2.Liquidity, Capital Resources and Going Concern

At December 31, 2015 the Company’s aggregate cash and cash equivalents totaled $4.1 million. With the cash balance at December 31, 2015 and based on the assumptions described below we expect to have sufficient funds to continue our long term business strategy through December 31, 2016. The Company’s cash and cash equivalents balance at December 31, 2015 of $4.1 million is $4.5 million lower than the $8.6 million in similar assets held at December 31, 2014 due primarily to the negative operating margin (defined as revenue less costs of sales) at the Velardeña Properties of $2.5 million, $1.2 million in shutdown and care and maintenance costs at the Velardeña Properties, $3.6 million in exploration expenditures, $1.1 million in care and maintenance and property holding costs at the El Quevar project and $4.2 million in general and administrative expenses, offset in part by $5.0 million in proceeds received from the issuance of the Sentient Note, $0.5 million of net revenue (defined as revenue less costs of sales) received from the lease of the oxide plant to a third party, $0.5 million of proceeds from sales of non-strategic property and equipment, $0.8 million received as a tax refund, a $1.3 million reduction in working capital and other items primarily due to collections of value added tax (“VAT”) receivables, and a net decrease in working capital consisting of trade receivables, inventories and accounts payable associated with the shutdown of mining and processing activities at the Velardeña Properties.

On October 27, 2015, the Company borrowed $5.0 million (the “Sentient Loan”) from Sentient Global Resources Fund IV, L.P. (“Sentient”), the entire amount available pursuant to the terms of a Senior Secured Convertible Note (the “Sentient Note”) and Loan Agreement, with principal and accrued interest due on October 27, 2016. See Note 11 for a full discussion of the Sentient Loan. On February 11, 2016, Sentient converted approximately $3.9 million of principal and $0.1 million of accrued interest (representing the total amount of accrued interest at the conversion date) into 23,335,000 shares of the Company’s common stock at an exercise price of approximately $0.172 per share, equal to 90% of the 15-day volume weighted average price (“VWAP”) immediately preceding the conversion date. (See Note 25). Following the conversion, approximately $1.1 million of principal remained outstanding. If the remaining principal and interest accrued from February 11, 2016 is not converted into the Company’s common stock, the Company would owe approximately $1.2 million to Sentient on the October 27, 2016 maturity date.

With the cash balance at December 31, 2015 of $4.1 million and assuming the Company receives $4.8 million in net cash flow from the lease of the oxide plant during 2016 and that the remaining balance of the Sentient Note is fully converted into shares of the Company’s common stock at or prior to the maturity of the loan on October 27, 2016, the Company plans to spend the following amounts totaling approximately $8.4 million during the full year 2016, resulting in a balance of cash and cash equivalents at December 31, 2016 of $0.5 million.

Approximately $1.2 million at the Velardeña Properties for care and maintenance;

Approximately $0.8 million on other exploration activities and property holding costs related to the Company’s portfolio of exploration properties located primarily in Mexico,

Approximately $0.5 million at the El Quevar project to fund ongoing maintenance activities, property holding costs, and continuing project evaluation costs; and

Approximately $1.4 million in exploration, project assessment, and development costs relating to the newly acquired San Luis de Cordero property and other properties;

Approximately $3.4 million on general and administrative costs;

Approximately $1.1 million on an increase in working capital primarily related to a reduction in current liabilities, including an advanced payment of $0.5 million received in 2015 from the oxide plant lease and the payment of $0.4 million in equity taxes owed in a foreign jurisdiction.

The actual amount that the Company spends during 2016 and the projected yearend cash balance may vary significantly from the amounts specified above and will depend on a number of factors, including variations from anticipated care and maintenance costs at the Velardeña Properties and costs for continued exploration, project assessment, and development at the Company’s other exploration properties, including San Luis de Cordero.

The Company does not currently expect it will generate sufficient funds internally to pay the remaining principal and interest on the Sentient Loan when it becomes due on October 27, 2016. The Company plans, and is required by the Loan Agreement, to seek external funding through the sale of equity or securities convertible into equity. There can be no assurance that the Company will be successful in obtaining sufficient external funding on terms acceptable to the Company or at all. If the remaining balance of the Sentient Loan is converted in full, the Company’s projected cash balance at the end of 2015 and the anticipated net cash flow from the leasing of the oxide plant should provide adequate funds to continue the Company’s business plans through 2016.

The financial statements have been prepared on a going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the normal course of business. However, the continuing operations of the Company are dependent upon its ability to secure sufficient funding and to generate future profitable operations. The underlying value and recoverability of the amounts shown as property, plant and equipment in Note 9 are dependent on the ability of the Company to generate positive cash flows from operations and to continue to fund exploration and development activities that would lead to profitable mining activities or to generate proceeds from the disposition of property, plant and equipment. There can be no assurance that the Company will be successful in generating future profitable operations or securing additional funding in the future on terms acceptable to the Company or at all. These material uncertainties, including repayment of the remaining Sentient Loan, may cast significant doubt on the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or liabilities which might be necessary should the Company not continue as a going concern.