# Golden Minerals Co: Form 10-Q for the period ended Mar 31, 2023

- Company: [Golden Minerals Co](/companies/aumn.md) (CIK 1011509)
- Form: 10-Q
- Filed: 2023-05-10
- Accepted by EDGAR: May 9, 2023, 22:03 ET
- Period: 2023-03-31
- Accession: 0001558370-23-008916
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1011509/000155837023008916/aumn-20230331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1011509/000155837023008916/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $4.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-01-01 to 2023-03-31 | $4.0m | us-gaap:CostOfRevenue |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | −$3.2m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $51.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | −$3.3m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.02 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | −$2.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $5.0k | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2023-03-31 | $2.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-31 | $6.8m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $13.6m | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $5.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-31 | $9.5m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-03-31 | $4.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 37,182 characters.

### Our Company

We were incorporated in Delaware in March 2009 under the Delaware General Corporation Law. During the three months ended March 31, 2023, 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 three months ended March 31, 2023, and 2022.

Mining operations at the Rodeo Property will conclude in the second quarter of 2023, and we are engaged in further studies of a potential restart plan for Velardeña. 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 Yoquivo exploration property in Mexico, and through the Earn-In Agreement with Barrick, our El Quevar exploration property in Argentina. We are advancing additional 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, 2022, filed with the SEC on March 22, 2023.

### 2023 Highlights

#### Rodeo Property

From inception in January 2021, through the end of the first quarter of 2023, we have produced 28,461 ounces of gold and 114,642 ounces of silver from Rodeo. Cash costs per payable gold ounce, net of silver by-product credits have averaged $1,185 during that period.

Mill throughput averaged 603 tonnes per day in the three months ended March 31, 2023. We expect to cease mining activities at Rodeo during the second quarter of 2023. Depending on the gold price and operating costs, Rodeo may be able to continue processing stockpiled lower grade material for the latter six months of 2023 or more at higher throughput but with significantly lower recovered ounces of Au and Ag and at higher unit costs. However, due to the high level of uncertainty associated with that potential, it is not included in our current forecast.

The table below sets forth the key processing and sales statistics for the Rodeo operation for the three months ended March 31, 2023:

*Rodeo Operations Statistics*

*(in thousands except per unit amounts)*

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Three Months Ended March 31, 2023 |
| --- | --- | ---: |
| Tonnes mined (1) | ​ | 154,371 |
| Tonnes in stockpiles awaiting processing (2) | ​ | 18,467 |
| Tonnes in low grade stockpiles (3) | ​ | 133,349 |
| Tonnes processed | ​ | 54,272 |
| Average tonnes per day processed | ​ | 603 |
| ​ | ​ | ​ |
| Average gold grade processed (grams per tonne) | ​ | 1.6 |
| Average silver grade processed (grams per tonne) | ​ | 9.0 |
| ​ | ​ | ​ |
| Plant recovery - gold (%) | ​ | 72.6 |
| Plant recovery - silver (%) | ​ | 75.5 |
| ​ | ​ | ​ |
| Payable gold produced in doré (ounces) | ​ | 2,081 |
| Payable silver produced in doré (ounces) | ​ | 11,535 |
| Payable gold equivalent produced in doré (ounces) (4) | ​ | 2,219 |
| ​ | ​ | ​ |
| Gold sold in doré (ounces) | ​ | 2,112 |
| Silver sold in doré (ounces) | ​ | 11,369 |
| Gold equivalent sold in doré (ounces) (4) | ​ | 2,248 |
| ​ | ​ | ​ |
| Average realized price, before refining and selling costs | ​ | ​ |
| Gold (dollar per ounce) | ​ | $ 1,891.24 |
| Silver (dollar per ounce) | ​ | $ 22.60 |
| ​ | ​ | ​ |
| (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 1.6 g/t (current cutoff 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:

| ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, 2023 ​ | ​ ​ |
| --- | --- |
| Total cash operating costs ​ $4,057 ​ | ​ |
| Treatment and refining costs ​ 116 ​ | ​ |
| Silver by-product credits ​ ​ (257) ​ | ​ |
| Total cash costs, net of by-product credits ​ $3,916 ​ | ​ |
| ​ ​ ​ ​ ​ | ​ |
| Cash cost per unit ​ ​ ​ ​ | ​ |
| Payable gold ounces produced in doré ​ 2,081 ​ | ​ |
| Total cash operating costs ​ $1,949 ​ | ​ |
| Treatment and refining charges ​ 56 ​ | ​ |
| Silver by-product credits ​ (123) ​ | ​ |
| Total cash costs, net of by-product credits, per payable gold ounce (1) ​ $1,882 ​ | ​ |
| ​ ​ ​ ​ ​ | ​ |
| Tonnes processed in plant ​ ​ 54,272 ​ | ​ |
| Total cash operating costs per tonne processed ​ $75 ​ | ​ |
| ​ ​ ​ ​ ​ | ​ |
| (1) Cash costs, net of by-product credits, per payable ounce of gold is a non-GAAP financial measure. See “Non-GAAP Financial Measures” below for a reconciliation to the GAAP financial measure. | ​ |

Total cash operating costs for the three months ended March 31, 2023, as depicted in the table above, include all production costs during the period, including mining, milling and general and administrative costs related to mined material including full administrative costs in Mexico that are not categorized as exploration or Velardeña C&M.

Total operating margin for the three months ended March 31, 2023, was $0.2 million on sales of metal of $4.2 million offset by cost of metal sold of $4.0 million.

For the full year 2023, we are estimating that we will process between 92,000 and 95,000 tonnes in the oxide plant, or approximately 600 tonnes per day, with payable extraction for 2023 of approximately 4,000 to 4,200 ounces of gold and 22,000 to 25,000 ounces of silver. Average grades for 2023 are estimated to be approximately 1.9 grams per tonne for gold and 10.3 grams per tonne for silver, lower than grades achieved in 2022, but as anticipated in the mine plan for 2023. Mill recoveries are expected to continue during the remaining life of mine near current rates of between 70 and 75 percent for gold and 75 to 80 percent for silver. Projected operating margins through the second quarter of 2023 at Rodeo are expected to be positive, however there are uncertainties in the actual head grade that will be delivered to the process plant as we come to the end of our anticipated life of mine plan.

The estimates detailed above for 2023 were derived using the actual results of operations achieved during 2022 and a projection of the mine plan, grades, plant throughput, and recoveries for 2023. Actual future results from mining 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 interruptions in mining. 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, 2022.

### 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”, is a non-GAAP financial measure 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.”

“*Cost of metals sold”*, reported as a separate line item in our Condensed Consolidated Statements of Operations for the three months ended March 31, 2023, 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 three months ended March 31, 2023, 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

| ​ ​ ​ ​ | ​ ​ ​ Reconciliation of Costs of Metals Sold (GAAP) to Total Cash Costs, net of By-product Credits (Non-GAAP) ​ Three Months Ended ​ March 31, 2023 |
| --- | ---: |
| Total cash costs, net of by-product credits | $3,916 |
| ​ | ​ ​ |
| Reconciliation to GAAP measure: | ​ ​ |
| Treatment and refining costs | $(116) |
| Silver by-product credits | ​ 257 |
| Write down of inventories to net realizable value | (28) |
| Change in inventory (excluding depreciation, depletion and amortization) | 17 |
| Cost of metals sold | $4,046 |

#### Velardeña Properties

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.

In June 2021, 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 (BIOX™) plant design and for use in additional flotation separation studies (BIOX is a trademark of Metso-Outotec for its proprietary bio-oxidation process.). Test results using the BIOX pre-treatment oxidation process supported the use of the technology in future processing at Velardeña. In March 2022 we filed an updated PEA Technical Report Summary and NI 43-101 Technical Report supporting a possible economic operation at Velardeña using the optimized flotation parameters, BIOX treatment of pyrite concentrates and employing resue mining techniques to control dilution. In May 2022 we began additional test-mining activities with a new mining contractor to evaluate productivity and dilution of resue mining on the principal veins accessible from the San Mateo decline in part to validate the PEA assumptions. The results of the test mining met expected productivity metrics but did not meet anticipated dilution metrics on some of the veins mined. We initiated ore-sorting studies to limit the negative effects of the excess dilution. Initial results of these tests were positive, and we continue to work on incorporating these results in our mine planning.

In late 2022, a tailing storage facility expansion project was initiated to provide storage volume for the remainder of the Rodeo mine life. The project is expected to be completed in May 2023. A total of $2.6 million was expended for this project of which $0.5 million was expended in 2023.

In early 2023, the terms for the sale of our gold-rich pyrite concentrates improved significantly over previously-available terms. We believe that the recently improved terms allow us to consider moving forward with the re-opening of the Velardeña Properties’ mines without the need to build the BIOX plant, as previously contemplated. Internal cash flow models using the new concentrate sales terms now yield results only slightly less attractive than models using BIOX treatment; however, the new models require very low capital investment and so are much less risky to implement. We are now evaluating plans to restart production at Velardeña as soon as the third quarter 2023 without the need for the BIOX facility.

In March 2023, we restarted our flotation plant (Plant I) to process 3,000 tonnes of mineralized material that had been stockpiled during the test mining in 2022. Under the new concentrate sales terms, subsequent to March 31, 2023, 342 tonnes of gold-pyrite concentrate and 40 tonnes of silver-lead concentrate have been sold under an offtake agreement. The three shipments that have been completed subsequent to March 31, 2023 generated cash receipts of approximately $1.1 million. There is one remaining shipment of approximately similar tonnages to each of the previous three that is expected to be completed during May 2023. These successful sales of concentrates on the improved terms have caused us to shift our efforts towards a restart of Velardeña without the requirement of constructing and using the BIOX technology. An internally-prepared updated forecast assuming gold and silver prices of $1,900 and $22.50 per ounce, respectively, indicates that Velardeña can generate a positive operating margin within one month of restarting operations. We have included cash flow from Velardeña production in our updated liquidity forecast for the next twelve months ending March 31, 2024, which include the concentrate sales discussed above along with future cash flow from positive operating margin assuming Velardeña operations restart in July 2023.

#### Yoquivo

During 2022, we completed payments required under the two option agreements and now hold 100% ownership of the concessions subject to royalty interests between 2 and 3 percent NSR payable on production to third parties and capped at $2.8M in the aggregate.

With an effective date of February 24, 2023, an initial mineral resource estimate was completed for Yoquivo that estimates an inferred mineral resource of 937,000 tonnes at 570 g/t Ag eq (equivalent ounces are calculated using prices of $1,840/oz Au and $24.00/oz Ag) on five veins that had enough drill density to support mineral resources. Further information regarding this initial mineral resource estimate is included in our Annual Report on Form 10-K for the year ended December 31, 2022. Numerous other veins on the property have yet to be drilled sufficiently to allow estimation of additional resources.

Since 2020, exploration and delineation drilling of 16,565 meters in 70 holes has advanced the project to this stage. The Company plans to continue drilling with the goal of expanding the resource as funding allows.

#### El Quevar

In 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 Material Mining Properties - El Quevar” in our Annual Report Form 10-K for the year ended December 31, 2022. During the earn-in period, in addition to required 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. Barrick met the minimum $1.0 million in work expenditures required by the Earn-in Agreement in September 2021. If Barrick elects to terminate the Earn-In Agreement, we will become responsible for future holding costs and exploration spending related to the property. At this time, the Company expects Barrick will continue its exploration program with additional geophysical studies followed by additional drilling.

#### Sarita Este / Desierto

In December 2019, we entered 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, adjacent to the Taca Taca project owned by First Quantum Minerals. The option agreement calls for us to spend a total of $2.5 million over four years including a minimum of 2,000 meters of drilling. We have exceeded the drilling requirement and have spent approximately $3.0 million since entering into the agreement in December 2019. We have notified Cascadero of our intention to proceed with the joint venture as 51% owners of the concession. Completion of the joint venture documents and formation of the joint venture company are in progress.

In the fourth quarter of 2021, we completed the first drill program ever conducted at Sarita Este, which involved drilling 10 diamond drill holes totaling 2,518 meters to explore untested epithermal gold-silver and copper porphyry targets. In January 2022, we announced assay results from the drill program, including the potential of an oxidized gold system. We completed a second drill program in June 2022 designed to offset and further delineate mineralization associated with the gold interval encountered in the first drill program. In August 2022, we released partial results from the second drill program which point to a potentially economic shallow oxidized gold system. Our third drill program, completed in October 2022, returned results confirming that the mineralization at the Sico epithermal targets is concentrated on the eastern flank of the prospect.

The Desierto concessions (Desierto 1 and 2) which are adjacent to and south of the Sarita Este concession are subject to an option agreement with a third-party partial owner and a proposed joint venture agreement also between the Company and Cascadero. The Desierto 1 concession is the object of a legal dispute between the Company and the Salta Ministry of Mines in which the Company is disputing the cancellation of the concession by the province. The dispute is expected to be resolved by mid-year 2023.

#### Santa Maria

In December 2020, we entered into a definitive option agreement to sell our interest in the Santa Maria properties to Fabled. Pursuant to the Option Agreement, during the Exercise Period, Fabled was obligated to pay to each of the owners of the Concessions (the “Owners”) any remaining required payments due to the Owners pursuant to the various underlying option agreements between the Owners and the Company, and to make all payments and perform all other requirements needed to maintain the Concessions in good standing. Fabled did not make the payment due on January 31, 2023, and we issued a notice of default under the Option agreement. Fabled did not cure the default as required within 5 days; therefore, we have taken back the property as allowed under the Option agreement.

### Financial Results of Operations

For the results of continuing operations discussed below, we compare the results from operations for the three months ended March 31, 2023, to the three months ended March 31, 2022.

### Three Months Ended March 31, 2023

*Revenue from the sale of metals.* We recorded $4.2 million in revenue from doré sales for the three months ended March 31, 2023, and $7.5 million for the three months ended March 31, 2022. Lower revenue in 2023 resulted from 1,659 fewer gold equivalent ounces sold combined with a slightly higher realized price of $1,891 per ounce for the three months ended March 31, 2023, compared to $1,888 per ounce for the three months ended March 31, 2022. Fewer gold ounces were sold in the three months ended March 31, 2023, compared to the three months ended March 31, 2022, due to the lower grade of material processed.

*Cost of metals sold.* For the three months ended March 31, 2023, and 2022, we recorded $4.0 million and $4.3 million of cost of metals sold, respectively.

*Exploration expense.* Our exploration expense, including property holding costs and allocated administrative expenses, totaled $1.3 million and $1.7 million for the three months ended March 31, 2023 and 2022, respectively. The lower exploration expense for 2023 is primarily related to costs required to increase the capacity of the tailings facility at Velardeña.

*Velardeña care and maintenance costs*. We recorded $0.2 million and $0.5 million for the three-month periods ended March 31, 2023, and 2022, 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 $0.2 million and $0.1 million for the three-month periods ended March 31, 2023, and 2022, respectively, related to holding and evaluation costs for the Yaxtché deposit at our El Quevar project in Argentina. During each of the three months ended March 31, 2023, and 2022, approximately $0.0 million and $0.2 million respectively of costs actually incurred were offset by reimbursements from Barrick as discussed above.

*Administrative expense.* Administrative expenses totaled $1.3 million for each of the three months ended March 31, 2023, and 2022. 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.

*Stock-based compensation.* During each of the three months ended March 31, 2023, and 2022, we incurred approximately $0.2 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.

*Reclamation and accretion expense.* During each of the three months ended March 31, 2023, and 2022, 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 $0.0 million of other operating income for the three months ended March 31, 2023. For the three months ended March 31, 2022, we recorded $0.4 million of other operating income primarily related to the amortization of deferred income related to the option agreement for the sale of the Santa Maria property described in our 10-K report for the year ended December 31, 2022.

*Depreciation, depletion and amortization.* During each of the three months ended March 31, 2023, and 2022, we incurred depreciation, depletion and amortization expense of approximately $0.1 million.

*Interest and other expense, net.* We recorded a nominal amount of interest and other expense, net for each of the three months ended March 31, 2023, and 2022.

*Gain (Loss) on foreign currency losses.* During each of the three months ended March 31, 2023, and 2022, we recorded a nominal amount of foreign exchange gains. 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 $51,000 tax expense for the three months ended March 31, 2023. We recorded a $85,000 tax expense for the three months ended March 31, 2022.

### Liquidity, Capital Resources and Going Concern

#### 2023 Liquidity Forecast and Going Concern Qualification

Our forecasted expenditures during the 12 months ending March 31, 2024, excluding Rodeo and Velardeña cost of metals sold which is included in our forecast of net operating margin discussed below, total approximately $7.6 million. These forecasted expenditures include: (i) exploration expenses of $2.1 million, (ii) Velardeña care and maintenance costs of $0.3 million, (iii) El Quevar spending (net of Barrick reimbursements) of $0.3 million and (iv) general and administrative expenses, including general and administrative expenses in Mexico of $4.9 million. The actual amount of cash expenditures that we incur during the twelve-month period ending March 31, 2024 may vary significantly from the amounts specified above and will depend on a number of factors, including variations in the anticipated administrative costs, care and maintenance costs at the Velardeña Properties or at El Quevar, and costs for continued exploration, project assessment, and advancement of our other exploration properties.

We do not currently have sufficient resources to meet our expected cash needs during the twelve months ended March 31, 2024. At March 31, 2023, we had cash resources of approximately $2.0 million. The forecasted net operating margin from the Rodeo Property during the twelve-month period is expected to be between $0.0 million $0.5 million. The forecasted net operating margin from the Velardeña Property during the twelve-month period is expected to be between $5.0 million and $5.5 million (see MD&A 2023 Highlights for Velardeña). Net operating margin is defined as revenue from the sale of metals less the cost of metals sold. Our estimate for Rodeo assumes gold prices per ounce during the period of between $1,950 and $1,990 and silver prices per ounce of $25.00. Our estimate for Velardeña assumes gold prices average $1,900 per ounce and silver prices average $22.50 per ounce. The actual amount that we receive in net operating margin from both Rodeo and Velardeña during the period may 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 plans, (iii) decreases in commodity prices or the prices paid by our concentrate purchasers 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 mining. Moreover, because the restart of production at Velardeña is still being evaluated, there is a risk that our board of directors may decide not to restart production at this time. In that event, we will require further additional capital than the estimates described below.

There is no assurance that we will be successful in collecting the anticipated cash receipts described above. Specifically, the anticipated net operating margin from the Velardeña Properties is not based on the results of a full feasibility study. While we believe our internal estimates are realistic, the lack of a full feasibility study may increase the uncertainty associated with our estimates. In addition, we expect to collect approximately $1.5 million in VAT accounts receivable from the Mexican government; however, it is possible that those amounts may be delayed. At April 30, 2023, our aggregate cash and cash equivalents totaled approximately $2.0 million. In order to cover forecasted expenditures, we need to raise additional cash in the near-term, whether through the sale of non-core assets or equity financing, including the use of our ATM program. In the absence of sufficient asset sales, equity financing or other external funding the Company’s cash balance is expected to be depleted near the end of the second quarter of 2023. In that event, the Company may be forced to liquidate its business.

The 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, as noted above, our continuing long-term operations will be dependent upon our ability to secure sufficient funding to generate future profitable operations. The underlying value and recoverability of the amounts shown as property, plant and equipment in our consolidated financial statements are dependent on our ability to continue to generate positive cash flows from operations and to continue to fund exploration activities that would lead to additional profitable mining and processing activities or to generate proceeds from the disposition of property, plant and equipment.

The ability of the Company to maintain a positive cash balance for a period of twelve months beyond the filing date of this first quarter 2023 10-Q is dependent upon its ability to generate sufficient cash flow from operations, collect VAT receivable from the Mexican government, reduce expenses, sell non-core assets, and raise sufficient funds through the ATM program and other equity sources. There can be no assurance the Company will be successful in generating sufficient funds from these sources to maintain liquidity throughout the twelve-month period. These material uncertainties cast significant doubt on the Company’s ability to continue as a going concern. Therefore, the Company cannot conclude that substantial doubt does not exist as to the Company’s ability to continue as a going concern for the twelve months following the filing date of this first quarter 2023 10-Q. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or liabilities which might be necessary should the Company not continue as a going concern.

#### 2023 Liquidity Discussion

At March 31, 2023, our aggregate cash and cash equivalents totaled $2.0 million, compared to the $4.0 million in similar assets held at December 31, 2022. The March 31, 2023 decrease is the result of the following expenditures and cash inflows for the three months ended March 31, 2023. Expenditures totaled $3.0 million from the following:

- $1.3 million in exploration expenditures;
- $0.2 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; and
- $1.3 million in general and administrative expenses;

The above expenditures were offset by cash inflows of $1.0 million from the following:

- $0.2 million of net operating margin from the Rodeo operation (defined as revenue from the sale of metals less the cost of metals sold);
- $0.7 million, net of fees from the ATM Program (as further described in Note 16); and
- $0.1 million related to other items.

### Recent Accounting Pronouncements

There were no new accounting pronouncements issued during 2023 that would affect the Company or have a material impact on its consolidated 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 relating to: (i) the Rodeo mine, including the anticipated end of production in the second quarter of 2023, payable extraction, anticipated grades, recoveries, estimated unit costs and net operating margin for 2023; (ii) our plans for restart of mining activities at Velardeña, including our expectations regarding future commodity prices and concentrate sales terms, the results of our internal cash flow forecast, and our expectation regarding the timing for restart; (iii) our plans regarding further advancement of the El Quevar project and reimbursements paid by Barrick under the Earn-in Agreement, to fund the El Quevar project; (iv) information regarding the Yoquivo property, including the estimates included in our initial mineral resource study, our future evaluation and drilling plans, information gained from drilling activities, and exploration activities; (v) our plans to defend ourself against claims by Unifin; (vi) expectations pertaining to the recovery of VAT refunds from the Mexican government; (vii) projected revenue and spending for the twelve months ending March 31, 2024; and (viii) 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 projected 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 costs, working capital, capital costs or delays in commencement of or interruptions in production;
- Unanticipated difficulties in any potential restart of production activities at the Velardeña Properties;
- 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 in silver and gold prices;
- Whether we are able to raise the necessary capital required to continue our business on terms acceptable to us or at all, and the likely negative effect of volatility in silver and gold prices or unfavorable exploration results;
- Unfavorable results from exploration at the Yoquivo, Sarita Este, Sand Canyon or other exploration properties and whether we will be able to advance these or other exploration properties;
- The Rodeo project, including potential 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 negatively 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, 2022.

Many of these factors are beyond our ability to control or predict. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, such expectations may prove to be materially incorrect due to known and unknown risks and uncertainties. You should not unduly rely on any of our 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, 1,253 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 three months of 2023, 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, 1,409 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 March 31, 2023, (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, 2,658 characters.

Other than the risk factors set out below, the risk factors for the three months ended March 31, 2023, 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, 2022.

***We may not collect refunds of value added tax (“VAT”) in Mexico on the schedule we anticipate or at all.***

We do not currently have sufficient resources to meet our expected cash needs during the twelve months ended March 31, 2024. As of March 31, 2023, we have recorded approximately $2.3 million in receivables from the Mexican government related to value added tax paid in Mexico. While we expect to recover approximately $1.5 million of that amount during the twelve months ended March 31, 2024, there is no certainty that it will be collected on a timely basis or at all. To the extent that we have forecast the collection of the VAT receivable in our cash forecast for the period, any delay in receiving payment of the VAT receivable will exacerbate our liquidity challenges and require further additional funding in order for us to continue as a going concern.

***Recent amendments to the Mexican mining law may have an adverse impact on our operations in Mexico.***

A significant portion of our properties are located in Mexico, including the Rodeo property and the Velardeña property. In April 2023, the government of Mexico adopted a series of changes to the law governing mining operations in the country. Under the new mining law, among other changes, the maximum length of new mining concessions has been reduced from 50 to 30 years, the ability to obtain water extraction permits has been somewhat constrained, and a new mining profit tax has been established for the benefit of local communities. Government authorities will also be permitted to cancel concessions if no work has been done on them within two years. The full impact of the mining law reform is uncertain and may be subject to legal challenges in Mexico. However, we currently anticipate that the changes to the mining law will make it somewhat more difficult, time-consuming and expensive to conduct exploration activities in Mexico, as it will make it more challenging to obtain, maintain and develop mining concessions. We do not currently expect that the mining law reform will materially impede our current development plans at Velardeña, however, there is no assurance that mining laws in Mexico will not be further modified in the future. Moreover, to the extent that investors perceive Mexico as being less attractive to mining investment, it may be more difficult and expensive for us to satisfy our future capital needs.

Filed May 10, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-008916. Last ingested by Listed: Oct 24, 2026, 15:02 ET. No prices; not investment advice.