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SVBL > SEC Filings for SVBL > Form 10-Q on 11-Mar-2014All Recent SEC Filings

Show all filings for SILVER BULL RESOURCES, INC.

Form 10-Q for SILVER BULL RESOURCES, INC.


11-Mar-2014

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 for the fiscal year ended October 31, 2013.

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, our planned activities at the Sierra Mojada Project in 2014, continuing to progress in securing additional surface rights, the timing and scope of our metallurgical program and exploration activities, the projections and estimates set forth in the PEA Technical Report, our proposed capital and operating budgets for the Sierra Mojada Project and general and administrative expenses, and the completion of the sale of the issued and outstanding securities of Dome International Global Inc. ("Dome International").

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 for the fiscal year ended October 31, 2013, 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 inability 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 and consultants and experts 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 potential 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 for the fiscal year ended October 31, 2013.

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. ("Contratistas"), and through Minera's wholly-owned subsidiary, Minas de Coahuila SBR S.A. de C.V. ("Minas"). 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.

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.

Properties Concessions and Property Concession Outlook

Sierra Mojada Property

In January 2014, our Board of Directors approved a calendar-year 2014 budget of $1.8 million for exploration and property holding costs for the Sierra Mojada Property. The focus of the 2014 calendar year program is continuing to progress in securing additional surface rights, maintenance of our property concessions, further studying power and water alternatives and continued metallurgical work.

Metallurgical Studies

We have an active metallurgical program to test the recovery of the silver mineralization using the agitation cyanide leach method and recovery of the zinc mineralization using the SART process (sulfidization, acidification, recycling, and thickening).

We have received results for metallurgical testing on samples taken from areas throughout the silver zone and the zinc zone. The test work on the 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 that occurs in the silver zone and high grade zinc from the zinc zone that had been blended with mineralization from the silver zone to the leach solution. The silver was recovered from the cyanide leach solution using the Merrill Crowe technique and the zinc was recovered from the leach solution using the SART process. The SART Process is a metallurgical process that regenerates and recycles the cyanide used in the leaching process of the silver and zinc and allows for the recovery of zinc that has been leached by the cyanide solution. 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 silver zone. Floatation test work focused on the zinc zone was completed in 2013 and it does not appear to be a viable way to recover the zinc based on the work done to date.


Mineralized Material Estimate

On December 19, 2013, JDS Energy & Mining Inc. delivered Silver Bull's amended initial Preliminary Economic Assessment ("the PEA Technical Report") on the silver and zinc mineralization for the Sierra Mojada Project in accordance with Canadian National Instrument 43-101. The PEA Technical Report includes an update on the silver and zinc mineralization which 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 PEA Technical Report indicates mineralized material of 71.1 million tonnes at an average silver grade of 71.5 grams/tonne silver and an average zinc percentage of 1.34%.

"Mineralized material" as used in this Quarterly Report on Form 10-Q, although permissible under the Securities and Exchange Commission'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.

Mexican Tax Reform

On December 11, 2013, the Mexican tax reform package was published in the official gazette and became applicable on January 1, 2014. There are a number of significant changes in the Mexican tax reform package. The planned corporate tax rate reductions to 29% in 2014 and 28% thereafter have been repealed and the corporate tax rate will remain at 30%. The business flat tax (IETU) has been repealed. A special mining royalty of 7.5% will apply to net profits derived by a property concession holder from the sale or transfer of extraction related activities. Net profits for the purpose of this royalty will be determined in a manner similar to the calculation of general taxable income with certain deductions not available including for investment in fixed assets and interest. In addition, owners of property concessions will be required to pay a 0.5% tax on gross income derived from the sale of gold, silver and platinum. Further, a 10% withholding tax on dividend distributions has been introduced but will not supercede treaty rates. The Company has not determined the effects of these reforms at this time.

Gabon Property

We hold two exploration licenses, the Ndjole license and the Mitzic license, 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. On December 13, 2013, we entered into a binding letter of agreement with BHK Resources, Inc. ("BHK") to sell all of the issued and outstanding securities of our subsidiary, Dome International which holds, indirectly, a 100% interest in and to the Ndjole manganese and gold licenses through its wholly-owned subsidiary, Dome Ventures SARL Gabon ("Dome Gabon"), for cash consideration of $1,500,000.

The proposed transaction is subject to a number of terms and conditions, including the execution by the parties of a definitive agreement with respect to the transaction, the completion of satisfactory due diligence investigations, the completion of a financing by BHK generating minimum proceeds of $CDN 4.0 million from the sale of its securities, on terms to be determined, the approval of the TSX-V and other applicable regulatory authorities. Silver Bull was paid a $25,000 non-refundable deposit upon the signing of the binding letter of agreement. Prior to the closing of the transaction, we will transfer all of the issued and outstanding securities of African Resources SARL Gabon, which holds the Mitzic license, from Dome International to another of our subsidiaries.


Results of Operations

Three Months Ended January 31, 2014 and January 31, 2013

For the three months ended January 31, 2014, we experienced a net loss of $1,077,000, or approximately $0.01 per share, compared to a net loss of $2,104,000, or approximately $0.02 per share, during the comparable period last year. The $1,027,000 decrease in net loss was primarily due to a $809,000 decrease in exploration and property holding costs and a $252,000 decrease in general and administrative expenses.

Exploration and Property Holding Costs

Exploration and property holding costs decreased $809,000 to $517,000 for the three months ended January 31, 2014, compared to $1,326,000 for the comparable period last year. This decrease was mainly the result of not having a drilling program during the three months ended January 31, 2014, whereas in the comparable period last year we had a small underground drill program. In addition, we had a reduced metallurgical program in the three months ended January 31, 2014 compared to the previous period. As a result of the reduced exploration program we reduced our work forces at Sierra Mojada Property, and therefore our staffing and consultants costs were lower in the three months ended January 31, 2014 compared to the comparable period last year.

General and Administrative Costs

We recorded a general and administrative expense of $526,000 for the three months ended January 31, 2014 as compared to $778,000 for the comparable period last year. The $252,000 decrease was mainly the result of a $52,000 decrease in personal cost, a $116,000 decrease in office and administrative cost, a $41,000 decrease in professional fees and a $34,000 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 $52,000 for the three months ended January 31, 2014 from $128,000 for the comparable period last year. This was mainly due to stock options vesting in the three months ended January 31, 2014 having a lower fair value than stock options vesting in the comparable period last year.

Personnel costs decreased $52,000 to $181,000 for the three months ended January 31, 2014 as compared to $233,000 for the same period last year. This decrease was mainly due to a decrease in stock-based compensation expense to $39,000 in the three months ended January 31, 2014 from $79,000 in the comparable period last year.

Office and administrative costs decreased $116,000 to $176,000 for the three months ended January 31, 2014 as compared to $292,000 for the same period last year. The decrease was mainly the result of the Company having significant corporate travel in the three months ended January 31, 2013 related to the February 2013 equity financing.

Professional fees decreased $41,000 to $101,000 for the three months ended January 31, 2014 compared to $142,000 for the comparable period last year. This decrease is mainly due to a decrease in legal and accounting fees in the three months ended January 31, 2014. The decrease in accounting fees is mainly due to the timing of work.

Directors' fees decreased $34,000 to $59,000 for the three months ended January 31, 2014 as compared to $93,000 for the comparable period last year. The decrease was primarily due to a $34,000 decrease in stock-based compensation as a result of stock options vesting in the three months ended January 31, 2014 having a lower fair value than stock options vesting in the comparable period last year.

We recorded a provision of $8,000 for uncollectible value-added taxes ("VAT") for the three months ended January 31, 2014 compared to a provision of $16,000 in the comparable period last year. 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 $30,000 for the three months ended January 31, 2014 as compared to other income of $48,000 for the comparable period last year. The significant factors were a $15,000 foreign currency transaction loss in the three months ended January 31, 2014 compared to a foreign currency transaction gain of $44,000 for the comparable period last year and a $43,000 miscellaneous income in the three months ended January 31, 2014 compared to $nil miscellaneous income for the comparable period last year.

The foreign currency transaction loss in the three months ended January 31, 2014 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. The miscellaneous income in the three months ended January 31, 2014 was primarily the result of a $41,000 gain on the sale of a piece of mining equipment at the Sierra Mojada Property.

Results of Discontinued Operations

Subject to the contingencies previously discussed, the Company expects to close the sale of its interest in Dome International and its wholly-owned subsidiary, Dome Gabon. Pursuant to general accepted accounting principles in the United States of America, Dome International and Dome Gabon have been reported in discontinued operations for the three months ended January 31, 2014, and January 31, 2013 and the period from inception to date as described in the "Critical Accounting Policies" section. Loss from discontinued operations, net of income tax expense for the three months ended January 31, 2014 was $62,000 which is mainly exploration and property holding costs, as compared to a loss from discontinued operations, net of income tax expense for the three months ended January 31, 2013 of $39,000 which is mainly exploration and property holding costs.

Material Changes in Financial Condition; Liquidity and Capital Resources

Cash Flows

During the three months ended January 31, 2014, we primarily utilized cash and cash equivalents to fund exploration activities at the Sierra Mojada Property and for general and administrative expenses. As a result of the exploration activities and general and administrative expenses, cash and cash equivalents decreased from $5,206,000 at October 31, 2013 to $4,246,000 at January 31, 2014.

Cash flows used in operations for the three months ended January 31, 2014 was $1,102,000 as compared to $1,424,000 for the comparable period in 2013. This decrease was mainly due to the decreased exploration work at the Sierra Mojada Property and decreased general and administrative expenses. In addition, accounts payable decreased in the three months ended January 31, 2014 whereas accounts payable increased in the comparable period last year and the net value added-tax collections/payments were approximately $179,000 higher in the comparable period last year.

Cash flows provided by investing activity for the three months ended January 31, 2014 was $84,000 as we sold a piece of mining equipment as compared to $nil for the comparable period in 2013.

Cash flows provided by financing activities for the three months ended January 31, 2014 was $nil as compared to cash flows used by financing activities of $120,000 for the comparable period last year. The majority of the cash flow used by financing activities in the comparable period last year was due to deferred cash offering costs related to the February 2013 equity financing.

Capital Resources

As of January 31, 2014, we had cash and cash equivalents of $4,246,000 and working capital of $5,282,000 as compared to cash and cash equivalents of $5,206,000 and working capital of $6,218,000 as of October 31, 2013. The decrease in our liquidity and working capital were primarily the result of the exploration activities at the Sierra Mojada Property and general and administrative expense.


Since inception, we have relied primarily upon proceeds from sales of our equity securities and warrant exercises as our primary sources of financing to fund our operations. We anticipate that we will continue to rely on sales of our securities in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing stockholders. There is no assurance that we will be able to complete any additional sales of our equity securities or that we will be able to arrange for other financing to fund our planned business activities.

Capital Requirements and Liquidity; Need for Subsequent Funding

Our management and Board of Directors monitor our overall costs, expenses, and financial resources and, if necessary, will adjust our planned operational expenditures in an attempt to ensure we have sufficient operating capital. We continue to evaluate our costs and planned expenditures including for our Sierra Mojada Property as discussed below.

The continued exploration of the Sierra Mojada Property will require significant amounts of additional capital. In January 2014, our Board of Directors approved a calendar year 2014 budget of $1.8 million for the Sierra Mojada Property and a $1.8 million budget for general and administration expense. As of February 28, 2014, we had approximately $3.9 million of cash on hand. We anticipate that we will be able to satisfy our remaining calendar year 2014 budget with cash on hand. We will continue to evaluate our ability to raise additional capital, and we will reduce expenditures on the Sierra Mojada Property if we determine that additional capital is unavailable or available on terms that we determine are unacceptable. Also, the continued exploration and if warranted, development, of the Sierra Mojada Property ultimately will require us to raise additional capital, identify other sources of funding or identify another strategic transaction. The on-going uncertainty and volatility in the global financial and capital markets have limited the availability of funding. Debt or equity financing may not be available to us on acceptable terms, if at all. Equity financing, if available, will likely result in substantial dilution to existing stockholders. If we are unable to fund future operations by way of financing, including public or private offerings of equity or debt securities, our business, financial condition and results of operations will be adversely impacted.

Off Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.

Critical Accounting Policies

The critical accounting policies are defined in our Form 10-K for the year ended October 31, 2013 filed on January 13, 2014 except as follows.

Reclassifications

Certain reclassifications of prior year balances have been made to conform to the current year presentation. We reclassified the Dome International consolidated balance sheet amounts and consolidated statements of operations from historical presentation to assets and liabilities of operations held for sale on the consolidated balance sheets and to loss from discontinued operations in the consolidated statements of operations for all periods presented. The consolidated statements of cash flow have not been adjusted to reflect assets held for sale and discontinued operations for all periods presented.

Recent Accounting Pronouncements Adopted in the Three Month Period Ended January 31, 2014

Effective November 1, 2013, we adopted Accounting Standards Update ("ASU") 2011-11, "Balance Sheet (Topic 201): Disclosures about Offsetting Assets and Liabilities." This ASU added certain additional disclosure requirements about financial instruments and derivative instruments that are subject to netting arrangements. The adoption of this updated guidance did not have a material impact on the disclosure requirements for our consolidated financial statements.


Recent Accounting Pronouncements Not Yet Adopted

In July 2013, the Financial Accounting Standard Board ("FASB") issued ASU 2013-11, "Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry Forward, a Similar Tax Loss, or a Tax Credit Carry Forward Exists." The updated guidance requires an entity to net its unrecognized tax benefits against the deferred tax assets for all same jurisdiction net operating loss carry forwards, a similar tax loss, or tax credit carry forwards. A gross presentation will be required only if such carry forwards are not available or would not be used by the entity to settle any additional income taxes resulting from disallowance of the uncertain tax provision. The update is effective prospectively for our fiscal year beginning November 1, 2014. We do not believe the adoption of this update will have a material impact on our financial position, results of operations or cash flow, and the disclosure requirements for our consolidated financial statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force) and the SEC did not or are not believed to have a material impact on our present or future consolidated financial statements.


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