Liquidity, Capital Resources and Going Concern

3 Months Ended

Mar. 31, 2023

Liquidity, Capital Resources and Going Concern

Liquidity, Capital Resources and Going Concern

2. Liquidity, Capital Resources and Going Concern

Our forecasted expenditures during the twelve months ending March 31, 2024, excluding Rodeo and Velardeña cost of metals sold, which is included in our forecast of net operating margin discussed below, total approximately $7.6 million. These forecasted expenditures include: (i) exploration expenses of $2.1 million, (ii) Velardeña care and maintenance costs of $0.3 million, (iii) El Quevar spending (net of Barrick reimbursements) of $0.3 million and (iv)

administrative expense, including Torreon G&A of $4.9 million. The actual amount of cash expenditures that we incur during the twelve-month period ending March 31, 2024 may vary significantly from the amounts specified above and will depend on a number of factors, including variations in the anticipated administrative costs, care and maintenance costs at the Velardeña Properties or at El Quevar, and costs for continued exploration, project assessment, and advancement of our other exploration properties.

We do not currently have sufficient resources to meet our expected cash needs during the twelve months ended March 31, 2024. At March 31, 2023, we had cash resources of approximately $2.0 million. The forecasted net operating margin from the Rodeo Property during the twelve-month period is expected to be between $0.0 million $0.5 million.  The forecasted net operating margin from the Velardeña Properties during the twelve-month period is expected to be between $5.0 million and $5.5 million. Net operating margin is defined as revenue from the sale of metals less the cost of metals sold. Our estimate for Rodeo assumes gold prices per ounce during the period of between $1,950 and $1,990 and silver prices per ounce of $25.00. Our estimate for Velardeña assumes gold prices average $1,900 per ounce and silver prices average $22.50 per ounce. The actual amount that we receive in net operating margin from both Rodeo and Velardeña during the period may vary significantly from the amounts specified above due to, among other things: (i) unanticipated variations in grade, (ii) unexpected challenges associated with our proposed mining plans, (iii) decreases in commodity prices or the prices paid by our concentrate purchasers below those used in calculating the estimates shown above, (iv) variations in expected recoveries, (v) increases in operating costs above those used in calculating the estimates shown above, or (vi) interruptions in mining.

There is no assurance that we will be successful in collecting the anticipated cash receipts described above.  Specifically, the anticipated net operating margin from the Velardeña Properties is not based on the results of a full feasibility study. While we believe our internal estimates are realistic, the lack of a full feasibility study may increase the uncertainty associated with our estimates. In addition, we expect to collect approximately $1.5 million in VAT accounts receivable from the Mexican government; however, it is possible that those amounts may be delayed. At April 30, 2023, our aggregate cash and cash equivalents totaled approximately $2.0 million. In order to cover forecasted expenditures, we need to raise additional cash in the near-term, whether through the sale of non-core assets or equity financing, including the use of our ATM program. In the absence of sufficient asset sales, equity financing or other external funding the Company’s cash balance is expected to be depleted near the end of the second quarter of 2023. In that event, the Company may be forced to liquidate its business.

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, as noted above, our continuing long-term operations will be dependent upon our ability to secure sufficient funding to generate future profitable operations. The underlying value and recoverability of the amounts shown as property, plant and equipment in our consolidated financial statements are dependent on our ability to continue to generate positive cash flows from operations and to continue to fund exploration activities that would lead to additional profitable mining and processing activities or to generate proceeds from the disposition of property, plant and equipment.  

The ability of the Company to maintain a positive cash balance for a period of twelve months beyond the filing date of this, first quarter 2023 10-Q, is dependent upon its ability to generate sufficient cash flow from operations, collect VAT receivable from the Mexican government, reduce expenses, sell non-core assets, and raise sufficient funds through the ATM program and other equity sources. There can be no assurance the Company will be successful in generating sufficient funds from these sources to maintain liquidity throughout the twelve-month period. These material uncertainties cast significant doubt on the Company’s ability to continue as a going concern. Therefore, the Company cannot conclude that substantial doubt does not exist as to the Company’s ability to continue as a going concern for the twelve months following the filing date of the first quarter 2023 10-Q. The 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.