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PGLC > SEC Filings for PGLC > Form 10-Q on 14-Nov-2012All Recent SEC Filings

Show all filings for PERSHING GOLD CORP.

Form 10-Q for PERSHING GOLD CORP.


14-Nov-2012

Quarterly Report


ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations

Pershing Gold Corporation and its subsidiaries ("Pershing Gold"; the "Company" or "we") is a gold and precious metals exploration company pursuing exploration and development opportunities primarily in Nevada. We are currently focused on exploration at our Relief Canyon properties in Pershing County in northwestern Nevada.

This discussion should be read in conjunction with Management's Discussion and Analysis included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Forward-Looking Statements

This Report on Form 10-Q and other written and oral statements made from time to time by us may contain so-called "forward-looking statements," all of which are subject to risks and uncertainties. Forward-looking statements can be identified by the use of words such as "expects," "plans," "will," "forecasts," "projects," "intends," "estimates," and other words of similar meaning. Forward looking statements include, without limitation, statements relating to our business goals, planned exploration, business strategy, planned engineering studies, future operating results, and our liquidity and capital resources outlook. Forward -looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Our actual results may differ materially from those contemplated by the forward-looking statements, which are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Important factors that could cause actual results to differ materially from those anticipated in forward- looking statements include without limitation results of future exploration and engineering studies on our Relief Canyon properties; our ability to raise necessary capital to conduct our exploration activities and do so on acceptable terms or at all, reinterpretations of geological information; problems or delays in permitting or other government approvals; the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2011. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from our forward looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward looking statement can be guaranteed and actual future results may vary materially.

Overview

During the first quarter of 2012, our management decided to focus on exploration at our Relief Canyon properties and to reduce our interests in or divest our other exploration properties. During the second quarter of 2012, we acquired additional properties to expand our Relief Canyon properties and completed the divestiture of all exploration properties not related to our Relief Canyon properties. During the third quarter of 2012, we continued to focus our exploration activities and concentrate our resources on our Relief Canyon properties. An overview of our progress during the third quarter 2012 is provided below.

Relief Canyon Mine. We completed the final phase of drilling for 2012 with an additional 83 holes comprising approximately 27,300 feet. This drilling was on land adjacent to the current deposit in order to extend and upgrade the existing deposit. Total holes drilled under our Phase I and II exploration programs were 127 drill holes comprising approximately 61,100 feet, including the drill holes on our Relief Canyon Expansion Properties discussed below.

In addition to the drilling, we continued baseline geologic mapping of the mine pits, geochemical and geophysical testing to identify new drill-ready targets.

Relief Canyon Expansion Properties. Through September 2012 we drilled four holes comprising approximately 3,000 feet and performed soil sampling, and geochemical and geophysical testing to identify new drill-ready targets on our combined land position of approximately 25 square miles along the Humboldt Range, both north and south of the Relief Canyon Mine area.

Recommissioning Relief Canyon Processing Facility. We have begun limited work under this initiative to date. During the third quarter of 2012, we performed annual testing of the process area (plant start-up and shake down) and crusher (ran test ore through the crusher) which helps us identify necessary repairs and improvements needed in order to recommission those components of the overall processing facility.

On November 14, 2012, we had 256,619,449 shares of common stock outstanding, warrants to purchase 12,222,188 shares of common stock at an average exercise prices of $0.55 per share outstanding and no shares of preferred stock outstanding.

Results of Operations

In September 2011, we decided to discontinue our sports and entertainment business and to focus on gold exploration. Prior periods have been restated in the Company's consolidated financial statements and related footnotes to conform to this presentation and all transactions relating to our sports and entertainment business are included in discontinued operations.

For the results of continuing operations discussed below, we compare the results from operations for the three month period ended September 30, 2012 to the results of operations for the three month period ended September 30, 2011 and for the nine month period ended September 30, 2012 to the results of operations for the nine month period ended September 30, 2011.

Net Revenues

We are an exploration stage company and accordingly have not generated any revenues for the three and nine months ended September 30, 2012 and 2011.

Operating Expenses

Total operating expenses for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011, were approximately $5.4 million and $4.6 million, respectively. The $0.8 million increase in operating expenses for the three month period ended September 30, 2012 includes approximately $2.4 million of compensation expense related primarily to stock based compensation expense of approximately $2.0 million and other expenses for hiring our executive and management employees and support staff; $1.8 million in exploration expense on our Relief Canyon properties, $0.8 million in general and administrative expenses primarily for public company expenses and litigation and $0.4 million in consulting fees primarily related to financing and investor relations matters.

Total operating expenses for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011, were approximately $27.2 million and $5.9 million, respectively. The $21.3 million increase in operating expenses for the nine month period ended September 30, 2012 includes approximately $17.2 million of compensation expense related primarily to stock based compensation expense of $15.7 million and other expenses for hiring our executive and management employees and support staff; $4.8 million in exploration expense on our Relief Canyon properties, North Battle Mountain and Red Rock properties, $3.1 million in general and administrative expenses primarily for public company expenses and litigation and $2.0 million in consulting fees primarily related to financing and investor relations matters.

Operating Loss from Continuing Operations

We reported an operating loss from continuing operations of approximately $5.4 million and $4.6 million, respectively, for the three months ended September 30, 2012 and 2011. We reported an operating loss from continuing operations of approximately $27.2 million and $5.9 million, respectively, for the nine months ended September 30, 2012 and 2011. The increases in operating losses were due to the increases in operating expenses described above.

Other Income (Expenses)

Total other income (expense) was approximately $0.4 million and $(9.9) million for the three months ended September 30, 2012 and 2011, respectively. The change is primarily attributable to transactions during the prior three month period associated with the $4.8 million of settlement expenses in connection with the issuance of common stock for the cancellation of our warrants originally issued to Continental warrant holders, derivative related expenses of approximately $3.5 million, interest expense of $1.7 million; offset in part by $0.4 million of realized gain from the sale of our available for sale securities.

Total other expense was approximately $18.3 million and $11.4 million for the nine months ended September 30, 2012 and 2011, respectively. The increase is primarily attributable to $11.0 million in interest expense attributable to the amortization of debt discounts and deferred financing cost of approximately $8.0 million of convertible notes converted on March 30, 2012 and interest expense in connection with the issuance of common stock and warrants pursuant to a note modification agreement, $4.9 million of settlement expense in connection with the cancellation of warrants originally issued to Continental warrant holders, and $4.8 million due to the conversion of the $8.0 million senior convertible notes to our common stock and Series D Cumulative Convertible Preferred Stock and $1.5 million increase in fair value of derivative liability on the $8.0 million senior convertible notes, offset in part by $0.8 million realized gain from sale of our available for sale securities, $0.9 million income resulting from the consideration paid by Amicor in its Option to acquire our uranium exploration properties and $2.5 million other income resulting from the consideration received from the sale of gold exploration properties to Valor Gold.

Net Loss

As a result of the operating expense and other income (expense) discussed above, we reported a net loss of approximately $5.1 million for the three months ended September 30, 2012 as compared to a net loss of $16.5 million for the three months ended September 30, 2011. We reported a net loss of approximately $45.6 million for the nine months ended September 30, 2012 as compared to a net loss of $20.3 million for the nine months ended September 30, 2011.

Liquidity and Capital Resources

At December 31, 2011, our cash and cash equivalents totaled approximately $3.7 million compared to $1.5 million at September 30, 2012. During the nine months ended September 30, 2012, we received net proceeds of $7.3 million from the sale of common stock and preferred stock and proceeds of approximately $0.5 million from issuance of a note payable, $0.9 million from payment received on a note receivable from Amicor. These amounts were partly offset by approximately $4.8 million in exploration costs, and $3.1 million general and administrative expenses. We also reduced our debt from approximately $9.3 million to approximately $0.6 million, due to conversion of our $8.0 million senior convertible notes and $1.0 million secured convertible note to common stock and Series D Convertible Preferred Stock, which was partially offset by issuance of a $0.5 million note.

Our 2012 exploration program is nearly complete. We spent $4.8 million on exploration activities during the nine months ended September 30, 2012 and anticipate spending approximately $0.4 million for the remainder of 2012. Although we expect to have the funds necessary to execute the remainder of our 2012 exploration program, we will require external funding not only to pursue our exploration program but also to maintain our operations beginning in 2013. Our forecasted total costs for exploration in 2013 is $3.6 million with approximately $3.0 million expected to be spent to expand the deposit and move toward commencing mining at the Relief Canyon Mine property and $0.6 million to be spent on exploration at the Relief Canyon expansion properties.

In addition to our exploration program, we are preparing to recommission the gold processing facility on the Relief Canyon Mine site, which is currently in a care and maintenance status. We expect the cost to recommission the facility will be approximately $2.6 million, and our goal is to have it recommissioned by the end of 2013.

Our estimated total cost for 2013 for exploration, permitting, landholding, facilities recommissioning and general and administrative is approximately $13 million. Currently, our main objective is to expand the existing deposit and recommence mining from the existing Relief Canyon Mine. We consider exploration expenditures at our Relief Canyon expansion properties and recommissioning the Relief Canyon processing facility to have a lower priority than exploration expenditures at Relief Canyon Mine. If we do not receive adequate funding we would reduce, postpone, or cancel expenditures at our Relief Canyon expansion properties and Relief Canyon processing facility before reducing, postponing, or cancelling exploration activity at Relief Canyon Mine. If financing is not available, we would be required to preserve our cash by reducing exploration activities at Relief Canyon Mine and general and administrative expenses, and possibly cease operations.

We will require funding for the entirety of the amount that we spend in 2013. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. The trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail our development plans and possibly cease our operations.

We have no revenues and do not expect to have revenues for at least the remainder of 2012 and 2013. Therefore our future operations are dependent on our ability to secure additional external funding or through financing activities. Funding may not be available on acceptable terms or at all.

Contractual Obligations

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows.

The following table summarizes our contractual obligations as of September 30, 2012, and the effect these obligations are expected to have on our liquidity and cash flows in future periods:

                                                         Payments Due By Period
                                               Less than
Contractual Obligations:          Total          1 year        1-3 Years       4-5 Years      6-10 Years
Note payable- related party    $   519,750     $  519,750     $         -     $         -     $         -
Note payable- unrelated
party                               90,225          5,759          63,349          21,117               -
Office lease agreement -
Lakewood, Colorado                 118,205         11,054         107,151               -               -
Work and direct drilling
commitment under the 2006
Mineral lease agreement with
Newmont*                         4,500,000              -       1,000,000       1,000,000       2,500,000

Total Contractual
Obligations                    $ 5,228,180     $  536,563     $ 1,170,500     $ 1,021,117     $ 2,500,000

*Starting in June 2014, we will be required to spend $0.5 million annually on exploration expenditures or pay Newmont rental payments of $10 per acre per year. The rental payments will escalate by 5% per year. Under the current terms of the 2006 Mineral lease agreement, the annual rental starting in 2014, if we elected not to or failed to incur at least $0.5 million in exploration expenditures per year, would be approximately $0.1 million.

Significant Accounting Policies

We did not adopt any new accounting standards during the quarter ended September 30, 2012 nor were there any new accounting pronouncements during the period that would have an impact on our financial position or results of operation.

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