2. Liquidity, Capital Resources and Going Concern

At March 31, 2016 the Company’s aggregate cash and cash equivalents totaled $2.1 million, $2.0 million lower than the $4.1 million in similar assets held at December 31, 2015. The reduction is due primarily to $0.6 million in shutdown and care and maintenance costs at the Velardeña Properties, $0.8 million in exploration expenditures, including costs related to drilling at the San Luis del Cordero property, $0.2 million in care and maintenance and property holding costs at the El Quevar project, $1.2 million in general and administrative expenses, and a $0.2 million increase in net working capital primarily due to a reduction in deferred revenue from the lease of the oxide plant, offset in part by $1.0 million of net operating margin received pursuant to the lease (defined as oxide plant lease revenue less oxide plant lease costs).

In addition to its $2.1 million cash balance at March 31, 2016, the Company expects to receive approximately $3.6 million in net operating margin from the lease of the oxide plant during the remaining three quarters of 2016. The Company currently plans to spend approximately $5.7 million in the remaining three quarters of 2016, as detailed below, resulting in a projected zero cash balance at the end of 2016. In addition, the Company is required to pay the remaining approximately $1.2 million principal and interest to Sentient Global Resources Fund IV, LP. (“Sentient”) on the October 27, 2016 maturity date of a Senior Secured Convertible Note (the “Sentient Note”) if Sentient does not convert these amounts to the Company’s common stock as permitted under the Sentient Note. 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 23,355,000 shares of the Company’s common stock. See Note 11 for a full discussion of the Sentient Note.

Even if Sentient converts the remaining principal and interest under the Sentient Note to the Company’s common stock, the Company does not currently expect that it will have sufficient cash to continue its business plan into 2017 without external funding. The Company plans, and is required by the Sentient loan, 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 Company is not successful in obtaining sufficient external funding, the Company expects to reduce its planned 2016 expenditures.

The Company plans to spend the following amounts totaling approximately $5.7 million during the remaining three quarters of 2016.

Approximately $0.9 million at the Velardeña Properties for care and maintenance;

Approximately $1.6 million on exploration activities and property holding costs related to the Company’s portfolio of exploration properties located primarily in Mexico, including project assessment and development costs relating to the newly acquired San Luis del Cordero property and other properties;

Approximately $0.4 million at the El Quevar project to fund ongoing maintenance activities, property holding costs, and continuing project evaluation costs;

Approximately $2.4 million on general and administrative costs; and

Approximately $0.4 million on an increase in working capital primarily related to a reduction in current liabilities, including an advanced payment of $0.1 million received in 2015 from the oxide plant lease and the payment of $0.3 million in equity taxes owed in a foreign jurisdiction.

The actual amount that the Company spends during the remainder of 2016 and the projected yearend cash balance may vary significantly from the amounts specified above and will depend on a number of factors, whether Sentient converts the remaining principal and interest due on the Sentient Note to the Company’s common stock, whether the Company is successful in raising external funding and the amount of such funding, 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 del Cordero.

The consolidated 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 8 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.