Liquidity, Capital Resources and Going Concern

6 Months Ended

Jun. 30, 2023

Liquidity, Capital Resources and Going Concern

Liquidity, Capital Resources and Going Concern

2. Liquidity, Capital Resources and Going Concern

At June 30, 2023, we had current assets of $8.6 million, including cash and cash equivalents of approximately $3.4 million. On the same date, we had accounts payable and other current liabilities of $5.4 million. (At July 31, 2023, our aggregate cash and cash equivalents totaled approximately $2.8 million.)  Because we have ceased mining at the Rodeo mine, our only near-term opportunity to generate cash flow from mining to support continued operations is the Velardeña mine. Without additional near-term capital, which we are currently attempting to obtain, we will be forced to liquidate the Company’s business, potentially before the fourth quarter of 2023.

We are evaluating numerous alternatives for this additional capital. We are engaged in several discussions for the sale of assets. We have also held discussions with various financing parties with regard to equity and/or debt financing as well as streaming or royalty arrangements involving future production at Velardeña. And we are evaluating potential avenues to monetize some or all of our $2.9 million VAT receivable in Mexico.

We do not currently have sufficient resources to meet our expected cash needs during the twelve months ended June 30, 2024. At June 30, 2023, we had cash resources of approximately $3.4 million. The forecasted net operating margin from the Rodeo Property during the twelve-month period is expected to be between zero and negative $0.5 million as the mining operations have concluded and we are processing material from the stockpiles. There is no assurance that we will be successful in generating the anticipated operating margins 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 value added tax “VAT” accounts receivable from the Mexican government; however, it is possible that those amounts may be delayed. At July 31, 2023, our aggregate cash and cash equivalents totaled approximately $2.8 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 funding sources, combined of between $3 million and $6 million, the Company’s cash balance is expected to be depleted during the third 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 Quarterly Report on Form 10-Q is dependent upon its ability to generate sufficient cash flow from operations, collect VAT accounts receivable from the Mexican government, reduce expenses, sell non-core assets, and raise sufficient funds through the ATM program and other equity or external sources. In the absence of these events occurring the Company’s cash balance is expected to be depleted during the third quarter 2023. 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 this Quarterly Report on Form 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.