XML 34 R8.htm IDEA: XBRL DOCUMENT

Liquidity and Capital Resources

9 Months Ended

Sep. 30, 2012

2. Liquidity and Capital Resources

At September 30, 2012 the Company’s aggregate cash and short-term investments totaled $54.0 million and, based on the assumptions described below, we expect to have a cash balance of approximately $41.5 million at December 31, 2012. During the quarter ended September 30, 2012 the Company completed a registered offering and concurrent private placement of units comprised of one share of the Company’s common stock and a five year warrant to acquire half a share of the Company’s common stock for net proceeds of $36.9 million (see Note 15). As a result, the Company expects to have sufficient funding to continue its long-term business strategy through 2013.

Assuming metals prices of $30.00 per ounce of silver and $1,500 per ounce of gold during the fourth quarter 2012 the Company expects to generate a negative gross margin, which the Company defines as revenue from the sale of metals less costs applicable to the sale of metals (exclusive of depreciation), of approximately $1.0 million during the quarter. With the cash and investment balance at September 30, 2012 of $54.0 million and an anticipated $1.0 million of negative gross margin from the sale of metals at the Velardeña Operations, and $2.0 million of proceeds from the monetization of certain properties in the exploration portfolio, the Company plans to spend the following amounts during the fourth quarter 2012 pursuant to its long-term business strategy:

1. Approximately $7.5 million on capital and development costs related to the continued development of the San Mateo ramp and other mine development and capital expenditures intended to increase the capacity and productivity of the Velardeña Operations and plant facilities;

2. Approximately $1.5 million at the El Quevar project to fund limited exploration, maintenance activities and the continuation of project evaluation costs;

3. Approximately $1.5 million on other exploration activities and property holding costs related to the Company’s portfolio of exploration properties located in South America and Mexico as the Company pursues strategies to monetize portions of the portfolio;

4. Approximately $2.0 million on general and administrative costs and $1.0 million on other working capital.

The actual amount that the Company spends through year-end 2012 and the projected year-end cash and investment balance may vary significantly from the amounts specified above and will depend on a number of factors, including metals prices, the results of continuing operations and development work at the Velardeña Operations to continue the ramp up to 850 tonnes per day, the results of continued project assessment work at El Quevar and other exploration properties, and whether the Company is able to monetize additional portions of its exploration portfolio. There can be no assurance that the current expenditures planned for the Velardeña Operations will result in the anticipated amounts of silver and gold production. If the anticipated production does not occur, or metals prices decline from the levels noted previously, the Company would likely end the year 2012 with a lower cash and investment balance than the approximately $41.5 million currently expected.