UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the fiscal year ended
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DOCUMENTS INCORPORATED BY REFERENCE
None
Table of Contents
Throughout this report, unless otherwise designated, the terms “we,” “us,” “our,” “the Company” and “our company” refer to Desert Hawk Gold Corp., a Nevada corporation. All amounts in this report are in U.S. Dollars, unless otherwise indicated.
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Forward Looking Statements
The statements contained in this report that are not historical facts, including, but not limited to, statements found in the section entitled “Risk Factors,” are forward-looking statements that represent management’s beliefs and assumptions based on currently available information. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, competitive position, potential growth opportunities, potential operating performance improvements, ability to retain and recruit personnel, the effects of competition, and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words believes, intends, may, should, anticipates, expects, could, plans, or comparable terminology or by discussions of strategy or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct. Such statements by their nature involve risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such forward-looking statements.
Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed in this Report. While it is not possible to identify all factors, we continue to face many risks and uncertainties including, but not limited to, the following:
| ● | environmental hazards; |
| ● | metallurgical and other processing problems; |
| ● | unusual or unexpected geological formations; |
| ● | need for additional funding to continue operations; | |
| ● | global economic and political conditions; |
| ● | staffing considerations in remote locations; |
| ● | disruptions in credit and financial markets; |
| ● | global productive capacity; |
| ● | changes to existing mining laws or regulations; |
| ● | changes in product costing; | |
| ● | effects of inflation on operational costs and profitability; |
| ● | competitive technology positions and operating interruptions (including, but not limited to, labor disputes, leaks, fires, flooding, landslides, power outages, explosions, unscheduled downtime, transportation interruptions, war and terrorist activities); and | |
| ● | disruptions due to global pandemics or civil unrest. |
Mining operations are subject to a variety of existing laws and regulations relating to exploration, permitting procedures, safety precautions, property reclamation, employee health and safety, air and water quality standards, pollution and other environmental protection controls, all of which are subject to change and are becoming more stringent and costlier to comply with. Should one or more of these risks materialize (or the consequences of such a development worsen), or should the underlying assumptions prove incorrect, actual results could differ materially from those expected. We disclaim any intention or obligation to update publicly or revise such statements whether as a result of new information, future events or otherwise.
These risk factors could cause our results to differ materially from those expressed in forward-looking statements.
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PART I
ITEM 1. BUSINESS
General
Desert Hawk Gold Corp. (the “Company”) was incorporated on November 5, 1957, in the State of Idaho as Lucky Joe Mining Company. In 2008 we changed our corporate domicile to the State of Nevada by merging with a wholly owned subsidiary formed solely for this purpose. Our Nevada corporation was incorporated on July 17, 2008. We have no subsidiaries.
We are currently engaged in the extraction of gold and related precious metals from our Kiewit mining property located in the Gold Hill Mining District in Tooele County, Utah. In addition, we have previously commenced crushing and performing cyanide vat and heap leaching on various ores from a third party at our Gold Hill processing plant. This processing for a third party was suspended in October 2022.
Prepaid Forward Gold Contract Funding Transaction and Amended Agreement
In 2019, the Company entered into and closed a Pre-Paid Forward Gold Purchase Agreement (the “Purchase Agreement”) with PDK Utah Holdings, LP (“PDK”) for the sale and purchase by PDK of gold produced from the Company’s mining property. Under the terms of the Purchase Agreement, as amended, PDK agreed to purchase a total of 47,045 ounces of gold from the Company. The Company agreed to deliver ounces of gold produced from the Kiewit property to PDK and the Company would then receive proceeds from PDK at the then current spot price less a discount specified in the Purchase Agreement. The Company has the option of paying cash to PDK for the number of ounces to be delivered each month at a rate of $500 per ounce. The Company received a net amount of $13,600,000 in 2019 for the future delivery of these gold ounces. Under the terms of the Purchase Agreement, as amended, the Company was obligated to deliver gold in the following quantities, none of which have been delivered:
| Months | Gold Ounces per Month | Total Gold Ounces | ||||||
| December 2020 | 655 | 655 | ||||||
| January 2021 to March 2021 | 896 | 2,688 | ||||||
| April 2021 to March 2022 | 911 | 10,932 | ||||||
| April 2022 to March 2023 | 1,396 | 16,752 | ||||||
| April 2023 to December 2023 | 1,753 | 15,777 | ||||||
| January 2024 | 241 | 241 | ||||||
| 47,045 | ||||||||
In addition, under the Purchase Agreement, PDK may reduce the required number of ounces to be sold in exchange for up to 8,000 common shares of the Company.
As security for the obligations of the Company under the Purchase Agreement, the Company has granted PDK a security interest in all of the assets of the Company and has issued and recorded a Leasehold Deed of Trust, Assignment of Leases, Rents, As Extracted Collateral and Contracts, Security Agreement and Fixture Filing. The Purchase Agreement contains representations and warranties, as well as affirmative and negative covenants customary to a transaction of this nature.
As of December 31, 2023, and through the filing of this Form 10-K, PDK has sent invoices to the Company for the deliveries and payments due. However, no notice of default on the Purchase Agreement has been received from PDK. The failure to make gold deliveries and make additional payments as described below provides PDK with certain remedies, including termination of the agreement, demand for payment of the entire delivery obligations, and enforcement of foreclosure rights against the assets pledged as security under the agreement. Due to the delinquent status of the deliveries and PDK’s rights under the default provisions of the Purchase Agreement, the Company has classified the entire balance owing as a current liability on the December 31, 2023, balance sheet.
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In addition to the delivery of gold ounces, the Purchase Agreement contains a royalty provision whereby royalties of 4% are due to PDK on gold and silver recovered from mining operations at the Kiewit site and sold by the Company to a third party. Under the Purchase Agreement, the Company also accrues a 5% withholding tax to the state of Utah on the PDK royalty payments. Royalties are payable within 30 days following the end of each fiscal quarter.
The Purchase Agreement contains a participation payment whereby PDK receives a portion of the proceeds from gold sold by the Company to a third party. The payment due to PDK is based upon a percentage of proceeds over a set gold price per ounce. The upside participation amounts are payable within four days following each sale.
Through March 2024 we have not made the gold deliveries under the agreement and anticipate that we will be unable to make deliveries unless an outside source of funding becomes available. The failure to make gold deliveries under the Purchase Agreement provides PDK with certain remedies, including termination of the agreement, demand for early payment of the entire delivery obligations, and enforcement of foreclosure rights against the assets pledged as security under the agreement.
Early in 2023, ownership of PDK was transferred to Qenta, Inc. (“Qenta”). The Company’s management has been in discussions with Qenta regarding the status of the Purchase Agreement. To date, Qenta has not caused PDK to exercise its rights of default as defined in the agreement nor has it indicated plans to do so.
Mining Operations
On January 7, 2014, we received final approval from the BLM of the Kiewit Large Mine Permit which allowed us to develop the Kiewit deposit and put it into production. Development began in June 2014. The first sale of minerals from the mine occurred in October 2014. We suspended operations in June 2016 because of depressed metal prices and lack of funds. We resumed operations in spring 2018 and again suspended operations in October 2018 for lack of funding. Since securing funding in March 2019, we re-commenced mining operations. Currently there is minimal to no mining operations happening at the mine due to lack of funding.
In March 2022, we paid an escalation increase on our permit in the amount of $89,000. In June 2022 we paused our mining operations on the Kiewit claims and ceased our ore crushing due to a delay in the issuance of a permit modification which would allow us to expand our pit area, which, prior to the issuance of the new permit, was at the boundaries of the existing permit. Utah Division of Oil, Gas and Mining has provided conditional approval for the permit modification contingent on the approval by the BLM. In anticipation of receiving the permit modification, on November 1, 2022, we posted the required bond for the permit modification in the amount of $555,000. We have curtailed operating expenses to the extent possible while keeping a minimum staff employed, working on continued processing and equipment maintenance. Currently no new material is being mined and processed. We have limited our processing to the remaining ore in the pond.
On December 22, 2022, BLM conditionally approved the Company’s amended plan of operations for the Kiewit Mine. The plan allows for an increase in total material mined from Kiewit from 2 million tons of ore to 10 million tons of ore, an increase in the mining rate from 1 million tons per year (tpy) to 1.75 million tpy and an increase in total disturbance from 101.3 acres to 203.4 acres. The plan also includes an increase in pit and waste area disturbance from 38.5 acres to 80.9 acres. The plan also allows for an increase in heap leach area disturbance from 19.5 acres to 65.5 acres, which may be bonded in 4 expansion phases. The Company will currently be bonded for the initial 19.5 acres of heap leach area and can submit for additional bond money when expanding the heap leach area in the future. The remaining increase in allowed disturbance acres is for roads, storage areas, containment ponds, growth medium stockpiles and other miscellaneous disturbance areas. The plan also approved the removal of disturbance acreage associated with property owned by the Moeller Family Trust and Clifton Mining, which included the Yellow Hammer Mine, the Clifton Shears, and the Herat Mine. The plan also includes an additional location for a second water well, 4 additional horizontal cascade tanks, and increases the life of the mine timeframe from 6 to 10 years.
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Third-Party Ore Processing
During 2020 we commenced processing ore for a third party under our existing mining permit, which allowed for 5,000 tons of this ore to be processed and has since then been increased to 30,000 tons. This ore was processed separately from our ore but in the same manner. For this service, we received a percentage of net proceeds from the sale of the gold and silver ore. The contract agreement with the outside company for which we were processing material was terminated in October 2022.
Distribution, Sales, and Raw Materials
We currently sell our products solely to Asahi Refining. We use several raw materials such as cyanide, caustic, and limestone in processing, and we are not dependent upon any single supplier for our raw materials. We also currently are dependent upon one customer for our product, although other customers are available.
Competition
The precious metal exploration and mining industry is highly fragmented. We expect to compete with many other exploration companies looking for gold, silver and other minerals. We are among the smallest of the exploration companies in existence and are a very small participant in the precious metal industry. However, we generally expect to compete favorably with other exploration companies since the claims held by us in the Gold Hill Mining District consolidate the principal mining areas and limit the ability of other exploration companies to commence material exploration activities in the district. Furthermore, if we are able to successfully recover gold, as well as silver and other by-products from our claims, it is likely that we will be able to sell all minerals that we are able to recover.
Government Compliance
Our operations are subject to extensive federal and state laws and regulations designed to conserve and prevent the degradation of the environment. These laws and regulations require obtaining various permits before undertaking certain exploration or mining activities and may result in significant delays, substantial costs, and the alteration of proposed operating plans. We believe we have all necessary environmental permits and authorizations to support existing operations.
Our Kiewit unpatented claims are located on federal land, which also requires compliance with applicable requirements administered by the BLM. These regulations impose specific conditions on the nature and extent of surface disturbance, the manner in which exploration and mining can be conducted, the disposition of spent mineralized material, the use and containment of chemical leaching agents and other solutions, spill prevention, liquid and solid waste disposition, ground water monitoring, and a number of other matters which if violated could result in fines, penalties or attendant adverse publicity.
We are also obligated to make annual payments to the BLM for each of our unpatented mining claims on federal land and to record an affidavit in the Tooele County Recorder’s Office reflecting the payment of the annual maintenance fees to the BLM and stating our intention to hold the claims. The 2023 annual maintenance fees and mineral lease fees payable on our unpatented claims were $15,318 which was paid in full within the required payment period. The required affidavit was also filed with the Tooele County Recorder. Proposals repeatedly have been introduced in Congress that would substantially modify the Mining Law of 1872, the statute pursuant to which unpatented mining claims are located and maintained. Bills have been introduced, but have not passed, that would require, among other things, the payment of royalties to the United States. Personal property tax levied by the state and collected by the local county are due each year and have been paid for 2022 and prior years. The 2023 personal property tax in the amount of $42,315 became due in November 2023 and has not yet been paid. The personal property taxes are expected to remain similar in 2024 to that in 2023.
Mining and exploration operations are also subject to both federal and state laws and regulations pertaining to employee health and safety. We employ a mine safety administrator to monitor our obligations under these laws and regulations.
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Climate-Related Matters
In 2020 the SEC adopted guidance for disclosing material obligations as they apply to climate change. Recommended disclosures include discussion of the impact on climate change legislation and regulation, international accords, indirect results of regulations on the company’s business trends, and the physical impacts of climate change on the company. Examples suggested by the SEC include disclosure to climate change items, including the following:
| ● | Decreased demand for goods that produce significant greenhouse gas emissions; |
| ● | Increased demand for goods that result in lower emissions than competing products; |
| ● | Increased competition to develop innovative new products; |
| ● | Increased demand for generation and transmission of energy from alternative energy sources; and |
| ● | Decreased demand for services related to carbon-based energy sources, such as drilling services or equipment maintenance services. |
Management has evaluated the effects of climate change on its business and believes that they should have no material adverse impact on its business. The State of Utah and particularly the environs surrounding our properties are experiencing drought conditions. If these conditions ultimately affect the water table underlying the property, it could reduce the water available from our well or require us to extend the depth of the well.
Intellectual Property Rights
We own the Marks “DESERT HAWK” and “DESERT HAWK GOLD CORP” and also own corresponding federal trademark filing Serial Nos. 85/232,815, 85,232,819, 85/232,820, and 85/232,823, for use in connection with mining extraction, consulting in the fields of mining and milling, milling of ore, mining exploration and mineral exploration, copper ore, gold ore, silver ore, and tungsten ore.
Employees
At March 31, 2024, we had 9 full-time and 2 part-time employees, including our President, Rick Havenstrite, who devotes approximately 90% of his time or approximately 40 hours per week for this business. We also engage Marianne Havenstrite, wife of Rick Havenstrite, as our Treasurer and Principal Financial and Accounting Officer. Our officers are based out of our Reno, Nevada office, along with other office and engineering personnel. The remaining employees work at our Gold Hill project site.
Item 1A. RISK FACTORS
The following material risks and uncertainties, together with the other information set forth in this Report, should be carefully considered by those who invest in our securities. Any of the following risks could materially and adversely affect our business, financial condition, or operating results and could decrease the value of our Common Stock.
Risks Relating to Our Business
We have failed to make our gold deliveries under the Purchase Agreement with PDK, which constitutes an Event of Default under the agreement.
We were unable to make the monthly gold deliveries to PDK in December 2020 through March 2024, and we anticipate that we will be unable to make deliveries unless an outside source of funding becomes available. The failure to make these gold deliveries, as required under the Purchase Agreement, constitute Events of Default under the terms of the agreement. As such, PDK has available certain remedies under the terms of the Purchase Agreement, including the right to terminate the Purchase Agreement, demand payment of an early termination amount as calculated in the agreement, or foreclose on the collateral provided under the agreement and governed by the separate collateral agreement. Interest on any unpaid obligations will be calculated at a default rate equal to LIBOR plus 2%. We do not have sufficient funds to satisfy the default obligations. If we are unable to negotiate a resolution of these default events and restructure the gold delivery obligations currently mandated, we may be unable to retain possession of the mining project and would be forced to cease operations.
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The value of our property is subject to volatility in the price of gold and any other deposits we may seek or locate.
Our profitability will be significantly affected by changes in the market price of gold and silver, and other minerals. These mineral prices fluctuate widely and are affected by numerous factors, all of which are beyond our control. For example, the price of gold can be influenced by the sale or purchase of gold by central banks and financial institutions; interest rates; currency exchange rates; speculation; inflation or deflation; fluctuation in the value of the United States dollar and other currencies; global and regional supply and demand, including investment, industrial and jewelry demand; and the political and economic conditions of major gold producing countries throughout the world, such as Russia and South Africa. The price of gold and other minerals has fluctuated widely in recent years, and a decline in the price of gold or other minerals could cause a significant decrease in the value of our property, limit our ability to raise money, and render continued exploration and development of our property impracticable. For example, the price of gold dropped significantly between August 2020 and March 2021, then increased through March 2022, based in part on forecasts of a rapid global economic expansion that year, powered by vaccinations and U.S. stimulus payments according to some economists. If the price of gold makes operations unprofitable, then we could lose our rights to our property and be compelled to sell some or all of these rights. Additionally, the future development of our mining properties is heavily dependent upon the level of metals prices remaining sufficiently high to make the development of our property economically viable. An investor may lose its investment if the price of these minerals substantially decreases. The greater the decrease in the price of gold or other minerals, the more likely it is that an investor will lose money.
The property has a retention pond for cyanide solutions from mining activities, which if not constantly pumped could result in a potential environmental hazardous spill.
The Company’s retention pond for cyanide solutions from mining activities has approximately 3,000,000 gallons retention capacity remaining. The pond requires constant pumping at a rate of approximately 1,000,000 gallons per day in order to prevent any environmental spills of cyanide solution into the environment. If the pumping equipment fails or the Company is unable to pay for gas and upkeep of the equipment the pond may reach maximum capacity and create an environmental spill of cyanide solution into the environment.
To continue our operations, we must obtain additional financing from outside sources.
We have no firm commitments or agreements to provide additional funding to have sufficient capital to fund our operations as they are currently planned or to fund the acquisition and exploration of new properties. We also may be unable to secure additional financing on terms acceptable to us, or at all. Our inability to raise additional funds on a timely basis could prevent us from achieving our business objectives and could have a negative impact on our business, financial condition, results of operations and the value of our securities. If we raise additional funds by issuing additional equity or convertible debt securities, the ownership of existing stockholders may be diluted and the securities that we may issue in the future may have rights, preferences, or privileges senior to those of the current holders of our common stock. Such securities may also be issued at a discount to the fair market value of our common stock, resulting in possible further dilution to the book value per share of common stock. If we raise additional funds by issuing debt, we could be subject to debt covenants that could place limitations on our operations and financial flexibility.
Our management may have conflicts of interest and only devote a portion of their business time to us which could materially and adversely affect us and our business.
Most of our management does not work for us exclusively and some serve on the boards of other companies, although we do not consider any of these other companies to be our direct competitors. Nevertheless, these other responsibilities may take away from time and focus of these parties on their responsibilities as management of our Company. It is possible that a conflict of interest may arise based on management’s other employment or board activities. Situations may arise where members of our management are presented with business opportunities which may be desirable not only for us, but also for the other companies with which they are affiliated.
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We do not know if our properties contain any gold, silver, copper, tungsten, or other precious minerals that can be mined at a profit.
The properties on which we have the right to explore for and mine precious minerals are not known to have any proven or probable reserves. Whether a precious mineral deposit can be mined at a profit depends upon many factors. Some but not all of these factors include: the particular attributes of the deposit, such as size, grade and proximity to infrastructure; operating costs and capital expenditures required to start mining a deposit; the availability and cost of financing; the price of the gold or other mineral which is highly volatile and cyclical; and government regulations, including regulations relating to prices, taxes, royalties, land use, importing and exporting of minerals and environmental protection. We are also obligated to pay royalties and taxes on certain of our mining activities, which will make our ability to operate profitably more difficult.
We are a junior mining company with limited operating mining activities, and we may not be able to increase our mining activities in the future.
Our business is mining for gold, silver and other precious minerals. Mining operations in the United States are subject to many different federal, state and local laws and regulations, including stringent environmental, health and safety laws. In the event we increase operations on our mining properties, it is possible that we will be unable to comply with current or future laws and regulations, which can change at any time. It is possible that changes to these laws will be adverse to our mining operations. Moreover, compliance with such laws may cause substantial delays and require capital outlays in excess of those anticipated, adversely affecting any potential mining operations. Our future mining operations may also be subject to liability for pollution or other environmental damage. We are not currently insured against this risk because of high insurance costs.
We have a short operating history, have only lost money from operations, and may never achieve any meaningful revenue.
Our operating history consists of limited operations and continuation of preliminary exploration activities. Our expenses have consistently exceeded the revenue generated from our mining operations. Exploring for and mining precious minerals or resources is an inherently speculative activity. Our revenue could be adversely affected by many outside influences, and we may never achieve revenue in amounts sufficient to provide for payment of our expenses.
Our property title may be challenged. We are not insured against any challenges, impairments or defects to our mineral claims or property title.
Our property is comprised of patented and unpatented lode claims created and maintained in accordance with the federal General Mining Law of 1872. Unpatented lode claims are unique U.S. property interests and are generally considered to be subject to greater title risk than other real property interests because the validity of unpatented lode claims is often uncertain. This uncertainty arises, in part, out of the complex federal and state laws and regulations under the General Mining Law. Until the claims are surveyed, the precise location of the boundaries of the claims may be in doubt and our claims subject to challenge. If we discover mineralization that is close to the claims’ boundaries, it is possible that some or all of the mineralization may occur outside the boundaries. In such a case we would not have the right to extract those minerals. This uncertainty leaves us exposed to potential title suits. Defending any challenges to our property title will be costly and may divert funds that could otherwise be used for exploration activities and other purposes. In addition, unpatented lode claims are always subject to possible challenges by third parties or contests by the federal government, which, if successful, may prevent us from exploiting our discovery of commercially extractable gold. Challenges to our title may increase our costs of operation or limit our ability to explore certain portions of our property. We are not insured against challenges, impairments, or defects to our property title, nor do we intend to carry title insurance in the future.
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We may not be able to maintain the infrastructure necessary to conduct mining activities.
Our mining activities depend upon adequate infrastructure. Reliable roads, bridges, power sources and water supply are important factors which affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of such infrastructure could adversely affect our mining activities and financial condition.
Our mining activities may be adversely affected by the local climate.
The local climate sometimes affects our mining activities on our properties. Earthquakes, heavy rains, snowstorms, and floods could result in serious damage to or the destruction of facilities, equipment or means of access to our property, or could occasionally prevent us temporarily from conducting mining activities on our property. Because of their rural location and the lack of developed infrastructure in the area, our mineral properties in Utah are occasionally impassable during the winter season. During this time, it may be difficult for us to access our property, maintain production rates, make repairs, or otherwise conduct mining activities on them.
Risks Relating to the Mining Industry
Mining for precious metals is an inherently speculative business. The properties on which we have the right to mine for precious minerals are not known to have any proven or probable reserves. If we are unable to extract gold, silver, or any other resources which can be mined at a profit, our business could fail.
Natural resource mining, and precious metal mining, in particular, is a business that by its nature is speculative. There is a strong possibility that we will not discover gold, silver, or any other resources which can be mined or extracted at a profit. Even if we do discover and mine precious metal deposits, the deposits may not be of the quality or size necessary for us or a potential purchaser of the property to make a profit from mining it. Few properties that are explored are ultimately developed into producing mines. Unusual or unexpected geological formations, geological formation pressures, fires, power outages, labor disruptions, flooding, explosions, cave-ins, landslides, and the inability to obtain suitable or adequate machinery, equipment or labor are just some of the many risks involved in mineral exploration programs and the subsequent development of gold deposits. If we are unable to extract gold, silver, or any other resources which can be mined at a profit, our business could fail.
Our business is subject to extensive environmental regulations which may make exploring or mining prohibitively expensive, and which may change at any time.
All of our operations are subject to extensive environmental regulations which can make exploration expensive or prohibit it altogether. We may be subject to potential liabilities associated with the pollution of the environment and the disposal of waste products that may occur as the result of exploring and other related activities on our properties. We may have to pay to remedy environmental pollution, which may reduce the amount of money that we have available to use for exploration. This may adversely affect our financial position, which may cause loss of investor investment. If we are unable to fully remedy an environmental problem, we might be required to suspend operations or to enter into interim compliance measures pending the completion of the required remedy. If a decision is made to mine our properties our potential exposure for remediation may be significant, and this may have a material adverse effect upon our business and financial position. All of our exploration and, if warranted, development activities may be subject to regulation under one or more local, state and federal environmental impact analyses and public review processes. It is possible that future changes in applicable laws, regulations and permits or changes in their enforcement or regulatory interpretation could have significant impact on some portion of our business, which may require our business to be economically re-evaluated from time to time. These risks include, but are not limited to, the risk that regulatory authorities may increase bonding requirements beyond our financial capability. Inasmuch as posting of bonding in accordance with regulatory determinations is a condition to the right to operate under all material operating permits, increases in bonding requirements could prevent operations even if we are in full compliance with all substantive environmental laws. We have been required to post substantial bonds under various laws relating to mining and the environment and may in the future be required to post further bonds to pursue additional activities. We may be unable or unwilling to post such additional bonds which could prevent us from realizing any commercial mining success or commencing mining activities.
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Market forces or unforeseen developments may prevent us from obtaining the supplies, equipment and skilled manpower necessary to explore for mineral resources.
Precious metals exploration, and resource exploration in general, is a very competitive business. Competitive demands for contractors and unforeseen shortages of supplies and/or equipment could result in the disruption of our planned exploration and production activities. Current demand for exploration drilling services, equipment and supplies is robust and could result in suitable equipment and skilled manpower being unavailable at scheduled times for our exploration and production programs. Fuel prices are extremely volatile as well. We will attempt to locate suitable equipment, materials, manpower and fuel if sufficient funds are available. If we cannot find the equipment, supplies and skilled manpower needed for our various exploration and production programs, we may have to suspend some or all of them until equipment, supplies, funds and/or skilled manpower become available. Any such disruption in our activities may adversely affect our exploration activities and financial condition.
Risks Relating to Our Organization and Common Stock
There is currently no market for our common stock, and we cannot ensure that one will ever develop or be sustained.
There is currently no public market for our common stock. There can be no assurance that there will be an active market for our shares of common stock either now or in the future. If an active market is established, the market liquidity will be dependent on the perception of our operating business, among other things. We may take certain steps including utilizing investor awareness campaigns, press releases, road shows and conferences to increase awareness of our business and any steps that we might take to bring us to the awareness of investors may require we compensate consultants with cash and/or stock. There can be no assurance that there will be any awareness generated or the results of any efforts will result in any impact on our trading volume. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business and trading may be at an inflated price relative to the performance of our company due to, among other things, availability of sellers of our shares. If a market should develop, the price may be highly volatile. Because there may be a low price for our shares of common stock, many brokerage firms or clearing firms may not be willing to effect transactions in the securities or accept our shares for deposit in an account. Even if an investor finds a broker willing to affect a transaction in the shares of our common stock, the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the use of low-priced shares of common stock as collateral for any loans.
Our principal shareholders, officers and directors own a substantial interest in our voting stock and investors will have a limited voice in our management.
Our principal shareholders, as well as our officers and directors, in the aggregate beneficially own a majority of our outstanding common stock. Additionally, the holdings of our officers and directors may increase in the future upon vesting or other maturation of exercise rights under any of the options they currently hold or which may in the future be granted or if they otherwise acquire additional shares of our common stock.
As a result of their ownership and positions, our principal shareholders, directors and executive officers collectively are able to influence all matters requiring shareholder approval, including the following matters:
| ● | election of our directors; |
| ● | amendment of our articles of incorporation or bylaws; and |
| ● | effecting or preventing a merger, sale of assets or other corporate transaction. |
In addition, their stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company, which in turn could reduce our stock price or prevent our shareholders from realizing a premium over our stock price.
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We are subject to the reporting requirements of federal securities laws, and compliance with such requirements can be expensive and may divert resources from other projects, thus impairing our ability to grow.
We are subject to the information and reporting requirements of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and other federal securities laws, including compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and the Dodd-Frank Act Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). The costs of preparing and filing annual and quarterly reports, and other information with the Securities and Exchange Commission and furnishing audited reports to stockholders will cause our expenses to be higher than they would have been if we were privately held.
It may be time consuming, difficult, and costly for us to develop, implement and maintain the internal controls and reporting procedures required by the Sarbanes-Oxley Act and the Dodd-Frank Act. We may need to hire additional financial reporting, internal controls, and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures.
If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our common stock.
Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operation, and access to capital. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with any policies and procedures may deteriorate.
Public company compliance may make it more difficult to attract and retain officers and directors.
The Sarbanes-Oxley Act and rules implemented by the Securities and Exchange Commission have required changes in corporate governance practices of public companies. As a public company, we expect these rules and regulations to increase our compliance costs in 2024 and beyond and to make certain activities more time consuming and costly. As a public company, we also expect that these rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers, and to maintain insurance at reasonable rates, or at all.
Any future trading price of our stock may be volatile.
If a market for our common stock is ever established, the market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:
| ● | our inability to maintain existing permits; |
| ● | changes in the prices of gold and silver; |
| ● | changes in our industry; |
| ● | competitive pricing pressures; |
| ● | our ability to obtain working capital financing; |
| ● | additions or departures of key personnel; |
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| ● | limited “public float” in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock; |
| ● | our ability to execute our business plan; |
| ● | sales of our common stock; |
| ● | operating results that fall below expectations; |
| ● | loss of any strategic relationship; |
| ● | regulatory developments; |
| ● | economic and other external factors; and |
| ● | period-to-period fluctuations in our financial results; and inability to develop or acquire new or needed technology. |
In addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
We have not paid cash dividends in the past and do not expect to pay dividends in the future. Any return on investment may be limited to the value of our common stock.
We have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition, and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates. Our Prepaid Forward Gold Purchase Agreement prohibits us from declaring, making or paying any dividends so long as any gold remains to be delivered or any amounts remain to be paid by us under the agreement.
Our common stock may be deemed a “penny stock,” which would make it more difficult for our investors to sell their shares.
If a market for our common stock were to develop, the common shares would be subject to the “penny stock” rules adopted under Section 15(g) of the Exchange Act. The penny stock rules generally apply to companies whose common stock is not listed on the NASDAQ Stock Market or other national securities exchange and trades at less than $4.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.
Exercise of options or future convertible instruments may have a dilutive effect on our common stock.
We have no outstanding vested options. If the price per share of our common stock at the time of exercise of any future options or warrants, or conversion of any future convertible notes or any other convertible securities exceeds the various exercise or conversion prices of such convertible securities, exercise or conversion of such convertible securities would have a dilutive effect on our common stock. Further, any additional financing that we secure may require the granting of rights, preferences, or privileges senior to those of our common stock and which result in additional dilution of the existing ownership interests of our common stockholders.
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Our Articles of Incorporation allow for our board to create new series of preferred stock without further approval by our stockholders, which could adversely affect the rights of the holders of our common stock.
Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors also has the authority to issue preferred stock without further stockholder approval. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock. In addition, our board of directors could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock or result in dilution to our existing stockholders.
Global health crises may adversely affect our planned operations.
Our business could be materially and adversely affected by the risks, or the public perception of the risks, related to a pandemic or other health crisis, such as the recent outbreak of novel coronavirus (COVID-19). A significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect our planned operations. Such events could result in the complete or partial closure of our operations. In addition, it could impact economies and financial markets, resulting in an economic downturn that could impact our ability to raise capital. The pandemic that has been going on for the past two years has specifically affected our ability to obtain supplies and services to maintain our business. This ongoing health crisis has reduced the ability of the regulating agencies to process our permits on a timely basis which could delay our ability to operate at maximum efficiency. Our ability to obtain and retain qualified employees has also been adversely affected by this global health crisis.
ITEM 1B. UNRESOLVED STAFF COMMENTS
As a non-accelerated filer, we are not required to provide disclosure under this item.
ITEM 1C. CYBERSECURITY
Due to the size of the Company and minimal activity level, record keeping requirements are also minimal. All records are tightly maintained on our secure server or in the cloud in our virtual data room. Our engineer and Rick Havenstrite are responsible for oversight as members of management and of the Board of Directors. We do not engage any assessors, consultants, auditors or other third parties in connection with our cybersecurity risk management.
For the year ended December 31, 2023, the Company had no cybersecurity incidents or was at risk from cybersecurity threats that have materially affected or were reasonably likely to materially affect our business strategy, results of operations or financial condition.
ITEM 2. PROPERTIES
We have not obtained a technical report prepared by a qualified person for any of our mining properties. Although we are conducting mining operations on our properties, we would be considered an exploration stage issuer and our properties would be deemed exploration stage properties, without specified reserves. Below is a description of our mining properties.
Kiewit Project, Utah
The Kiewit gold property located in the Gold Hill Mining District in Tooele County, Utah, is our principal mineral property and is an exploration stage property. In June 2019, we also acquired 20 patented mining claims contiguous to our Kiewit property, known as the JJS Property. We have not determined to what extent we will develop these new claims, if we are able to secure future funding. We were attracted to the Gold Hill Mining District because of its similarities to productive mining districts and its past positive exploration results. The gold potential of the Gold Hill Mining District is enhanced by similarities to surrounding gold deposits. We believe the scale, number and frequency of the Gold Hill Mining District gold-bearing exposures and geochemical anomalies compare favorably to similar attributes of other productive mining districts.
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Location, Infrastructure, and Geography of Kiewit
The Gold Hill Mining District is in Tooele County, Utah, located at 40º 07’ 00” North latitude, 113º 49’ 40” West longitude. The district includes the north end of the Deep Creek Mountains, one of the nearly north-south ranges that are common in the Great Basin. On the east and north, the mountain area is separated by gravel slopes from the flat plain of the Great Salt Lake Desert, and on the west, it is bounded by the Deep Creek Valley and groups of irregular low hills. It is approximately 190 miles west-southwest of Salt Lake City, Utah, and approximately 56 miles south southeast of Wendover, Utah. The project is reached by taking Alternate 93A south from Wendover approximately 28 miles and turning east on to the Ibapah Highway, a paved two-lane road. Approximately 17 miles east is a maintained two-lane county road which provides access to the property approximately 11 miles southeast to the town of Gold Hill, Utah. The Kiewit mine and the mill site are accessible by dirt roads maintained year-round, subject to possible closures caused by inclement weather. Access to the property is maintained all year.
Power is supplied by the Company’s diesel generators and water for mining operations is supplied from an existing groundwater well. Drinking water is obtained from a local vendor.
At March 31, 2024, we had 9 full-time and 2 part-time employees. All employees are assigned to work at the Kiewit site, with the exception of the officers, and one engineer, who work from the corporate office in Reno, Nevada, with periodic site visits.
The Gold Hill area lies within the region of the interior drainage that includes western Utah and most of Nevada, and, like the remaining portions of that area, is a high desert semi-arid climate. The area is composed of a highly dissected group of hills of relatively low relief. The elevation of the Kiewit Mine is approximately 5,500 feet. The Gold Hill area is bounded on the east by the Great Salt Lake Desert at an altitude of about 4,300 feet, on the north by Dutch Mountain with a higher elevation of 7,735 feet, on the west by Clifton Flat at an approximate elevation of 6,600 feet, and on the south by Montezuma Peak with an elevation of 7,369 feet.
Pronounced differences in temperatures between night and day are common, with the dryness of the air mitigating the high temperatures which predominate the summer days. Annual precipitation averages approximately 12 inches with about half falling in the months from February to May. Rainfall during summer to early fall is commonly in the form of severe thunderstorms. Snow may be expected between October and May. Fieldwork in the area is generally permitted throughout most of the year.
The higher portions of the Deep Creek Range and small areas near the summits of the adjoining mountains support a fairly heavy growth of yellow pine. The lower slopes of these mountains have a sparse covering of juniper and piñon trees. On the lower hills and on the gravel slopes surrounding them, these trees give way to sagebrush. The floor of the Great Salt Lake Desert in the north-east corner of the district is almost completely barren of vegetation.
Kiewit Mining Claims
The Kiewit mining claims consist of 66 unpatented and surface rights to 10 patented mining claims covering approximately 3 square miles located in the Gold Hill Mining District in Tooele County, Utah.
The Kiewit mining claims were part of a larger group of mining claims leased from Clifton Mining Company and its subsidiary, The Woodman Mining Company, in July 2009. The original lease with Clifton was amended in June 2010. In March 2019, the lease agreement was again amended by a Second Amended and Restated Lease Agreement (the “Amended Lease”). Under the terms of the Amended Lease, the Company relinquished its leasehold interest in all but the current Kiewit patented and unpatented claims. The lease term is 20 years and for so long thereafter as the mining claims are being actively used by the Company for commercial mining purposes. The Company is required to pay all property payment and payment obligations with respect to the leased premises.
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Under the terms of the Amended Lease, Clifton’s right to receive a 6% royalty interest from production on the Kiewit project was terminated. The Company also acquired from third parties and cancelled the remaining 1% outstanding royalty interest thereon, for which the Company paid each of two parties $50,000.
As consideration for entering into the Amended Lease, the Company issued 5,500,000 shares of its common stock with a fair value of $2,200,000 which increased the carrying value of the mineral properties and interests. The Company also paid $13,390 in satisfaction of delinquent amounts owed Clifton and $42,802 in a reclamation bond transfer. In addition, the Company and Clifton entered into a Registration Rights Agreement to register for resale the shares issued to Clifton which requires the Company to register the shares within 18 months (which is September 7, 2020) following the Initial Funding. In the event the Company does not register the shares within the 18-month period, the Company is obligated to pay Clifton a royalty equal to 2.5% of the net smelter returns from the minerals generated from the Company’s mining claims. The registration of these shares was filed and became effective on April 14, 2020. The Company agreed to maintain the effectiveness of the Registration Rights Agreement for a period of three years. The Company’s obligation to maintain the effectiveness of the Registration Rights Agreement is expired.
Desert Hawk may mortgage or pledge its leasehold interest under the Amended Lease for purposes of financing exploration, development, and mining operations on the leased premises, including corporate overhead for such operations, but it cannot otherwise encumber the leased premises without Clifton’s prior, written discretionary consent. In connection with the PDK funding, the Company granted to PDK a security interest in all of the assets of the Company and issued and recorded a Leasehold Deed of Trust which included an assignment of leases, rents, as extracted collateral and contracts, a security agreement and fixture filing.
The Amended Lease cannot be assigned or subleased without the prior written consent of Clifton. Further, PDK may, without Clifton’s consent, hold a foreclosure sale, take title to the Company’s interest under the Amended Lease, or transfer or assign the Company’s interest under the Amended Lease. The Company may surrender the Amended Lease as to all or any part of the leased premises, after proper reclamation of all portions of the land to be surrendered affected by its operations. However, so long as any mortgage of PDK remains in effect, the Amended Lease cannot be modified, and Clifton will not accept a surrender of any of the leased premises or a termination or release of the Amended Lease, without the prior written consent of PDK, which consent cannot be unreasonably withheld or delayed.
Kiewit Geology and Mineralization
The Gold Hill area hosts lithologic units ranging in age from the Cambrian through to Quaternary Periods including six Paleozoic sedimentary formations of Carboniferous-age from the Cordilleran miogeosyncline. Geology of the Gold Hill Mining District is dominated by a large Jurassic granodiorite stock intruding the Carboniferous sedimentary package consisting of carbonates (limestone and dolomite) and lesser clastic sequences, notably shale and quartzite. The contact between the granodiorite and sediments is clearly intrusive at many localities. In other exposures, the contact is a post-intrusive fault contact or localized detachment fault.
Other lithologies in the District include silica breccias, jasperoids and assorted (locally tuffaceous) volcanics, minor small, intrusive plugs and dikes of probable Tertiary age also occur in the area. Most of the present-day surface is covered with colluvial slope wash and the canyons and narrow washes have alluvial fill of various thicknesses.
The Kiewit historic gold zone is hosted within a structural zone traceable on the surface for a distance of approximately 2.5 miles across the full length of the Kiewit project area and beyond. This structure trends north-north-easterly with a gentle westerly dip ranging 20-30 degrees, often occupying dip-slopes across the area. The zone comprises a 30 to 165-foot-thick, gently westerly dipping gold bearing oxidized quartz stockwork section in granodiorite. The zone is mostly exposed on the surface and occupies the dip-slope located at the southern part of the Kiewit project area. Projected western and northern extensions of the stockwork dip under Carboniferous Sedimentary rocks, although it is ultimately truncated by the Rodenhouse Fault located approximately 2,500 feet to the west.
The Kiewit gold zone is part of a typical low-sulfidation gold bearing epithermal system. It is manifested as a zone of quartz and quartz-carbonate veining and stockworks within the more laterally extensive (2.5 miles long and up to 1,650 feet wide) Kiewit structural zone fault/fracture system. The Kiewit structural zone comprises a group of lithologies overlying a major fault zone that is manifested as a three to 16 feet thick silica breccia unit in granodiorite. A basal three to six-foot thick quartz-carbonate vein overlies this basal silica breccia and is followed up-section by a fault-bounded interval of relatively unaltered granodiorite that forms the footwall of the stockworks. At some locations, this footwall granodiorite is absent and the stockwork zone is instead in fault-contact with the basal quartz-carbonate vein. The footwall of the stockwork zone is defined by faulting, with a north-north-easterly trend and shallow westerly dip. The “footwall” fault appears to have developed after the stockwork and served to juxtapose altered and mineralized rocks of the historic gold zone over relatively mineralized and fresh granodiorite. The amount of displacement along this fault is unknown and the structure may be regarded as a detachment zone.
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Precious metals mineralization at Kiewit occurs primarily as electrum and is hosted in a stockwork zone associated with a low angle fault zone. The stockwork zone comprises argillic-propylitic altered granodiorite with randomly oriented to anastomosing veinlets, as well as veins with variable mix of white to grey chalcedony/quartz and white to beige carbonate and adularia. The veins are commonly less than two centimeters wide but larger veins with apparent thickness up to one meter or greater are present on surface and in diamond drill core. The larger veins display typical epithermal style open space fillings and have variable textures.
The mineralized stockwork is reported by Dumont to generally contain up to 30 randomly oriented veinlets making up 30% of the rock volume. The highest gold grades are also reported by Dumont to generally be associated with the larger veins or where vein density is greatest which suggests that the gold mineralization is spatially associated with the quartz-carbonate veins.
Kiewit Exploration Programs and Mining Activities
The Kiewit mining claims are without known reserves but beginning in 2014 the Company started extraction of gold without determining mineral reserves. The Kiewit mine is a small open pit, heap leach operation that produces gold and silver. Initial production at Kiewit commenced in June 2014 and was suspended in June 2016. Production was suspended due to low metal prices and undercapitalized operations. A fresh water well failure in July 2016, due to suspected sabotage, caused a complete leach pad shutdown. Fresh water pumping was re-started in mid-March 2017 mostly to reduce solution volumes as no sodium cyanide (NaCN) was being added. The mine resumed leaching activities in the spring of 2018 and recovered some gold but suspended operations again in October 2018 to secure funding for continued operations. In April 2019 we re-commenced mining operations with our first sale in September 2019. From fourth quarter 2020 through October 2022, we also processed ore for a third party under our existing mining permit.
In June 2022 we paused our mining operations on the Kiewit claims and ceased our ore crushing due to a delay in the issuance of a permit modification which would allow us to expand our pit area, which, prior to the new permit, was at the boundaries of the existing permit. Utah Division of Oil, Gas and Mining has provided conditional approval for the permit modification contingent on the approval by the BLM. In anticipation of receiving the permit modification, on November 1, 2022, we posted the required bond for the permit modification in the amount of $555,000. We have curtailed operating expenses to the extent possible while keeping a minimum staff employed, working on continued processing and equipment maintenance.
History of Previous Mining Activities
The Gold Hill area is one of the oldest mining districts in the State of Utah. It reflects 43 known historical producing deposits mined primarily from the mid-1800s until the end of World War II. These deposits included gold, silver, copper, bismuth, lead, zinc, tungsten, arsenic, molybdenum, cobalt, and beryllium. Exploration and mining activities commenced in the mid-1800s as travel westward through the area to California was at its peak. Lead mineralization first attracted the attention of travelers prompting early prospecting. Placer gold was first discovered in the Gold Hill area in 1858. These early prospectors were hampered by repeated attacks of local Native American tribes and the area was abandoned until 1869 when the settlements of Gold Hill and Clifton were re-established.
A lead smelter was constructed at Clifton in 1872 and relocated to Gold Hill in 1874. However, mining activity did not commence in earnest until 1892 when a mill and smelter were constructed at Gold Hill. Substantial quantities of gold and silver ore were processed at this site between 1892 and 1896. Mining activity gradually diminished until 1905 when exploration for copper revived the area. With the outbreak of World War I and the completion of the Deep Creek Railroad between Gold Hill and Wendover, a new revival of interest in the area commenced. Gold, silver, copper and lead were produced and approximately 3,000 residents lived in Gold Hill and Clifton at the time.
Tungsten was produced beginning in 1912. Significant amounts of gold and bismuth were also reportedly extracted during this period. Two mines produced tungsten in 1914 and 1917 and were operated primarily for the strategic requirement of tungsten during the two world wars. Gold and silver mining ceased completely with the beginning of World War II since the few remaining miners focused their attention on the production of strategic metals such as arsenic and tungsten to support the war effort.
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Arsenic was produced beginning with the outbreak of World War I and was used primarily for pesticides in the cotton fields of the south. Two former copper producers also produced arsenic between 1923 and 1925. One of the mines reopened during World War II to produce arsenic for the war effort. None of the arsenic deposits previously mined are located on our claims.
The first large-scale geological study of the area was published in 1935 by T. B. Nolan as U.S. Geological Survey Professional Paper 177 and is referred to herein as the Nolan Report. The Nolan Report provided the first detailed data on the mining district.
The mining district remained largely dormant during the period after World War II through the mid-1970s. Between this period and the mid-1990s, several mining companies began to consolidate the fragmented land holdings in the area and a more regional-scale exploration operation was conducted. In 1993 Clifton Mining Company acquired several of the mining claims in the area and subsequently purchased Woodman Mining Company which also held claims in the district. After purchase of the claims, Clifton Mining commenced additional exploration activities and in 1997 developed road access up the Clifton Hills area. Clifton completed construction of a 50 ton per day mill at the Cactus Mill site and started construction of a 500 ton per day gravity-flotation mill at the same location. In 1999 Clifton Mining borrowed funds which financed upgrades to the mill.
Between 1994 and 1997 Kennecott Utah Copper, now owned by Rio Tinto, explored a large region of the district. In December 2002 Clifton Mining and Woodman Mining entered into an option-joint venture agreement with Dumont Nickel Inc., which in 2010 changed its name to DNI Metals Inc. The joint venture ultimately covered approximately 10.3 square miles of mineral properties but did not include the Yellow Hammer claims which were controlled by the Moeller family. In 2003 Dumont commenced exploring the properties with the objective of identifying bulk mineable gold, copper and silver targets through regional work as well as several drill programs. Beginning in 2004 Dumont completed a regional-scale grid and reconnaissance rock and soil sampling exploration program with detailed, targeted exploration work over the Clifton Shears Corridor, the Kiewit Zone and the prior zone owned by Kennecott. Ultimately, Dumont determined that the scale of the project was too small and decided to sell its interest in the project. In July 2009 Dumont completed the sale of all its mineral properties in this area to Clifton Mining Company for $255,000 cash and a 0.5% net smelter return royalty against future production proceeds from the Cane Springs Property and from portions of the Kiewit project claims. The joint venture and the option agreement were both subsequently dissolved and terminated.
Processing Plant and Mining Equipment
The Kiewit mine is an open pit mine using conventional open pit mining methods with drilling, blasting, loading with a wheeled loader and truck haulage to the ore stockpile near the crusher. We re-commenced operation of the mine in April 2019. However, as of June 2023 mining operations have been substantially curtailed. We also use a top hammer drill for all blast holes and a dozer to move waste and for road building, as required. We also use a grader and water truck for haul road maintenance. At the leach pad we use a wheeled loader to feed the crusher and a dozer to level the pad.
The current processing facility can process approximately 1 million tons per year, which we plan to increase to 3 million tons if resource expansion dictates and if funding is available. We anticipate that this expansion will require an update or amendment of some permits. Ores are crushed, truck-stacked and heap-leached at the Company’s mine site. Pregnant solutions are passed through a conventional carbon column with the resultant gold-bearing carbon refined off-site.
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Mining Permits
The Kiewit mining claims exist entirely on federal Bureau of Land Management unpatented mining claims. The heap leach pad and process area are located on patented mining claims approximately 3,000 feet to the southwest of the Kiewit claims.
In February 2010 we filed an application with Utah Division of Oil, Gas and Mining for a Large Mining Operations Permit to commence large mining operations for three open pit mines and a heap leach gold facility. Final approval was received in November 2012. In February 2010 we also submitted a Plan of Operation to the BLM. Final approval was received in January 2014. A separate Groundwater Discharge Permit through the Utah Department of Environmental Quality was issued on December 7, 2010.
In addition to completing the notice of intent filing, the BLM requires an analysis of our Plan of Operation in compliance with the National Environmental Protection Act. Approval of the Environmental Assessment was issued in January 2014 and development of the project began in February 2014 after posting a reclamation Bond in the amount of $1,348,000. In December 2020, we were notified that the reclamation cost estimate for the Kiewit properties had been escalated from $1,348,000 to $1,537,000, an increase of $189,000. This amount escalated the cost estimate to December 31, 2021, at which time a new cost estimate was calculated to escalate the cost through 2026. This additional surety amount of $189,000 was remitted on March 10, 2021. The additional escalation amount was then paid in March 2022 at a cost of $89,000 to escalate to 2026. In anticipation of receiving a permit modification, on November 1, 2022, we posted the required bond for the permit modification in the amount of $555,000. On December 22, 2022, BLM conditionally approved the Company’s amended plan of operations for the Kiewit Mine. The total estimated cost of reclamation under the updated permit is $2.27 Million, escalated through 2026.
The Company believes it has all necessary environmental permits and authorizations to support existing operations. As we expand or update the current mining plan of operations (the “POO”), we will require an update or amendment of some permits and before we can implement any changes in our operating parameters, we will need to modify our existing permits or seek new permits. We anticipate that the following permitting modifications will be required:
| ● | POO Modification: A POO modification would be required to support our planned increased production capacity, expansion of the mine pit, and the expansion of the leach pad. The POO modification must be submitted to the BLM, and the process would require National Environmental Policy Act (NEPA) compliance, including public review and comment. We submitted the modification in first quarter 2020 and the plan was accepted on December 22, 2022. We have since resumed mining operations. Since then, operations have been seriously curtailed due to the delays in obtaining the expansion permit and current lack of operating capital. |
| ● | Air Quality Permit to Construct: A modification to the Air Quality Permit to Construct would be required for production increases from the 1 million tons per annum to the three-million-ton level. We submitted our application in first quarter 2020 and this permit was issued in 2021. |
| ● | Water Discharge Permit: A modification to our existing water discharge permit would be required for the expansion including enlargement of the heap leach facility. The permit includes monitoring of the heap leach leak detection system and groundwater monitoring wells in the vicinity of the heap leach and process area. We submitted the modification in third quarter 2020 and this permit was issued in 2021. |
| ● | Reclamation Plan: A Reclamation Plan Approval would be required by the Utah DOGM Office. However, the Aggregate Mine Land Reclamation Act would require approval by the Inspectors Office of the POO amendment addressing new infrastructure and disposal facilities. We submitted the POO amendment for approval in first quarter 2020 and the plan has been accepted. |
We have engaged outside consultants to assist us in seeking modification or new permits to accomplish the above.
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2023 Mining Activities
During 2023 we mined and crushed 6,600 tons of mineralized material and 385,000 tons of waste from the open-pit Kiewit Pit. Production was limited due to the delay in receiving the permit modification to increase the size of the pit area.
Planned 2024 Exploration and Mining Activities
If we are able to secure outside funding and finalize the expanded mining permit, we intend to continue extraction of mineralized material and to upgrade and expand the current facilities, as resource expansion and permit approval dictates. We hope to drill a new well to increase our water source in 2024 also.
Offices and Other Facilities
Our corporate office is located in Reno, Nevada, and Mr. Havenstrite, our President, operates from this office and also works on site at our mining property in Tooele County, Utah. Monthly rent for the office space in Reno is $1,000. Financial and engineering activities are performed in this office and rent includes use of the business equipment and supplies needed to perform these functions. This office space is used primarily for RMH Overhead, LLC and Overhead Door Co. of Sierra Nevada/Reno, Inc., businesses owned by Mr. Havenstrite. Agreements for the use of the office space facilities with these parties are month-to-month and can be cancelled at any time.
We rent a core-logging facility located on the Tooele County airport grounds in Wendover, Utah. The facility includes a separate core splitting and sawing room, field supply storage rooms and sufficient floor space for logging tables and racks to hold over 21,000 feet of HQ core boxes. Monthly rent for this space is $350 and the rental arrangement is terminable at any time.
ITEM 3. LEGAL PROCEEDINGS
Our company is not a party to any legal proceedings reportable pursuant to this item.
ITEM 4. MINE SAFETY DISCLOSURES
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this annual report.
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PART II
ITEM 5. MARKET FOR Registrant’s COMMON EQUITY, RELATED STOCKHOLDER MATTERS and Issuer Purchases of Equity Securities
Market Information
There is currently no public trading market for our Common Stock. We intend to apply for the quotation of our common stock on an automated quotation system. There can be no assurance that any application for the quotation of our common stock on an automated quotation system will be approved. If any such application is not approved and our common stock ultimately is not quoted on an automated quotation system, we intend to engage a market maker to apply for quotation on the OTCQB Market operated by OTC Markets Group, Inc. There can be no assurance that a market maker will agree to file the necessary documents, nor can there be any assurance that such any application for quotation would be approved.
Holders
At March 30, 2024, we had approximately 655 holders of record of our common stock. We have appointed Pacific Stock Transfer Company, Las Vegas, Nevada, to act as the transfer agent of our Common Stock.
Dividends
We have never declared or paid any cash dividends on our common stock since inception. We do not anticipate paying any cash dividends to stockholders in the foreseeable future. Our Prepaid Forward Gold Purchase Agreement prohibits us from declaring, making or paying any dividends so long as any gold remains to be delivered or any amounts remain to be paid by us under the agreement. In addition, any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deem relevant.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Results of Operations for the years ended December 31, 2023 and 2022.
| Year ended December 31, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| REVENUE | $ | 2,539,053 | $ | 4,631,531 | $ | (2,092,478 | ) | (45.2 | )% | |||||||
| EXPENSES | ||||||||||||||||
| General production and project costs | 4,385,479 | 5,061,534 | (676,055 | ) | (13.4 | )% | ||||||||||
| Contract processing costs | - | 127,157 | (127,157 | ) | (100.0 | )% | ||||||||||
| Depreciation and amortization | 669,949 | 817,773 | (147,824 | ) | (18.1 | )% | ||||||||||
| Other operating costs | 369,727 | 545,398 | (175,671 | ) | (32.2 | )% | ||||||||||
| Legal and professional | 146,916 | 145,021 | 1,895 | 1.3 | % | |||||||||||
| Officers and directors’ fees | 340,921 | 341,475 | (554 | ) | (0.2 | )% | ||||||||||
| General and administrative | 262,876 | 301,584 | (38,708 | ) | (12.8 | )% | ||||||||||
| Loss on disposal of equipment | 9,259 | 22,921 | (13,662 | ) | (59.6 | )% | ||||||||||
| Forward gold contract expense | 4,211,019 | 3,226,445 | 984,574 | 30.5 | % | |||||||||||
| 10,396,146 | 10,589,308 | (193,162 | ) | (1.8 | )% | |||||||||||
| OPERATING LOSS | (7,857,093 | ) | (5,957,777 | ) | (1,899,316 | ) | 31.9 | % | ||||||||
| OTHER INCOME (EXPENSE) | (1,532,874 | ) | (531,628 | ) | (1,001,246 | ) | 188.3 | % | ||||||||
| NET LOSS | $ | (9,389,967 | ) | $ | (6,489,405 | ) | $ | (2,900,562 | ) | 44.7 | % | |||||
During the years ended December 31, 2023 and 2022, we had net losses of $9,389,967 and $6,489,405, respectively. This represents an increase in net loss of $2,900,562 for the year ended December 31, 2023, over the year ended December 31, 2022.
The operating loss of $7,857,093 for the year ended December 31, 2023, as compared with the operating loss of $5,957,777 for the year ended December 31, 2022 represents increased operating losses in the amount of $1,899,316. Increased losses are primarily due to the increase in forward gold contract expense and lack of production during 2023.
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Liquidity and Cash Flow
| December 31, | December 31, | |||||||
| WORKING CAPITAL | 2023 | 2022 | ||||||
| Current assets | $ | 1,994,321 | $ | 4,175,616 | ||||
| Current liabilities | 29,877,963 | 23,299,677 | ||||||
| Working capital (deficit) | $ | (27,883,642 | ) | $ | (19,124,061 | ) | ||
| Year ended December 31, | ||||||||
| CASH FLOWS | 2023 | 2022 | ||||||
| Cash flow provided (used) by operating activities | $ | (89,470 | ) | $ | 1,503,927 | |||
| Cash flow used by investing activities | (198,818 | ) | (862,084 | ) | ||||
| Cash flow used by financing activities | (58,061 | ) | (485,450 | ) | ||||
| Net increase (decrease) in cash | $ | (346,349 | ) | $ | 156,393 | |||
Net cash used by operating activities of $89,470 during the year ended December 31, 2023, compared with cash provided by operating activities of $1,503,927 during the year ended December 31, 2022, represented a $1,593,397 decrease in cash provided by operating activities and is primarily attributable to the lack of production during the year.
Net cash used by investing activities was $198,818 during the year ended December 31, 2023, compared with $862,084 cash used during the year ended December 31, 2022. This decrease in cash used by investing activities of $663,266 was primarily related to no new reclamation bonds for the current year.
Net cash used by financing activities was $58,061 during the year ended December 31, 2023, compared with $485,450 cash used during the year ended December 31, 2022. This decrease in cash used by financing activities of $427,389 during the year ended December 31, 2022, was primarily due to reduction of notes payable payments.
As a result of the above, cash decreased by $346,349 during the year ended December 31, 2023 over the cash balance at December 31, 2022, leaving us with a cash balance of $234,673 as of December 31, 2023.
Going Concern
As shown in the accompanying financial statements, the Company had an accumulated deficit of $30,127,132 and negative working capital of $27,883,642 at December 31, 2023, which raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Although production restarted in 2019, it has not yet reached optimum levels. The timing and amount of capital requirements will depend on a number of factors, including demand for products, metals market pricing, and the availability of opportunities for expansion through affiliations and other business relationships. Management continues to seek new capital from equity securities issuances or other business arrangements to provide funds needed to increase liquidity, fund internal growth, and fully implement its business plan. The ability of the Company to continue as a going concern is dependent on the Company’s ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they are due.
If the going concern assumption were not appropriate for these financial statements, then adjustments would be necessary to the carrying values of the assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used.
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OFF-BALANCE SHEET ARRANGEMENTS
The Company has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to its stockholders.
CRITICAL ACCOUNTING POLICIES
The Company has identified certain accounting policies, described below, that are most important to the portrayal of its current financial condition and results of operations. The Company’s significant accounting policies are disclosed in the notes to the audited financial statements included in this Annual Report.
See Note 2 to our financial statements contained in Item 8 of this Annual Report for a complete summary of the significant account policies used in the presentation of our financial statements. As described in Note 2, we are required to make estimates and assumptions that affect the reported amounts and related disclosures of assets, liabilities, revenue, and expenses. We believe that our most critical accounting estimates are related to inventories, impairment of long-lived assets and reclamation and remediation.
Our critical accounting policies and estimates are as follows:
Inventories
The recovery of gold from certain oxide ores is achieved through the heap leaching process. Under this method, mineralized material is placed on a leach pad where it is treated with a chemical solution, which dissolves the gold contained in the material. The resulting “pregnant” solution is further processed in a plant where gold is recovered. The Company records ore on leach pad, solution in carbon columns in process and gold concentrate, at average production cost per gold ounce, less provisions required to reduce inventory to net realizable value. Production costs include the cost of mineralized material processed; direct and indirect materials and consumables; direct labor; repairs and maintenance; utilities; amortization of property, equipment, and mineral properties; and mine administrative expenses. Costs are removed from ore on leach pads as ounces are recovered, based on the average cost per recoverable ounce of gold on the leach pad.
Estimates of recoverable gold on the leach pad are calculated from the quantities of material placed on the leach pad (measured tons added to the leach pad), the grade of material placed on the leach pad (based on assay data) and an estimated recovery percentage (based on ore type). The nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, actual gold ounces recovered are regularly monitored and estimates are refined based on actual results over time.
Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis. The ultimate recovery of gold from a leach pad will not be known until the leaching process is concluded. The quantification of material inventory on the leach pad is based on estimates of the quantities of gold at each balance sheet date that the Company expects to recover during the next 12 months. Inventory is stated at the lower of cost or net realizable value, which for December 31, 2023 and 2022 is net realizable value.
Impairment of Long-Lived Assets
The Company evaluates the carrying amounts of its long-lived assets for impairment whenever events and circumstances indicate the carrying value may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. Estimated undiscounted future net cash flows from each mineral property are calculated using estimated future production, estimated future metals prices, operating capital and costs, and reclamations costs. An impairment loss is recognized when the estimated discounted future cash flows expected to result from the use of an asset are less than the carrying amount of the asset. The Company’s estimates of future cash flows are subject to risks and uncertainties. It is reasonably possible that changes in estimates could occur which may affect the expected recoverability of the Company’s investments in mineral properties.
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Reclamation and Remediation
The Company’s operations have been, and are subject to, standards for mine reclamation that have been established by various governmental agencies. The Company records the fair value of an asset retirement obligation as a liability in the period in which the Company incurs a legal obligation for the retirement of tangible long-lived assets. A corresponding asset is also recorded and depreciated over the life of the asset. After the initial measurement of the asset retirement obligation, the liability is adjusted when there are changes in the estimated future cash flows due to change in estimated costs or change in time until reclamation will commence. Determination of any amounts recognized is based upon numerous estimates and assumptions, including future retirement costs, future inflation rates and the credit-adjusted risk-free interest rates. Such assumptions are based on the Company’s current mining plan and the best available information for making such estimates. See Note 10 to the Financial Statements.
For non-operating properties, the Company accrues costs associated with environmental remediation obligations when it is probable that such costs will be incurred and they are reasonably estimable. Such costs are based on management’s estimate of amounts expected to be incurred when the remediation work is performed.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, result of operations, liquidity, capital expenditures or capital resources.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we have elected not to provide the disclosure required by this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
We have provided the financial statements required by this item immediately following the signature page of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No disagreement or reportable event requiring disclosure under this item has occurred.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Rick Havenstrite, our principal executive officer, and Marianne Havenstrite, our principal financial officer, as of December 31, 2023, conducted an evaluation, as of the end of the period covered by this report, of whether our disclosure controls and procedures (as defined in Rule 15d-15(e) under the Exchange Act) were effective to provide assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation it was concluded that our disclosure controls were not effective as of the end of the period covered by this report, to ensure that: (i) information required to be disclosed by the Company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods specified by the Securities and Exchange Commission rules and forms, and (ii) material information required to be disclosed in reports filed under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Accounting Officer, as appropriate, to allow for accurate and timely decision regarding required disclosure.
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Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of our company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed our internal control over financial reporting as of December 31, 2023, the end of our fiscal year. Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Management’s assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment.
Based on our assessment, management has concluded that our internal control over financial reporting was not effective, as of the end of the fiscal year, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles, because management identified a material weakness in the Company’s internal control over financial reporting related to the segregation of duties. This is due primarily to the limited staff and small size of the Company, although internal controls have improved over the prior year with the addition of an additional staff member in our accounting department and a consultant for financial statement preparation, resulting in increased segregation of duties.
While the Company does adhere to internal controls and processes that were designed and implemented by an experienced accounting firm, it is difficult with a very limited staff to maintain appropriate segregation of duties in the initiating and recording of transactions, thereby creating a segregation of duties weakness. Due to: (i) the significance of segregation of duties to the preparation of reliable financial statements; (ii) the significance of potential misstatement that could have resulted due to the deficient controls; and (iii) the absence of sufficient other mitigating controls, we determined that this control deficiency resulted in more than a remote likelihood that a material misstatement or lack of disclosure within the annual or interim financial statements may not be prevented or detected.
Management’s Remediation Initiatives
Management has evaluated, and continues to evaluate, avenues for mitigating our internal controls weaknesses, but mitigating controls to completely mitigate internal control weaknesses have been deemed to be impractical and prohibitively costly, due to the size of our organization at the current time. Management expects to continue to use reasonable care in following and seeking improvements to effective internal control processes that have been and continue to be in use at the Company. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 15d-15(f) under the Exchange Act) that occurred during our most recent quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
The information required by this item is not applicable to the Company or its auditor.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Current Management
The following table sets forth as of March 31, 2024, the names and ages of, and position or positions held by, our executive officers and directors, the employment background of these persons, and any directorships held by the current directors during the last five years. The Board of Directors believes that all the directors named below are highly qualified and have the skills and experience required for effective service on the Board of Directors. The directors’ individual biographies below contain information about their experience, qualifications and skills that led the Board of Directors to nominate them.
| Name | Age | Positions | Director Since | Employment Background | ||||
| Howard Crosby | 71 | Director, Chairman | 2016 | Mr. Crosby served as our Chief Executive Officer from April 2016 until April 2017. Since 1989, Mr. Crosby has been president of Crosby Enterprises, Inc., a family-owned business advisory consulting firm. From 1994 to June 2006 he served as president and director of Cadence Resources Corporation, a publicly traded oil and gas company. He served as an officer and director of Independence Resources PLC from March of 2010 until October of 2013. He served as a director of White Mountain Titanium Corporation from 2004 until March of 2016. Both Independence Resources and White Mountain Titanium were previously reporting companies with the SEC. He currently serves as President and Director of Shoshone Silver/Gold Mines, Inc. Mr. Crosby is also a director or advisor to a number of privately held companies. He received a bachelor’s degree from the University of Idaho in 1975. Mr. Crosby has extensive experience in corporate finance and strategic planning and provides valuable insight on business strategy development and strategic partnership to our Board of Directors. | ||||
| Rick Havenstrite | 65 | Director, President and Chief Executive Officer | 2009 | Mr. Havenstrite has served as our President since April 2009 and as Chief Executive Officer since April 2017 and has been employed by us to manage our mining operations since August 2009. Since May 1999 he has been the co-owner, with his wife, and President of Overhead Door Company of Sierra/Nevada, Inc., a commercial and residential door installation company and since 2004 has been a partner in RMH Overhead, LLC. From 1998 until 1999 he was employed by Nevada Star Resources, a small copper mining company, as Manager of the Nevada Star Milford Copper Project in Utah; from 1996 until 1998 he was employed by Centurion Mines Corp, an exploration mining company, as Vice-president of Operations on the Milford Copper Project; from 1992 until 1996 he was General Manager of Nevada Operations for Arimetco Mining in Yerington Nevada, a mid-size copper mining company; from 1991 until 1992 he was employed by Newmont Minerals, a small gold mining company, as Manager of the Golden Assets Mine in Montana; from 1983 to 1990 he was employed by Silver King Mines, which subsequently changed its name to Alta Gold Corp., a mid-sized diversified mining company, beginning his employment with the company as Project Engineer at the Buckskin Mine from 1983 to 1985, subsequently moving with the company to Ely, Nevada where he was the Mine Superintendent and then Mine Manager of the Robison Mine from 1985 to 1988, and finally serving as Manager of Mining for Alta Gold’s operating mines in Nevada, Idaho, Oregon and Colorado; and from 1980 until 1983 he was employed by Utah International, a large diversified mining company, as a mine engineer of the Springer Tungsten Mine in Nevada and the Navajo Coal mine in New Mexico. Mr. Havenstrite graduated in 1980 with a Bachelor of Science degree in Mining Engineering from the University of Reno, Mackay School of Mines. He is a registered Professional Mining Engineer with the State of Utah and is an inactive Professional Mining Engineer in the State of Nevada. |
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| Marianne Havenstrite | 65 | Treasurer and Principal Financial Officer | -- | Ms. Havenstrite has been our Principal Financial Officer from May 2013 to April 2016 and since March 2017. Since May 1999 she has been the co-owner with her husband, and has served as Vice-president, of Overhead Door Company of Sierra/Nevada, Inc., a commercial and residential door installation company and since 2004 has been a partner in RMH Overhead, LLC. She received her Bachelor of Science degree in accounting from the University of Nevada, Reno in 1980. | ||||
| John P. Ryan | 62 | Director | 2017 | Mr. Ryan served as our Chief Financial Officer for a short time period beginning in April 2016 until March 2017. He has been an active entrepreneur in the resources sector for over twenty years. Since June 2020 he has been CEO and a director of Gold Minds, Inc., a private Nevada corporation which is engaged in mineral exploration and development. Since 1995 he has been self-employed through his own company, Quest Consulting, providing consulting services for both private and public mining companies. He has extensive experience in the natural resource sector having served as an officer and/or director of companies such as Cadence Resources from 1995 to 2005 High Plains Uranium from 2004 to 2007, U.S. Silver Corporation from 2006 to 2009, and Western Goldfields, Inc. from 2001 to 2005. From December 2012 through April 2017 he served as a director of Mineral Mountain Mining and Milling Company. Mr. Ryan has extensive executive experience and provides our Board of Directors with valuable insights regarding mining operations as well as public company expertise. Mr. Ryan has acted as a professional Director in a number of cases of turnaround and/or distressed company scenarios. Mr. Ryan obtained a B.S. in Mining Engineering from the University of Idaho in 1985 and a Juris Doctor from Boston College in 1992. |
Rick Havenstrite and Marianne Havenstrite are husband and wife.
Each director is elected until the next annual meeting of shareholders and until his successor is elected and qualified, except as otherwise provided in the Bylaws or required by law. We did not hold an annual meeting of the shareholders for the fiscal year ended December 31, 2023, and we have not scheduled an annual meeting for the current year. Whenever the authorized number of directors is increased between annual meetings of the stockholders, a majority of the directors then in office has the power to elect such new directors for the balance of a term and until their successors are elected and qualified. There are no family relationships between any director, executive officer, or person nominated or chosen by us to become a director, other than the relationship between our President, Rick Havenstrite, and our Treasurer/Principal Financial Officer, Marianne Havenstrite, who are married.
Officers are to be elected by the Board of Directors at its first meeting after every annual meeting of stockholders. Each officer holds his office until his successor is elected and qualified or until his earlier resignation or removal.
Involvement in Certain Legal Proceedings
During the past ten years there have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any of the executive officers or directors, and none of these persons has been involved in any judicial or administrative proceedings resulting from involvement in mail or wire fraud or fraud in connection with any business entity, any judicial or administrative proceedings based on violations of federal or state securities, commodities, banking or insurance laws or regulations, or any disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange or other self-regulatory organization.
Committees
Because of its small size, the Board of Directors carries out the duties of the committees. We do not have compensation, audit, nominating, or other standing committees of the Board of Directors.
Nominating Procedures
Recommendations for candidates to stand for election as directors are made by the Board of Directors. We have not adopted a policy which permits security holders to recommend candidates for election as directors or a process for stockholders to send communications to the Board of Directors. There have been no material changes to the procedures by which security holders may recommend nominees to our Board of Directors.
Code of Ethics
On March 21, 2011, we adopted a Code of Ethics which applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, as well as to other employees or contractors and anyone associated with our company. We will provide any person, without charge and upon request, a copy of the Code of Ethics.
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Audit Committee
Our Board of Directors performs the duties that would normally be performed by an audit committee. Our Board of Directors believes that its current members have sufficient knowledge and experience necessary to fulfill the duties and obligations of the audit committee for our company. The Board of Directors has determined that we do not have an audit committee financial expert, due to lack of funds.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth information concerning the annual compensation awarded to, earned by, or paid to the named executive officer for all services rendered in all capacities to our company for the years ended December 31, 2023 and 2022:
SUMMARY COMPENSATION TABLE
| Name & Principal Position | Year | Salary $ | All Other $ | Total $ | |||||||||||
| Rick Havenstrite, | 2023 | 144,000 | 831 | 144,831 | |||||||||||
| President and CEO | 2022 | 144,000 | 5,520 | 149,520 | |||||||||||
In September 2010 we entered into an employment agreement with Mr. Havenstrite as President of our Company. The term of the agreement was originally for four years, expiring September 1, 2014, with automatic one-year extensions unless notice is given by either party. The employment agreement was renewed for one-year terms beginning September 1, 2015, through 2023. Mr. Havenstrite is required under the terms of the agreement to devote a minimum of 75% of his business time to the affairs of our company. Nevertheless, he may serve on the board of directors or serve as an officer of up to three companies not engaged in business which may reasonably compete with our business, provided that he would not be required to render any material services with respect to the operations or affairs of any other business which would exceed 25% of his entire business time. In spite of the minimum percentage of his time required in his employment agreement, Mr. Havenstrite currently devotes approximately 90% of his time, or approximately 40 hours per week, to our business and approximately 10%, or five hours per week, of his business time to Overhead Door Company of Sierra/Nevada, Inc., his overhead door business in Reno, Nevada. He does not anticipate devoting more than 20% of his time to the business of his overhead door company during the term of his employment contract with us. The annual base salary is $144,000 plus performance compensation of between 10% and 100% of the annual base salary based upon fulfillment of annual performance goals established by the Board of Directors or the Compensation Committee (if any). No performance bonuses have been paid under the employment agreement since its commencement.
Under our employment agreement with Mr. Havenstrite, if we terminate the agreement without cause or if the agreement is constructively terminated by us, we have agreed to pay him a severance package equal to one and one-half times the largest annual base salary plus the largest annual performance compensation received by him under the agreement, payable 75% within 30 days and the balance within 30 days of the first anniversary of the termination.
Outstanding Equity Awards at 2023 Fiscal Year End
As of December 31, 2023, there are no outstanding equity awards for any Officer or Director of the Company.
Compensation of Directors
The following table sets forth the compensation of directors for the year ended December 31, 2023:
Director Compensation
| Name | Fees earned or paid in cash ($) | Total ($) | ||||||
| Howard Crosby | 72,000 | 72,000 | ||||||
| John Ryan | 20,000 | 20,000 | ||||||
Director compensation for Howard Crosby is $6,000 per month and for John Ryan is $5,000 per quarter.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information furnished by current management and others, concerning the ownership of our common stock as of March 31, 2024, of (i) each person who is known to us to be the beneficial owner of more than 5% of our common stock, without regard to any limitations on conversion or exercise of convertible securities or warrants; (ii) all directors and named executive officers; and (iii) our directors, named executive officers, and executive officers as a group:
| Name and Address of Beneficial Owner | Amount and Beneficial | Percent of Class(1) | ||||||
| Rick Havenstrite 1290 Holcomb Ave. Reno, NV 89502 | 4,137,066 | (2) | 15.4 | % | ||||
| Howard Crosby 1290 Holcomb Ave. Reno, NV 89502 | 363,250 | 1.35 | % | |||||
| John P. Ryan 5968 N. Govt. Way #305 Dalton Gardens, ID 83815 | 400,000 | 1.5 | % | |||||
| Executive Officers and Directors as a Group (3 Persons) | 4,900,316 | 18.3 | % | |||||
| H&H Metals Corp. 509 Madison Ave., Ste. 1902 New York City, NY 10022 | 1,500,000 | (3) | 5.6 | % | ||||
Ibearhouse, LLC Kelley Price 7806 NE 10th Street Medina, WA 98039 | 3,760,353 | 14.0 | % | |||||
West C Street, LLC Richard Meadows 21838 NE 102nd Street Redmond, WA 98053 | 2,260,353 | 8.4 | % | |||||
| Clifton Mining Company 101 South 200, Suite 700 Salt Lake City, UT 84111 | 5,810,824 | 21.7 | % | |||||
| Marianne Havenstrite 1290 Holcomb Ave. Reno, NV 89502 | 4,137,066 | (4) | 15.4 | % | ||||
| (1) | This table is based upon information supplied by officers, directors and principal stockholders and is believed to be accurate. Unless otherwise indicated in the footnotes to this table, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of our common stock subject to options, warrants, or other conversion privileges currently exercisable or convertible, or exercisable or convertible within 60 days of the date of this table, are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person. Where more than one person has a beneficial ownership interest in the same shares, the sharing of beneficial ownership of these shares is designated in the footnotes to this table. As of the date of this table, we had 26,831,603 shares outstanding. |
| (2) | Of these shares, 1,000,000 are owned of record jointly by Mr. and Mrs. Havenstrite. |
| (3) | H&H Metals Corp. is an entity controlled by James Holme. |
| (4) | Of these shares, 3,137,066 are owned of record by Mrs. Havenstrite’s husband, Rick Havenstrite, and 1,000,000 are owned of record jointly by Mr. and Mrs. Havenstrite. |
To our knowledge, except as noted above, no person or entity is the beneficial owner of more than 5% of the voting power of our Common Stock.
26
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides disclosure as of December 31, 2023, of compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance:
Equity Compensation Plan Information
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted-average exercise price of outstanding options, warrants and rights |
Number
of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
|||||||||
| Equity compensation plans approved by security holders | -0- | N/A | -0- | |||||||||
| Equity compensation plans not approved by security holders | -0- | $ | N/A | 2,400,000 | ||||||||
| Total | -0- | $ | N/A | 2,400,000 | ||||||||
On March 28, 2018, the Board of Directors adopted the 2018 Stock Incentive Plan (the “Plan”). The purposes of the Plan are (a) to enhance our ability to attract and retain the services of qualified employees, officers, directors, consultants, and other service providers upon whose judgment, initiative and efforts the successful conduct and development of our business largely depends, and (b) to provide additional incentives to such persons or entities to devote their utmost effort and skill to the advancement and betterment of our company, by providing them an opportunity to participate in the ownership of our Company and thereby have an interest in the success and increased value of our Company.
There are 2,400,000 shares of common stock authorized for non-qualified and incentive stock options, restricted stock units, restricted stock grants, and stock appreciation rights under the Plan, which are subject to adjustment in the event of stock splits, stock dividends, and other situations. No shares remain available for grants under the Plan.
The Plan is administered by our board of directors; however, the board of directors may designate administration of the Plan to a committee consisting of at least two independent directors. Only employees of our Company or of an “Affiliated Company”, as defined in the Plan, (including members of the board of directors if they are employees of our Company or of an Affiliated Company) are eligible to receive incentive stock options under the Plan. Employees of our Company or of an Affiliated Company, members of the board of directors (whether or not employed by our company or an Affiliated Company), and “Service Providers”, as defined in the Plan, are eligible to receive non-qualified options, restricted stock units, and stock appreciation rights under the Plan. All awards are subject to Section 162(m) of the Internal Revenue Code.
No option awards may be exercisable more than ten years after the date it is granted. In the event of termination of employment for cause, the options terminate on the date of employment is terminated. In the event of termination of employment for disability or death, the optionee or administrator of optionee’s estate or transferee has six months following the date of termination to exercise options received at the time of disability or death. In the event of termination for any other reason other than for cause, disability or death, the optionee has 30 days to exercise his or her options.
The Plan will continue in effect until all of the stock available for grant or issuance has been acquired through exercise of options or grants of shares, or until ten years after its adoption, whichever is earlier. Awards under the Plan may also be accelerated in the event of certain corporate transactions such as a merger or consolidation or the sale, transfer or other disposition of all or substantially all of our assets.
27
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
Since 2009 we have leased our corporate office space from RMH Overhead, LLC (“RMH”), an entity owned and controlled by Mr. Havenstrite, our President and a director. From 2009 until February 2014 monthly rent was $500 per month and from March 2014 until February 2020 monthly rent has been $1,000. Expansion into additional office space effected a rental increase to $1,500 per month effective March 1, 2020. In October 2023, this extra space was relinquished, and the rent returned to $1,000 per month. The rental agreement is month-to-month and can be cancelled by either party at any time. During 2023 and 2022 we paid an aggregate of $16,500 and $18,000, respectively in rent for this space.
On February 1, 2021, RMH purchased a CAT 740B Articulated Haul Truck from a dealer who had previously provided this equipment to the Company under a rent purchase option agreement. We owed the dealer five monthly payments along with a major repair billing and the dealer had requested the return of the truck. RMH paid the dealer the five past due payments plus an amount to complete the purchase of the truck from the dealer. The Company paid the past due repair invoice, and the truck was obtained by RMH with no encumbrances. Beginning February 1, 2021, we began renting this truck from RMH at a rate of $10,000 per month on a simple month-to-month rental arrangement. While our operations were curtailed in 2022, a reduced rate of $5,000 per month was agreed upon. During the year ended December 31, 2023 and 2022, we paid a total of $52,500 and $85,000, respectively, in truck rental to RMH.
Marianne Havenstrite, wife of Rick Havenstrite, is employed by the Company and acts as our Treasurer and Principal Financial Officer. For the years ended December 31, 2023 and 2022 Mrs. Havenstrite earned $96,000 per year. Mrs. Havenstrite currently devotes approximately 80% of her time, or approximately 40 hours per week, to our business and approximately 20%, or approximately ten hours per week, of her business time to Overhead Door Company of Sierra/Nevada, Inc., Rick Havenstrite’s overhead door business in Reno, Nevada. We do not have a formal compensation agreement with Mrs. Havenstrite.
Policies and Procedures Regarding Related Party Transactions
We have not adopted a specific policy pursuant to which an actual or proposed financial transaction, arrangement or relationship with a related person is subject to review or approval or, if applicable, ratification, by our Board of Directors. Under Nevada law any contract or other transaction between the company and one or more of its officers or directors or another entity in which one or more of the directors or officers are directors or officers or are financially interested may be void or voidable unless (i) the common relationship is disclosed to the remaining disinterested directors who thereafter approve or ratify the contract or transaction; (ii) the common relationship is disclosed to shareholders and shareholders holding a majority of the voting power of the company, including shares held by the interested officer or director, approve or ratify the contract or transaction, or (iii) the contract or transaction is fair as to the company at the time it is authorized or approved.
Independent Directors
Our securities are not listed on a national securities exchange or in an inter-dealer quotation system which has requirements that directors be independent. As a result, we have adopted the independence standards of the NYSE American (formerly known as the American Stock Exchange and more recently the NYSE MKT) to determine the independence of our directors. These standards provide that a person will be considered an independent director if he or she is not an officer of the Company and is, in the view of the Company’s Board of Directors, free of any relationship that would interfere with the exercise of independent judgment. Our Board of Directors has determined that John P. Ryan would be considered independent.
28
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Board of Directors selected Assure CPA, LLC, 7307 N. Division, Suite 222, Spokane, WA 99208 as the independent registered public accounting firm to examine the financial statements of the Company for the fiscal years ending December 31, 2023 and 2022. Assure CPA, LLC have audited the financial statements of the Company since the fiscal year ended December 31, 2011.
Fees Paid
Audit fees are comprised of amounts billed for the audit of our annual financial statements, review of our quarterly financial statements and other fees that are normally provided in connection with statutory and regulatory filings or engagements. The aggregate fees billed for audit fees for the fiscal years ended December 31, 2023 and 2022 by our independent registered public accounting firms are as follows:
| Fiscal Year | Amount | |||
| 2023 | $ | 68,558 | ||
| 2022 | $ | 88,756 | ||
Audit related fees are comprised of amounts billed for assurance and related services that are reasonably related to the performance of the audit or review of the financial statements, other than those previously reported as audit fees. We were not billed any audit related fees in addition to the audit fees shown above.
Tax fees are comprised of amounts billed for the preparation of our federal and state income tax returns. In 2023 and 2022, we were billed $7,379and $6,125, respectively.
All other fees represent amounts billed for products or services provided by our independent registered public accounting firm. In 2023 and 2022, we were billed $nil and $1,300, respectively for these other services.
29
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES
30
The following exhibits are included with this report:
| * | Management contract, or compensatory plan or arrangement, required to be filed as an exhibit. |
ITEM 16. FORM 10-K SUMMARY
None.
[SIGNATURE PAGE FOLLOWS]
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| DESERT HAWK GOLD, CORP. | ||
| Date: April 1, 2024 | By: | /s/ Rick Havenstrite |
| Rick Havenstrite, Chief Executive Officer | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| NAME | TITLE | DATE | ||
| /s/ Howard Crosby | Director and Chairman | April 1, 2024 | ||
| Howard Crosby | ||||
| /s/ Rick Havenstrite | President, CEO, and Director | April 1, 2024 | ||
| Rick Havenstrite | (Principal Executive Officer) | |||
| /s/ John P. Ryan | Director | April 1, 2024 | ||
| John P. Ryan | ||||
| /s/ Marianne Havenstrite | Treasurer | April 1, 2024 | ||
| Marianne Havenstrite | (Principal Financial and Accounting Officer) |
Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act.
No annual report or proxy statement, form of proxy or other proxy soliciting material was sent or provided to shareholders during the year ended December 31, 2023.
32
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of Desert Hawk Gold Corp
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Desert Hawk Gold Corp (the “Company”) as of December 31, 2023 and 2022, the related statements of operations, changes in stockholders’ equity (deficit) and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has accumulated losses since inception and has negative working capital. These factors raised substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter is also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
Metallic Content of Ore on Leach Pads (Note 4)
Critical Audit Matter Description
The Company has inventory on its leach pad of approximately $1.4 million as of December 31, 2023. The inventory balance is based on an estimate of the number of gold ounces contained within the ore on the leach pad. The Company estimates the recoverable gold content of the leach pad based on ore added to the pad, assays, historical recovery rate, and ounces recovered.
We identified the estimate of the number of gold ounces as a critical audit matter because of the significant judgments made by management, in particular, gold content grade and the recovery rate. Auditing this matter involved especially subjective auditor judgment due to the nature and extent of audit effort required.
F-1
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures to address this matter were as follows:
| ● | We evaluated management’s process for determining the gold content, specifically the assays and recovery rates used. Our assessment included an evaluation of the competence, objectivity and authority of the personnel involved in the determination of gold content and reconciliations of gold recovered through the leaching process. |
| ● | To assess the annual change in the estimated quantity of gold ounces contained within the ore on the leach pad, we performed the following: |
| o | verified tonnage of ore added to the pad, |
| o | recalculated ounces contained in ore added to the pad based on assays records, |
| o | compared gold ounces recovered from the pad to gold ounces sold, and |
| o | assessed the completeness, accuracy and relevance of underlying data used in management’s estimate. |
/s/
March 29, 2024
We have served as the Company’s auditor since 2011.
F-2
DESERT HAWK GOLD CORP.
BALANCE SHEETS
| December 31, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Inventories (NOTE 4) | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| PROPERTY AND EQUIPMENT, net (NOTE 5) | ||||||||
| MINERAL PROPERTIES AND INTERESTS, net (NOTE 6) | ||||||||
| RECLAMATION BONDS (NOTE 3) | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Royalties and upside participation payable (NOTE 7) | ||||||||
| Accrued interest, prepaid forward gold contract (NOTE 7) | ||||||||
| Accrued liabilities – officers and other wages (NOTE 12) | ||||||||
| Note payable, current portion (NOTE 8) | ||||||||
| Settlement of consulting contract payable (NOTE 10) | ||||||||
| Prepaid forward gold contract liability (NOTE 7) | ||||||||
| Due in lieu of gold deliveries (NOTE 7) | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| LONG-TERM LIABILITIES | ||||||||
| Asset retirement obligation (NOTE 9) | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES (NOTES 6, 7, 12 AND 13) | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Preferred Stock, $ | ||||||||
| Common Stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
F-3
DESERT HAWK GOLD CORP.
STATEMENTS OF OPERATIONS
For the years ended December 31, 2023 and 2022
| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| REVENUE | ||||||||
| Concentrate sales | $ | $ | ||||||
| Contract processing income | ||||||||
| Total revenue | ||||||||
| OPERATING EXPENSES | ||||||||
| General production and project costs | ||||||||
| Contract processing costs | ||||||||
| Depreciation and amortization | ||||||||
| Other operating costs | ||||||||
| Legal and professional | ||||||||
| Officers and directors’ fees | ||||||||
| General and administrative | ||||||||
| Loss on disposal of equipment | ||||||||
| Forward gold contract expense (NOTE 7) | ||||||||
| TOTAL OPERATING EXPENSES | ||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Interest and other income | ||||||||
| Interest expense – equipment financing | ( | ) | ( | ) | ||||
| Interest expense – other | ( | ) | ( | ) | ||||
| TOTAL OTHER INCOME (EXPENSE) | ( | ) | ( | ) | ||||
| NET LOSS BEFORE INCOME TAX | ( | ) | ( | ) | ||||
| Provision (benefit) for income tax | ||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| $ | ( | ) | $ | ( | ) | |||
The accompanying notes are an integral part of these financial statements.
F-4
DESERT HAWK GOLD CORP.
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
For the years ended December 31, 2023 and 2022
| Common Stock | Total | |||||||||||||||||||
| Shares Issued | Par Value $.001 per share | Additional Paid in Capital | Accumulated Deficit | Stockholders’ Equity (Deficit) | ||||||||||||||||
| BALANCE, December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| BALANCE, December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| BALANCE, December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| BALANCE, December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of these financial statements.
F-5
DESERT HAWK GOLD CORP.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 2023 and 2022
| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided (used) by operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Accretion of asset retirement obligation | ||||||||
| Write down of inventory to net realizable value | ||||||||
| Loss on disposal of equipment | ||||||||
| Forward gold contract expense (NOTE 7) | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Royalties and upside participation payable (NOTE 7) | ||||||||
| Accrued interest, prepaid forward gold contract (NOTE 7) | ||||||||
| Accrued liabilities – officer and other wages | ||||||||
| Net cash provided (used) by operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Additions to property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of equipment | ||||||||
| Increase in reclamation bonds | ( | ) | ( | ) | ||||
| Net cash used by investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payment of notes payable | ( | ) | ( | ) | ||||
| Net cash used by financing activities | ( | ) | ( | ) | ||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | ||||||||
| CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| NON-CASH FINANCING AND INVESTING ACTIVITIES: | ||||||||
| Reduction in Asset Retirement Obligation, Asset Retirement Costs, and Mineral Properties due to extension of time (Note 9) | ||||||||
The accompanying notes are an integral part of these financial statements.
F-6
DESERT HAWK GOLD CORP.
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2023
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Desert Hawk Gold Corp. (the “Company”), a Nevada Corporation, was incorporated on November 5, 1957. The Company commenced its current mining activities on May 1, 2009.
During the year ended December 31, 2009, the Company entered into Joint Venture Agreements with the Clifton Mining Company (“Clifton”), the Woodman Mining Company and the Moeller Family Trust for the lease of certain of their property interests in the Gold Hill Mining District of Utah. In 2011, the Company entered into an agreement with DMRJ Group, (a Platinum Partners related entity), which allowed for long term funding of the Kiewit project and helped to provide cash flow for operations during the period from 2009 until 2014 while the permitting process was ongoing. The final permit needed to begin development of the Kiewit property was received in January 2014 and development began in February 2014. Construction at the site was substantially complete on September 30, 2014. Revenue from the heap leach operation began in October 2014 with the first sales of gold concentrate.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles used in the United States of America (“U.S. GAAP”) and have been consistently applied in the preparation of the financial statements.
Risks and Uncertainties
As a mining company, the revenue, profitability and future rate of growth of the Company are substantially dependent on the prevailing prices for gold and silver. The prices of these metals are volatile and affected by many factors beyond the Company’s control, including prevailing interest rates and returns on other asset classes, expectations regarding inflation, speculation, currency values, governmental decisions regarding precious metals stockpiles, global and regional demand and production, political and economic conditions and other factors. A substantial or extended decline in commodity prices could have a material adverse effect on the Company’s financial position, results of operations, cash flows, access to capital and the quantities of resources that the Company can economically produce. Further, the carrying value of the Company’s property and equipment, net; mineral properties and interests, net; inventories and ore on leach pads are particularly sensitive to the outlook for commodity prices. A decline in the Company’s price outlook from current levels could result in material impairment charges related to these assets.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ materially from those estimates.
The more significant areas requiring the use of management estimates and assumptions relate to metal prices and mineral resources that are the basis for future cash flow estimates utilized in impairment calculations and units-of production amortization calculations, environmental, reclamation and closure obligations, estimates of recoverable silver and gold in leach pad inventories, stock-based compensation and valuation allowances for deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results will differ from the amounts estimated in these financial statements.
F-7
Reclassifications
Certain reclassifications have been made to conform prior years’ amounts to the current presentation. These reclassifications have no effect on the results of operations, stockholders’ equity (deficit), and cash flows as previously reported.
Cash and Cash Equivalents
The Company considers all highly liquid investments and short-term debt instruments with original maturities of three months or less when purchased to be cash equivalents.
Reclamation Bonds
Reclamation bonds primarily represent bonds and are restricted primarily for reclamation funding which are carried at cost plus earned interest. Reclamation bonds are shown as a non-current asset and are included in the balance sheet. See Note 3.
Inventories
The recovery of gold from certain oxide ores is achieved through the heap leaching process. Under this method, mineralized material is placed on a leach pad where it is treated with a chemical solution, which dissolves the gold contained in the material. The resulting “pregnant” solution is further processed in a plant where gold is recovered. The Company records ore on leach pad, solution in carbon columns in process and gold concentrate, at average production cost per gold ounce, less provisions required to reduce inventory to net realizable value. Production costs include the cost of mineralized material processed; direct and indirect materials and consumables; direct labor; repairs and maintenance; utilities; amortization of property, equipment, and mineral properties; and mine administrative expenses. Costs are removed from ore on leach pads as ounces are recovered, based on the average cost per recoverable ounce of gold on the leach pad.
Estimates of recoverable gold on the leach pad are calculated from the quantities of material placed on the leach pad (measured tons added to the leach pad), the grade of material placed on the leach pad (based on assay data) and an estimated recovery percentage (based on ore type) along with our historical experience. The nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, actual gold ounces recovered are regularly monitored and estimates are refined based on actual results over time.
Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis. The ultimate recovery of gold from a leach pad will not be known until the leaching process is concluded. The quantification of material inventory on the leach pad is based on estimates of the quantities of gold at each balance sheet date that the Company expects to recover during the next 12 to 24 months. See Note 4.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Maintenance and repairs are expensed as incurred. Replacements and betterments that extend the useful life of the property and equipment are capitalized. The cost and related accumulated depreciation of assets sold or retired are removed from the accounts and any resulting gain or loss is reflected in results of operations. See Note 5.
Mineral Properties and Interests
The Company capitalizes costs for acquiring mineral properties and ongoing mineral lease payments and expenses costs to maintain mineral rights. Upon reaching the production stage, the capitalized costs are amortized using the units-of-production method on the basis of periodic estimates of ore resources. Estimates for ore resources are a key component in determining units of production rates. Estimates of ore resources, mineralized material, and other resources may change, possibly in the near term, resulting in changes to rates in future reporting periods. The Company does not have proven and probable reserves at this time.
F-8
Mineral Exploration and Development Costs
Until proven and probable reserves are established, all exploration expenditures and pre-development costs are expensed as incurred. Once such reserves are established, expenditures to develop new mines, to define further mineralization in existing ore bodies, and to expand the capacity of operations, are capitalized and will be amortized on units of production basis over proven and probable reserves. Previously capitalized costs, net of accumulated amortization, are expensed in the period the property is abandoned.
Impairment of Long-Lived Assets
The Company evaluates the carrying amounts of its long-lived assets for impairment whenever events and circumstances indicate the carrying value may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. Estimated undiscounted future net cash flows from each mineral property are calculated using estimated future production, estimated future metals prices, operating capital and costs, and reclamations costs. An impairment loss is recognized when the estimated discounted future cash flows expected to result from the use of an asset are less than the carrying amount of the asset. The Company’s estimates of future cash flows are subject to risks and uncertainties. It is reasonably possible that changes in estimates could occur which may affect the expected recoverability of the Company’s investments in mineral properties.
Stock Based Compensation
All transactions in which goods or services are received for the issuance of shares of the Company’s common stock or options to purchase shares of common stock are accounted for based on the fair value of the equity award issued. The Company estimates the fair value of stock-based compensation using the Black-Scholes model, which requires the input of some subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (“expected life”), the estimated volatility of the Company’s common stock price over the expected term (“volatility”), the risk-free interest rate and the dividend yield. Changes in the subjective assumptions can materially affect the estimate of the fair value of stock-based compensation.
Income Taxes
Income taxes are provided based upon the liability method of accounting. Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities, as well as operating loss and tax credit carryforwards, and their financial reporting amounts at each year-end using enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard to allow recognition of such an asset.
The Company evaluates its tax positions taken or expected to be taken in the course of preparing its tax returns to determine whether the tax positions will more likely than not be sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not standard are not recorded as a tax benefit or expense in the current year. When applicable, the Company will recognize a liability for unrecognized tax benefits. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the years presented. See Note 11.
Earnings Per Share
Basic earnings per share includes no dilution
and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the
period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of the Company. At December
31, 2022, the common stock equivalents of
F-9
Revenue Recognition
Concentrate Sales: The Company’s product consists of gold bearing carbon which is shipped offsite to be turned into an unrefined gold concentrate, which is then further refined to become gold and silver bullion known as doré. The Company’s performance obligation in these transactions is generally the transfer of the refined dore’ to the buyer. Management has determined that the performance obligation for concentrate sales is met and title is transferred when the Company delivers the doré to the buyer because, at that time, (i) legal title is transferred to the buyer (ii) the buyer has accepted the doré and obtained the ability to realize all of the benefits from the product, (iii) the doré content specifications are known, have been communicated to the buyer, and the buyer has the significant risks and rewards of ownership to it, and (iv) the Company has the right to payment for the doré.
Contract Processing Income: The Company processes ore for a third party which is processed separately from the Company’s ore but in the same manner. It is also shipped offsite to be turned into an unrefined gold concentrate which is then further refined to become gold and silver bullion known as doré. For this service, the Company receives a percentage of net proceeds from the sale of the gold and silver doré. Management has determined that the performance obligation for contract processing income is met when title has been transferred to the buyer of the dore’ because, at that time, (1) the Company has a right to receive its percentage of net proceeds from sale of the gold and silver dore’ from the third party for which it processes ore and (ii) the doré content specifications are known, have been communicated to the buyer, and the buyer has the significant risks and rewards of ownership to it.
Revenue and related accounts receivable from both types of revenue are recorded net of charges which represent components of the transaction price. Charges are estimated by management upon transfer of risk based on contractual terms, and actual charges typically do not vary materially from management’s estimates. Revenue may be subject to adjustment upon final settlement of estimated metal prices, weights and assays, and are recorded as adjustments to revenue in the period of final settlement of prices, weights and assays; such adjustments are typically not material in relation to the initial invoice amounts. Revenue proceeds are recorded net of the impact of royalties and participation agreements. See Note 16.
Reclamation and Remediation
The Company’s operations have been, and are subject to, standards for mine reclamation that have been established by various governmental agencies. The Company records the fair value of an asset retirement obligation as a liability in the period in which the Company incurs a legal obligation for the retirement of tangible long-lived assets. A corresponding asset is also recorded and depreciated over the life of the asset. After the initial measurement of the asset retirement obligation, the liability is adjusted when there are changes in the estimated future cash flows due to change in estimated costs or change in time until reclamation will commence. Determination of any amounts recognized is based upon numerous estimates and assumptions, including future retirement costs, future inflation rates and the credit-adjusted risk-free interest rates. Such assumptions are based on the Company’s current mining plan and the best available information for making such estimates. See Note 9.
For non-operating properties, the Company accrues costs associated with environmental remediation obligations when it is probable that such costs will be incurred and they are reasonably estimable. Such costs are based on management’s estimate of amounts expected to be incurred when the remediation work is performed.
Financial Instruments
The Company's financial instruments include cash and cash equivalents and occasionally notes payable. All instruments are accounted for on a historical cost basis, which, due to the short maturity and interest rates of these financial instruments, approximates fair value at December 31, 2023 and 2022.
Fair Value Measurements
When required to measure assets or liabilities at fair value, the Company uses a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used. The Company determines the level within the fair value hierarchy in which the fair value measurements in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Level 1 uses quoted prices in active markets for identical assets or liabilities, Level 2 uses significant other observable inputs, and Level 3 uses significant unobservable inputs. The amount of the total gains or losses for the period are included in earnings that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date.
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At December 31, 2023 and December 31, 2022, the Company has no assets nor liabilities that require measurement at fair value on a recurring basis.
Going Concern
As shown in the accompanying financial statements,
the Company had an accumulated deficit of $
Although production restarted in 2019, it has not yet reached optimum levels. The timing and amount of capital requirements will depend on a number of factors, including demand for products, metals market pricing, and the availability of opportunities for expansion through affiliations and other business relationships. Management intends to continue to seek new capital from equity securities issuances to provide funds needed to increase liquidity, fund internal growth, and fully implement its business plan. The Company’s management believes that is has sufficient funds to meet its obligations and continue production over the next twelve months.
New Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, amending reportable segment disclosure requirements to include disclosure of incremental segment information on an annual and interim basis. Among the disclosure enhancements are new disclosures regarding significant segment expenses that are regularly provided to the chief operating decision-maker and included within each reported measure of segment profit or loss, as well as other segment items bridging segment revenue to each reported measure of segment profit or loss. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, and are applied retrospectively. Early adoption is permitted. Management is currently evaluating the impact of this update on our financial statements and disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures, amending income tax disclosure requirements for the effective tax rate reconciliation and income taxes paid. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024 and are applied prospectively. Early adoption and retrospective application of the amendments are permitted. Management is currently evaluating the impact of this update on our financial statements and disclosures.
From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards did not or will not have a material impact on the Company’s financial statements upon adoption.
NOTE 3 – RECLAMATION BONDS
At December 31, 2023 and 2022, reclamation bonds
totaled $
The remaining balances of $
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NOTE 4 – INVENTORIES
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Ore on leach pad | $ | $ | ||||||
| Carbon column in process | ||||||||
| Finished goods | ||||||||
| Total | $ | $ | ||||||
Inventories at December 31, 2023 and 2022 were
valued at net realizable value because production costs were greater than the amount the Company expected to receive on the sale of the
estimated gold ounces contained in inventories. The adjustment to inventory, which is included in general production and project costs
on the statements of operations, was $
NOTE 5 – PROPERTY AND EQUIPMENT
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Equipment | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Electronic and computer equipment | ||||||||
| Vehicles | ||||||||
| Buildings | ||||||||
| Land and improvements | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Kiewit property facilities | ||||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
For the Kiewit property facilities, amortization
based on total units of production was $
Depreciation expense on property and equipment
for the years ended December 31, 2023 and 2022 was $
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NOTE 6 – MINERAL PROPERTIES AND INTERESTS
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Kiewit and all other sites | $ | $ | ||||||
| JJS property | ||||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Asset retirement costs | ||||||||
| Kiewit Site | ||||||||
| Kiewit Exploration | ||||||||
| JJS property | ||||||||
| Total | ||||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Amortization of the mineral properties and interests
based on total units of production was $
The Company is required to pay a
NOTE 7 – PREPAID FORWARD GOLD CONTRACT LIABILITY
In 2019, the Company
entered into and closed a Pre-Paid Forward Gold Purchase Agreement (the “Purchase Agreement”) with PDK Utah Holdings, LP (“PDK”)
for the sale and purchase by PDK of gold produced from the Company’s mining property. Under the terms of the Purchase Agreement,
as amended, PDK agreed to purchase a total of
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| Months | Gold Ounces per Month |
Total Gold Ounces |
||||||
| December 2020 | ||||||||
| January 2021 to March 2021 | ||||||||
| April 2021 to March 2022 | ||||||||
| April 2022 to March 2023 | ||||||||
| April 2023 to December 2023 | ||||||||
| January 2024 | ||||||||
In addition, under the Purchase Agreement, PDK
may reduce the required number of ounces to be sold in exchange for up to
As security for the obligations of the Company under the Purchase Agreement, the Company has granted a security interest in all of the assets of the Company. The Purchase Agreement contains representations and warranties, as well as affirmative and negative covenants customary to a transaction of this nature.
To date, no gold has
been delivered under the contract. As of December 31, 2023 and December 31, 2022, a cumulative of
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Total ounces to be delivered | ||||||||
| Contractual payment per ounce in lieu of delivery | $ | $ | ||||||
| Amount due in lieu of gold deliveries | $ | $ | ||||||
For the years ended December 31, 2023 and 2022, the activity related to the forward gold contract is as follows:
| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Prepaid forward gold contract liability balance at beginning of period | $ | $ | ||||||
| Forward gold contract balance associated with ounces to be delivered during period | ||||||||
| Reduction in prepaid forward gold contract liability balance | ( | ) | ( | ) | ||||
| Prepaid forward gold contract liability balance at end of period | $ | $ | ||||||
As of December 31, 2023, and through the issuance of these financial statements, the Company has received invoices for the deliveries and payments due. The failure to make gold deliveries and make additional payments as described below provides Qenta with certain remedies, including termination of the agreement, demand for early payment of the entire delivery obligations, and enforcement of foreclosure rights against the assets pledged as security under the agreement. Due to the delinquent status of the deliveries and Qenta’s rights under the default provisions of the Purchase Agreement, the Company has classified the entire liability balance owing as current on its balance sheets. The Company’s management has been in discussions with Qenta regarding the status of the Purchase Agreement. To date, Qenta has not exercised its rights of default as defined in the agreement nor has it indicated plans to do so.
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In addition to the delivery of gold ounces, the
Purchase Agreement contains a royalty provision whereby royalties of
The Purchase Agreement contains a participation payment whereby Qenta receives a portion of the proceeds from gold sold by the Company to a third party. The payment due is based upon a percentage of proceeds over a set gold price per ounce. The upside participation amounts are payable within four days following each sale. To date, has been paid.
The Purchase Agreement provides for the Company
to pay default interest (calculated at the rate of LIBOR plus
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Royalties payable | $ | $ | ||||||
| Royalties withholding payable | ||||||||
| Upside participation payable | ||||||||
| Subtotal | ||||||||
| Accrued interest, prepaid forward gold contract | ||||||||
| Total | $ | $ | ||||||
NOTE 8 – NOTE PAYABLE
At December 31, 2022, the Company had a note payable on a piece of
equipment with a balance of $
NOTE 9 – ASSET RETIREMENT OBLIGATION
| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Asset retirement obligation, beginning of year | $ | $ | ||||||
| Increase due to change in estimated costs | ||||||||
| Decrease due to extension of time before costs are incurred | ( | ) | ||||||
| Accretion expense | ||||||||
| Asset retirement obligation, end of year | $ | $ | ||||||
In the first quarter of 2023, the Company updated
its estimate for reclamation and closure costs of the mine at the end of its life based on an expanded permit and bonding requirement
finalized in December 31, 2022. The updated estimate was approximately $
In 2023, the Company updated the expected reclamation
commencement date from 2024 to 2033. This extension of time resulted in a reduction of $
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NOTE 10 – SETTLEMENT OF CONSULTING CONTRACT
On March 29, 2018, the Company entered into a
five-year Agency Agreement (the “Agency Agreement”) with H&H Metals Corp., a New York corporation (“H&H”).
Under the terms of the Agency Agreement, H&H agreed to provide certain advisory services in regard to natural resources activities
and to assist in securing purchasers for minerals produced from its mining properties. The Company negotiated a settlement in 2019 with
H&H resulting in the Company owing a balance of $
NOTE 11 – INCOME TAXES
No income tax provision (benefit) has been recognized
for the years ended December 31, 2023 and 2022.
| December 31, 2023 | December 31, 2022 | |||||||||||||||
| Amount using the statutory rate | $ | ( | ) | ( | )% | $ | ( | ) | ( | )% | ||||||
| Deferred taxes adjustment | % | |||||||||||||||
| Other | ||||||||||||||||
| Change in valuation allowance | % | % | ||||||||||||||
| Total income tax provision (benefit) | $ | $ | ||||||||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Deferred tax asset: | ||||||||
| Net operating loss carryforward | $ | $ | ||||||
| Exploration costs | ||||||||
| Stock based compensation | ||||||||
| Property and equipment | ||||||||
| Asset retirement obligation | ||||||||
| Total deferred tax assets | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax liabilities | ||||||||
| Property and equipment | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| ( | ) | ( | ) | |||||
| Net deferred tax assets | $ | $ | ||||||
At December 31, 2023, the Company had net operating
loss carry forwards of approximately $
F-16
Deferred income taxes arise from timing differences
resulting from income and expense items reported for financial accounting and tax purposes in different periods. A deferred tax asset
valuation allowance is recorded when it is more likely than not that deferred tax assets will not be realized. As management of the Company
cannot determine that it is more likely than not that the Company will realize the benefit of the net deferred tax assets, a valuation
allowance equal to
During the years ended December 31, 2023 and 2022, there were no material uncertain tax positions taken by the Company. It is not anticipated that unrecognized tax benefits would significantly increase or decrease within 12 months of the reporting date. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the periods presented. The Company had no accruals for interest and penalties at December 31, 2023 and 2022. The Company’s federal income tax returns for fiscal years 2020 through 2022 remain open and subject to examination.
NOTE 12 – RELATED PARTY TRANSACTIONS
The Company has a month-to-month lease agreement
for its office space with RMH Overhead, LLC (“RMH”), a company owned by Rick Havenstrite, the Company’s President and
a director. The Company recognized rent expense of $
The Company rents a haul truck from RMH at a current
rate of $
Employment Agreements
The Company has an employment agreement with Mr.
Havenstrite as President of the Company, which is ongoing. The agreement, as amended, requires Mr. Havenstrite to meet certain time requirements
and limits the number of other board member obligations in which he can participate. The agreement allows for a base annual salary of
$
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Rick Havenstrite, President | $ | $ | ||||||
| Marianne Havenstrite, Treasurer and Principal Financial Officer | ||||||||
| Total | $ | $ | ||||||
Directors’ fees
The Company compensates independent directors
for their contributions to the management of the Company, with one director, who serves as chairman of the board, receiving fees of $
F-17
NOTE 13 – COMMITMENTS AND CONTINGENCIES
In addition to commitments disclosed in Notes 6, 7 and 12, the Company had the following commitments and contingencies.
Personal property tax and other accrued liabilities
Personal property tax for Tooele County, Utah,
is billed and becomes due on November 30 of each year. At December 31, 2023 and 2022, the amount due to Tooele County is $
Mining Leases
Annual claims’ fees are currently $
NOTE 14 – CAPITAL STOCK
Common Stock
The Company is authorized to issue
During the years ended December 31, 2023 and 2022, the Company had transactions relating to common stock.
Preferred Stock
The Company's Articles of Incorporation authorized
NOTE 15 – STOCK OPTIONS
The Company had reserved
Outstanding and vested options at December 31,
2023 and December 31, 2022 were and
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NOTE 16 – REVENUE
| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Concentrate sales | ||||||||
| Gold | $ | $ | ||||||
| Silver | ||||||||
| Total concentrate sales | ||||||||
| Deductions to concentrate sales | ||||||||
| Royalties | ( | ) | ( | ) | ||||
| Upside participation payments | ( | ) | ( | ) | ||||
| Outside processing | ( | ) | ( | ) | ||||
| Subtotal – deductions to concentrate sales | ( | ) | ( | ) | ||||
| Net concentrate sales | ||||||||
| Net processing income | ||||||||
| TOTAL REVENUE | $ | $ | ||||||
For the years ended December 31, 2023 and 2022, all revenues from concentrate sales were from concentrate sold to Asahi Refining.
Contract processing income is proceeds received for ore processed for another company. The contract agreement with the outside company for which we were processing material was terminated in October 2022.
F-19