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

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Form 10-Q for SILVER BULL RESOURCES, INC.


5-Sep-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.

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, 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

Our board of directors approved a calendar year 2013 budget of $4.6 million for exploration and property holding costs and $1.9 million for acquisition of property concessions for the Sierra Mojada Property. Due to volatile market conditions, our board approved an updated budget for the Sierra Mojada Property in September 2013. Our updated exploration budget for the Sierra Mojada Property for the period from September 2013 to December 2013 is $0.5 million for exploration and property holding costs and $0.2 million for acquisition of property concessions compared to $1.0 million for exploration and property holding costs and $0.4 million for acquisition of property concessions in the original budget. The focus of the updated 2013 calendar year exploration program is continued metallurgical work and the completion of a NI 43-101 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 had been planned targeting what is believed to be an extension to the "high grade silver mineralization". Approximately 400 meters of underground drilling under this program has been conducted, but due to volatile market conditions, the remaining drill program has been placed on hold.

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 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 results in the Shallow Silver Zone focused on cyanide leach recovery of the silver using "Bottle Roll" tests to simulate an agitation leach system and to determine the recovery of low grade zinc in the Shallow Silver Zone to the leach solution. 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. In addition we reported on the sulfidization, acidification, recycling, and thickening process test work which is a metallurgical process that regenerates and recycles the cyanide used in the leaching process of the silver and allows for the recovery of a portion of the low grade zinc that occurs in the Shallow Silver Zone. The preliminary results showed an overall average silver recovery of 73.2% with peak values of 89.0% and an overall average zinc recovery of 44% in the Shallow Silver Zone. Also, we are performing significant testing of the flotation method on samples from the Zinc Zone and expect additional results in September 2013.

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 September 2013.

Geological Mapping

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 had been planned for calendar year 2013 to test targets identified in these area. Due to volatile market conditions, this potential drill program has been placed on hold.


Gabon Property

The majority of our work in Gabon was previously conducted by AngloGold Ashanti Limited ("AngloGold") 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 July 31, 2013 and July 31, 2012

For the three months ended July 31, 2013, we experienced a net loss of $1,459,000, or approximately $0.01 per share, compared to a net loss of $2,716,000, or approximately $0.02 per share, during the comparable period last year. The $1,257,000 decrease in net loss was primarily due to a $746,000 decrease in exploration and property holding costs, and a $531,000 other income in the three months ended July 31, 2013 compared to other expense of $186,000 in the comparable period last year which was partially offset by a $211,000 increase in general and administrative expenses.

Exploration and Property Holding Costs

Exploration and property holding costs decreased $746,000 to $1,298,000 for the three months ended July 31, 2013, compared to $2,044,000 for the comparable period last year. This decrease was due to reduced drilling expenses on the Sierra Mojada Property as during the three months ended July 31, 2012 we used three external drill rigs for a portion of this period. Also, during the three months ended July 31, 2012 we recorded a $571,000 concession impairment as we decided not to pursue the Ogooue concession.

General and Administrative Costs

We recorded a general and administrative expense of $673,000 for the three months ended July 31, 2013 as compared to $462,000 for the comparable period last year. The $211,000 increase was mainly the result of an $18,000 increase in professional fees and a $33,000 increase in directors fees. Also, we recorded a provision of $39,000 for uncollectible value-added taxes for the three months ended July 31, 2013 compared to a recovery of $120,000 of uncollectible value-added taxes for the comparable period last year.


Stock-based compensation was a factor in the fluctuations in general and administrative expenses. Overall stock based compensation included in general and administrative expense increased to $175,000 for the three months ended July 31, 2013 from $121,000 for the comparable period last year. The increase was mainly due to a result of stock options granted to employees and directors in June 2013.

Personnel cost of $237,000 for the three months ended July 31, 2013 was similar to $233,000 for the comparable period last year.

Office and administrative costs of $185,000 for the three months ended July 31, 2013 was similar to $187,000 for the comparable period last year.

Professional fees increased $18,000 to $88,000 for the three months ended July 31, 2013 compared to $70,000 for the comparable period last year. This increase is mainly due to an increase in legal and accounting fees in the three months ended July 31, 2013.

Directors' fees increased $33,000 to $123,000 for the three months ended July 31, 2013 as compared to $90,000 for the comparable period last year. The increase was primarily due to a $34,000 increase in stock-based compensation expense which is significantly a result of stock options granted to directors in June 2013.

We recorded a provision of $39,000 for uncollectible value-added taxes ("VAT") for the three months ended July 31, 2013 compared to a recovery of $120,000 in the comparable period last year. The recovery for uncollectible taxes in the three months ended July 31, 2012 was mainly due to changes in the estimate of the allowance for uncollectible value added taxes as we continued to be successful in collecting value added taxes following 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 income of $531,000 for the three months ended July 31, 2013 as compared to other expense of $186,000 for the comparable period last year. The significant factor was a $15,000 foreign currency transaction gain in the three months ended July 31, 2013, compared to a foreign currency transaction loss of $268,000 for the comparable period last year and a $515,000 miscellaneous income in the three months ended July 31, 2013 compared to a $10,000 miscellaneous income for the comparable period last year. This was partially offset by a decrease in interest and investment income to $2,000 for the three months ended July 31, 2013 as compared to $73,000 for the comparable period last year. The decrease in interest and investment income is due to significant value added tax collections of historical returns and associated interest occurring in the three months ended July 31, 2012.

The miscellaneous income in the three months ended July 31, 2013 was primarily the result of our determination that AngloGold abandoned all of its rights and benefits under the two joint venture agreements upon AngloGold's termination of these agreements, and therefore the VAT receivable outstanding at the termination of the agreements and subsequent cash collected is the sole property of the Company.

The foreign currency transaction gain in the three months ended July 31, 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.

Nine Months Ended July 31, 2013 and July 31, 2012

For the nine months ended July 31, 2013, we experienced a net loss of $5,774,000, or approximately $0.04 per share, compared to a net loss of $9,705,000, or approximately $0.07 per share, during the comparable period last year. The $3,931,000 decrease in the net loss was primarily due to a $4,144,000 decrease in exploration and property holding costs, which was partially offset by a $891,000 increase in general and administrative expenses as described below.


Exploration and Property Holding Costs

Exploration and property holding costs decreased $4,144,000 to $4,176,000 for the nine months ended July 31, 2013 compared to $8,320,000 for the comparable period last year. This decrease was primarily due to a significantly reduced drilling program on the Sierra Mojada Property. During the nine months ended July 31, 2013, we had a small drilling program for part of the period using our underground drill rigs; whereas, up to three external drill rigs were used in the comparable period last year. Also, we recorded a $714,000 concession impairment in the nine months ended July 31, 2013 compared to $926,000 concession impairment in the comparable period last year.

General and Administrative Costs

General and administrative expenses increased $891,000 to $2,124,000 for the nine months ended July 31, 2013 as compared to $1,233,000 for the comparable period last year. This increase was mainly the result of a $38,000 provision for uncollectible value added taxes in the nine months ended July 31, 2013 compared to a $929,000 recovery of uncollectible value-added taxes in the comparable period last year and a $174,000 increase in office and administrative cost which was partially offset by a $122,000 decrease in directors' fees and a $85,000 decrease in professional services for the nine months ended July 31, 2013 compared to the comparable period last year.

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 $369,000 for the nine months ended July 31, 2013 from $547,000 for the nine months ended July 31, 2012. This was mainly due to stock options vesting in the nine months ended July 31, 2013 having a lower fair value than stock options vesting in the comparable period last year.

Personnel costs decreased $44,000 to $662,000 for the nine months ended July 31, 2013 as compared to $706,000 for the same period last year. This decrease was mainly due to a decrease in stock based compensation expense to $222,000 in the nine months ended July, 31, 2013 from $284,000 in the comparable period last year.

Office and administrative expenses increased $174,000 to $813,000 for the nine months ended July 31, 2013 as compared to $639,000 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 $85,000 to $321,000 for the nine months ended July 31, 2013 as compared to $406,000 for the comparable period last year. The decrease was primarily due to a decrease in legal fees in the nine months ended July 31, 2013 from the comparable period last year.

Directors' fees decreased $122,000 to $286,000 for the nine months ended July 31, 2013 as compared to $408,000 for the comparable period last year. This decrease was primarily due to a $116,000 decrease in stock based compensation as a result of stock options vesting in the nine months ended July 31, 2013 having a lower fair value than stock option vesting in the comparable period last year.

We recorded a provision of $38,000 for the nine months ended July 31, 2013 for uncollectible value-added taxes compared to a recovery of $929,000 in the comparable period last year. The recovery for uncollectible taxes in the nine months ended July 31, 2012 was mainly due to value added tax collected in Mexico during this period inclusive of interest of $2,722,000 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)

We recorded other income of $586,000 for the nine months ended July 31, 2013 as compared to other expenses of $51,000 for the comparable period last year. The significant factor was a $58,000 foreign currency transaction gain in the nine months ended July 31, 2013, compared to a foreign currency transaction loss of $434,000 for the comparable period last year and a $519,000 miscellaneous income in the nine months ended July 31, 2013 as compared to a $243,000 miscellaneous income for the comparable period last year. This was partially offset by a decrease in interest and investment income to $8,000 for the nine months ended July 31, 2013 as compared to a $139,000 for the comparable period last year. The decrease in interest and investment income is due to significant value added tax collections of historical returns and associated interest occurring in the nine months ended July 31, 2012.

The miscellaneous income in the nine months ended July 31, 2013 was primarily the result of our determination that AngloGold abandoned all of its rights and benefits under the two joint venture agreements upon AngloGold's termination of these agreements, and therefore the VAT receivable outstanding at the termination of the agreements and subsequent cash collected is the sole property of the Company. The miscellaneous income in the nine months ended July 31, 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 gain in the nine months ended July 31, 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 nine months ended July 31, 2013, we primarily utilized cash and cash equivalents to fund exploration activities at the Sierra Mojada Property and for general and administrative expenses. Additionally, during the nine months ended July 31, 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 increased from $3,201,000 at October 31, 2012 to $6,160,000 at July 31, 2013.

Cash flows used in operations for the nine months ended July 31, 2013 was . . .

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