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| SLGLF.OB > SEC Filings for SLGLF.OB > Form 10-Q on 14-Apr-2009 | All Recent SEC Filings |
14-Apr-2009
Quarterly Report
The following is a discussion of the operating results and financial position of Silverado Gold Mines Ltd. ("Silverado" or the "Company") for the three months ended February 28, 2009. It should be read in conjunction with the Company's audited consolidated financial statements and footnotes for the fiscal year ended November 30, 2008 and the interim unaudited consolidated financial statements for the three-month period ended February 28, 2009.
All financial information in this Management's Discussion and Analysis ("MD&A") is expressed and prepared in conformity with US generally accepted accounting principles. All references are in US dollar, the Company's reporting currency, unless otherwise noted. Some numbers in this MD&A have been rounded to the nearest thousand for discussion purposes.
Certain forward-looking statements are discussed in this MD&A with respect to the Company's activities and future financial results, which are made based upon management's current expectations and beliefs. There can be no assurance that future developments affecting the Company will be those anticipated by management.
The information in this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, including statements regarding Silverado's capital needs, business plans and expectations. Such forward-looking statements involve risks and uncertainties regarding the market price of gold, availability of funds, government regulations, common share prices, operating costs, capital costs, outcomes of gold recovery activities and other factors. Forward-looking statements are made, without limitation, in relation to operating plans, property exploration and gold recovery activities, availability of funds, environmental reclamation, operating costs and permit acquisition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may", "seek", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "target", the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including the risks outlined below, and, from time to time, in other reports Silverado files with the Securities Exchange Commission (the "SEC"). These factors may cause actual results to differ materially from any forward-looking statement. Management disclaims any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. The information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
OVERVIEW
The Company is engaged in the acquisition and exploration of mineral properties in the State of Alaska, through its wholly-owned subsidiary, Silverado Gold Mines Inc., and in the development of a liquid fuel derived from low-rank coal through its other wholly-owned subsidiary, Silverado Green Fuel, Inc.
The Company has committed over three decades of work to the exploration, development and test mining of gold properties throughout North America. In the mid-1980s, the Company decided to focus its efforts in Alaska. We have extensive experience in geological, geochemical and geophysical exploration techniques. Our mineral holdings are located in the Fairbanks Mining District and in the Koyukuk Mining District, consisting of both lode and placer mining claims. At the present time, the Company's primary focus is the exploration and development of our Nolan Gold Project and our Hammond property located 175 miles north of Fairbanks, Alaska. We are also continuing with exploration activities on our Eagle Creek Property and our Ester Dome Project, which are both located in the Fairbanks Mining District.
MINERAL EXPLORATION
The Company is a mineral exploration company with interests in properties located throughout the state of Alaska. The majority of such properties are in the early stages of exploration, and there is no assurance that a commercially viable mineral deposit exists on such properties. Effective January 1, 2009, based on completion of a preliminary feasibility study by an independent and AIPG Certified Professional Geologist (the "QP"), our Nolan Gold and Antimony Lode Project has disclosed an economically viable mineral reserve. The preliminary feasibility study concluded that the resource estimates disclosed by the Company in its Current Report on Form 8-K filed with the SEC on November 17, 2008 can be reclassified as a probable reserve. Though there were no material changes to the grades and quantities previously reported on November 17, 2008, there was additional data produced that added new grades and there was further work conducted on this zone that resulted in the aforementioned reclassification.
The Company holds interests in four groups of mineral properties in Alaska, as listed below:
1) Nolan property
2) Hammond Property;
3) Eagle Creek Property; and
4) Ester Dome Property.
Overall mineral exploration performance during the first fiscal quarter ended February 28, 2009 and management's plan of operations by each property respectively are discussed below:
1. NOLAN GOLD AND ANTIMONY PROPERTY
The majority of the properties comprising our Nolan Gold Project are adjacent to or within the Nolan Creek Valley, located approximately 8 miles northwest of the small town of Wiseman, and 175 air miles north of
All of the Nolan Gold Project properties are on federal land and located within the Wiseman B-1 Quadrangle. All of the mineral claims, with the exception noted below, are in the SE ¼, Township 31 North, Range 12 West, the NE ¼, Township 30 North, Range 12 West, and SW ¼, Township 31 North, Range 11 West, Fairbanks Meridian.
In addition to the Nolan Creek properties, Silverado also has two smaller placer claim groups on Clara Creek and Marion Creek, located 1.5 and 3 miles north respectively of the town of Coldfoot, Alaska, situated near the Dalton Highway.
As of February 28, 2009, Silverado's Nolan Gold Project consist of 204 unpatented federal placer mining claims covering approximately 4,080 acres in three non-contiguous groups, and 407 unpatented federal lode mining claims covering approximately 8,140 acres in one large contiguous group. Many of the 407 lode mining claims are superimposed over the placer mining claims.
The plan of operation for the Nolan Gold Project for the 2009 fiscal year is the advancement toward the development and mining stage of our Nolan Gold and Antimony Project, especially along the southwestern end of the Solomon Shear Zone in the Workman's Bench Area. The Company is in a transitional phase between exploration and development. The recent preliminary feasibility study effective January 1, 2009, supported a mineral reserve of antimony and gold underlying the southwestern portion of the Solomon Shear Zone, an area referred to by the Company as Workman's Bench. The study by the Company's QP concluded that the Nolan Gold and Antimony Project in the Workman's Bench area are economically viable. The results of the preliminary feasibility study and the reserve estimates are disclosed in the Company's Annual Report on Form 10-KSB filed on March 16, 2009 and the Company's website: www.silverado.com.
During the first fiscal quarter ended February 28, 2009, the Company began implementing the recommendations of the preliminary feasibility study for the Workman's Bench gold and antimony deposit. The Company is in the planning and procurement phase for the upcoming summer drilling program and the extraction of an underground bulk sample of antimony and gold ore that will be collected in the winter months. The Company began the process of permitting requirements and finished geotechnical studies of the subsurface drill core that will be needed for underground engineering purposes.
During the next nine months, Silverado plans to expand the current lode exploration program by diamond core drilling in-fill holes along the southwest extent of the Workman's Bench antimony and gold deposit, for the potential upgrade of resources. The Company will focus a program designed to potentially upgrade inferred resources in the Pringle Bench area to a potential probable reserve status. The Company also plans to drill northeast of Pringle Bench in a prospect known as the Hillside area to test for a potential continuation of the strike length of the Solomon Shear Zone gold and antimony veins.
During the next nine months Silverado plans to initiate lode development in the Workman's Bench area as follows:
1. Continued aggressive permitting.
2. Additional infill drilling along strike of the gold and antimony
mineralized Solomon Shear Zone for additional geologic and geotechnical
information and geochemical assays.
3. Baseline characterization studies for permitting purposes.
4. Acid and Base Accounting (ABA) for potential acid drainage issues.
5. Procurement of equipment and infrastructure upgrades needed for the
underground extraction of a 1,000 cubic yard bulk sample
6. Underground extraction of a bulk sample of antimony and gold ore for
additional processing studies and assays.
In addition, the Company plans to do detailed mapping and channel sampling of the gold and arsenic mineralized veins that occur in outcrops in the Fortress prospect located along the north end of the property. Depending on time constraints and funding, the Company also plans to excavate trenches in a new prospect located 2,000 ft east of the Solomon Shear Zone. The excavated trenches will be mapped and channel sampled for potential mineralization.
Our proposed drilling program for 2009 will be aimed at lode gold and antimony exploration. Lode drilling will focus on Pringle Bench, Workman's Bench and the Hillside along the Solomon's Shear trend, and is designed to provide a better three dimensional understanding of the mineralized sections of the structure and how it is related to the placer gold deposits of the Nolan Creek area. Since the Project is advancing into the development stage, exploration drilling will not be conducted in the Fortress area which is part of a gold bearing east-west trending deformation zone. The Company plans to drill a minimum of 35 shallow (200-500 ft) diamond core drill holes. Placer drilling will be dependent on funding for the extraction of the Workman's Bench 1,000 cu yd bulk sample.
We will be seeking to raise approximately $10,000,000 in the next twelve months to carry out our exploration, permitting and development activities for the Nolan Gold Project. Of this amount, $1,000,000 would be put toward lode drilling and trenching on the Solomon Shear Zone. The actual amount that we spend on exploration will depend on the actual amount of funds that we have available for exploration. We are presently seeking to obtain sufficient financing to enable us to proceed with these plans.
Readers and investors need to take caution, in that much of the work planned in 2009 is contingent upon available funding and the success and speed of the permitting process.
2. HAMMOND PROPERTY
Our Hammond property is located approximately 8 miles north of Wiseman, and 175 air miles north of Fairbanks, Alaska in the foothills of the Brooks Range in an area known as the Koyukuk Mining District. The Hammond property is located approximately three miles northeast of the Nolan Gold Project.
The Hammond property is accessible by the Trans-Alaska Pipeline road about 280 road miles north of Fairbanks, Alaska. An all-weather 4x4 road connects Hammond to the pipeline road.
The Company leases 24 federal placer mining claims and 36 federal lode mining claims from Alaska Mining Company, Inc. ("Alminco"). Alminco has confirmed that our mineral claims and options are in good standing on the understanding we will use our best efforts to pay the minimum royalty payments, including the payments that are in arrears for the past four years, when business conditions permit.
3. EAGLE CREEK PROPERTY
The Eagle Creek property is comprised of 77 Alaska state mineral claims. All claims are contiguous and are located in the Fairbanks North Star Borough. The total area of the claims equals approximately 3080 acres and all claims are valid. There has been no legal survey on the claims. Ownership of the claims is in the name of Silverado Gold Mines Inc. There is an "option to purchase" agreement with Arley Taylor (i.e., now with his descendants), to purchase a 100% interest in the property for $400,000, of which $48,000 remains to be paid. The amount of $5,000 per year is required to be paid to keep the agreement in good standing. The original option agreement with Arley Taylor was acquired through an agreement with S. Tan who assigned the agreement to us in consideration of 15% royalty from production (15% of net operating profits after payback of costs). We have continued to make option payments on the Eagle Creek property based on the agreement, and as a result all of our mineral claims and options are in good standing.
The Eagle Creek property is accessed by the Steese Highway, 10 miles north of Fairbanks, Alaska to Fox, Alaska, then traveling along the Elliot highway 6 miles north to Murphy Dome Road, then west along Murphy Dome Road about 5 miles to the property. The Number One Vein on this property was the lode quartz gold structure that was historically mined commercially for antimony.
Annual assessment work will be carried out on the property to keep the mining claims in good standing. Assessment work will be focused on the northwest part of the claim block, where drilling and trenching has defined an intrusive host rock, thought to be a sill, containing low grade gold, silver and antimony mineralization. If funding permits, the Company will design a drilling program to further investigate the gold and by-product mineral distribution of the intrusive and the Number One Vein system.
No funding has been advocated for the 2009 work plan. Whereas historic commercially viable mining took place on the Number One (or "Scrafford") Vein, and whereas Silverado has successfully drilled and hit significant widths of high-grade or massive stibnite (antimony sulfide) and significant widths with good gold grades, it has nonetheless yet to complete a definitive drilling program sufficient to indicate reserves, and therefore there is no assurance that a commercially viable economic mineral deposit exists on the property.
4. ESTER DOME PROPERTY
The Ester Dome property is comprised of 52 state mineral claims and 1 unpatented federal mineral claim. The claims are not all contiguous in that there are 5 separate blocks of claims. Silverado Gold Mines Inc. is the registered owner of all claims. The total area of all claims equals approximately 2.5 square miles and all claims are valid. There has been no legal survey on the claims.
Access to the property is provided by the paved Ester Dome road and a well-maintained gravel road. The main line of the Alaska Railroad passes by the west perimeter of the property and a high capacity electrical line carrying power to the Fort Knox mill passes 300 feet below the Grant Mill on the property.
Furthermore with respect to other areas on this property, several large scale projects have been proposed over the past ten years and remain warranted, but for the time being are deferred due to internal decisions that favor shifting financial and manpower resources to the Nolan Gold and Antimony Project .
If additional exploration results in defining other commercially viable mineral deposits, they are likely to be gold or antimony lode deposits, or placer gold deposits Currently the Company is focusing on the continued exploration and future development of the Nolan Gold and Antimony Project in northern Alaska. There is no assurance that further exploration will result in a final evaluation that a commercially viable mineral deposit exists on Silverado's mineral properties, excluding the Nolan Property.
LOW-RANK COAL WATER FUEL PROJECT
The Company commenced development of a low-rank coal-water fuel business in 2000. The determination to enter into this business was based on a decision to broaden our business beyond mineral exploration and production. This aspect of this business is still in the start-up phase of operations and no revenues have been achieved to date. The Company does not anticipate that revenues from this technology will be achieved until commercialization of the technology has been established.
The Company is currently having a $150,000 study conducted on the chemical and physical characteristics of Mississippi Red Hills Lignite Coal at the Mineral Industry Research Laboratory at the University of Alaska (Fairbanks) and expects results by late 2009. Results of the tests as well as capital availability and an increase in oil prices would all have to be present and sufficient for the Company to reconsider construction of the LRCWF project.
LIQUIDITY AND CAPITAL RESOURCES
As of February 28, 2009, the Company had a deficit working capital of $1,084,000 as compared to a deficit working capital of $1,294,000. The Company's total assets were $3,748,790 and the total current assets were $1,001,124. Current assets consist of $21,461 in cash and gold inventory and $979,663 in prepaid and other receivables. Included in prepaid and other receivables was non-cash prepaid consulting fees of $912,073 paid through the Company's common stock issuances. The Company had cash and cash equivalents of $15,145 as of February 28, 2009 as compared to cash and cash equivalents of $50,991 as of November 30, 2008. The majority of the Company's assets are long-term or non-cash in nature, thus affording the Company less liquidity. The Company has not yet generated revenues since recommencement of the exploration stage.
The Company's cash inflow has been generated mainly from private placements of the Company's common stock, gold sale proceeds earned during the exploration stage, debentures and related party loans. Management continually reviews its overall capital and funding needs. These reviews take into account current business needs as well as the Company's future capital requirements.
During the first quarter of 2009, the Company raised $147,000 through completed private placements and received $135,000 through an uncompleted private placement. Our plan of mining operations in Alaska contemplates that we will need to raise $10,000,000 during fiscal year 2009. In addition, we intend to raise and spend $100,000 on research and development for the Green Fuel project and approximately $1,800,000 for the remaining nine-month period on general and administrative costs in the Company's Vancouver head office.
RESULTS OF OPERATIONS - Three Months Ended February 28, 2009 Compared to Three Months Ended February 29, 2008
The Company has not yet generated revenues since recommencement of the exploration stage. For the three months ended February 28, 2009, we reported a net loss of $1,610,213, or $0.002 per share, compared to a net loss of $2,183,543, or $0.003 per share for the three months ended February 29, 2008. The major increases included in the net loss for the current quarter, as compared to the same period in 2008, are increases of $334,397 of consulting fees and $61,830 of legal and other professional fees. The increases are mainly due to the increased consulting, geology and legal needs of the Company. $741,711 of non-cash consulting fees and other expenses were included in the net loss for Q1 2009, which were paid through the Company's common stock issuances.
For the three months ended February 28, 2009, the Company's exploration expenses decreased $561,000 as compared to the same period in 2008. Currently the Company is in a transitional phase between exploration and development at its Nolan gold and antimony property. Our ability to complete the transition is dependent, in large part, upon our raising additional equity and debt financing.
OFF-BALANCE SHEET ARRANGEMENTS
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures, or capital resources and would be considered material to investors.
CRITICAL ACCOUNTING POLICIES
Our critical accounting policies (the policies we believe are most important to the presentation of our financial statements and require the most difficult, subjective and complex judgments) are outlined in our notes to the financial statements above.
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