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| GRMC.OB > SEC Filings for GRMC.OB > Form 10-Q on 14-Nov-2008 | All Recent SEC Filings |
14-Nov-2008
Quarterly Report
Name Change
Effective May 23, 2008, as approved by the shareholders in our annual shareholder meeting on May 5, 2008, the name of the Company was changed from Little Squaw Gold Mining Company (trading symbol LITS) to Goldrich Mining Company (trading symbol GRMC). Our Board of Directors believed that it was no longer appropriate for the Company's name to be limited by its initial, historic beginnings. The Company's primary business purpose is locating, exploring, and developing gold mining properties of all types in multiple geographies. We believe the new name to be more descriptive of the Company's gold exploration business activities.
In our discussion of exploration activities, references to geographic features or areas whose names include "squaw" will continue to be referred to by those names in our description of properties, claims, creeks, lakes and the like.
Plan of Operation
We, Goldrich Mining Company, are a minerals company in the business of acquiring and advancing mineral properties to the discovery point, where we believe maximum shareholder returns can be realized. Goldrich Mining is an Exploration Stage company by U.S. Securities and Exchange Commission (SEC) definition. We intend to remain solely an exploration company because management considers that most of a company's value is created during the discovery phase. That is, based on capital returns, the payback for successful exploration is very high.
We are an exploration stage company. None of the properties that we own or control contain any known probable (indicated) or proven (measured) ore reserves under the definition of ore reserves within SEC Industry Guide 7. Although there is a history of past lode and placer gold production on our Chandalar property, the property is at an early stage of exploration. A great deal of further work is required on our properties before a final determination as to the economic and legal feasibility of a mining venture can be made. There is no assurance that a commercially viable gold deposit will be proven through exploration efforts by us at Chandalar. We cannot assure you that funds expended on our properties will be successful in leading to the delineation of ore reserves that meet the criteria established under SEC mining industry reporting guidelines.
Our strategic initiatives are to undertake cost efficient and effective exploration activities to discover mineralization and potentially mineral reserves, which may upgrade the value of the properties and then either joint venture or sell the properties to qualified parties, including major mining companies. Under certain circumstances, we may choose to develop a mineral deposit discovery. We intend to focus our activities only on projects that are primarily gold deposits.
Due to the financial condition of the Company and its inability to obtain adequate financing, we relinquished our interests in the Broken Hills West, Nevada and Pedra de Fogo, Brazil properties on May 23, 2008 and June 3, 2008, respectively. Subsequent to the close of the September 2008 quarter, we also relinquished our interests in the Marisol, Mexico property on October 15, 2008. An expense of approximately $84,000 will be recorded in the fourth quarter of 2008 as a loss on the sale or abandonment of mineral properties as a result of this relinquished property. This leaves us with one exploration stage mineral property; our principal property in Alaska, which is referred to as the Chandalar property
Chandalar, Alaska
The Chandalar gold property is our flagship property. It is an exploration stage property. Goldrich Mining's management was attracted to the Chandalar district because of its similarities to productive mining districts, its
The Chandalar property is located approximately 190 air miles NNW of Fairbanks,
Alaska, and 48 miles NE of Coldfoot, in the Chandalar mining district. The
center of the district is approximately 70 miles north of the Arctic Circle.
The Company owns in fee 426.5 acres of patented federal mining claims
consisting of 21 lode claims, one placer claim and one mill site. We control
16,680 acres of unpatented State of Alaska mining claims consisting of 134
claims. State mining claims provide exploration and mining rights to both lode
and placer mineral deposits.
Arctic climate limits exploration activities to a summer field season that generally starts in early May and lasts until freeze up in mid-September. There are many operating mines located elsewhere within North America that are located above the Arctic Circle. Management believes year-round operations at Chandalar are feasible should an exploitable deposit of gold be proven through seasonal exploration activities.
Marisol Property, Sonora State, Mexico
On August 25, 2008, we reported the drill results on the Marisol property in
northern Sonora State, Mexico as reported in an 8-K filing made on August 29.
While analysis of the results showed some interesting areas of potential future
exploration work, we were financially unable to pursue further activities on
this property. Lease payments to secure the property to our benefit for an
additional six months were due on October 22, 2008. Due to lack of sufficient
funds to pursue all corporate priorities, we elected not to remit the next six
months' lease payments to the owners of the surface and mineral rights. By this
action, we relinquished our interests in the Marisol, Mexico property on October
15, 2008. We had completed the reclamation of all our drill sites on the
property and received a letter of environmental reclamation requirement
compliance and liability release from the appropriate Mexican authority.
2008 Exploration Plans
Due to the brutal equity market conditions in the United States, Canada and around the world, we were unsuccessful in our efforts to secure sufficient financing to accomplish our planned 2008 exploration activities. We estimated that it would have taken about five million dollars to complete our 2008 exploration plans, including drilling for our properties in Alaska and Mexico properties, and to sustain our corporation at normal activity levels. As a result, we have depleted our cash to pay for the costs of winding up the limited exploration activities undertaken during the summer of 2008. While we continue attempts to finance the Company and its exploration programs, we cannot assure that financing may be obtained on terms acceptable to us. Until we are able to secure financing, we would have taken the necessary financial austerity measures to secure, maintain and protect our corporation and its assets until our financing efforts bear fruit.
Chandalar, Alaska
We believe that we accumulated sufficient data during the 2007 placer drilling campaign on Little Squaw Creek to establish that we have a significant and potentially commercial gold deposit discovery. We drilled 113 holes for a total of 15,535 feet, generating 3,031 samples that were tested for alluvial gold content. We also think that additional drilling of this placer gold deposit will be needed to set ore reserves and to expand the
Report on Chandalar Alluvial Gold Deposit
In April of 2008, we received the results of an independent conceptual economic scoping study on our alluvial gold deposit discovery in the Little Squaw Creek drainage located on our wholly owned Chandalar, Alaska, mining property. We commissioned the study to determine if the value of our alluvial gold deposit on Little Squaw Creek might fall within economically extractable limits. Mr. Paul Martin was retained to make an order of magnitude economic scoping of a preliminary surface mine plan he also designed. Martin is a consulting Nevada state licensed and registered mining engineer who has Alaska placer gold mining expertise.
The findings of Mr. Martin's April report have been included in our 8-K and 10-Q filings with the SEC in recent months. We are working with Canadian market authorities to revise the report to attain acceptance as a 43-101 report, which we believe will enhance our ability to attract future investment funds or partners on the subject property, either of which may provide the funding we need to begin production or attract a joint venture partner on the alluvial deposit, attract additional investors, and/or funding from investors to renew our exploration efforts on the hard rock prospects that are considered to be the source of the alluvial deposit. We continue to engage Mr. Martin to apply additional software modeling of the drill results and make the necessary modifications to finalize and accepted 43-101 report. Mr. Martin's report can be found on our website at www.goldrichmining.com
Engineer Martin's conceptual economic study recommends conducting in-fill development drilling to define ore reserves, pending a positive Preliminary Feasibility Study. We believe the deposit can be substantially expanded through additional drilling and that an increase in its size could significantly increase projections for profitable mine life while decreasing unit costs. Substantial additional sampling, drilling and geological and engineering work would have to be completed to confirm the presence of proven and probable reserves that meet SEC Industry Guide 7 criteria, and no assurance can be given that any such reserves will eventually be defined for the Little Squaw Creek alluvial gold deposit.
It is management's opinion that Goldrich has discovered a commercially viable, industrial-scale (capable of producing +25,000 oz gold per year) alluvial gold deposit that is geologically unique to Alaska but similar to big alluvial gold deposits being mined in neighboring Siberia. We believe that this alluvial gold deposit can be streamlined into production because it does not require the use and permitting of milling and chemicals in the gold recovery process. Alaska has more than 200 operating placer mines, and has a specially designed permitting process for alluvial gold mines that expedites their operating plan approvals.
In making these statements, we do not purport to have a U.S. Securities and Exchange Industry Guide 7 compliant mineral reserve. We do, however, believe that the quantity of mineralized material as defined in the scoping study falls within the definition of resource classifications by the Canadian Institute of Mining.
We are proceeding with more in-depth engineering studies as we prepare for the next drilling program which will be financed by a private placement offering. Should we unsuccessful in this financing effort the drilling program will of necessity be deferred until sufficient funds can be raised to fund those drilling operations.
Liquidity and Capital Resources
We are an Exploration Stage company and have incurred losses since our inception. We have no recurring source of revenue and our ability to continue as a going concern is dependent on our ability to raise capital to
The Company currently requires additional cash to sustain existing operations
and to meet current obligations and ongoing capital requirements. The Notes to
our unaudited consolidated financial statements for the period ended September
30, 2008 contain a "going concern" disclosure in which we express doubt about
our ability to continue in business. We have been successful in negotiating a
short-term extension of the maturity date of the Convertible Debenture held by
RAB Special Situations Fund Limited from November 21, 2008 to February 27, 2009.
Both parties agree that it would be in our mutual best interests to negotiate a
long-term extension to the $1,000,000 Convertible Debenture during the
short-term extension period.
Subsequent to the end of the quarter, we received additional cash and commitments, and are likely to close on approximately $175,000 to $225,000 of additional financing from existing shareholders in the form of an offering of convertible preferred shares of the Company's stock during the fourth quarter of 2008. The issue price of convertible preferred shares is expected to be at $1 per share, with three-year conversion rights at six common shares for each convertible preferred share. The shares will have voting rights equal to the number of underlying shares into which they are convertible and will carry a cumulative dividend rate of 5%. The final terms of the series of preferred stock will be determined prior to closing the private placement.
We believe that, with the closing of the additional funding noted above, we will have sufficient cash to fund company operations until approximately March or April 2009. The cash inflow allows the Company to continue to pay the costs of maintaining and preserving company assets and minimal operating costs, and gives us additional time to solicit funding under hopefully improved market conditions in 2009. To assure the continuing operations of the Company, we will need to raise additional funds through debt or identified equity sources in 2009. We cannot assure you that we will be successful at attracting capital or debt on terms acceptable to us or current stakeholders.
The current equity market conditions in the United States, Canada and in the broader international markets have precluded us from accomplishing our financing objectives for 2008. As a result we have depleted our cash reserves to levels that no longer support our normal business activities for the long term. We have insufficient cash to support normal business activities beyond the necessary caretaker and asset preservation requirements. Effective September 1, 2008, we terminated all employees except those required to oversee physical assets at our Chandalar property until the winter snows could provide a certain level of access protection. At this writing, we have no employees and no available cash to execute on any exploration plans.
With the recent reported determination of an alluvial gold deposit in the Little Squaw Creek drainage, we are exploring the economics of formation of mining joint ventures with senior mining company partners or investor groups on specific mineral properties whereby the joint venture partner would provide the necessary financing in return for equity in the property.
We have previously reported the status of a legal action against a prior lessee/operator of our Chandalar property in which we claim that he and his company, Del Ackels and Gold Dust Mines, Inc., had improperly overstaked certain of our claims. That legal action is ongoing, with a trial by jury set to begin on November 24, 2008. Our law firm has estimated that the legal fees to complete the trial if it occupies the full time allotted for it will require approximately $150,000. If we were to be unsuccessful in our challenge, we believe that the presence of the disputed claims may affect our ability to efficiently mine the alluvial deposit, which is almost entirely on undisputed claims, but would not significantly affect our ability to continue exploration activities on the hard rock prospects on our Chandalar property. The potential legal fees have been included in the cash requirements estimated by management above.
On September 30, 2008 we had total liabilities of $1,187,713 and total assets of $1,706,611. This compares to total liabilities of $1,296,892 and total assets of $3,245,800 on December 31, 2007. As of September 30, 2008,
Our principal source of liquidity during the nine-month period ended September 30, 2008, was the availability of cash on hand at the beginning of 2008 and a cash infusion from a private placement of common stock and warrants during the nine-month period. Financing activities provided cash of $582,999 from the private placement and $2,110,873 from exercises of warrants during the nine-month periods ended September 30, 2008 and 2007, respectively. We used cash in operating activities of $1,883,277 and $3,228,665 during the nine months ended September 30, 2008 and 2007, respectively. Additionally, we used a total of $5,092 of cash in investing activities, largely for payments of $36,197 in mining and mineral properties, offset by the release of restricted cash, during the nine months ended September 30, 2008, compared to $1,732,309 to purchase $1,030,053 of short-term investments, $9,999 to acquire or stake additional mining claims and $691,951 to purchase equipment during the nine months ended September 30, 2007.
Results of Operations
As reported in earlier filings, with our lack of success in attracting equity or debt financing to fund 2008 exploration activities, we deferred the majority of our exploration work planned for 2008 into the future when sufficient cash could be available. Those reductions and deferrals of expenses are reflected in the decreases in most areas of 2008 expenses compared with 2007 for both the three and nine-month periods ended September 30. For the three-month period ended September 30, 2008 total operating expenses decreased $558,365 compared to the same period in 2007. Exploration expense showed the largest decrease; to $204,498 for the three-month period ended September 30, 2008 from $1,258,793 for the comparable period of 2007 for a total decrease of $1,054,295. This decrease is a result of our reduced exploration activities in 2008 when compared with 2007. Management fees and salaries are $184,805 for the three-month period ended September 30, 2008 compared to $64,044 for the three-month period ended September 30, 2007 for a total increase of $120,761. Management fees increased for the three-month period ended September 30, 2008 due to expenses related to the issuance of shares and stock options to the President and CFO during the quarter. Share-based Directors' fees were $406,000 in the most recent quarter as a result of issuance of shares and stock options to directors of the Company. No similar issuances to officers or directors were made in the previous 6 months of 2008 or in any of 2007. Finally, professional fees decreased to $42,413 for the three-month period and increased to $176,899 for the nine-month period ended September 30, 2008 as a result of engagement of qualified technical professionals to analyze, evaluate and report on the 2007 Chandalar drill results and formulate an on-going exploration plan for the hard rock and alluvial prospects and resources located on that property.
Salary Reduction and Stock Compensation
At the May 5, 2008 regular meeting of the Board of Directors authorized a temporary reduction of 50% in salary for certain managers and officers effective June 1, 2008 until our financial situation significantly improved. In exchange, we offered shares of common stock to these affected employees and officers as compensation for their reduction in salary. The number of shares to be issued at the end of each month would equate to the value of each person's salary or professional fee reduction, plus 20%. These shares would be issued from the 2008 Share Incentive Plan and the number of shares would be based on the market price for the Company's stock as of the date of issuance of the shares. Shares totaling 295,784 were issued during the quarter
Due to continued financial stresses on the Company, the three employees subject to the 50% stock compensation arrangement were terminated on September 1, 2008, and the Company has no further stock obligations to those persons. Mr. Walters continued to receive 50% of his fees in stock for the balance of the quarter ended September 30, 2008, and for subsequent periods.
Convertible Debenture
On November 21, 2008, the 6% Convertible Debenture in the principal amount of $1,000,000 matures. At the inception, the debenture had a detached 2,500,000 Class A Warrant. The Debenture is convertible into shares of Common Stock, $0.10 par value, at $0.20 per share, subject to certain adjustments. The Warrant was exercised on March 8, 2007, to acquire 2,500,000 common shares at an exercise price of $0.30 per share. The Convertible Debenture is transferable. The 6% Convertible Debenture contains a mandatory conversion provision which grants us, at our option, the ability to force conversion of the Debenture in whole or in part, subject to a 9.99% limitation of outstanding shares ownership provision, if the market price of our common stock is sustained at or above $0.50 per share for five (5) consecutive trading days. The holder, RAB Special Situations Fund Limited, currently holds approximately 2,577,096 shares, or approximately 7% of the outstanding shares of the Company. We will not have the cash resources to pay the remaining obligation in cash at the maturity date. However, at the maturity date, we have the contractual ability to convert the entire debenture and accrued interest into common stock. In negotiations with the holder, we do not believe it is in the Companies best interest to force conversion and issue the estimated additional 5,300,000 shares of stock required by the conversion of the principal and interest balances, given current market conditions. We have been successful in negotiating a short-term extension of the maturity date of the Convertible Debenture from November 21, 2008 to February 27, 2009. Both parties agree that it would be in our mutual best interests to negotiate a long-term extension to the $1,000,000 Convertible Debenture during the short-term extension period. We cannot assure you that we will be successful in negotiating extended terms for the debenture on terms acceptable to us.
On June 1, 2008, we remitted interest to RAB Special Situations (Master) Fund Limited in the amount $30,082 in the form of stock as allowed by terms of the 6% Convertible Debenture, resulting in 60,164 shares of common stock being issued to the holder. The stock price used as specified in the Debenture was the closing bid price five (5) business days prior to the due date of the interest payment, which was May 27, 2008. On that date our common stock closed at $0.50 per share.
Off-Balance Sheet Arrangements
None.
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