Except for the historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Readers are cautioned that the following discussion contains certain forward-looking statements and should be read in conjunction with the "Cautionary Statement on Forward-Looking Statements" appearing at the beginning of this Annual Report. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the risks described in "Risk Factors" and elsewhere in this annual report. Our discussion and analysis of our financial condition and results of operations should be read in conjunction with the Financial Statements of the Company and notes thereto included elsewhere in the Annual Report. See "Financial Statements". Our actual future results may be materially different from what we currently expect.

Overview

During our current fiscal year ended June 30, 2011, we generated sales of $6,440,897 and incurred a net loss of $4,617,093. Prior to our current fiscal year, we had received no substantial revenue from the production of gold or other metals since our inception, and historically relied on equity and debt financings to finance our ongoing operations. Our operations generated a net loss of $1,209,354 and $5,535,596 for the fiscal years ended June 30, 2010 and 2009, respectively. In order to fund operations in the fiscal years ended June 30, 2011, 2010 and 2009, we relied on proceeds from the sale of gold and silver products aggregating $6,761,042, equipment sales aggregating $99,584, proceeds received under the private placement sale in December 2007 of senior secured convertible debentures aggregating $8,150,000, aggregate proceeds of $2,601,004 from the private placement sales of stock, financing of $4,000,000 in September 2009 relating to a gold sale agreement, a registered direct sale of equity of $10,000,000 in January 2010, and proceeds received from notes payable of $290,068.

In August 2011, we secured a $5.0 million Senior Secured Loan, bearing interest at fifteen percent (15%) per annum, payable monthly in arrears and maturing upon the six month anniversary of the closing date. We received net proceeds of $4,555,000 after deducting placement agent fees and other offering expenses. We will use the net proceeds for general corporate purposes, including but not limited to, working capital for the Summit silver-gold project.

In December 2010, we sold $2.0 million of securities to three institutional investors under a prospectus supplement filed with the Securities and Exchange Commission in connection with a take down from our shelf registration statement made on Form S-3. We received net proceeds of $1,864,001 after deducting placement agent fees and other offering expenses. Proceeds were used for on-going development of the Summit mine, support of other projects and general working capital.

In January 2010, we sold $10.0 million of securities to institutional investors in a registered direct offering pursuant to an S-3 Registration Statement. We received net proceeds of $9,375,000 after deducting placement agent fees and other offering expenses. Proceeds were used for on-going development of the Summit mine, support of other projects and general working capital.

In September 2009, we entered into a sale agreement for a portion of our gold production from the Summit mine. The agreement provided for an upfront cash payment of $4.0 million and ongoing production payments equal to the lesser of $400 per ounce and the prevailing market price, for each ounce of gold delivered pursuant to the agreement. Proceeds were used for on-going development of the Summit mine, completion of construction of the Banner mill processing facilities and general working capital.

In September 2010, we signed a non-binding Memorandum of Understanding
("MOU") with Columbus Silver Corporation (TSXV: CSC) ("Columbus Silver")
pursuant to which we will acquire all the outstanding shares of common stock of Columbus Silver in exchange for shares of our common stock. The contemplated business combination by way of a Plan of Arrangement is subject to Canadian court approval. In January 2011, in connection with MOU, we loaned Columbus Silver $200,000 with an annual interest rate of four percent (4%) and principal and accrued interest due and payable on December 31, 2012. In April 2011 we announced our continuing efforts to obtain a revocation of the cease trade orders issued against us by the British Columbia and Ontario Securities Commissions in 2003 after we did not make required Canadian regulatory filings.

On September 6, 2011, we entered into a Memorandum of Understanding with Columbus Silver Corporation (TSXV: CSC) ("Columbus Silver") pursuant to which we have conditionally agreed to acquire all of Columbus Silver's outstanding common stock for a cash amount of Cdn $0.20 per outstanding share in a transaction currently valued at Cdn $9,977,285. Until closing of the transaction, Santa Fe has agreed to provide bridge financing to Columbus Silver to fund leasehold payments and for working capital, which through the end of December 2011 totals $513,716.

The Memorandum of Understanding entered into on September 6, 2011 contemplates a business combination by way of a Plan of Arrangement, which is subject to Canadian court approval. In addition, the proposed transactions are subject to the final approval of the boards of directors of Santa Fe and Columbus Silver, stock exchange and regulatory approvals, Columbus Silver shareholder approval and Santa Fe's commitment of the required funding. If Santa Fe does not notify Columbus Silver by November 30, 2011 that it has obtained a firm commitment for the required funding, Columbus Silver will have the option to terminate the acquisition. On September 8, 2011, in relation to the transaction with Columbus Silver, we filed a Current Report on Form 8-K.

The results of operations for the fiscal years ended June 30, 2011, 2010 and 2009 reflect a continuing under-capitalization of our Summit silver-gold project which requires additional funding to be able to achieve full production and profitability. We expect results of operations similar to those in fiscal 2011 and 2010 to continue in the foreseeable future, and do not expect them to change significantly until such time as profitable production is achieved at our Summit mine and/or additional capital and/or debt facilities are secured. There is significant uncertainty in our Summit estimates of both future costs and future revenues, and we may require additional capital resources to complete our plans.

We are dependent on additional financing to continue our exploration efforts in the future and if warranted, to develop and commence mining operations. While we have no current plans or arrangements for this additional capital requirement, we anticipate that we will be seeking additional equity financings in the future.

We anticipate a need for at least $25.0 million over the next 12 months, and $38.0 million over the next 36 months in order to satisfy past commitments, pay corporate overhead costs, complete Summit development, and fund acquisitions, feasibility studies and exploration programs as discussed under the Liquidity and Capital Resources section of this report. A portion of the required funding may be generated from cash flows from our Summit mine. If we fail to procure adequate funding on acceptable terms, we may be required to reduce or eliminate substantially all business activities until such time as funding can be secured on a basis acceptable to us.

The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. Should we be unable to continue as a going concern, we may be unable to realize the carrying value of our assets and to meet our obligations as they become due.

Liquidity and Capital Resources; Plan of Operation

As of June 30, 2011, we had cash and cash equivalents of $172,531 as compared to $5,540,130 at June 30, 2010. As of June 30, 2011, we had a working capital deficit of $13,114,301, which is mainly attributable to the current portion of our non-cash derivative instrument liabilities of $8,973,066 and the current portion of deferred revenue of $3,611,266.

On January 11, 2011, we announced a contract with ASARCO LLC ("Asarco") to sell 12,000 tons of siliceous flux material for delivery during 201l. The contract was valued at up to $4.0 million. The siliceous flux is shipped to Asarco's smelter in Hayden, Arizona. The flux material is processed for precious metals recovery and we are paid for the contained silver and gold less customary charges. The sales agreement was reached following a successful smelting trial of an initial 1,000 tons of siliceous flux shipped to Asarco in 2010. Sale of siliceous flux material involves direct shipment of Summit ore with only minimal processing required.

On December 23, 2010, we announced a contract with Aurubis AG ("Aurubis"), Europe's largest copper and precious metals smelter, to sell approximately 240 tons of high-value precious metals concentrates for delivery during 2011. The contract was valued at approximately $9.0 million. The sales agreement was reached following a successful smelting trial of an initial 20 tons of concentrate shipped to Aurubis in 2010. The concentrates are produced at our Lordsburg flotation mill from ore mined at the Summit mine.

On December 30, 2010, we sold common stock to three institutional investors pursuant to the Company's shelf registration statement on Form S-3. The shares were sold at $1.20 per share and gross cash proceeds aggregated $2,000,001. Placement agent fees of $136,000 were paid on the offering. We issued 833,334 five-year warrants giving the holders the right to purchase common stock at $1.50 per share. The warrants are exercisable immediately after issuance and will expire five years from the date of issuance. In connection with the registered direct offering, we issued 100,000 warrants to the placement agent, exercisable at $1.50 per share.

On January 20, 2010 we entered into definitive agreements with 23 institutional investors to purchase $10.0 million of securities in a registered direct offering. We received net proceeds of $9,375,000 after deducting placement agent fees and other offering expenses. The securities were offered pursuant to an effective S-3 Registration Statement. The Company sold to the investors an aggregate of 7,692,310 shares of its common stock, and warrants to purchase up to 3,846,155 additional shares of common stock. Each unit, consisting of one share of common stock and one-half of a warrant to purchase a share of common stock, was sold for a purchase price of $1.30. The warrants to purchase additional shares are exercisable at $1.70 per share and have a term of 5 years.

On January 15, 2010, a warrant holder exercised 60,000 warrants with an exercise price of $1.25 per share to purchase shares of the Company's common stock and the Company received cash proceeds of $75,000.

On September 11, 2009, we entered into a definitive gold sale agreement with Sandstorm Gold Ltd. (TSX-V: SSL) ("Sandstorm") to sell a portion of the life-of-mine gold production (but not silver production) from our Summit silver-gold mine. Under the agreement we received an upfront cash deposit of $4.0 million, plus we will receive ongoing production payments equal to the lesser of $400 per ounce or the prevailing market price, for each ounce of gold delivered pursuant to the agreement for the life of the mine. Gold production subject to the agreement includes 50% of the first 10,000 ounces of gold produced, and 22% of the gold thereafter. The amount of payable gold can be reduced from 22% to 15% provided that within 36 months the Summit mine reaches certain performance levels in any consecutive 12 month period, in compliance with prefeasibility estimates, including 1) the rate of ore mined and processed must average 400 tons per day or more, and 2) payable gold production must exceed 11,500 ounces during such consecutive 12 month period. Sandstorm made an initial payment of $500,000 and on October 7, 2009 paid the remaining $3,500,000 balance of the upfront cash deposit. We will receive credit against the $4.0 million upfront cash deposit for the difference between the market price and $400 per ounce for those gold deliveries where the prevailing market price exceeds $400 per ounce. These credits will be recognized as revenue, in addition to the ongoing production payments received for gold delivered pursuant to the agreement. In certain circumstances, including failure to meet minimum production rates, interruption in production due to permitting issues and customary events of default, the agreement may be terminated. In such event, we may be required to return to Sandstorm the upfront cash deposit of $4.0 million less a credit for gold delivered up to the date of that event, which is determined using the difference between the market price and $400 per ounce for gold deliveries where the prevailing market price exceeded $400 per ounce.

On June 28, 2011, the Company entered into Amendment 2 for the definitive gold sale agreement with Sandstorm. The amendment extended the delivery date for the additional 700 ounces of gold agreed upon in Amendment 1 from June 30, 2011 until October 15, 2011. In exchange for the deferred delivery date the Company agreed to pay a per diem of 3 ounces of gold for each day the additional 700 ounces of gold under Amendment 1 remain outstanding past June 30, 2011 until the actual date of delivery, no later than October 15, 2011. Based upon the sale terms of the agreement, the Company recorded an accrued liability of $773,850 based upon the closing gold price on June 30, 2011. The Company will mark to market the accrued liability on the delivery date of the additional ounces based upon the closing gold price on such date.

On August 6, 2009, the Company issued 100,000 shares of the Company's stock in a private placement. The shares were valued at $1.06 per share for total proceeds of $106,000. As part of the private placement the Company also issued 50,000 warrants with an exercise price of $1.06 and an expiration of 5 years.

On July 27, 2009, the Company issued 94,339 shares of the Company's stock in a private placement. The shares were valued at $1.06 per share for total proceeds of $100,000. As part of the private placement the Company also issued 47,169 warrants with an exercise price of $1.06 per share and an expiration of 5 years.

On June 22, 2009, the Company issued 283,019 shares of the Company's stock in a private placement. The shares were valued at $1.06 per share for total proceeds of $300,000. As part of the private placement the Company also issued 141,510 warrants with an exercise price of $1.06 and an expiration of 5 years.

On December 21, 2007, we entered into a definitive agreement for the placement with a single investor of senior secured convertible debentures in the amount of $13,500,000. Proceeds from the debentures were used primarily for the development of the Summit project. The debentures were issued in accordance with a pre-determined funding schedule and the term of the debentures is 60 months. In fiscal 2009, we received advances aggregating $8,150,000, bringing the total received to $13,500,000 since inception.

Effective June 30, 2009, we agreed with the investor to convert the aggregate accrued interest of $974,360 due June 30, 2009, under the convertible debentures, into 974,360 shares of the Company's common stock. We also agreed that aggregate accrued interest on the outstanding principal amounts of the debentures for the quarters ending September 30, 2009 and December 31, 2009, shall be paid in shares of the Company's common stock, to be valued at one dollar ($1.00) per share at the time of payment and issuance. Accordingly the Company issued 483,000 shares of its common stock in payment of $483,000 of aggregate accrued interest for the combined quarters ended September 30, 2009 and December 31, 2009.

Prior to our current fiscal year ended June 30, 2011, we have not generated any significant revenues from operations and have incurred significant operating losses. At June 30, 2011, we have an accumulated (deficit) of $59,746,543. Our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Our primary source of operating funds provided during our fiscal year 2011 was from the sales of our gold and silver products aggregating $6,440,897 and from the sale of equity. We anticipate that our operations through fiscal 2012 will be funded from increased revenues from the ramp up to full production at our Summit project resulting increased sales of our gold and silver products. Additional funding may come from the sale of our securities; exercise of certain options and warrants; and/or through project related debt or equity financings. While we believe we will be able to finance our continuing activities, there is no assurance of success in this regard or in our ability to obtain continued financing through capital markets, joint ventures, or other acceptable arrangements. If our plans are not successful, operations and liquidity may be adversely impacted. In the event that we are unable to obtain additional required capital, we may be forced to reduce our exploration and operating expenditures or to cease future development operations altogether.

We are continuing to seek funding to advance our business plan and strategies. We require funds to meet our corporate commitments, to complete Summit development, to make acquisitions, to continue feasibility studies on our mineral properties and to initiate exploration programs.. A portion of the funds required may be generated from our Summit mine. We project the need for a minimum of $25.0 million over the next 12 months, and $38.0 million over the next 36 months, estimated as follows:

                                               Next 12 Months     Next 36 Months
Completion of Summit development             $      5,000,000   $      8,000,000
Exploration programs and feasibility studies        3,000,000         10,000,000
Acquisitions                                       11,000,000         11,000,000
Corporate overhead and related expenses             1,000,000          4,000,000
General working capital                             5,000,000          5,000,000
Total funding requirements                   $     25,000,000   $     38,000,000

This projection assumes that we will be able to service our current debt and lease commitments whereby interest, principal and lease payments will be paid from future project revenues or are refinanced or are paid with equity financial instruments.

With respect to the issuance of unregistered securities referenced above, all transactions were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 (the "1933 Act"), and Regulation D promulgated under the 1933 Act. In each instance, the purchaser had access to sufficient information regarding the Company so as to make an informed investment decision. More specifically, we had a reasonable basis to believe that each purchaser was an "accredited investor" as defined in Regulation D of the 1933 Act and otherwise had the requisite sophistication to make an investment in our securities.

Results of Operations

Fiscal Year Ended June 30, 2011 Compared to Fiscal Year Ended June 30, 2010

Sales increased to $6,440,897 in fiscal year 2011 from $320,145 in fiscal year 2010, an increase of $6,120,752. The increase in was comprised of precious metals sales of concentrate, flux material, and refined gold. Concentrate sales for fiscal year 2011, were $3,907,364, as compared to $-0- for fiscal year 2010, an increase of $3,907,364, while flux material sales were $1,997,276 for fiscal year 2011, as compared to $320,145 for fiscal year 2010, an increase of $1,677,131. Sales of refined gold increased to $536,257 for fiscal year 2011, as compared to $-0- for fiscal year 2010, the increase resulting from the delivery of refined gold commencing in accordance with the definitive gold sales agreement entered into on September 11, 2009.

Costs applicable to sales generated during fiscal year 2011, were $3,317,914, comprised of $1,521,400 for concentrate and flux material, and $1,796,514 related to sales of refined gold. No costs were attributable to sales for our fiscal year 2010. The increase of $1,796,514 for sales of refined gold includes a non-recurring accrual of $773,850 related to Amendment 1 of the definitive gold sales agreement for the extension of the completion guarantee date.

Exploration and mine and mill start up costs increased in fiscal year 2011 to $2,147,511 from $1,004,256 in fiscal year 2010. The increase of $1,143,255 is mainly attributable to increased non-capitalized costs incurred on the Summit project., including deployment of the mill into operations with increasing through put, continued development of the Summit mine and wrap up towards full production. Major components of increased costs were labor burden of $185,333; operating supplies and general expenses of $138,552; vehicle operating costs of $46,560; repairs and maintenance of $96,531; property and resource taxes of $101,387; royalty fees of $536,089; and exploration costs of $220,395. Significant decreased expense components offsetting these increases were utilities of $47,753 which were allocated to cost sales in fiscal year 2011; property, casualty and liability insurance of $18,020; relocation costs of $69,792 and land lease payments of $11,041

General and administrative increased to $2,921,864 in fiscal year 2011, from $2,204,724 for fiscal year 2010, an increase of $717,140. Major components of the increased costs are comprised of labor burden of $103,843; employee stock compensation of $369,259; investor relations of $101,435; costs associated with options of $200,557; corporate filing fees of $20,953; director fees of $55,000; corporate meetings of $33,004; travel and entertainment of $49,693 and office operating costs aggregating $30,476. Major components of decreased costs offsetting the increases were auditing, accounting and related compliance fees of $82,861; commissions of $12,097 and consulting fees of $142,245. The decreased auditing, accounting and related compliance fees are a result of an over accrual of approximately $30,000 related to prior audit fees recognized in fiscal year 2010, and reduced fees incurred on other special projects. The decrease in consulting fees is mainly attributable to $131,359 related to the termination of a consulting agreement for the discontinued Pilar project in Mexico.

Stock-based compensation included in General and Administrative in fiscal year 2011 increased to $1,010,081 from $717,547 in fiscal year 2010, an increase of $292,534. The increase in the current fiscal year is attributable to increased costs recognized on stock grants to employees of $202,426; amortized costs associated with options of $200,556 and a reduction of amortized costs associated with stock issued for services aggregating $110,448.

Depreciation and amortization during the current fiscal year 2011 increased to $2,322,736 as compared to $477,760 for the comparable fiscal year 2010, an increase of $1,844,976. The increase is directly attributable to the deployment of the Summit mine project and Banner mill project and related capitalized equipment costs put into service during fiscal year 2011 and 2010.

Other income and (expense) for fiscal year 2011 were $(347,965) as compared to $2,157,241 for fiscal 2010, a decrease of $2,505,206. The increase in other expense incurred in the current fiscal year is mainly attributable to a decrease in a gain on derivative instrument liabilities of $1,642,986; an increase in accretion of discounts on notes payable of $223,651 and an increase of interest expense of $633,098.

We recognized a non-cash gain on derivative instruments liabilities of $1,652,961 for fiscal year 2011, as compared to a gain of $3,295,947 for the prior fiscal comparable year 2010, a reduction of $1,642,986. The non-cash gain arose from adjustments to record the derivative financial instruments at fair values in accordance with current accounting standards. The derivative financial . . .