the deferred stripping accounting resulted in
an
increase or a decrease to production costs as compared to actual
costs incurred for each period presented.
* Disclose that the full amount of postproduction stripping costs
incurred will not be expensed until the end of the mine life.
* Disclose the year that the deferred costs and credits are
expected
to be fully amortized.
* Disclose the balance of deferred stripping costs or credits as
of
each balance sheet date, if not apparent from the face of your
balance sheet, and disclose the related amount amortized for each
period an income statement is presented.
Note 8 - Reclamation and Remediation, page F-20
61. Please revise your disclosures, either here or in Note 2, to
provide your accounting policy related to your reclamation and
remediation obligations. We note your discussion of FIN 47 in
Note
2; however, this does not appear to reflect your policy for fiscal
years 2004 and 2005. Please also provide the disclosures required
by
paragraph 22(a) of SFAS 143, or tell us why these disclosures are
not
necessary.
Note 10 - Minority Interest, page F-22
62. We read that the sale of 26% of EGL`s ordinary stock to
Lomshiyo
closed on February 2, 2006. This date appears to be supported by
the
related Funding Facilitation Agreement for Share Subscription,
filed
as Exhibit 10.3. If you received the note receivable from
Lomshiyo
and issued this stock to Lomshiyo after year end, it would be
unclear
to us that it was appropriate to reflect this transaction in your
December 31, 2005 financial statements. Please advise or revise.
Note 11 - Capital Stock, page F-22
63. We note your statement that EGSA`s A Class Preference Shares
are
economically equivalent to common stock of EGI. Please provide us
with a more detailed explanation of how you reached this
conclusion.
Your response should specifically address the following:
* Please confirm, if true, that all A Class Preference Shares are
convertible into EGI common stock.
* Please clarify whether such conversions are done at the option
of
EGI, the option of the A Class Preference Shareholder, or the
option
of either party.
* Please confirm, if true, that A Class Preference Shares are
convertible into EGI common stock on a one-for-one basis. If our
assumption is correct, please explain to us why it appears from
your
disclosures and your equity statement that the 2,055,598 EGSA A
Class
Preference Shares that were converted into EGI common stock by the
non-South African A Class Preference Shareholders were converted
into
2,736,247 shares of EGI common stock instead of being converted
into
2,055,598 shares of EGI common stock. Please revise your
disclosures
in Note 11 to clarify this matter.
* Please confirm, if true, that A Class Preference Shares are
convertible into cash based upon the current per share market
price
of EGI`s common stock. In this regard, we note your reference at
the
bottom of page F-23 to "an equivalent number of shares" of EGI`s
common stock, which we assume indicates a one-for-one conversion
ratio.
* Please provide us with more information about the EGI voting
rights
conferred by EGSA`s A Class Preference Shares. In this regard, we
note that at the EGSA level, the holders of A Class Preference
Shares
have fewer voting rights per share than EGI`s shareholders have as
the holders of EGSA`s common stock. Please clarify if this
disparity
in voting rights continues at the EGI level. Address this issue
for
the case where A Class Preference Shares have been converted into
EGI
common stock and for the case where the A Class Preference Shares
remain outstanding.
64. If you believe that EGSA`s A Class Preference Shares are
economically equivalent to EGI`s common stock, please tell us what
consideration you gave to including these A Class Preference
Shares
in your calculation of EGI`s diluted earnings per share. We note
your statement on page F-11 that you have no common stock
equivalents
which would dilute earnings per share. Please refer to paragraphs
26-29 of SFAS 128, and revise your disclosure on page F-11 as
necessary.
65. Based upon your disclosures, we assume that the A Class
Preference Shares are convertible at the option of the holder at
any
time into cash. If our understanding is correct, it is unclear to
us
why you have classified the A Class Preference Shares within EGI`s
permanent equity. Refer to ASR 268, paragraphs 14-15 of EITF
Topic
D-98, and Article 5-02.28(a)(2) of Regulation S-X. Please advise.
Financial Statements for the Period Ended March 31, 2006
66. Please revise your interim financial statements to present a
statement of operations and statement of cash flows for the
comparable period of the preceding fiscal year. Refer to Item
310(b)
of Regulation S-B.
Closing Comments
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. 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 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 filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment 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.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments 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 our review of your filing or in
response to our comments on your filing.
You may contact Jennifer Thompson, Staff Accountant, at
(202)
551-3737 or John Cash, Accounting Branch Chief, at (202) 551-3768
if
you have questions regarding comments on the financial statements
and
related matters. Please contact Craig Slivka, Staff Attorney at
(202) 551-3729, or in his absence Lesli Sheppard, Senior Staff
Attorney, at (202) 551-3708 with any other questions.
Sincerely,
Pamela A. Long
Assistant Director
CC: Carmine J. Bua, Esq.
(619) 280-8001
Michael McChesney
Eastern Goldfields, Inc.
Page 1 of 13
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-7010
DIVISION OF
CORPORATION FINANCE