# Golden Minerals Co: Form 10-Q for the period ended Sep 30, 2021

- Company: [Golden Minerals Co](/companies/aumn.md) (CIK 1011509)
- Form: 10-Q
- Filed: 2021-11-04
- Accepted by EDGAR: Nov 3, 2021, 21:34 ET
- Period: 2021-09-30
- Accession: 0001558370-21-014352
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1011509/000155837021014352/aumn-20210930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1011509/000155837021014352/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-07-01 to 2021-09-30 | $8.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2021-01-01 to 2021-09-30 | $16.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2021-07-01 to 2021-09-30 | $4.3m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2021-01-01 to 2021-09-30 | $9.2m | us-gaap:CostOfRevenue |
| Operating income | 3 months, 2021-07-01 to 2021-09-30 | $479.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2021-01-01 to 2021-09-30 | −$3.2m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2021-07-01 to 2021-09-30 | $188.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2021-01-01 to 2021-09-30 | $203.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-07-01 to 2021-09-30 | $411.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2021-01-01 to 2021-09-30 | −$3.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-07-01 to 2021-09-30 | $0.00 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2021-01-01 to 2021-09-30 | −$0.02 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-07-01 to 2021-09-30 | $0.00 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2021-01-01 to 2021-09-30 | −$0.02 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-07-01 to 2021-09-30 | 174,549,498 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2021-01-01 to 2021-09-30 | 161,751,452 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2021-01-01 to 2021-09-30 | −$2.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2021-07-01 to 2021-09-30 | $171.0k | us-gaap:PaymentsToAcquireProductiveAssets |
| Capital expenditure | 9 months, 2021-01-01 to 2021-09-30 | $1.5m | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2021-09-30 | $8.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2021-09-30 | $12.7m | us-gaap:AssetsCurrent |
| Total assets | at 2021-09-30 | $20.1m | us-gaap:Assets |
| Current liabilities | at 2021-09-30 | $3.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2021-09-30 | $7.5m | us-gaap:Liabilities |
| Shareholders' equity | at 2021-09-30 | $12.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 46,628 characters.

### Our Company

We were incorporated in Delaware in March 2009 under the Delaware General Corporation Law. During the nine months ended September 30, 2021, our principal source of revenue was from the sale of gold and silver from our Rodeo Property in Durango, Mexico. We incurred net operating losses for the nine months ended September 30, 2021 and 2020.

We remain focused on mining operations at the Rodeo Property as well as further studies of a restart plan for Velardeña including the use of bio-oxidation to improve the payable gold recovery. We also continue to evaluate and search for mining opportunities in North America (including Mexico) with near-term prospects of mining, and particularly for properties within reasonable haulage distances of our Velardeña Properties. We are also focused on advancing our El Quevar exploration property in Argentina through the Earn-In Agreement with Barrick and on advancing selected properties in our portfolio of approximately 12 properties, located in Mexico, Nevada and Argentina. We are reviewing strategic opportunities, focusing primarily on development or operating properties in North America, including Mexico.

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, 2020, filed with the SEC on February 18, 2021.

### 2021 Highlights

#### Rodeo Property

We began mining activities at the Rodeo Property, using a contract miner, in December 2020. In November 2020 we received the final necessary permits for us to commence mining at the Rodeo Property from SEMARNAT, the environmental protection agency in Mexico. We began hauling the mined material, also using a contractor, for processing at our Velardeña oxide plant beginning in January 2021. We provide the overall mine management and engineering, which includes in-pit technicians who determine whether material is suitable for process or placement on the waste dump. We also employ and supervise the workforce responsible for processing activities at our oxide plant. Our assay lab, located in Velardeña, Durango, Mexico is used for the project’s assaying requirements. We poured our first doré bar at the end of January 2021 and completed our first shipment of doré to a refinery located in the United States in March 2021.

We installed a new regrind mill circuit at the plant specifically designed to process the harder mined material coming from the Rodeo Property, which was completed in April at a total cost of approximately $1.2 million. The new circuit, which was fully operational at the end of April, allowed us to increase daily throughput of Rodeo material in the oxide plant to at least 500 tonnes per day. Mill throughput in third quarter 2021 averaged 532 tonnes per day, and at that higher throughput level, the current life of the Rodeo mine is estimated to run through the first quarter of 2023 (approximately 2.25 years from initial mining), unless additional resources are discovered.

Assays from processing at the oxide plant indicate the doré produced to date are comprised of approximately 20 to 25 percent gold and 65 to 75 percent silver and are of a quality that is readily marketable and saleable to refineries located either in Mexico or internationally, consistent with standard commercial terms. We entered into a refining agreement with a third party in February 2021 and have completed 23 shipments of doré as of November 4, 2021.

The table below sets forth the key processing and sales statistics for the Rodeo operation for the three and nine months ended September 30, 2021:

*Rodeo Operations Statistics*

*(in thousands except per unit amounts)*

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Three Months Ended September 30, 2021 | ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2021 |
| --- | --- | ---: | --- | ---: |
| Total tonnes mined (1) | ​ | 179,038 | ​ | 515,897 |
| Total tonnes in stockpiles awaiting processing (2) | ​ | 10,780 | ​ | 10,780 |
| Total tonnes in low grade stockpiles (3) | ​ | 49,558 | ​ | 49,558 |
| Tonnes processed | ​ | 48,979 | ​ | 106,584 |
| Average tonnes per day processed | ​ | 532 | ​ | 390 |
| ​ | ​ | ​ | ​ | ​ |
| Gold grade processed (grams per tonne) | ​ | 4.0 | ​ | 3.7 |
| Silver grade processed (grams per tonne) | ​ | 9.0 | ​ | 10.3 |
| ​ | ​ | ​ | ​ | ​ |
| Plant recovery - gold (%) | ​ | 76.5 | ​ | 78.4 |
| Plant recovery - silver (%) | ​ | 84.2 | ​ | 84.5 |
| ​ | ​ | ​ | ​ | ​ |
| Payable gold produced in doré (ounces) | ​ | 4,777 | ​ | 9,618 |
| Payable silver produced in doré (ounces) | ​ | 12,196 | ​ | 35,808 |
| Payable gold equivalent produced in doré (ounces) (4) | ​ | 4,942 | ​ | 10,129 |
| ​ | ​ | ​ | ​ | ​ |
| Gold sold in doré (ounces) | ​ | 4,635 | ​ | 8,608 |
| Silver sold in doré (ounces) | ​ | 12,495 | ​ | 33,418 |
| Gold equivalent sold in doré (ounces) (4) | ​ | 4,804 | ​ | 9,088 |
| ​ | ​ | ​ | ​ | ​ |
| Realized price, before refining and selling costs | ​ | ​ | ​ | ​ |
| Gold (dollar per ounce) | ​ | $1,783 | ​ | $1,797 |
| Silver (dollar per ounce) | ​ | $24.15 | ​ | $25.64 |
| ​ | ​ | ​ | ​ | ​ |
| (1) Includes all mined material transported to the plant, stockpiled or designated as waste |  |  |  |  |
| (2) Includes mined material stockpiled at the mine or transported to the plant awaiting processing in the plant |  |  |  |  |
| (3) Material grading between 2 g/t (current cut off grade) and 1 g/t Au held for possible future processing |  |  |  |  |
| (4) Gold equivalents based on realized $ Au and $ Ag price |  |  |  |  |

The following table highlights additional non-GAAP cost and revenue statistics related to the Rodeo operations:

*(in thousands except per unit amounts)*

| ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2021 ​ Nine Months Ended September 30, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ |
| --- | --- |
| Total cash operating costs ​ $4,324 ​ $10,533 | ​ |
| Treatment and refining costs ​ 111 ​ 220 | ​ |
| Silver by-product credits ​ ​ (302) ​ ​ (857) | ​ |
| **Total cash costs, net of by-product credits** **​** $4,133 ​ $9,896 | ​ |
| ​ ​ ​ ​ ​ ​ ​ | ​ |
| **Total cash cost per unit** **​** ​ ​ ​ ​ ​ | ​ |
| Payable gold ounces produced in doré ​ 4,777 ​ 9,618 | ​ |
| Total cash operating costs ​ $905 ​ $1,095 | ​ |
| Treatment and refining charges ​ 23 ​ 23 | ​ |
| Silver by-product credits ​ (63) ​ (89) | ​ |
| **Total cash costs, net of by-product credits, per payable gold ounce (1)** **​** $865 ​ $1,029 | ​ |
| ​ ​ ​ ​ ​ ​ ​ | ​ |
| Tonnes Processed in plant ​ ​ 48,979 ​ ​ 106,584 | ​ |
| Total cash operating costs per tonne processed ​ $88 ​ $99 | ​ |
| ​ ​ ​ ​ ​ ​ ​ | ​ |
| (1) Cash costs, net of by-product credits, per payable ounce of gold is a non-GAAP financial measure | ​ |

Total cash operating costs for the nine months ended September 30, 2021, as depicted in the table above, include all production costs during the period, including mining, milling and general and administrative costs related to the initial start-up of operations and associated build-up of mined material stockpiles as well as in-solution inventories at the plant. Unit costs continued to decrease during the three months ended September 30, 2021 as production continued to ramp up.

We anticipate total tonnes processed for the full year 2021 will be approximately 145,000 to 150,000, which is higher than the previously forecasted range of 135,000 to 140,000. However, due primarily to lower projected full year 2021 mill recoveries for gold of approximately 80%, as compared to our previous projections based on PEA results of approximately 85%, payable production for the full year 2021 is expected to be at the higher end of our prior guidance of 12,000 to 14,000 ounces of gold and above our prior guidance of 25,000 to 30,000 ounces of silver. Gold recoveries have been slightly lower year to date as we continue to balance the operating performance of the plant between higher throughput and recovery. We continue to optimize the mill circuit for increased recovery with a focus on a finer grind and additional aeration in the leach tank train.

Using an assumed gold price of $1,800/oz and an assumed silver price of $25.00/oz (our realized prices for the nine months ended September 30, 2021, as shown above, were $1,797 and $25.64 for gold and silver, respectively), estimated operating margin for the full year 2021 from the Rodeo Property (defined as revenue from the sale of metals less the cost of metals sold) is estimated at approximately $10.0 million to $11.5 million with after-tax net cash flow from Rodeo for the full year, net of capital expenditures and working capital, estimated at approximately $8.0 million to $9.0 million, consistent with prior guidance provided in our Form 10-Q for the quarter ended June 30, 2021.

The estimates detailed above are based primarily on the actual results of operations through September 30, 2021. Actual future results from production at Rodeo may vary significantly based upon, among other things, unanticipated variations in grade, unexpected challenges associated with our proposed mining plan, volatility in commodity prices, variations in expected recoveries, increases in projected operating costs, working capital or capital costs or delays in commencement of or interruptions in production. See “*Risk Factors – Risk Factors related to our Mining and Processing Activities” as described in our Form 10-K for the period ended December 31, 2020.*

### Non-GAAP Financial Measures

Non-GAAP financial measures are intended to provide additional information only and do not have any standard meaning prescribed by generally accepted accounting principles. These measures should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP.

“Total cash costs, net of by-product credits, per payable gold ounce”, and “All-in sustainable costs, net of by-product credits, per payable gold ounce”, are non-GAAP financial measures calculated by the Company as set forth below and may not be comparable to similar measures reported by other companies.

“Total cash costs, net of by-product credits, per payable gold ounce,” includes all direct and indirect operating cash costs associated with the physical activities that would generate doré products for sale to customers, including mining to gain access to mineralized materials, mining of mineralized materials and waste, milling, third-party related treatment, refining and transportation costs, on-site administrative costs and royalties. Total cash costs do not include depreciation, depletion, amortization, exploration expenditures, reclamation and remediation costs, sustaining capital, financing costs, income taxes, or corporate general and administrative costs not directly or indirectly related to the Rodeo project. By-product credits include revenues from silver contained in the products sold to customers during the period. “Total cash costs, net of by-product credits”, are divided by the number of payable gold ounces generated by the plant for the period to arrive at “Total cash costs, net of by-product credits, per payable gold ounce.”

“All-in sustainable costs per payable gold ounce, net of by-product credits” begins with “Total cash costs, net of by-product credits, per payable gold ounce”, and includes capital and sustaining capital.

“*Cost of metals sold”*, reported as a separate line item in our Condensed Consolidated Statements of Operations for the nine-month period ended September 30, 2021, is the most comparable financial measure, calculated in accordance with GAAP, to “Total cash costs, net of by-product credits”. “*Cost of metals sold”* includes adjustments for changes in inventory and excludes third-party related treatment and refining costs, which are reported as part of revenue in accordance with GAAP. The following table presents a reconciliation for the nine months ended September 30, 2021 between the non-GAAP measure of “Total cash cost, net of by-product credits” to the most directly comparable GAAP measure, “*Cost of metals sold”.*

### Reconciliation of Cash Costs to Cost of Metals Sold

*(in thousands)*

| ​ ​ ​ Three Months Ended September 30, 2021 | ​ ​ ​ ​ | ​ ​ ​ Reconciliation of Costs of Metals Sold (GAAP) to Total Cash Costs, net of By-product Credits (Non-GAAP) ​ ​ ​ ​ | ​ ​ |
| --- | --- | ---: | --- |
| Total cash costs, net of by-product credits |  | $4,324 ​ |  |
| ​ | ​ | ​ ​ ​ |  |
| Reconciliation to GAAP measure: | ​ | ​ ​ ​ |  |
| Treatment and refining costs | ​ | $(111) ​ |  |
| Silver by-product credits | ​ | ​ 302 ​ |  |
| Change in inventory (excluding depreciation, depletion and amortization) | ​ | (223) ​ |  |
| Cost of metals sold |  | $4,292 ​ |  |
| ​ | ​ | ​ ​ ​ |  |
| **Nine Months Ended September 30, 2021** | ​ | ​ ​ ​ |  |
| Total cash costs, net of by-product credits |  | $10,087 ​ |  |
| ​ | ​ | ​ ​ ​ |  |
| Reconciliation to GAAP measure: | ​ | ​ ​ ​ |  |
| Treatment and refining costs | ​ | $(220) ​ |  |
| Silver by-product credits | ​ | ​ 857 ​ |  |
| Write down of inventories to net realizable value | ​ | 17 ​ |  |
| Change in inventory (excluding depreciation, depletion and amortization) | ​ | (1,585) | ​ |
| Cost of metals sold |  | $9,156 | ​ |

#### Rodeo Exploration

In October 2021, we completed an exploration drilling program at Rodeo aimed at expanding the resource. The program included about 5,680 meters in 82 shallow holes at selected near-surface targets located immediately adjacent to the current pit. In June, August, and October 2021, we announced the results from the drilling program, which included several potentially resource-grade intercepts on the north, south and west sides of the currently planned open pit. In July, to accelerate the program, we added a reverse circulation (RC) drill because the progress of core drilling has been slower than expected due to the highly silicified nature of the host rock. The drill program included 47 RC holes totaling 3,187 meters and 35 core holes totaling 2,493 meters. We believe the program has the potential to modestly extend the life of the Rodeo mine beyond the currently estimated life of around 2.25 years. Full results will be available in Q4 2021, and any newly added resources will be incorporated into the Company’s production plans.

#### Velardeña

The Velardeña Properties contain two underground mines that were last operated in late 2015, at which point mining activities were suspended when a combination of low metals prices, mining dilution and metallurgical challenges rendered operations unprofitable. We elected to preserve the asset for future use, and since that time we have evaluated and tested various mining methods and processing alternatives that could enable sustainable profitable operations.

The recent rise in precious metals prices, the advancement of alternative processing technologies in the industry, and the results of our testing activities prompted us to pursue the preparation of an updated preliminary economic assessment (PEA) based partly on projected increased gold recoveries from a proposed bio-oxidation circuit to treat gold-bearing pyrite concentrates. In April 2020, we announced positive results from the updated PEA.

In June we began limited scale mining activities at our Velardeña underground mine to obtain further bulk samples for use in final optimization of the bio-oxidation plant design and for use in additional flotation separation studies that will indicate how we can best separate the gold-bearing minerals into the pyrite-arsenopyrite concentrate that is proposed for processing in the bio-oxidation circuit. We are also testing mining methods to ensure that we can effectively control mining dilution to obtain the head grades that we expect based on our PEA study. We expect to have the results of these studies in early 2022. No development decision has yet been made regarding a potential restart of the Velardeña mines.

#### Yoquivo

In September 2020, we began a 3,400-meter, 15-hole drill program to test the most promising portions of certain veins in the Yoquivo property in Chihuahua, Mexico. We completed the drill program in December 2020 and identified four separate vein systems in which surface sampling has returned grades up to 4,050 g/t silver and 27.7 g/t gold from surface. Of substantial interest is the discovery of a new vein parallel to and east of the Pertenencia vein. While the other principal veins have been partially mined from surface to the water table (up to 130 meters) in the case of San Francisco and Pertenencia, and over a much less extensive vertical interval in the case of El Dolar and Esperanza, the new vein is unmined from surface. We began a second phase drill program in October 2021, planned to be about 2,500 meters of core drilling.

#### El Quevar

On April 2020, we entered into the Earn-in Agreement with Barrick, pursuant to which Barrick has acquired an option to earn a 70% interest in the Company’s El Quevar project located in the Salta Province of Argentina (the “Option”). For a description of the Earn-In Agreement, see our Annual Report Form 10-K for the year ended December 31, 2020. During the earn-in period, in addition to the exploration spending, Barrick will fund the holding costs of the property, which will qualify as work expenditures. Barrick will reimburse us for expenses related to maintaining the exploration camp, which will initially be run by us under a service agreement, and which will also qualify as work expenditures. Through September 30, 2021, approximately $0.9 million of expenses incurred by us have been or are expected to be reimbursable under the Earn-in Agreement. As of September 30, 2021, Barrick had met the $1 million in work expenditures that would allow them to withdraw from the Earn-in Agreement.

#### Sarita Este

In December 2019 we paid $150,000 to enter into an option agreement with Cascadero Minerals Corporation (“Cascadero”) to acquire a 51% interest in the gold/copper Sarita Este concession, located in the northwest portion of the Province of Salta, Argentina, located near the Taca Taca project owned by First Quantum Minerals. The option agreement calls for us to spend at least $0.3 million in exploration expenditures and complete a 2,000-meter drill program by the end of 2021, another $0.5 million by the end of 2022, and another approximately $1.6 million by 2023 for a total $2.5 million.

We are finishing a 2,500-meter core drilling program in 10 drill holes on the Sarita Este property. The last hole is still in progress. We are targeting a copper porphyry system in the northeast portion of the Sarita Este claim at the Kachi target and a high sulfidation gold-silver system in the southern portion of the concession at the Sico target. We expect to release data for those holes completed and an update of our plans for continuing exploration at Sarita Este later in the fourth quarter 2021.

### Financial Results of Operations

For the results of continuing operations discussed below, we compare the results from operations for the three and nine months ended September 30, 2021, to the results from operations for the three and nine months ended September 30, 2020.

### Three Months Ended September 30, 2021

*Revenue from the sale of metals.* We recorded $8.5 million in revenue from doré sales for the three months ended September 30, 2021. We did not record any revenue from doré sales for the three months ended September 30, 2020.

*Costs of metals sold.* For the three months ended September 30, 2021 we recorded $4.3 million of costs of metals sold. We did not record any cost of metals sold during the three months ended September 30, 2020.

*Revenue from oxide plant lease.* We recorded revenue of $2.1 million during three-month period ended September 30, 2020, related to the lease of our Velardeña oxide plant to a third party. The Velardeña oxide plant lease was terminated in November 2020. We did not record any revenue during the three-month period ended September 30, 2021.

*Oxide plant lease costs.* We recorded $0.6 million of costs related to the oxide plant lease during the three-month period ended September 30, 2020. The costs consist primarily of reimbursable labor and utility costs which for accounting purposes are also included in revenue from the oxide plant lease. The Velardeña oxide plant lease was terminated in November 2020. We did not record any costs related to the oxide plant lease during the three-month period ended September 30, 2021.

*Exploration expense.* Our exploration expense, including property holding costs and allocated administrative expenses, totaled $2.1 million and $1.2 million for the three months ended September 30, 2021, and September 30, 2020, respectively. The higher exploration expense for 2021 is primarily related to increased exploration at our Velardeña Properties, Rodeo operation in Mexico and Sarita Este property in Argentina during the period.

*Velardeña care and maintenance costs*. We recorded $0.4 million and $0.2 million for the three-month periods ended September 30, 2021 and September 30, 2020, respectively, for expenses related to care and maintenance at our Velardeña Properties as the result of the suspension of mining and processing activities in November 2015.

*El Quevar project expense.* We incurred $0.1 million and $0.1 million for the three-month periods ended September 30, 2021, and September 30, 2020, respectively, related to holding and evaluation costs for the Yaxtché deposit at our El Quevar project in Argentina. During the three months ended September 30, 2021 and September 30, 2020, approximately $0.2 million and $0.1 million of costs actually incurred were offset by reimbursements from Barrick, respectively as discussed above.

*Administrative expense.* Administrative expenses totaled $0.9 million for the three months ended September 30, 2021. Administrative expenses, including costs associated with being a public company, are incurred primarily by our corporate activities in support of the Rodeo Property, Velardeña Properties, El Quevar project and our exploration portfolio. The $0.8 million of administrative expenses we incurred during the three months ended September 30, 2021, is comprised of $0.3 million of employee compensation and directors’ fees, $0.3 million of professional fees and $0.3 million of insurance, rents, travel expenses, utilities and other office costs. Administrative expenses totaled $0.9 million for the three months ended September 30, 2020. The $0.9 million of administrative expenses we incurred during the three months of 2020 is comprised of $0.2 million of employee compensation and directors’ fees, $0.4 million of professional fees and $0.3 million of insurance, rents, travel expenses, utilities and other office costs.

*Stock based compensation.* During each of the three-month periods ended September 30, 2021, and September 30, 2020 we incurred approximately $0.1 million of expense related to stock-based compensation. Stock based compensation varies from period to period depending on the number and timing of shares granted, the type of grant, the market value of the shares on the date of grant and other variables. Stock based compensation was higher in the 2021 period due primarily to stock awards granted to executives and a consultant.

*Reclamation and accretion expense.* During each of the three months ended September 30, 2021, and September 30, 2020 we incurred approximately $0.1 million of reclamation expense related to the accretion of an asset retirement obligation at the Velardeña Properties and environmental liabilities associated with the Rodeo operation.

*Other operating income (expense), net.* We recorded $0.1 million of other operating income for the three months ended September 30, 2021, primarily related to the amortization of deferred income related to the option agreement for the sale of the Santa Maria property, as discussed above. We recorded a nominal amount of other operating expense for the three months ended September 30, 2020, primarily related to the sale of equipment in Argentina.

*Depreciation, depletion and amortization.* During the three-month periods ended September 30, 2021, and September 30, 2020, we incurred depreciation, depletion and amortization expense of approximately $0.1 million and $0.2 million, respectively.

*Interest and other expense, net.* We recorded a nominal amount of interest and other expense, net for both the three-month periods ended September 30, 2021 and September 30, 2020.

*Gain (Loss) on foreign currency losses.* We recorded a foreign currency gain of approximately $0.1 million for the three months ended September 30, 2021. We recorded a nominal foreign currency loss for the three months ended September 30, 2020. Foreign currency gains and losses are primarily related to the effect of currency fluctuations on monetary transactions incurred by our foreign subsidiaries that are denominated in currencies other than US dollars.

*Income taxes.* We recorded a $188,000 tax expense for the three months ended September 30, 2021, and $18,000 of tax expense for the three months ended September 30, 2020.

### Nine Months Ended September 30, 2021

*Revenue from the sale of metals.* We recorded $16.1 million in revenue for the nine months ended September 30, 2021, all from the sale of gold and silver bearing doré from the Rodeo Operation in Mexico. We did not record any revenue from doré sales for the nine months ended September 30, 2020.

*Costs of metals sold.* For the nine months ended September 30, 2021, we recorded $9.2 million of costs of metals sold. We did not record any cost of metals sold during the nine months ended September 30, 2020.

*Revenue from oxide plant lease.* We recorded revenue of $4.6 million during nine-month period ended September 30, 2020, related to the lease of our Velardeña oxide plant to a third party. The Velardeña oxide plant lease was terminated in November 2020. We did not record any costs related to the oxide plant lease during the nine-month period ended September 30, 2021.

*Oxide plant lease costs.* We recorded $1.6 million of costs related to the oxide plant lease during the nine-month period ended September 30, 2020. The costs consist primarily of reimbursable labor and utility costs which for accounting purposes are also included in revenue from the oxide plant lease. The Velardeña oxide plant lease was terminated in November 2020. We did not record any costs related to the oxide plant lease during the nine-month period ended September 30, 2021.

*Exploration expense.* Our exploration expense, including work at Rodeo and other properties, property holding costs and allocated administrative expenses, totaled $4.0 million and $3.7 million for the nine months ended September 30, 2021, and September 30, 2020, respectively. The higher exploration expense for 2021 is primarily related to increased exploration at our Velardeña Properties and Rodeo operation in Mexico and Sarita Este property in Argentina during the period.

*El Quevar project expense.* For the nine months ended September 30, 2021, and September 30, 2020, we incurred $0.2 million and $0.6 million, respectively related to holding and evaluation costs for the Yaxtché deposit at our El Quevar project in Argentina. During the nine months ended September 30, 2021, and September 30, 2020, approximately $0.5 million and $0.2 million of costs were reimbursed by Barrick, respectively as discussed above.

*Velardeña care and maintenance costs*. We recorded $0.8 million and $0.9 million for the nine months ended September 30, 2021, and September 30, 2020, respectively, for expenses related to shut down and care and maintenance at our Velardeña Properties as the result of the suspension of mining and processing activities in November 2015. The reduced costs for 2021 are primarily the result of costs associated with activities at the Velardeña Properties being allocated to the Rodeo operation.

*Administrative expense.* Administrative expenses totaled $3.5 million and $2.8 million for the nine months ended September 30, 2021, and September 30, 2020, respectively. Administrative expenses, including costs associated with being a public company, are incurred primarily by our corporate activities in support of the Velardeña Properties, El Quevar project and our exploration portfolio. The $3.5 million of administrative expenses we incurred during the nine months of 2021 is comprised of $1.6 million of employee compensation and directors’ fees, $1.0 million of professional fees and $0.9 million of insurance, rents, travel expenses, utilities and other office costs. The $2.8 million of administrative expenses we incurred during the nine months of 2020 is comprised of $0.9 million of employee compensation and directors’ fees, $1.0 million of professional fees and $0.9 million of insurance, rents, travel expenses, utilities and other office costs. Compensation expense was higher in the 2021 period due primarily to cash bonuses paid to executives.

*Stock based compensation.* During the nine months ended September 30, 2021, we incurred approximately $1.5 million of expense related to stock-based compensation. During the nine months ended September 30, 2020, we incurred approximately $0.8 million of expense related to stock-based compensation. Stock based compensation varies from period to period depending on the number and timing of shares granted, the type of grant, the market value of the shares on the date of grant and other variables. Stock based compensation was higher in the 2021 period due primarily to stock awards granted to executives and a consultant.

*Reclamation and accretion expense.* During each of the nine-month periods ended September 30, 2021, and September 30, 2020, we incurred approximately $0.2 million of reclamation expense related to the accretion of an asset retirement obligation at the Velardeña Properties.

*Other operating income (expense), net.* We recorded $0.5 million of other operating income for the nine months ended September 30, 2021, primarily related to the amortization of deferred income related to the option agreement for the sale of the Santa Maria property, as discussed above. We recorded $0.1 million of other operating expense for the nine months ended September 30, 2020, related to the write-off of a non-strategic exploration property in Mexico.

*Depreciation, depletion and amortization.* During the nine-month periods ended September 30, 2021, and September 30, 2020, we incurred depreciation, depletion and amortization expense of approximately $0.5 million and $0.8 million, respectively.

*Interest and other expense, net.* We recorded approximately $0.3 million of interest and other expense, net for the nine-month period ended September 30, 2021, primarily related to write-off of deferred costs related to the Lincoln Park Capital program. We recorded $0.1 million of interest and other expense, net for the nine months ended September 30, 2020, primarily related to interest accrued during the period on the Sentient loan and Autlán deposit.

*Gain (Loss) on foreign currency.* We recorded a $0.2 million foreign currency gain and a $0.1 million foreign currency loss for the nine months ended September 30, 2021, and September 30, 2020, respectively. Foreign currency gains and losses are primarily related to the effect of currency fluctuations on monetary transactions incurred by our foreign subsidiaries that are denominated in currencies other than US dollars.

*Income taxes.* We recorded a $203,000 tax expense for the nine months ended September 30, 2021 and $18,000 tax expense for the nine months ended September 30, 2020.

### Liquidity and Capital Resources

At September 30, 2021, our aggregate cash and cash equivalents totaled $8.8 million, compared to the $9.7 million in similar assets held at December 31, 2020. The September 30, 2021 balance is due in part from the following expenditures and cash inflows for the nine months ended September 30, 2021. Expenditures totaled $10.6 million from the following:

- $4.0 million for exploration expenditures at the Rodeo, Yoquivo and other properties;
- $1.2 million for capital expenditures primarily related to construction of the new regrind mill circuit related to the Rodeo operation;
- $0.8 million in care and maintenance costs at the Velardeña Properties;
- $0.2 million in exploration and evaluation activities, care and maintenance and property holding costs at the El Quevar project, net of reimbursements from Barrick;
- $3.5 million in general and administrative expenses; and
- $0.9 million related to a net working capital increase due primarily to an increase in inventories and value added tax receivables associated with the Rodeo operation, partially offset by an increase in accounts payable and other accrued liabilities, also related to the Rodeo operation.

The foregoing expenditures were offset by cash inflows of $9.7 million from the following:

- $6.9 million of net operating margin from the Rodeo operation (defined as revenue from the sale of metals less the cost of metals sold).
- $1.8 million, net of fees from the ATM Program (as further described above in Note 15); and
- $1.0 million from the exercise of warrants issued in prior offerings (as further described above in Note 15).

In addition to the $8.8 million cash balance at September 30, 2021, we expect to receive approximately $11.0 million to $12.0 million in net operating margin from the Rodeo Property (defined as revenue from the sale of metals less the cost of metals sold) during the twelve months ending September 30, 2022, assuming an average gold and silver price during that period of $1,800 and $25.00 oz respectively (our realized prices for the nine months ended September 30, 2021, as shown above, were $1,797 and $25.64 for gold and silver, respectively). Our forecasted cash inflows during the twelve months ending September 30, 2022 also now include the anticipated second installment of $1.5 million from the sale of the Santa Maria property to Fabled, scheduled to be paid in December 2021, as discussed above, as the Company believes the likelihood of receiving this installment has increased.

Our forecasted expenditures during the twelve months ending September 30, 2022, apart from Rodeo cost of metals sold, which is already included in our forecast of net operating margin, total approximately $10.0 million as follows:

- Approximately $4.9 million on exploration activities and property holding costs related to our portfolio of exploration properties located in Mexico, Argentina and Nevada, including project assessment and evaluation costs relating to additional exploration at Rodeo, Yoquivo, and other properties;
- Approximately $0.8 million at the Velardeña Properties for care and maintenance;
- Approximately $0.6 million at the El Quevar project to fund care and maintenance and property holding costs, net of reimbursement from Barrick; and
- Approximately $3.7 million on general and administrative costs.

Our forecasted cash resources of approximately $21.3 to $22.3 million, which include cash on hand at September 30, 2021, the forecasted net operating margin from the Rodeo Property, and the anticipated second installment of $1.5 million from the sale of the Santa Maria property to Fabled, are greater than our forecasted expenditures of approximately $10.0 million. The actual net operating margin received from the Rodeo Property could be negatively impacted if further interruptions due to COVID-19 occur in Mexico. The actual amount of cash receipts that we receive during the period from the Rodeo operation may also vary significantly from the amounts specified above due to, among other things: (i) unanticipated variations in grade, (ii) unexpected challenges associated with our proposed mining plan, (iii) decreases in commodity prices below those used in calculating the estimates shown above, (iv) variations in expected recoveries, (v) increases in operating costs above those used in calculating the estimates shown above, or (vi) interruptions in production at Rodeo. In addition, the actual amount of cash that we receive from the anticipated second installment of $1.5 million from the sale of the Santa Maria property to Fabled is dependent on Fabled’s decision to pay the amount that is due to us under the terms of the Fabled Option Agreement on a timely basis. The actual amount of cash expenditures that we incur during the twelve-month period ending September 30, 2022 may vary significantly from the amounts specified above and will depend on a number of factors, including variations in the anticipated care and maintenance costs at the Velardeña Properties or at El Quevar, and costs for continued exploration, project assessment, and development at our other exploration properties. Likewise, if cash expenditures are greater than anticipated or if cash receipts are less than anticipated, we may need to take certain actions to maintain sufficient cash balances over the next twelve months, including additional asset dispositions or raising additional equity capital through sales under the ATM Program or otherwise.

The condensed consolidated financial statements have been prepared on a going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the normal course of business. However, our continuing long-term operations may be dependent upon our ability to continue currently profitable operations and to secure sufficient funding, if needed, to generate future profitable operations. The underlying value and recoverability of the amounts shown as property, plant and equipment in our condensed consolidated financial statements are dependent on our ability to continue to generate positive cash flows from operations and to continue to fund exploration and development activities that would lead to additional profitable mining and processing activities or to generate proceeds from the disposition of property, plant and equipment. There can be no assurance that we will be successful in continuing to generate profitable mining and processing activities or to securing additional funding, if needed, to generate future profitable operations on terms acceptable to us or at all. We believe the cash on hand, anticipated positive net operating margins from the Rodeo operation, the potential use of the ATM Program, and the potential for additional asset dispositions make it probable that we will have sufficient cash to meet our financial obligations and continue our business strategy beyond one year from the filing of our condensed consolidated financial statements for the period ended September 30, 2021.

### Recent Accounting Pronouncements

In December 2019, the FASB issued No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). The guidance removes certain exceptions to the general principles of ASC 740 and simplifies several other areas. ASU 2019-12 is effective for public business entities for annual reporting periods beginning after December 15, 2020, and interim periods within those reporting periods. The Company has adopted ASU 2019-12 beginning in 2021. One of the amendments within ASU 2019-12 eliminates a limitation on the amount of income tax benefit that can be recognized in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The Company has applied this guidance in the calculation of the tax benefit included in “*Income taxes”* in the Condensed Consolidated Statements of Operations. The adoption of this guidance did not result in a material impact on our consolidated financial position or results of operations.

During the first quarter 2020, we adopted ASU No. 2016-13. ASU 2016-13 modifies the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the timelier recognition of losses. As our principle credit risk is related to its lease receivables, the adoption of this update did not result in a material impact on our consolidated financial position or results of operations.

On April 12, 2021, the SEC published a statement relating to accounting and reporting considerations for warrants issued by Special Purpose Acquisition Companies (SPACs). The SEC statement raised accounting and reporting considerations for all reporting entities that restrict the use of the exception noted above under ASC 815-40-25-7 thru 8 that allows for equity treatment, under certain conditions, for warrants that allow cash settlement in certain change of control transactions. The restriction put forth by the SEC would prevent equity treatment in cases where cash is received disproportionately between shareholders and warrant holders in such transactions. All of the outstanding warrants granted by us are recorded in equity at September 30, 2021 and December 31, 2020 following the guidance established by ASC Topic 815-40. Our warrants allow for the potential settlement in cash if certain extraordinary events are effected by us, including a 50% or greater change of control in our common stock. Since those events have been deemed to be within our control, we continue to apply equity treatment for these warrants.

### 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 relating to: (i) the Rodeo project, including the scope, and impact of the exploration drilling program and future mining activities, anticipated capital requirements, production forecasts, the projected future payable from production and the projected future cash flow from production, and the anticipated life of the Rodeo mine; (ii) our plans regarding further advancement of the El Quevar project; (iii) potential future drillings at Yoquivo; (iv) the timeline for receiving results of the Velardeña studies; (v) the anticipated timing for releasing data and plans for exploration at Sarita Este; (vi) our plans to defend ourself against Unifin if served with notice of a lawsuit; (vii) expectations pertaining to the recovery of VAT refunds from the Mexican government; (viii) estimates of additional ARO that we expect to accrue; (ix) the estimated impact of the new 2021 Mexican labor law on our profit sharing liability in Mexico; (x) estimated future stock compensation expenses related to awards under the Equity Plan; and (xi) statements concerning our financial condition, business strategies and business and legal risks.

The use of any of the words “anticipate,” “continues,” “likely,” “estimate,” “expect,” “may,” “will,” “project,” “should,” “could,” “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:

- Timing duration and overall impact of the COVID-19 pandemic, including potential future suspension of activities at Rodeo or the Velardeña Properties in the event of future orders of the Mexican Federal Government;
- Deviations from the projected timing, amount of estimated production and project costs at Rodeo due to unanticipated variations in grade, unexpected challenges associated with our proposed mining plan, volatility in commodity prices, variations in expected recoveries, increases in projected operating or capital costs or delays in commencement of or interruptions in production;
- Higher than anticipated care and maintenance costs at the Velardeña Properties in Mexico or at El Quevar in Argentina;
- Risks related to the El Quevar project in Argentina, including unfavorable results from our evaluation activities and whether the option with respect to the El Quevar project is exercised pursuant to the terms of the Earn-in Agreement;
- Decreases or insufficient increases in silver and gold prices;
- Unfavorable results from exploration at the Santa Maria, Yoquivo, Sand Canyon or other exploration properties and whether we will be able to advance these or other exploration properties;
- The Rodeo project, including inaccuracies in our assumptions and projections contained in the Rodeo PEA (including life of mine and production expectations), and our plans for further exploration drilling;
- Variations in the nature, quality and quantity of any mineral deposits that are or may be located at the Velardeña Properties or our exploration properties, changes in interpretations of geological information, unfavorable results of metallurgical and other tests, and the timing and scope of our further evaluation activities at the Velardeña Properties;
- Potential delays in our exploration activities or other activities to advance properties towards mining resulting from environmental consents or permitting delays or problems, accidents, problems with contractors, disputes under agreements related to exploration properties, unanticipated costs and other unexpected events;
- Our ability to retain key management and mining personnel necessary to successfully operate and grow our business;
- Economic and political events affecting the market prices for gold, silver, zinc, lead and other minerals that may be found on our exploration properties;
- Political and economic instability in Mexico, Argentina, 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;
- Volatility in the market price of our common stock; and
- The factors discussed under "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020.

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 Quarterly 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 first nine months of 2021, a 1% decrease in interest rates would have resulted in only a nominal reduction in interest income for the period.

### Foreign Currency Exchange Risk

Although most of our expenditures are in U.S. dollars, certain purchases of labor, supplies and capital assets are denominated in other currencies, primarily in Mexico. As a result, currency exchange fluctuations may impact the costs of our exploration and mining activities. 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 exploration and mining 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 mine on our properties. We currently hold no commodity derivative positions.

## Controls and procedures

As filed, 1,413 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2021, (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.

(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, 199 characters.

The risk factors for the nine months ended September 30, 2021, are substantially the same as those set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020.

Filed Nov 4, 2021.
Source: SEC EDGAR, the filing index for accession 0001558370-21-014352. Last ingested by Listed: Oct 24, 2026, 15:02 ET. No prices; not investment advice.