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| MMG > SEC Filings for MMG > Form 10-Q on 14-Sep-2009 | All Recent SEC Filings |
14-Sep-2009
Quarterly Report
When we use the terms "Metalline Mining Company," the "Company," "we," "us," "our," or "Metalline," we are referring to Metalline Mining Company and its subsidiaries, unless the context otherwise requires. We have included technical terms important to an understanding of our business under "Glossary of Common Terms" in our Annual Report on Form 10-K for the fiscal year ended October 31, 2008. Throughout this document we make statements that are classified as "forward-looking."
Cautionary Statement about Forward-Looking Statements
This Quarterly Report on Form 10-Q includes certain statements that may be deemed to be "forward-looking statements." All statements, other than statements of historical facts, included in this Form 10-Q that address activities, events or developments that our management expects, believes or anticipates will or may occur in the future are forward-looking statements. Such forward-looking statements include discussion of such matters as:
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The amount and nature of future capital, development and exploration expenditures;
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The timing of exploration activities; and
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Business strategies and development of our business plan.
Forward-looking statements also typically include words such as "anticipate", "estimate", "expect", "potential", "could" or similar words suggesting future outcomes. These statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, including such factors as the volatility and level of silver and zinc prices, currency exchange rate fluctuations, uncertainties in cash flow, expected acquisition benefits, exploration mining and operating risks, competition, litigation, environmental matters, the potential impact of government regulations, and other matters discussed under the caption "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended October 31, 2008 and subsequent periodic reports, many of which are beyond our control. Readers are cautioned that forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those expressed or implied in the forward-looking statements.
The Company is under no duty to update any of these forward-looking statements after the date of this report. You should not place undue reliance on these forward-looking statements.
Going Concern - Presentation of Financial Statements
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Since its inception in November 1993, the Company has not generated revenue and has incurred a net loss of $50,984,131 from inception through July 31, 2009. Accordingly, the Company has not generated cash flow from operations and has primarily relied upon private placement of its common stock and proceeds from warrant exercises to fund its operations. As of July 31, 2009, the Company has working capital of $282,565 which may not be sufficient to fund the Company's operations over the next twelve months. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts or classification of liabilities that may result from the possible inability of the Company to continue as a going concern. Management's plans with regards to these conditions are described below.
Plan of Operation
The Company is an exploration stage company, formed under the laws of the state of Nevada on August 20, 1993, to engage in the business of mining. The Company currently owns mining concessions, which are located in the municipality of Sierra Mojada, Coahuila, Mexico. The Company's objective is to define sufficient mineral reserves
Feasibility Study- Oxide Zinc Mineralization
The primary activity of the Company is to complete a feasibility study and to evaluate the engineering factors and economics of mining the Oxide Zinc Mineralization and/or Silver Polymetallic Mineralization in our Sierra Mojada concessions. This task consists in part of performing the required technical tasks and in part of properly documenting, in accordance with generally accepted engineering guidelines: (i) norms, and procedures; (ii) the manner in which the tasks were performed; and (iii) the results of the ensuing analysis. Much of this work is iterative in nature and results of one task often requires modification of the work in some other task, and resulting modifications in the documentation of all impacted tasks. The final feasibility study becomes a summary document that reflects the important conclusion of detailed reports on the various technical tasks. For the format that we are using the detailed studies are termed Complimentary Reports. The Complimentary Reports include reports on: (i) the geology of the Sierra Mojada area and the methods used to evaluate the mineralization; (ii) the resource model that provides an estimate of the size and grade of the mineralized volume, including a detailed discussion of the geostatistical methods used to create the estimate; (iii) the geotechnical results including a detailed discussion of how the geotechnical data were acquired and how they are interpreted; and (iv) a hydrology report on the water supply for the area.
During fiscal 2008, the Company completed an initial scoping phase of the feasibility study and developed a preliminary mine plan based upon the Company's initial resource model. The preliminary mine plan anticipated using an underground mining method that would use a long-hole end-slice panel stoping method to perform high-volume relatively low cost mining. The preliminary mine plan projected a minimum daily production rate of 3,000 tonnes (metric tons) per day, and a 17 year mine life. Shortly after developing the preliminary mine plan, the Company started working with its engineering firms to develop a more detailed mine plan and concentrator plant study. In May 2008, the Company selected SNC-Lavalin to prepare the detailed concentrator plant study. While working on the detailed mine plan and concentrator plant studies, the Company contracted with Pincock, Allen, & Holt to complete a new resource model based upon latest drilling results and a suite of silver analysis that were not available when the previous resource model was developed.
In July 2008, the Company announced that Pincock, Allen, and Holt had completed
a new resource model on the Oxide Zinc mineralization that more than doubled the
estimated amount of zinc present in the deposit. The new resource model
increased the estimated size and zinc content of the deposit plus added a
potential estimated by-product credit for silver associated with the Oxide Zinc
Mineralization. The new resource model required the Company to take a fresh
look at the optimum mine size, mining methods, and other economic and
engineering factors. Open pit mining is possibly effective on a deposit of this
size and geometry and would likely remove the production rate constraints that
are inherent in the underground mining scenario that was previously considered.
The Company has completed a first pass evaluation of open pit mining of the new
resource model and has determined that mining and processing rates might be as
much as five times greater than the underground mining method and would result
in significant economies of scale and may allow market opportunities that are
not available with a smaller underground operation. Preliminary economic
evaluation of open pit mining suggests that it would be much more profitable.
Furthermore, an open pit mining method may allow the Company to mine the Silver Polymetallic Mineralization, which lies adjacent to the Oxide Zinc Mineralization on the north side of the east-west Sierra Mojada Fault. This mineralization would be mined during stripping to access the Oxide Zinc Mineralization. The Company has been actively evaluating the Silver Polymetallic Mineralization and has recently announced the results of preliminary resource modeling on this deposit. The Company's current drilling efforts are primarily directed at infilling and defining the Silver Polymetallic Mineralization in order to bring the data to the quality required for a comprehensive resource model.
The Silver Polymetallic Mineralization might require a different processing plant to recover the contained metals than required for the Oxide Zinc mineralization. The Company needs to gain a complete understanding of the size, grade and metallurgical character of this potentially large silver-rich mineralization in order to understand the impact
Accordingly, the Company has suspended all work on the feasibility study while gathering the drilling data required to support additional engineering studies on potential open pit mining of the deposit.
Exploration of Silver Polymetallic Mineralization
The Company continues to explore and evaluate the Silver Polymetallic Mineralization which is located north of and adjacent to the Oxide Zinc Mineralization. The purpose of this work is to evaluate the resource potential of the Silver Polymetallic Mineralization and to determine whether mining of both mineral systems can be conducted. As discussed above, an open pit mining method may allow the Company to mine the Silver Polymetallic Mineralization, which lies adjacent to the Oxide Zinc Mineralization on the north side of the east-west Sierra Mojada Fault. This mineralization would be mined during stripping to access the Oxide Zinc Mineralization. The Company has been actively evaluating the Silver Polymetallic Mineralization, but does not have enough drill data yet, and in the right places to create a comprehensive resource model for this mineralization. As financial resources permit, the Company's plans to continue to evaluate the Silver Polymetallic Mineralization using our five diamond drills, three percussion drills, channel sampling and geologic mapping. The continuing evaluation is intended to increase sample density and expand the core area. The Company is also in the process of preparing a more detailed geostatistical evaluation to improve the evaluation of the Silver Polymetallic Mineralization.
Resource Block Model Analysis
The Company has recently completed interim resource block model analyses on both the Silver Polymetallic Mineralization north of the Sierra Mojada fault and the Oxide Zinc Mineralization south of the fault. The Silver Polymetallic block model is the first block model run on the silver, copper, lead, zinc mineralization. The Oxide Zinc block model is an update with additional data generated since the last Oxide Zinc block model was completed.
As disclosed in a press release dated April 1, 2009, the Company announced that it had completed an initial block model analysis on the Silver Polymetallic Mineralization (or Northside Zone as it is referred to in the press release). The initial block model was calculated upon 3D modeling of 16,604 composite samples from 5,301 drill holes and other sample locations. The block model analysis showed that there are at least 30,263 blocks representing 5,910,742 cubic meters of material with satisfactory drill hole density that had an interpolated drill hole assay of 98.0 grams silver per tonne and 2.79% zinc.
As disclosed in a press release dated May 14, 2009, the Company announced that it had completed a revised block model analysis of the Zinc Oxide Mineralization (or Southside Zone as it is referred to in the press release) based upon additional sample data generated since the last Zinc Oxide block model was completed. The block model results for the Southside Zinc Oxide Zone estimate that the zone contains more than 24,270,000 cubic meters of material averaging 4.7% zinc and 12.7 grams silver per tonne above a 1% zinc cutoff. The zinc oxide material has very high porosity and bulk density measurements based upon many hundreds of core and rock samples estimate the average in-place density to be 2.54 metric tons per cubic meter. The block model was calculated based upon 3D block modeling of the results from 577 diamond drill holes, 2886 percussion drill holes, and 8726 channel samples, for a total of about 108,000 samples.
The interim block models described above are used to help refine our drilling program. Additional drilling is required in both the Silver Polymetallic Mineralization and the Zinc Oxide Mineralization to provide acceptable certainty for economic and engineering studies. Because we have not yet completed drilling in the area, the results of all block models are preliminary and are expected to change as more data is available.
Cautionary Note
The Company is an exploration stage company and does not currently have any known reserves and cannot be expected to have reserves unless and until a feasibility study is completed for the Sierra Mojada concessions that
Results of Operation
Three Months Ended July 31, 2009 and July 31, 2008
For the three months ended July 31, 2009, the Company experienced a consolidated net loss of $177,000 or less than $0.01 per share, compared to a consolidated net loss of $1,810,000 or $0.05 per share during the comparable period last year. The $1,633,000 decrease in consolidated net loss is primarily due to a $636,000 decrease in exploration and property holding costs and a $934,000 decrease in general and administrative costs. A $166,000 increase in foreign currency translation gain also contributed to the lower net loss.
Exploration and property holding costs
Exploration and property holding costs decreased $636,000 or 65% to $341,000 for the three months ended July 31, 2009 compared to $977,000 for the comparable period last year. This decrease was primarily due to a reduction in drilling and exploration costs as the Company scaled back drilling activities from five drills operating at two shifts per day nine days per week to two drills operating at one shift per day on a five day week basis. The Company scaled back its exploration activities at the end of fiscal 2008 as part of management's plans to conserve operating capital.
General and Administrative Costs
General and administrative expenses decreased $934,000 or 61% to $590,000 for the three months ended July 31, 2009 as compared to $1,524,000 for the comparable period last year. This decrease was primarily due to a $693,000 decrease in professional fees and a $143,000 decrease in office and administrative costs. Stock based compensation for options account for a significant part of general and administrative expenses and was a primary factor for several of the fluctuations described below.
Salaries and payroll expense decreased $143,000 or 31% from the comparable period in 2008. This decrease was primarily due to lower stock based compensation related to stock options which decreased to $88,000 in 2009 as compared to $231,000 during the comparable period in 2008. Included in salaries and payroll expense for the three months ended July 31, 2009 is $88,259 of deferred salaries for executive officers and corporate employees. As discussed in more detail under liquidity and capital resources section below, the Company's executive officers and corporate employees entered into salary deferral agreements with the Company to defer 25% to 50% of their base salaries effective February 1, 2009 until the Board of Directors has determined that the Company has sufficient operating capital to continue its operations.
Office and administrative expenses decreased $16,000 or 17% to $76,000 for the three months ended July 31, 2009 as compared to $92,000 for the comparable period last year. Lower travel costs and shareholder relations costs contributed to this decline.
Professional services decreased $693,000 or 85% to $123,000 for the three months
ended July 31, 2009 as compared to $816,000 for the comparable period last year.
The decrease was primarily due to lower engineering and professional fees
related to the feasibility study. The Company suspended work on the mine plan
and concentrator portions of the feasibility study in August 2008 to evaluate a
much larger scale operation in order to exploit the Silver Polymetallic
mineralization.
Directors' fees decreased $80,000 or 56% to $63,000 for the three months ended July 31, 2009 as compared to $143,000 for the comparable period last year. The decrease was primarily attributable to a lower average market price of shares granted to independent directors. Included in directors fee expense for the three months ended July 31, 2009 is $27,000 of deferred directors' fees. As part of the Company's effort to conserve cash, the independent directors have agreed to defer 100% of the cash portion of their director's fees effective February 1, 2009 until the Board of Directors has determined that the Company has sufficient operating capital to fund its operations.
Other Income increased to $764,000 income for the three months ended July 31, 2009 as compared to $715,000 income for the comparable period last year primarily due to a $66,000 increase in foreign currency translation gain on intercompany loans to its Mexican subsidiaries. During the three months ended July 31, 2009, the Mexican Peso to U.S. dollar exchange rate decreased from 13.76 pesos per USD to 13.26 pesos per USD resulting in a gain of $764,000 whereas the exchange rate fluctuation in 2008 was slightly lower. As of July 31, 2009, the Company has a $20 million dollar intercompany receivable from Minera.
Interest income was $17,000 lower in 2009 as compared to 2008 due to lower average investment balances and lower investment yields.
Nine Months Ended July 31, 2009 and July 31, 2008
For the nine months ended July 31, 2009, the Company experienced a consolidated
net loss of $3,917,000 or $0.10 per share, compared to a consolidated net loss
of $5,501,000 or $0.14 per share during the comparable period last year.
Significant reductions in exploration costs and general and administrative
expenses of $1,242,000 and $1,955,000 respectively were completely offset by a
$1,540,000 increase in foreign currency translation loss and a $138,000 decline
in interest and investment income.
Exploration and property holding costs
Exploration and property holding costs decreased $1,242,000 or 50% to $1,229,000 for the nine months ended July 31, 2009 compared to $2,471,000 for the comparable period last year. This decrease was primarily due to a reduction in drilling and exploration costs as the Company scaled back drilling activities from five drills operating at two shifts per day nine days per week to two drills operating at one shift per day on a five day week basis. The Company scaled back its exploration activities at the end of fiscal 2008 as part of management's plans to conserve operating capital.
General and Administrative Costs
General and administrative expenses decreased $1,955,000 or 47% to $2,174,000 for the nine months ended July 31, 2009 as compared to $4,129,000 for the comparable period last year. This decrease was primarily due to lower stock based compensation for options granted to officers and directors and lower professional fees. Stock based compensation for options account for a significant part of general and administrative expenses and was a primary factor for several of the fluctuations described below.
Salaries and payroll expense decreased $412,000 or 26% from the comparable period in 2008 primarily due to lower stock based compensation for stock options and restricted stock grants. Stock based compensation for stock options decreased from $798,000 in 2008 to $457,000 in 2009 primarily due to a decrease in the average fair value of option recognized during the period. As discussed in Note 8 to the consolidated financial statements and in accordance with FAS 123R, the Company recognizes stock based compensation over the vesting period based upon the fair value of the options at date of grant. Also stock based compensation associated with restricted stock grants was higher in 2008 as the Company granted 38,000 shares to three key employees of our Mexican subsidiary with a total value of $83,000. Included in salaries and payroll expense for the nine months ended July 31, 2009 is $173,394 of deferred salaries for executive officers and corporate employees. As discussed in more detail under liquidity and capital resources section below, the Company's executive officers and corporate employees entered into salary deferral agreements with the Company to defer 25% to 50% of their base salaries effective February 1, 2009 until the Board of Directors has determined that the Company has sufficient operating capital to continue its operations. As of July 31, 2009, the Company has accrued $173,394 of deferred salaries and has recorded a corresponding liability on the Company's consolidated balance sheet.
Office and administrative expenses decreased $169,000 or 44% to $212,000 for the nine months ended July 31, 2009 as compared to $381,000 for the comparable period last year. Lower travel costs and shareholder relations costs contributed to this decline.
Directors' fees decreased $236,000 or 51% to $231,000 for the nine months ended July 31, 2009 as compared to $467,000 for the comparable period last year. The decrease was primarily attributable to lower stock based compensation for stock options and a lower average market price of shares issued to independent directors. Included in directors fee expense for the nine months ended July 31, 2009 is $54,000 of deferred directors' fees. As part of the Company's effort to conserve cash, the independent directors have agreed to defer 100% of the cash portion of their director's fees effective February 1, 2009 until the Board of Directors has determined that the Company has sufficient operating capital to fund its operations. Accordingly, the Company has accrued $54,000 of directors' fees for the quarters ended April 30, 2009 and July 31, 2009 and has recorded a corresponding liability on the Company's consolidated balance sheet.
Other Income (Expense)
Other Income (Expense) decreased to $515,000 of expense for the nine months ended July 31, 2009 as compared to $1,163,000 of income for the comparable period last year primarily due to a $516,000 foreign currency translation loss on intercompany loans to its Mexican subsidiaries. During the nine months ended July 31, 2009, the Mexican Peso to U.S. dollar exchange rate increased from 12.90 pesos per USD to 13.26 pesos per USD resulting in a loss of $516,000 whereas in 2008, the exchange rate decreased from 10.72 pesos per USD to 10.04 pesos per USD resulting in a gain of $1,024,000. As of July 31, 2009, the Company had an intercompany receivable of $20 million from Minera which is subject to exchange rate fluctuations between the U.S. Dollar and Mexican Peso.
Interest income was $138,000 lower in 2009 as compared to 2008 due to lower average investment balances and lower investment yields. During the first quarter of 2008, the Company invested its excess funds in auction rate securities which had an average yield of approximately 4% to 5%. Due to large uncertainties related to failed auctions in the auction rate securities markets, the Company sold these investments towards the end of the first quarter of 2008 and invested its excess funds in US Treasury bills and US Treasury based money market accounts. The average yield on short-term treasury bills and money market funds was less than 0.1%.
Liquidity and Capital Resources
Cash Flows
During the nine months ended July 31, 2009, the Company primarily utilized cash and cash equivalents and proceeds from private placement of its common stock to fund its operations which primarily consist of development and exploration of the Sierra Mojada property. As a result, cash, cash equivalents and marketable securities decreased from $2,229,000 at October 31, 2008 to $880,000 at July 31, 2009. During the nine months ended July 31, 2009, the Company's cash flows used in operations was $2,554,000 as compared to $4,910,000 for the comparable period in 2008. This $2,356,000 decrease is primarily due to the Company's efforts to reduce operating costs and conserve working capital. During the nine months ended July 31, 2009, the Company received $1,189,010 of proceeds from the sale of common stock and warrants through a private placement whereas in the 2008 period, the Company received $476,563 of proceeds from the exercise of stock warrants.
Capital Resources
As of July 31, 2009, the Company had cash, cash equivalents and marketable securities of $880,229. Since inception, the Company has relied primarily upon proceeds from private placements of its equity securities and warrant exercises as its primary sources of financing to fund its operations. We anticipate continuing to rely on sales of our securities in order to continue to fund our business operations. Issuances of additional shares will result in
On May 1, 2009 the Company received a notice of deficiency from the NYSE Amex LLC (formerly American Stock Exchange (the "Exchange")) which could result in the delisting of our common stock from the Exchange. The notice stated that Metalline does not currently meet Section 1003(a)(iii) of the NYSE Amex LLC Company Guide (the "Company Guide") which requires listed issuers that have sustained losses from continuing operations and/or net losses in its five most . . .
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