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SVBL > SEC Filings for SVBL > Form 10-Q on 5-Jun-2013All Recent SEC Filings

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Form 10-Q for SILVER BULL RESOURCES, INC.


5-Jun-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

When we use the terms "Silver Bull ," "we," "us," or "our," we are referring to Silver Bull Resources, Inc. 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/A for the fiscal year ended October 31, 2012. Throughout this document we make statements that are classified as "forward-looking."

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes certain statements that may be deemed to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the U.S. Private Securities Litigation Reform Act of 1995, and "forward-looking information" within the meaning of applicable Canadian securities legislation. We use words such as "anticipate", "continue", "likely", "estimate", "expect", "may", "will", "projection", "should", "believe", "potential", "could" or similar words suggesting future outcomes (including negative and grammatical variations) to identify forward-looking statements. These statements include, among other things, planned drilling activities at the Sierra Mojada Property, the timing and scope of our metallurgical program, the scope and size of the capital budget for the Sierra Mojada Property and for general and administrative expenses, and the preparation of a preliminary economic assessment in compliance with Canadian Securities Administrators' National Instrument 43-101 - Standards of Disclosure for Mineral Projects ("NI 43-101"), and planned activities at our Gabon properties.

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 and our actual results could differ from those express or implied in these forward-looking statements as a result of the factors described under "Risk Factors" in our Annual Report on Form 10-K/A for the fiscal year ended October 31, 2012, including:

Results of future exploration at our Sierra Mojada Project;

Our ability to raise necessary capital to conduct our exploration activities and to do so on acceptable terms;

Worldwide economic and political events affecting the market prices for silver, gold, zinc, lead, copper, manganese and other minerals that may be found on our exploration properties;

The amount and nature of future capital and exploration expenditures;

Competitive factors, including exploration-related competition;

Our ability to obtain required permits;

Timing of receipt and maintenance of government approvals;

Unanticipated title issues;

Changes in tax laws;

Changes in regulatory frameworks or regulations affecting our activities;

Our ability to retain key management necessary to successfully operate and grow our business; and

Political and economic instability in Mexico and other countries in which we conduct our business and future actions of the governments in such countries with respect to nationalization of natural resources or other changes in mining or taxation policies.


These factors are not intended to represent a complete list of the general or specific factors that could affect us.

All forward-looking statements speak only as of the date made. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. You should not place undue reliance on these forward-looking statements.

Cautionary Note Regarding Exploration Stage Companies

We are an exploration stage company and do 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 shows proven and probable reserves. There can be no assurance that our concessions contain proven and probable reserves and investors may lose their entire investment. See "Risk Factors" in our Annual Report on Form 10-K/A for the fiscal year ended October 31, 2012.

Business Overview

Silver Bull, incorporated in Nevada, is an exploration stage company, engaged in the business of mineral exploration. Our primary objective is to define sufficient mineral reserves on the Sierra Mojada Property to justify the development of a mechanized mining operation. We conduct our operations in Mexico through our wholly-owned Mexican subsidiaries, Minera Metalin S.A. de C.V. ("Minera") and Contratistas de Sierra Mojada S.A. de C.V., and through Minera's wholly-owned subsidiary Minas de Coahuila SBR S.A. de C.V. However, as noted above, we have not established any reserves at the Sierra Mojada Property, and are in the exploration stage and may never enter the development or production stage.

On April 16, 2010, we completed a merger transaction with Dome Ventures Corporation ("Dome"), whereby Dome became our wholly-owned subsidiary. Dome through its subsidiaries holds two exploration licenses in Gabon, West Africa covering approximately 4,000 square kilometers. We believe that the Ndjole license has gold and manganese potential and the Mitzic license has iron ore potential. We are currently looking for a joint venture partner on the Ndjole and Mitzic licenses. Operations in Gabon are conducted by Dome's subsidiaries Dome Ventures SARL Gabon, African Resources SARL Gabon and Gabon Resources SARL.

Our principal offices are located at 925 West Georgia Street, Suite 1908, Vancouver, BC, Canada V6C 3L2, and our telephone number is 604-687-5800.

Current Developments

February 2013 Offering

In February 2013, we raised net proceeds of approximately $8,095,000 in a public offering of units consisting of one share of common stock and one-half of a common stock purchase warrant. We intend to use the proceeds of the offering to continue to advance the Sierra Mojada project.


Sierra Mojada Property

As a result of the proceeds from our February 2013 offering, our board of directors approved a revised calendar year 2013 exploration budget of $4.6 million for exploration and property holding costs and $1.9 million for concessions option payments and land purchases for the Sierra Mojada Property and a $2 million budget for general and administration expenses as discussed in the "Material Changes in Financial Condition; Liquidity and Capital Resources" section. The focus of the 2013 calendar year exploration program is drilling, continued metallurgical work, the recently completed NI 43-101 compliant resource estimate and the completion of a preliminary economic assessment based on the updated resource estimate.

Mineralized Material Estimate

On April 30, 2013, JDS Energy & Mining Inc. ("JDS") delivered a technical report (the "Technical Report") on the mineralization at the Sierra Mojada Project in accordance with NI 43-101. The Technical Report includes the silver and zinc mineralization in the area that has been referred to as the "Shallow Silver Zone" and the "Zinc Zones". The resource was estimated from 1,372 diamond drill holes, 25 reverse circulation drill holes, 9,025 channel samples and 2,345 long holes. At a cutoff grade of 25 grams/tonne of silver for mineralized material, the Technical Report indicates mineralized material of 72.9 million tonnes at an average silver grade of 69.5 grams/tonne silver and an average zinc percentage of 1.50%. Mineralized material estimates do not include any amounts categorized as inferred resources.

"Mineralized material" as used in this Quarterly Report on Form 10-Q, although permissible under the SEC's Industry Guide 7, does not indicate "reserves" by SEC standards. We cannot be certain that any part of the Sierra Mojada Project will ever be confirmed or converted into SEC Industry Guide 7 compliant "reserves." Investors are cautioned not to assume that all or any part of the mineralized material will ever be confirmed or converted into reserves or that mineralized material can be economically or legally extracted.

Drilling

A 4,000 meter drill program has been planned targeting what is believed to be the extension to the "high grade silver mineralization" previously defined by the "longhole" data and the subject of the twinning drill program described below. Drilling will be conducted underground using "Termite" drill rigs which can drill up to 70 meter long holes of NQ sized diamond core.

Approximately 400 meters of underground drilling targeting a high grade silver zone was completed during January to April 2013.

Metallurgical Studies

We have an active metallurgical program to test the silver mineralization for heap and agitation cyanide leach methods and the zinc mineralization for pyro-metallurgy and flotation methods. We are also investigating how any low grade zinc (<1%) which reports with the silver mineralization can be recovered.

We received preliminary results for metallurgical testing on samples taken from a portion of the Shallow Silver Zone and the Zinc Zone. The test work included in these preliminary results in the Silver Zone focused on cyanide leach recovery of the silver using "Bottle Roll" tests to simulate an agitation leach system. In the Zinc Zone this work focused on roasting the ore in a rotary kiln to fume off the zinc and collect it as a zinc oxide concentrate. Preliminary results from these initial tests were promising, and further metallurgical tests are continuing on samples taken from other areas of the Shallow Silver Zone and Zinc Zone. In addition we are performing significant testing of the flotation method on samples from the Zinc Zone. The results from this first phase of the metallurgical program are expected to be completed in June 2013 and these results will be included in the preliminary economic assessment described below.


Preliminary Economic Assessment

JDS has been retained to complete Silver Bull's maiden Preliminary Economic Assessment ("PEA") on the silver and zinc mineralization at the Sierra Mojada Property. The PEA is expected to be completed in the third quarter of calendar year 2013.

Geological Mapping

In addition to drilling the extensions on the Shallow Silver Zone, a regional mapping and prospecting exploration program focused on the Palamos Negros and Dormidos prospects is underway. The aim of this program is to identify drill targets in these prospects outside of the Shallow Silver Zone. Subject to positive results from this program, an additional 2,000 meters of surface drilling has been budgeted for calendar year 2013 to test targets identified in these areas.

Gabon Property

The majority of our work in Gabon was previously conducted by AngloGold Ashanti Limited under the terms of certain joint venture agreements. Effective August 16, 2012, AngloGold terminated those agreements. We continue to believe that the Ndjole license has gold and manganese potential and the Mitzic license has iron ore potential. We are currently looking for a joint venture partner on the Ndjole and Mitzic licenses.

To date, three main coherent gold anomalies above 50 parts per billion ("ppb") and over 5km in length and up to 1.5km wide and several smaller anomalous zones up to 2km in length and up to 1km wide have been identified. Background gold values in the region are less than 5 ppb and results above 20 ppb are considered anomalous. Over 25% of the results received to date are above 30 ppb with peak values in excess of 5,000 ppb in the soils. The anomalies appear to have strong structural controls concentrating along mapped or inferred lithological contacts, structural breaks, and fold hinges. There is also a strong spatial relationship of the gold anomalies to a thick graphitic lithological unit in the area that is thought to represent an ideal lithological trap for mineralizing fluids. Initial prospecting in these anomalous zones has identified a number of gold-bearing quartz veins, many of which run between 2 g/t to 5 g/t gold.

Exploratory drilling has focused on these gold anomalies. East-west trending drill fences have been positioned to test roughly north-south trending lithological contacts which are considered as the most favorable sites for gold deposition. A total of 5,300 meters has been drilled with gold intercepts between 1 meter to 13 meters in thickness encountered. The best intercept averaged 7.24 g/t gold over 9 meters. Most intercepts were in the 1 meter to 3 meters range at 1 to 4 g/t gold. In addition the drilling identified manganese with the best manganese intercept averaging 22% manganese over 34.5 meters from surface.

Results of Operations

Three months Ended April 30, 2013 and April 30, 2012

For the three months ended April 30, 2013, we experienced a net loss of $2,211,000, or approximately $0.01 per share, compared to a net loss of $3,396,000, or approximately $0.02 per share, during the comparable period last year. The $1,185,000 decrease in net loss was primarily due to a $2,250,000 decrease in exploration and property holding costs, which was partially offset by a $785,000 increase in general and administrative expenses and a $199,000 decrease in miscellaneous income.


Exploration and Property Holding Costs

Exploration and property holding costs decreased $2,250,000 to $1,474,000 for the three months ended April 30, 2013, compared to $3,724,000 for the comparable period last year. This decrease was primarily due to a significantly reduced drilling program on the Sierra Mojada Property. During the six months ended April 30, 2013, we had a small drilling program using our underground drill rigs; whereas, in the comparable three month period three external drill rigs were used. Also, this decrease was partially offset by a $633,000 concession impairment in the three months ended April 30, 2013 compared to $287,000 in the comparable period last year.

General and Administrative Costs

We recorded a general and administrative expense of $673,000 for the three months ended April 30, 2013 as compared to a recovery of $112,000 for the comparable period last year. The $785,000 increase was mainly the result of a $876,000 decrease in the recovery of uncollectible value-added taxes and a $73,000 increase in office and administrative costs, which was partially offset by a $70,000 decrease in professional services, a $89,000 decrease in directors' fees as described below.

Stock-based compensation was a factor in the fluctuations in general and administrative expenses. Overall stock based compensation included in general and administrative expense decreased to $67,000 for the three months ended April 30, 2013 from $171,000 for the comparable period last year. The decrease was mainly due to a result of stock options granted to two new directors in February 2012.

Personnel cost of $193,000 for the three months ended April 30, 2013 was similar to $198,000 for the comparable period last year.

Office and administrative costs increased $73,000 to $336,000 during the three months ended April 30, 2013, compared to $263,000 in the comparable period last year. This increase is mainly due to increased investor relations activities, corporate travel due to the February 2013 offering described in the "Material Changes in Financial Condition; Liquidity and Capital Resources" section and the timing of expenses.

Professional fees decreased $70,000 to $91,000 for the three months ended April 30, 2013 compared to $161,000 for the comparable period last year. This decrease is mainly due to a decrease in legal fees in the three months ended April 30, 2013.

Directors' fees decreased $89,000 to $69,000 for the three months ended April 30, 2013 as compared to $158,000 for the comparable period last year. The decrease was primarily due to a $84,000 decrease in stock-based compensation expense as a result of stock options granted to two new directors in February 2012.

We recorded a recovery of $17,000 for uncollectible value-added taxes for the three months ended April 30, 2013 compared to a recovery of $893,000 in the comparable period last year. The recovery for uncollectible taxes in the three months ended April 30, 2012 was mainly due to value added tax collected in Mexico during this period inclusive of interest of $952,000 after a significant period where no collections were made. The allowance for uncollectible taxes was estimated by management based upon a number of factors including the length of time the returns have been outstanding, responses received from tax authorities, general economic conditions in Mexico and Gabon and estimated net recovery after commissions.

Other Income (Expenses)

We recorded other expense of $33,000 for the three months ended April 30, 2013 as compared to other income of $288,000 for the comparable period last year. The significant factor was a $40,000 foreign currency transaction loss in the three months ended April 30, 2013, compared to a foreign currency transaction gain of $23,000 for the comparable period last year and a $4,000 miscellaneous income in the three months ended April 30, 2013 compared to a $203,000 miscellaneous income for the comparable period last year. This miscellaneous income in 2012 was primarily the result of us receiving supporting documents that allowed us to reduce our liability for certain withholding taxes.


The foreign currency transaction loss in the three months ended April 30, 2013 was primarily the result of the depreciation of the Central African Franc and the resulting impact on the intercompany loans between Silver Bull and our Gabonese subsidiaries. The foreign currency transaction gain in the comparable period last year was primarily the result of the appreciation of the Central African Franc and the resulting impact on the intercompany loans between Silver Bull and our Gabonese subsidiaries.

Six months Ended April 30, 2013 and April 30, 2012

For the six months ended April 30, 2013, we experienced a net loss of $4,315,000, or approximately $0.03 per share, compared to a net loss of $6,990,000, or approximately $0.05 per share, during the comparable period last year. The $2,675,000 decrease in the net loss was primarily due to a $3,398,000 decrease in exploration and property holding costs, which was partially offset by a $680,000 increase in general and administrative expenses as described below.

Exploration and Property Holding Costs

Exploration and property holding costs decreased $3,398,000 to $2,878,000 for the six months ended April 30, 2013 compared to $6,276,000 for the comparable period last year. This decrease was primarily due to a significantly reduced drilling program on the Sierra Mojada Property. During the six months ended April 30, 2013, we had a small drilling program using our underground drill rigs; whereas, three external drill rigs were used in the comparable period last year. Also, we recorded a $709,000 concession impairment in the six months ended April 30, 2013 compared to $355,000 concession impairment in the comparable period last year.

General and Administrative Costs

General and administrative expenses increased $680,000 to $1,451,000 for the six months ended April 30, 2013 as compared to $771,000 for the comparable period last year. This increase was mainly the result of a $808,000 decrease in recovery of uncollectible value-added taxes and $176,000 increase in office and administrative cost which was partially offset by a $154,000 decrease in directors' fees and $104,000 decrease in professional services for the six months ended April 30, 2013.

Stock based compensation was a significant factor for the fluctuations in personnel and directors fees. Overall stock based compensation included in general and administrative expense decreased to $195,000 for the six months ended April 30, 2013 from $427,000 for the six months ended April 30, 2012. This was mainly due to stock options granted to officers and directors during the six months ended April 30, 2012.

Personnel costs decreased $47,000 to $426,000 for the six months ended April 30, 2013 as compared to $473,000 for the same period last year. This decrease was mainly due to a decrease in stock based compensation expense to $125,000 in the six months ended April, 30, 2012 from $206,000 in the comparable period last year, which was partially offset by a $34,000 increase in personnel costs due to additional employees in the six months ended April 30, 2013.

Office and administrative expenses increased $176,000 to $628,000 for the six months ended April 30, 2013 as compared to $452,000 for the comparable period last year. This increase is mainly due to increased investor relations activities and corporate travel related to the February 2013 offering described in the "Material Changes in Financial Condition; Liquidity and Capital Resources" section.

Professional services decreased $104,000 to $233,000 for the six months ended April 30, 2013 as compared to $337,000 for the comparable period last year. The decrease was primarily due to a decrease in legal fees in the six months ended April 30, 2013 from the comparable period last year.

Directors' fees decreased $154,000 to $163,000 for the six months ended April 30, 2013 as compared to $317,000 for the comparable period last year. This decrease was primarily due to a $151,000 decrease in stock based compensation as a result of stock options granted to two new directors in February 2012 and the vesting of stock options granted in January 2012.


We recorded a recovery of $1,000 for the six months ended April 30, 2013 for uncollectible value-added taxes compared to a recovery of $809,000 in the comparable period last year. The recovery for uncollectible taxes in the six months ended April 30, 2012 was mainly due to value added tax collected in Mexico during this period inclusive of interest of $952,000 after a significant period where no collections were made. The allowance for uncollectible taxes was estimated by management based upon a number of factors including the length of time the returns have been outstanding, responses from tax authorities received, general economic conditions in Mexico and Gabon and estimated net recovery after commissions.

Other Income (Expenses)

Other income decreased $79,000 to $55,000 for the six months ended April 30, 2013 as compared to $134,000 for the comparable period last year. The significant factor was a $7,000 interest income and a $4,000 miscellaneous income in the six months ended April 30, 2013 as compared to a $66,000 interest income and a $234,000 miscellaneous income for the comparable period last year. This miscellaneous income in 2012 was primarily the result of us receiving supporting documents that allowed us to reduce our liability for certain withholding taxes. This decrease was partially offset by a foreign currency transaction gain of $44,000 in the six months ended April 30, 2013 as compared to a $165,000 foreign currency transaction loss for the comparable period last year.

The foreign currency transaction gain in the six months ended April 30, 2013 was primarily the result of the appreciation of the Central African Franc and the resulting impact on the intercompany loans between Silver Bull and our Gabonese subsidiaries. The foreign currency transaction loss in the comparable period last year was primarily the result of the depreciation of the Central African Franc and the resulting impact on the intercompany loans between Silver Bull and our Gabonese subsidiaries.

Material Changes in Financial Condition; Liquidity and Capital Resources

February 2013 Offering

On February 14, 2013, we closed a public offering ("the Offering") for the sale of 22,912,500 units at a price of $0.40 per unit for gross proceeds of $9,165,000. Each unit was comprised of one share of common stock and one-half of one common stock purchase warrant, with each whole warrant exercisable to purchase one share of common stock, at an exercise price of $0.55, for a period of 18 months from the closing of the Offering. We paid the agents on the Offering a cash commission equal to 6.0% of the gross proceeds, except for $2.5 million in units sold to purchasers arranged by us for which the agents received a 3.0% cash commission.

In addition, the agents received compensation warrants equal in number to 6.0% of the aggregate number of units issued under the Offering except for $2.5 million in units sold to purchasers arranged by us for which the agents received compensation warrants equal in number to 3.0% of the units sold to such purchasers. The compensation warrants have the same terms as the other warrants issued in the Offering.

Cash Flows

During the six months ended April 30, 2013, we primarily utilized cash and cash equivalents on hand to fund exploration activities at the Sierra Mojada Property and for general and administrative expenses. Additionally, during the six months ended April 30, 2013, we received net proceeds after offering costs of $8,095,000 as we closed the Offering. As a result of the Offering, offset by the exploration activities and general and administrative expenses, cash and cash equivalents on hand increased from $3,201,000 at October 31, 2012 to $7,753,000 at April 30, 2013.

Cash flows used in operations for the six months ended April 30, 2013 was $3,362,000 as compared to $7,116,000 for the comparable period in 2012. This decrease was mainly due to the decreased exploration work at the Sierra Mojada Property in the six months ended April 30, 2013 compared to the comparable period last year.


Cash flows used in investing activity for the six months ended April 30, 2013 was $217,000 as compared to $833,000 for the comparable period in 2012. The decrease was mainly due to the decision to not pursue further work on La Perla, La India, and La India Dos concessions as described below, an agreement to defer another concessions option payment and the delay in payment of a concession option payment from April 2013 to June 2013.

Cash flows provided by financing activities for the six months ended April 30, 2013 was $8,127,000 as compared to $10,288,000 for the comparable period last year. The majority of the cash flow provided by financing activities was due to the Offering.

Capital Resources

As of April 30, 2013, we had cash and cash equivalents on hand of $7,753,000 and working capital of $6,847,000 as compared to cash and cash equivalents on hand of $3,201,000 and working capital of $2,925,000 as of October 31, 2012. The increase in our liquidity and working capital were primarily the result of the . . .

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