# Golden Minerals Co: Form 10-Q for the period ended Jun 30, 2012

- Company: [Golden Minerals Co](/companies/aumn.md) (CIK 1011509)
- Form: 10-Q
- Filed: 2012-08-08
- Accepted by EDGAR: Aug 8, 2012, 16:59 ET
- Period: 2012-06-30
- Accession: 0001104659-12-055975
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1011509/000110465912055975/a12-13749_110q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1011509/000110465912055975/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2012-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Operating income | 3 months, 2012-04-01 to 2012-06-30 | −$11.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2012-01-01 to 2012-06-30 | −$23.7m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2012-04-01 to 2012-06-30 | −$1.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2012-01-01 to 2012-06-30 | −$3.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2012-04-01 to 2012-06-30 | −$7.6m | us-gaap:NetIncomeLossAvailableToCommonStockholdersBasic |
| Net income | 6 months, 2012-01-01 to 2012-06-30 | −$17.8m | us-gaap:NetIncomeLossAvailableToCommonStockholdersBasic |
| Diluted EPS | 3 months, 2012-04-01 to 2012-06-30 | −$0.22 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2012-01-01 to 2012-06-30 | −$0.50 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2012-04-01 to 2012-06-30 | −$0.22 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2012-01-01 to 2012-06-30 | −$0.50 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2012-04-01 to 2012-06-30 | 35,487,868 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2012-01-01 to 2012-06-30 | 35,480,946 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2012-01-01 to 2012-06-30 | −$22.9m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 6 months, 2012-01-01 to 2012-06-30 | $5.2m | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2012-06-30 | $23.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2012-06-30 | $36.2m | us-gaap:AssetsCurrent |
| Total assets | at 2012-06-30 | $389.2m | us-gaap:Assets |
| Current liabilities | at 2012-06-30 | $13.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2012-06-30 | $68.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2012-06-30 | $320.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 30,901 characters.

### General

Golden Minerals is a mining company with precious metals mining operations in the State of Durango, Mexico, the El Quevar advanced exploration property in the province of Salta, Argentina, and a diversified portfolio of precious metals and other mineral exploration properties located in or near historical precious metals producing regions of Mexico and South America.

This discussion should be read in conjunction with Management’s Discussion and Analysis included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the SEC on March 8, 2012.

### Overview

During the second quarter 2012 we continued to concentrate on the ramp-up and expansion of existing production at our Velardeña Operations in Mexico and advancement of the evaluation stage El Quevar project in Argentina. An overview of significant achievements during the second quarter 2012 is provided below:

### Velardeña Operations

- *Production*. During the second quarter 2012, the Velardeña Operations had payable production of approximately 1,500 ounces of gold and 94,000 ounces of silver, as compared to approximately 1,700 ounces of gold and 110,000 ounces of silver in the first quarter 2012. First quarter payable production included a positive adjustment of about 10,000 ounces of silver from prior periods. In the first half of 2012, payable production was approximately 3,200 ounces of gold and 204,000 ounces of silver. Additionally, the Velardeña Operations had payable production of approximately 200,000 pounds of lead and 300,000 pounds of zinc in the second quarter, and approximately 400,000 pounds of lead and 600,000 pounds of zinc in the first half of 2012.

Production during the first six months was negatively impacted primarily by less than planned mine development due to delays in the arrival of underground mining equipment from Argentina. Most of the equipment from Argentina has now arrived at Velardeña and, together with additional equipment acquired during the second quarter, we now have all mining equipment necessary for our planned production ramp up at site. Because of the approximately six month delay in mine development, we have continued to mine only in stopes that had been developed and partially mined prior to our September 2011 acquisition of the Velardeña Operations, rather than in newly developed stopes as initially anticipated. This has resulted in lower ore grades provided to the processing plant than planned. We do not plan to provide further production guidance until additional mine development accesses non-exploited veins.

- *Ramp-up and other operations matters*. Due to the acquisition of additional equipment and the arrival of equipment from Argentina, we are increasing mine development activity. We expect to begin mining in non-exploited vein areas during the third quarter 2012, and expect to begin mining in non-exploited vein areas in the Santa Juana mining area during the fourth quarter 2012. The Santa Juana mining area has the largest number of vein units and the overall grade is slightly higher than the Chicago and San Juanes mining areas. With increased mine development, we expect the ramp-up to approximately 850 tonnes per day, the processing capacity of the current plant facilities, to be completed during the second quarter 2013.

We have completed the installation of a new flotation circuit, which was installed at the end of the oxide leach circuit to recover the gold-bearing pyrites that are not leached. The flotation circuit will produce pyrite concentrates, bearing gold and silver, which will be combined with the pyrite concentrates currently produced in our sulfide plant. The new flotation circuit should commence operation during the third quarter of 2012. During the first half of 2012, we continued to advance the San Mateo ramp, which is expected to connect with the lower Santa Juana workings in the fourth quarter 2013. This connection will provide new access to facilitate ore removal from the lower Santa Juana workings and the veins that are accessed by the San Mateo ramp unit.

- *Expansion plans*. We are working on plans for an incremental expansion of the Velardeña Operations to approximately 1,150 tonnes per day. The expansion would include upgrading one of the sulfide plant ball mills and the addition of flotation and filtration capacity at the sulfide plant to increase processing capacity. The expansion would also include the addition of autoclave processing to increase recoveries of payable gold and

silver and eliminate the use of third party tolling arrangements on less favorable terms. Our current preliminary estimate of capital costs for this expansion totals approximately $30.0 million, of which approximately $20.0 million would be for installation of autoclave processing. We are proceeding with preliminary design and test work for the autoclave project. Any expansion is dependent on external funding.

- *Updated resource*. During the second quarter 2012, the engineering firm of Chlumsky, Armbrust and Meyer (“CAM”) completed an estimate of mineralized material at the Velardeña mines, set forth in the following table:

| Classification | Tonnes (Million) | Average Gold Grade (grams/tonne) | Average Silver Grade (grams/tonne) |
| --- | ---: | ---: | ---: |
| Mineralized Material | 2.3 | 3.46 | 195 |

The CAM resource estimate assumed a gold price of $1,255.12 per troy ounce and a silver price of $23.28 per troy ounce, and a cutoff grade of a net smelter return (NSR) of $120.00 per tonne.

The current mineralized material estimate includes significantly higher grades with fewer tonnes than previous estimates, resulting in an estimate similar in size to our Canadian processor’s previous estimate of measured and indicated resources. The CAM estimate was performed about two years after the previous estimate, with typical production during the period between the estimates. We believe that the vein systems have a high rate replacement. We and CAM believe that this rate of replacement is likely to continue in the future, and that this deposit is similar to other epithermal vein systems where it is not cost effective or practical to drill the entire deposit.

- *Sale of Platosa Royalty.* During the second quarter 2012, we sold our 1% net smelter royalty interest in Excellon Resources Inc.’s Platosa silver, lead and zinc mining property in Mexico to Excellon for $2.4 million.
- *Exploration.* We continue to rationalize our exploration portfolio. We have reviewed and relinquished as being of no further interest approximately 200,000 hectares in Mexico, Argentina and Peru, are negotiating sale or farm-out arrangements affecting approximately another 200,000 hectares, and are consolidating our exploration management and administrative offices and functions. We expect this process to continue for the remainder of 2012 and expect by the end of the third quarter 2012 that our annual rate of exploration cost will be reduced by approximately two thirds from our annual exploration expenditure rate in 2011, with the most significant reduction in Argentina outside of the El Quevar project area.

We are planning a 2,000 meter, six hole drill program at the Quevar Norte prospect at the El Quevar project in northwestern Argentina, focused on outlining a new one kilometer long mineralized system parallel to Yaxtché. We have identified three additional prospects in Mexico on currently held ground, unrelated to the Velardeña Operations or our holdings in Zacatecas, for which we are continuing exploration programs, with the goal of drilling two of these in 2012.

### Results of Operations

For the results of continuing operations discussed below, we compare the results from operations for the three month and six month periods ended June 30, 2012 to the results from operations for the three month and six month periods ended June 30, 2011, respectively.

### Three Months Ended June 30, 2012

*Revenue from the sale of metals.* We recorded $4.9 million of revenue for the three months ended June 30, 2012, all from the sale of products produced at our Velardeña Operations in Mexico. We had no operations prior to the acquisition of the Velardeña Operations during September 2011; consequently, there were no revenues recorded for the three months ended June 30, 2011.

*Costs of metals sold.* We recorded $6.6 million of costs of metals sold for the three months ended June 30, 2012, all related to sales from our Velardeña Operations in Mexico. Included in costs of metals sold was a $1.2 million write down of finished goods inventory to its estimated net realizable value. We had no operations prior to the acquisition of the Velardeña Operations during September 2011; consequently, there were no costs of metals sold recorded for the three months ended June 30, 2011.

*Exploration*. Our exploration expenses, including property holding costs and costs incurred by our local exploration offices, were $1.8 million for the three months ended June 30, 2012, as compared to $4.3 million for the three months ended June 30, 2011. Exploration expenses were incurred primarily on drilling programs, concession payments, and other exploration activities in Mexico, Argentina, and Peru. The decrease in exploration expenses during the second quarter 2012 as compared to the second quarter 2011 is the result of our reduced spending on exploration as we attempt to rationalize and monetize our exploration portfolio.

*Velardeña project expense.* During the three months ended June 30, 2012 we incurred $2.1 million of expenses related to our Velardeña Operations in Mexico, primarily related to development of the San Mateo drift, other mine development, and engineering work. In addition to amounts expensed during the three months ended June 30, 2012, we incurred capital expenditures of approximately $1.5 million for plant construction, mining and other equipment and had outstanding approximately $1.2 million of advance payments to equipment manufacturers at June 30, 2012. The Velardeña Operations were acquired during September 2011; consequently, there were no Velardeña project expenses recorded for the three months ended June 30, 2011.

*El Quevar project expense*. During the three months ended June 30, 2012 we incurred $1.2 million of expenses primarily related to furthering our evaluation of the Yaxtché deposit at our El Quevar project in Argentina. During the three months ended June 30, 2011, we incurred $9.1 million of expenses primarily related to development of the exploration drift, drilling and engineering work on the Yaxtché deposit. The decreases in the second quarter 2012 costs as compared to the second quarter 2011 are primarily the result of the suspension of the drifting and drilling activities at El Quevar during 2012 as we shift our emphases to the development and operation of our Velardeña mines.

*Administrative.* Administrative expenses were $1.8 million for the three months ended June 30, 2012 compared to $3.9 million for the three months ended June 30, 2011. Administrative expenses for the second quarter 2011 included approximately $1.7 million of banker, legal, accounting and other professional fees related to the planned merger with ECU, and no such fees were incurred during the second quarter 2012. Administrative expenses are primarily related to public company costs and corporate activities in support of our Velardeña Operations during 2012, El Quevar project work during 2011 and our exploration programs during both quarters.

*Other Operating Income & Expense, Net.* During the three months ended June 30, 2012 we recorded $0.1 million of other operating expense primarily arising from the payment of interest and penalties associated with a value added tax audit in Mexico related to prior years. Only nominal amounts were recorded to other operating income & expense during the three month period ended June 30, 2011.

*Stock based compensation.* During the three months ended June 30, 2012 we recorded $0.3 million of stock based compensation expense compared to approximately $0.9 million of stock based compensation expense recorded during the three months ended June 30, 2011. The decrease in the second quarter 2012 costs as compared to the second quarter 2011 is primarily the result of fewer outstanding stock grants at June 30, 2012 as compared to June 30, 2011 because of the accelerated vesting of stock grants at the completion of the merger with ECU on September 2, 2011.

*Reclamation Expense.* As the result of a revised closure plan completed for our Velardeña mines during the second quarter 2012, we reduced the accretion of the asset retirement obligation by approximately $0.1 million resulting in only nominal reclamation expense for the three months ended June 30, 2012. We incurred no reclamation expenses during the three months ended June 30, 2011.

*Interest and Other Income.* During the three months ended June 30, 2012 we recorded approximately $2.0 million of interest and other income comprised of a $1.8 million gain on the sale of the Platosa net smelter royalty to Excellon and a $0.2 million reduction of a loss contingency liability. We recorded $0.1 million of interest and other income during the three months ended June 30, 2011 primarily related to the sale of certain available for sale securities.

*Royalty Income.* During the three months ended June 30, 2012 we recorded royalty income of approximately $0.2 million compared to approximately $ 0.1 recorded during the three months ended June 30, 2011. The royalty income is all related to Excellon’s Platosa mine in Mexico, on which we retained a net smelter return royalty; our royalty income varies from period to period depending on production from the mine. The net smelter return royalty was sold to Excellon during the second quarter 2012 as discussed above.

*Gain/Loss on Foreign Currency.* During the three months ended June 30, 2012 we recorded a nominal foreign currency loss compared to $0.1 million foreign currency loss for the same period in 2011. Foreign currency gains and losses are primarily related to the effect of currency fluctuations of monetary assets net of liabilities held by our foreign subsidiaries that are denominated in currencies other than US dollars. Such foreign currency denominated monetary assets and liabilities have increased with the acquisition of the Velardeña Operations.

*Income Taxes.* Our income tax for the three months ended June 30, 2012 was a $1.2 million benefit due to Mexico net operating losses. We recorded a nominal amount of income tax for the three months ended June 30, 2011 related to the reversal of the tax effects of other comprehensive income reported as of December 31, 2010.

### Six Months Ended June 30, 2012

*Revenue from the sale of metals.* We recorded $11.3 million of revenue for the six months ended June 30, 2012, all from the sale of products produced at our Velardeña Operations in Mexico. We had no operations prior to the acquisition of the Velardeña Operations during September 2011; consequently, there were no revenues recorded for the six months ended June 30, 2011.

*Costs of metals sold.* We recorded $14.5 million of costs of metals sold for the six months ended June 30, 2012, all related to sales from our Velardeña Operations in Mexico. Included in costs of metals sold was a $2.1 million write down of finished goods inventory to its estimated net realizable value. We had no operations prior to the acquisition of the Velardeña Operations during September 2011; consequently, there were no costs of metals sold recorded for the six months ended June 30, 2011.

*Exploration*. Our exploration expenses, including property holding costs and costs incurred by the local exploration offices, were $4.2 million for the six months ended June 30, 2012, as compared to $8.0 million for the six months ended June 30, 2011. Exploration expenses were incurred primarily on drilling programs, concession payments, and other exploration activities in Mexico, Argentina, and Peru. The decrease in exploration expenses for the first six months of 2012 as compared to the first six months of 2011 is the result of our reduced spending on exploration as we attempt to rationalize and monetize our exploration portfolio.

*Velardeña project expense.* During the six months ended June 30, 2012 we incurred $5.5 million of expenses related to our project at our Velardeña Operations in Mexico, primarily related to development of the San Mateo drift, other mine development, and engineering work. In addition to amounts expensed during the six months ended June 30, 2012, we incurred capital expenditures of approximately $5.1 million for plant construction, mining and other equipment and had outstanding approximately $1.2 million of advance payments to equipment manufacturers at June 30, 2012. The Velardeña Operations were acquired during September 2011; consequently, there were no Velardeña project expenses recorded for the six months ended June 30, 2011.

*El Quevar project expense*. During the six months ended June 30, 2012 we incurred $2.6 million of expenses primarily related to furthering our evaluation of the Yaxtché deposit at our El Quevar project in Argentina. During the six months ended June 30, 2011, we incurred $17.9 million of expenses primarily related to development of the exploration drift, drilling and engineering work on the Yaxtché deposit. The decreases in the first six months of 2012 costs as compared to the first six months of 2011 are primarily the result of the suspension of the drifting and drilling activities at El Quevar during 2012 as we shift our emphasis to the development and operation of our Velardeña Operations.

*Administrative.* Administrative expenses were $3.9 million for the six months ended June 30, 2012 compared to $8.0 million for the six months ended June 30, 2011. Administrative expenses for the second quarter 2011 included approximately $1.7 million of banker, legal, accounting and other professional fees related to the planned merger with ECU, no such fees were incurred during the first six months of 2012. Administrative expenses are primarily related to public company costs and corporate activities in support of our Velardeña Operations, El Quevar project work, and our exploration programs.

*Other Operating Income & Expense, Net.* During the six month period ended June 30, 2012 we recorded $0.2 million of net other operating income comprised of approximately$0.4 million of gains on the sale of certain exploration properties partially offset by approximately $0.2 million of other operating expense arising from the payment of interest and penalties resulting from a value added tax audit in Mexico related to prior years. During the six month period ended June 30, 2011 we recorded $0.4 million of net other operating income primarily related to gains on the sale of certain exploration properties.

*Stock based compensation.* During the six months ended June 30, 2012 we recorded $0.5 million of stock based compensation expense compared to approximately $2.1 million of stock based compensation expense recorded during the six months ended June 30, 2011. The decreases in the first six months 2012 costs as compared to the first six months 2011 is primarily the result of fewer outstanding stock grants at June 30, 2012 as compared to June 30, 2011 because of the accelerated vesting of stock grants at the completion of the merger with ECU on September 2, 2011.

*Reclamation Expense.* During the six months ended June 30, 2012 we incurred $0.2 million of reclamation expense, which included $0.1 million of reclamation costs related to the accretion of an asset retirement obligation at the Velardeña Operations and actual reclamation expenses of $0.1 million incurred at the El Quevar project. As the result of a revised closure plan completed for our Velardeña mines during 2012, we reduced the accretion of the asset retirement obligation by approximately $0.1 million resulting in net expense for the six month period of approximately $0.1 million. We incurred no reclamation expenses during the six months ended June 30, 2011.

*Interest and Other Income.* During the first six months of 2012 we recorded approximately $2.2 million of interest and other income comprised of a $1.8 million gain on the sale of the Platosa net smelter royalty to Excellon and a $0.4 million reduction of a loss contingency liability. We recorded $0.1 million of interest and other income during the first six months of 2011 primarily related to the sale of certain available for sale securities.

*Royalty Income.* During the six months ended June 30, 2012 we recorded royalty income of approximately $0.4 million compared to approximately $1.0 recorded during the six months ended June 30, 2011. The royalty income is all related to Excellon’s Platosa mine in Mexico, on which we retained a net smelter return royalty; our royalty income varies from period to period depending on production from the mine. The net smelter return royalty was sold to Excellon during the second quarter 2012 as discussed above.

*Gain/Loss on Foreign Currency.* During the six months ended June 30, 2012 we recorded $0.4 million of foreign currency gain compared to $0.2 million foreign currency loss for the same period in 2011. Foreign currency gains and losses are primarily related to the effect of currency fluctuations of monetary assets net of liabilities held by our foreign subsidiaries that are denominated in other currencies than US dollars. Such foreign currency denominated monetary assets and liabilities have increased with the acquisition of the Velardeña Operations.

*Income Taxes.* Our income tax for the six months ended June 30, 2012 was a $3.0 million benefit due to Mexico net operating losses. Our income tax for the six months ended June 30, 2011 was $0.1 million related to the reversal of the tax effects of other comprehensive income reported as of December 31, 2010.

### Liquidity, Capital Resources and Going Concern

At June 30, 2012 the Company’s aggregate cash and short-term investments totaled $23.1 million and based on the assumptions described below, we expect to have a cash balance of approximately $4.0 million at December 31, 2012. We have commenced efforts to secure funding from external sources, which may include a debt or equity financing transaction. Our efforts and projections are described further below. There is uncertainty regarding whether we will be successful in obtaining sufficient funding from any of these actions or sources in the future on terms acceptable to us or at all. We expect that in the absence of additional funding, our current cash and investment balance would be depleted in the first quarter of 2013.

Our cash and short-term investment balance at June 30, 2012 is lower than the $48.6 million in similar assets held at December 31, 2011 due primarily to the operating loss of $3.2 million at the Velardeña Operations; Velardeña Operations capital and development expenditures during the first two quarters of approximately $10.6 million; $4.0 million in additional working capital, primarily related to increased inventories and receivables associated with the Velardeña Operations; $4.2 million on exploration; $3.9 million on general and administrative activities; and $2.6 million on the El Quevar project. These expenditures were offset partially by $3.0 million in proceeds from the sale of non strategic property interests and royalty payments.

Assuming metals prices of $25.00 per ounce of silver and $1,500 per ounce of gold, the Company expects to generate a negative gross margin, which we define as sales less the cash cost of production, from the sale of metals of approximately $3.3 million during the remaining two quarters of 2012. With the cash and investment balance at June 30, 2012 of $23.1 million, an anticipated $3.3 million of negative gross margin from the sale of metals at the Velardeña Operations and an estimated $1.5 million reduction in working capital, the Company plans to spend the following amounts during the remaining two quarters of 2012 pursuant to its long-term business strategy:

- Approximately $10.0 million on capital and development costs related to the continued development of the San Mateo drift and other mine development and capital expenditures intended to increase the capacity and productivity of mine operations and plant facilities;
- Approximately $1.5 million at the El Quevar project to fund maintenance activities and the continuation of project evaluation costs;
- Approximately $2.5 million on other exploration activities and property holding costs related to our portfolio of exploration properties located in South America and Mexico as we pursue strategies to monetize portions of the portfolio; and
- Approximately $3.5 million on general and administrative costs.

Assuming metals prices of $25.00 per ounce of silver and $1,500 per ounce of gold during the remainder of 2012, we expect that gross margin from the sale of metals will be positive at the Velardeña Operations beginning in the first quarter 2013. However, because of the delay in mine development and slower ramp up of production that has occurred at the Velardena Operations, we now expect lower gross margin from the sale of metals during 2013. Based on anticipated gross margin, continued development and capital expenditures at the Velardena Operations for the ramp-up to 850 tonnes per day, significantly reduced expenditures for exploration and El Quevar, and corporate administrative expenditures, we expect that, in the absence of additional funding, our current cash and investment balance would be depleted in the first quarter 2013. Our cash balances and spending through year-end 2012 and the first half of 2013 may vary significantly from the amounts specified above and will depend on a number of factors, including amounts of saleable metals produced, metals prices, the results of continuing ramp up at the Velardeña Operations, whether the Company is able to monetize portions of its exploration portfolio and the amount and timing of cash generated by these activities. A $4.00 average change in the price of silver during the remainder of 2012 would result in a $1.1 million change in the expected cash flow during that period while an average $250.00 change in the price of gold during the period would result in a $0.9 million change in the expected cash flow during the period. If saleable metals production is lower than anticipated or metals prices decline from the levels noted previously, we would be required to further preserve our cash and investments by delaying our expansion plans at the Velardena Operations and reducing exploration and other expenses.

### Significant Accounting Policies

We did not adopt any new accounting standards during the quarter ended June 30, 2012, nor were there any new accounting pronouncements during that period that would have an impact on our financial position or results of operations.

### Forward-Looking Statements

Some information contained in or incorporated by reference into this Quarterly Report on Form 10-Q may contain forward-looking statements. These statements include comments regarding:

- Planned production and sales from the Velardeña Operations;
- Planned development, expansion and other activities at the Velardeña Operations;
- Planned evaluation, exploration and advancement activities at the El Quevar project;
- Planned exploration activities at other properties and our planned effort to monetize our exploration portfolio of properties; and
- Planned spending and expected cash requirements, and statements concerning our financial condition, operating strategies and operating and legal risks.

The use of any of the words “anticipate,” “continues,” “estimate,” “expect,” “may,” “will,” “project,” “should,” “believe” and similar expressions are intended to identify uncertainties. We believe the expectations reflected in those forward-looking statements are reasonable. However, we cannot assure that these expectations will prove to be correct. Actual results could differ materially from those anticipated in these forward-looking statements as a result of the factors set forth below and other factors set forth in, or incorporated by reference into this report:

- Risks related to the continuing integration of Golden Minerals and ECU;
- Risk related to the Velardeña Operations in Mexico, including variations in the nature, quality and quantity of any mineral deposits that may be located there, our ability to produce minerals from the mines successfully or profitably, our ability to obtain and maintain any necessary permits, consents, or authorizations needed to

continue our expansion plans at the mines, accidents and other unanticipated events and our ability to raise the necessary capital to finance advancement and planned expansion of the mining operations;

- Risks related to the El Quevar project in Argentina, including results of future exploration, economic viability, delays and increased costs associated with evaluation of the project, results of our evaluation and our ability to raise the necessary capital to finance advancement of the project;
- The feasibility and economic viability of potential expansion plans at the Velardeña Operations;
- Results of future exploration at the El Quevar project;
- The feasibility and economic viability of the El Quevar project;
- The Company’s ability to raise necessary capital to complete expansion plans at the Velardeña Operations and, if justified by the results of our evaluation, development of the El Quevar project;
- The Company’s ability to retain key management and mining personnel necessary to successfully operate and grow our business;
- The results of future exploration and of our efforts to monetize our exploration portfolio properties;
- Economic and political events affecting the market prices for silver, zinc, lead and other minerals which may be found on our development and exploration properties;
- Political and economic instability in Argentina, Mexico, Peru and other countries in which we conduct our business and future actions of any of these governments with respect to nationalization of natural resources or other changes in mining or taxation policies; and
- The factors discussed under “Risk Factors” in our Form 10-K for the year ended December 31, 2011.

Many of these factors are beyond our ability to control or predict. You should not unduly rely on these forward-looking statements. These statements speak only as of the date of this report on Form 10-Q. Except as required by law, we are not obligated to publicly release any revisions to these forward-looking statements to reflect future events or developments.

## Market risk

As filed, 1,252 characters.

### Interest Rate Risk

We invest substantially all of our excess cash in U.S. government and debt securities rated “investment grade” or better. The rates received on such investments may fluctuate with changes in economic conditions. Based on the average cash and investment balances outstanding during the second quarter 2012, a 1% decrease in interest rates would have resulted in a reduction in interest income for the period of approximately $0.1 million.

### Foreign Currency Exchange Risk

Although most of our expenditures are in U.S. dollars, certain purchases of labor, operating supplies and capital assets are denominated in other currencies. As a result, currency exchange fluctuations may impact the costs of our operations. To reduce this risk, we maintain minimum cash balances in foreign currencies and complete most of our purchases in U.S. dollars.

### Commodity Price Risk

We are primarily engaged in the operation and further development of properties containing gold, silver, zinc, lead and other minerals. As a result, decreases in the price of any of these metals have the potential to negatively impact our ability to establish reserves and develop and operate our properties. We currently hold no commodity derivative positions.

## Controls and procedures

As filed, 1,956 characters.

(a) Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2012 (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosure.

As permitted by SEC guidance, as of June 30, 2012, management has excluded the operations of ECU Silver Mining, Inc. (“ECU”) and its subsidiaries (consolidated by the company as of September 2, 2011) from its assessment of internal control over financial reporting. (Additional details regarding the acquisition of ECU are available in Note 19 to the consolidated financial statements within Item 1 of this Quarterly Report on Form 10-Q.) The controls for the ECU acquisition will be evaluated for inclusion in management’s assessment of internal control over financial reporting by the end of 2012.

(b) Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 5,963 characters.

***We have historically incurred operating losses and operating cash flow deficits and we expect we will continue to incur operating losses through 2012 and 2013.***

We have a history of operating losses and we expect that we will continue to incur operating losses unless and until such time as our Velardeña Operations in Central Mexico, the El Quevar project in Argentina, or another of our exploration properties generates sufficient revenue to fund our continuing operations. Due primarily to the delay in mine development and slower ramp-up of production at the Velardena Operations than we anticipated, we expect our revenue from sales less the cash cost of production, or gross margin, to continue to be insufficient to fund our continued development and capital expenditures at the Velardena Operations and our expenditures for exploration, the El Quevar project and general and administrative costs. Based on our current expectations regarding gross margin and expenditures, and in the absence of additional funding, we expect that our current cash and investment balance would be depleted in the first quarter 2013. This expectation is subject to a number of assumptions. For example, we may not achieve the levels of production that we project to occur during 2012 and 2013, and silver and gold prices may not average $25.00 per ounce and $1,500.00 per ounce, respectively. In addition, we expect our operating expenses, capital expenditures and other expenses will increase as we advance the anticipated incremental expansion of the Velardeña Operations, which we expect will require the commitment of substantial resources. The amounts and timing of expenditures will depend on the progress of our efforts to expand production at the Velardeña Operations, advance our El Quevar project and continue exploration at these and other properties, the results of consultants’ analyses and recommendations, the rate at which operating losses are incurred, prices for our saleable metals, costs of materials and supplies, the execution of any joint venture agreements with strategic partners, if any, and our potential future acquisition of additional properties, in addition to other factors, many of which are and will be beyond our control. If our expectations for 2012 and 2013 prove to be incorrect, and if we are unable to obtain additional funding, we would face substantial operating cash losses and be required to significantly change our operating and expansion plans. We do not have credit, off-take or other commercial financing arrangements in place that would finance our continued operations or the completion of the incremental expansion of the Velardeña Operations, and we believe that securing these types of arrangements may be difficult given our limited operating history and the continuing volatility in global credit markets. In addition, commercial financing arrangements may not be available on favorable terms or on terms that would not further restrict our operating flexibility and ongoing ability to meet our cash requirements over a reasonable period of time. Access to public financing has been negatively impacted by the volatility in the credit markets and the world economy, which may impact our ability to obtain equity or debt financing in the future and, if obtained, to do so on favorable terms. We also may not be able to obtain funding by monetizing non-core exploration portfolio assets at an acceptable price. There can be no assurance that we will continue to generate revenues or will ever achieve profitability, be able to eliminate operating cash flow deficits, or cease to require additional funding.

***We would require substantial external funding to complete the incremental expansion of the Velardeña Operations and for the potential development of the El Quevar project.***

We would require substantial funds from external sources in order to complete the incremental expansion of the Velardeña Operations and for the potential development of the El Quevar project, as we expect that cash generated by the Velardeña Operations will not be sufficient to fund these activities. We are working on plans for an incremental expansion of the Velardeña Operations to approximately 1,150 tonnes per day, including upgrading one of the sulfide plant ball mills, adding flotation and filtration capacity at the sulfide plant, and adding autoclave processing. Our current preliminary estimate of capital costs for this expansion totals approximately $30.0 million. The size and capital cost for a possible mine and processing facilities at El Quevar have not been determined and would depend, among other things, on the results of our ongoing efforts to further define the Yaxtché deposit and potential new deposits at El Quevar. We do not have a credit, off-take or other commercial financing arrangements in place that would finance the completion of the incremental expansion of the Velardeña Operations, or the possible development of the El Quevar project, and we believe that securing credit for these projects may be difficult given our limited history and the continuing volatility in global credit markets. In addition, commercial financing arrangements may not be available on favorable terms or on terms that would not further restrict our operating flexibility and ongoing ability to meet our cash requirements over a reasonable period of time. Access to public financing has been negatively impacted by the volatility in the credit markets, which may impact our ability to obtain equity or debt financing in the future and, if obtained, to do so on favorable terms. We also may not be able to obtain funding by monetizing non-core exploration portfolio assets at an acceptable price. We cannot assure you that we will be able to obtain the necessary financing for an incremental expansion of the Velardeña Operations or the potential development of the El Quevar project on favorable terms or at all.

Filed Aug 8, 2012.
Source: SEC EDGAR, the filing index for accession 0001104659-12-055975. Last ingested by Listed: Nov 11, 2026, 01:59 ET. No prices; not investment advice.