DYNARESOURCE, INC. FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to in this annual report as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to in this annual report as the Exchange Act. Forward-looking statements are not statements of historical fact but rather reflect our current expectations, estimates and predictions about future results and events. These statements may use words such as "anticipate," "believe," "estimate," "expect," "intend," "predict," "project" and similar expressions as they relate to us or our management. When we make forward-looking statements, we are basing them on our management's beliefs and assumptions, using information currently available to us. These forward-looking statements are subject to risks, uncertainties and assumptions, including but not limited to, risks, uncertainties and assumptions discussed in this annual report. Factors that can cause or contribute to these differences include those described under the heading "Management Discussion and Analysis and Plan of Operation." If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statement you read in this annual report reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this paragraph. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this annual report. The Company expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect any change in its views or expectations. The Company can give no assurances that such forward-looking statements will prove to be correct.
CAUTIONARY NOTE TO
The Company is an "OTC Reporting Issuer" as that term is defined in BC
Multilateral Instrument 51-105, Issuers Quoted in the
InCanada , an issuer is required to provide technical information with respect to mineralization, including reserves and resources, if any, on its mineral exploration properties in accordance with Canadian requirements, which differ significantly from the requirements of theUnited States Securities and Exchange Commission (the "SEC") applicable to registration statements and reports filed byUnited States companies pursuant to the Securities Act or the Exchange Act. As such, certain disclosures of mineralization under Canadian standards may not be comparable to similar information made public byUnited States companies subject to the reporting and disclosure requirements of theSEC and not subject to Canadian securities legislation. 12 Table of Contents While these terms are recognized and required by Canadian securities legislation (under National Instrument 43-101 ("NI 43-101"), entitled Standards of Disclosure for Mineral Projects), theSEC does not recognize these terms. Investors inthe United States are cautioned not to assume that any part or all, of the mineral deposits in these categories, will ever be converted to reserves. In addition, inferred mineral resources have a great amount of uncertainty as to their existence and economic and legal feasibility. It cannot be assumed that all or any part of a measured mineral resource, indicated mineral resource or inferred mineral resource will ever be upgraded to a higher category. Under Canadian securities legislation, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, although they may form, in certain circumstances, the basis of a "preliminary economic assessment" as that term is defined in NI 43-101. U.S. investors are cautioned not to assume that any part or all, of any reported measured, indicated, or inferred mineral resource estimates referred to in the DynaMéxico NI 43-101 Technical Report and DynaMéxico 43-101 Mineral Resource Estimate (compiled forDynaResource de MéxicoSA de CV ), are economically or legally mineable. UnderU.S. standards, as set forth in SEC Industry Guide 7, mineralization may not be classified as a "reserve" unless a determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. The SJG Property as described in this Annual Report on Form 10-K is without known reserves. Mineral resources which are not classified as mineral reserves do not have "demonstrated economic viability." The quantity of resources and the quality (grade) of resources reported as "Indicated" and "Inferred" mineral resources in the DynaMéxico 43-101 Mineral Resource Estimate compiled forDynaResource de MéxicoSA de CV , under Canadian National Instrument 43-101 and filed by the Company with SEDAR, are not disclosed in this Form 10-K. There has been insufficient exploration to define any mineral reserves on the SJG Property, and it is not certain if further exploration will result in the definition of mineral reserves. Company
The Company is a minerals investment, management, and exploration company, and currently conducting test mining and pilot milling operations through an operating subsidiary in México, with specific focus on precious and base metals in México. The Company was incorporated in theState of California onSeptember 28, 1937 , under the nameWest Coast Mines, Inc. InNovember 1998 , the Company re-domiciled fromCalifornia toDelaware and changed its name toDynaResource, Inc. ("DynaUSA"). We currently conduct operations in México through our operating subsidiaries. We currently own 80% of the outstanding shares ofDynaResource de México,S.A. de C.V. ("DynaMéxico"), and DynaMéxico currently holds 20% of its outstanding shares recovered fromGoldgroup Resources Inc. DynaMéxico owns 100% of mining concessions, equipment, camp and related facilities which comprise theSan Jose de Gracía Property, in northern Sinaloa State, México. We also own 100% ofMineras de DynaResource S.A. de C.V. ("DynaMineras"), the exclusive operator of the San José de Gracía Project, under contract with DynaMéxico. DynaOperaciones is the exclusive management company for registered employees.
Project Improvements, Expansion and Increased Output (2017 To 2021)
The Company continues its business plan of operations atSan Jose de Gracía, which is to improve, increase and expand test mining and pilot milling operations and generally, to increase production of gold ounces. SinceJanuary 2015 startup of the test mining and milling activities, the Company has increased daily output from an initial 75 tons per 24-hour operating day, to a current 300 tons per 24-hour operating day, and during first quarter 2021 the Company expects to achieve production output of 500 tons per 24-hour operating day. (Note the Summary of Test Mining and Pilot Mill Operations for 2018 to
2021 below).
Since
Mill Expansion$ 3,108,000 Tailings Pond Expansion 265,000 Machinery and Equipment 1,416,000 MiningCamp Expansion 146,000 Medical Facility 126,000Mine Development -San Pablo 2,748,000 Mine Expansion - San Pablo East 915,000 Mine Expansion - Tres Amigos 1,599,000 SIG Mining Concessions 1,401,000
Exploration and Developmental Drilling 35,000 Surface Rights and Permitting
528,000
Debt Retirement 2,985,000
Legal Fees 3,381,000
Total $ 18,653,000
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The Company is currently reporting all costs of mine operations, improvements,
and expansion as expenses in accordance with United States General Accepted
Accounting Principal (GAAP) requirements. The result of expensing all costs is
that the Company has accumulated a net loss carry forward from México operations
of $12.5 million USD which is available to offset future taxable earnings.
Results for the Years Ended
Summary of Test Mining and Pilot Mill Operations for 2021, 2020, 2019 and 2018:
Gross Gold Net Gold
Total Tons
Mined & Feed Grade Recovery Produced Sold
Year Processed (g/t Au) % (Au oz.) (Au oz.)
2018 52,038 9.82 86.11 % 14,147 13,418
2019 66,031 5.81 86.86 % 10,646 9,713
2020 44,218 5.65 87.31 % 7,001 5,828
2021 97,088 9.67 88.79 % 26,728 22,566
DynaMineras continued to increase its test underground mining activity and pilot milling operations in 2021 and increased output from 200 to 300 tons per 24-hour operating /day from the mine and mill during. With the opening of an additional ball mill in the first quarter of 2022 the Company projects an increase in capacity to 500 tons per day. Test pilot operations in 2021 yielded 97,088 Tons mined and processed from underground test mining activity and pilot milling operations; and the production of approximately 26,728 grossOz Au , and net of dry weight adjustments at the buyer's facilities, the production of approximately 22,566Oz Au . The Company reports net revenue of$35,886,046 net of buyer's price discount and refining and treatment costs.
Test pilot operations in 2020 yielded 44,218 Tons mined and processed from
underground test mining activity and pilot milling operations; and the
production of approximately 7,001 gross
DynaMineras expects to continue its test underground mining activity and pilot milling operations in 2022; and projects the output of 500 tons per 24-hour operating day from the mine and mill in 2022.
REVENUE. Revenues for the years endedDecember 31, 2021 , and 2020 were$35,886,046 and$9,048,831 , respectively. The increase was the result of the opening of the Tres Amigos mine in 2020 which yielded a higher grade of ore and the increase in plant processing capacity to 300 tons a day. The ore feed grade increase from 5.65 g/t in 2020 to 9.67 g/t in 2021. This combined with higher gold prices resulted in a 297% increase in revenue on a 120% increase in tonnage processed. PRODUCTION COSTS RELATED TO SALES. Production costs related to sales for the years endedDecember 31, 2021 , and 2020 were$2,909,401 and$1,166,135 , respectively. These are expenses directly related to the milling, packaging and shipping of gold and other precious metals product. This represents a decrease in the cost per ounce recovered of milling from$167 per OZ to$109 per OZ. MINE PRODUCTION COSTS. Mine production costs for the years endedDecember 31, 2021 , and 2020 were 3,965,467 and$2,370,972 respectively. These costs were directly related to the extraction of mine tonnage to be processed at the mill. The increase was a result in the increase in tonnage mine. However, the cost per ton dropped from$66.84 per ton in 2020 to$45.57 as result of the increased volume in tonnage. 14 Table of Contents
MINE EXPLORATION COSTS. Mine exploration costs for the years endedDecember 31, 2021 , and 2020 were$5,198,057 and$1,610,747 , respectively. These were the costs of extracting waste material to reach the materials to be extracted for processing. The increase was a result of the increase in activity as well as the increase in waste tonnage. MINE EXPANSION COSTS: Mine expansion costs for the years endedDecember 31, 2021 , and 2020 were$1,478,725 and$909,190 , respectively. These were the costs associated with the expansion of the mining facilities and the cost associated with preparing the Tres Amigos for production. The 2021 largely consisted of the new ball mill. These are cost which would normally have been treated as capital expenditures underU.S. GAAP but the Company is required to expense because of the lack of proven and probable reserves. TRANSPORTATION. Transportation costs for the years endedDecember 31, 2021 , and 2020 were$1,330,414 and$528,423 , respectively. These were the costs of transporting the product to the customer for treatment and sale. The increase is consistent with the overall increase in production and sales. CAMP, WAREHOUSE AND SUPPORT FACILITIES. Camp, warehouse and support facility cost for the years endedDecember 31, 2021 , and 2020 were$2,913,832 and$2,036,610 , respectively. These were the support costs of the mining facilities including housing, food, security and warehouse operations. The increase was a result of the increase in personnel from the increase in operations. PROPERTY HOLDING COSTS. Property holding costs for the years endedDecember 31, 2021 , and 2020 were$127,731 and$137,377 , respectively. These costs were concessions taxes, leases on land and other direct costs of maintaining the property. The current costs consist only of core concessions and the reduced area of the Francisco Arturo concession. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the years endedDecember 31, 2021 , and 2020 were$4,773,473 and$2,966,073 respectively. These were the costs of operating the Company not directly associated with the mine operations including management, accounting, and legal expenses. The increase is reflective of an overall increase in activity, an increase in compensation expense including$1,005,223 value of stock issued for services and a$381,871 bad debt write off. OTHER INCOME (EXPENSE). Other income for the years endedDecember 31, 2021 , and 2020 was$(4,622,364) and$(2,685,878) , respectively. Included in this category in 2021 was interest expense of$(1,573,125) , change in derivative liability of$(2,186,912) , currency transaction gain of$247,712 , and an arbitration award payment of$(1,111,111) . Included in this category in 2020 was interest expense of$(1,133,360) , change in derivative of$(1,186,964) , currency transaction loss of$(361,127) , and other expense of$(4,427) . The increase in derivative liability is the result of the increase in the Company's stock price on the Company's black scholes calculation of the liability for stock warrants and convertible debt. See Item Three Legal Proceedings for discussion of the arbitration award. NON-CONTROLLING INTEREST. The non-controlling interest portion of the net loss for the years endedDecember 31, 2021 , and 2020 was$0 and$61,589 , respectively. This represented the non-controlling interest share of Dyna México's loss. The 2020 allocation included only the non-controlling interest's share of the net loss for January and February as the non-controlling interest was eliminated at the end ofFebruary 2020 . OTHER COMPREHENSIVE INCOME (LOSS). Comprehensive income (loss) includes the Company's net income (loss) plus the unrealized currency translation gain (loss) for the period. The Company's other comprehensive loss for the years endedDecember 31, 2021 , and 2020 consisted of unrealized currency gains (losses) of$(685,757) and$100,582 , respectively. The YTD change is due to the variances in the peso exchange rates throughout the two years.
Liquidity and Capital Resources
As ofDecember 31, 2021 , the Company had working capital of$1,347,711 , comprised of current assets of$23,816,481 and current liabilities of$22,468,770 . This represented a increase of$7,126,703 from the working capital maintained by the Company of$(5,778,992) as ofDecember 31, 2020 . The primary reason for the increase is the increase in cash balance generated from the Company's operations. Net cash provided by (used in) operations for the year endedDecember 31, 2021 , was$17,516,205 compared to$(2,421,108) in the year endedDecember 31, 2020 . The increase is the result of the Company's increased operating profits and proceeds from its customer advance. 15 Table of Contents Net cash provided by (used) in investing activities for the years endedDecember 31, 2021 , and 2020 was$0 and$0 , respectively. In 2021 and 2020 expenditures necessary for the expansion of mining operations totaling$1,478,725 and$909,190 , respectively which would normally have been included in this category were expensed due to the company's lack of proven and probable reserves. Net cash provided by (used in) financing activities for the year endedDecember 31, 2021 , was$(2,557,721) compared to$3,594,323 for the year endedDecember 31, 2020 . The 2020 funds represent the net proceeds from the Series D financing. The 2021 expenditure is the partial repayment of that financing.
Off-Balance Sheet Arrangements
As ofDecember 31, 2021 , we did not have any off-balance sheet arrangements, which have or are reasonably likely to have a material adverse effect on our financial condition, results of operations or liquidity. Plan of Operation The Plan of operation for the next twelve months includes the Company continuing the improvement and expansion of the test mining and pilot milling operations at SJG. The Company commenced its testing activities in fall 2015 at the rate of approximately 100 tons per 24-hour operating day from the mine and approximately the same output from the processing plant. Over the past five years, the Company has gradually increased its output to approximately 300 tons per 24-hour operating day from the mines and processing plant. In 2022, the Company projects to complete its next phase of expansion to reach the output of approximately 500 tons per 24-hour operating day from the mine and the processing plant. The Company funds its general and administrative expenses in theU.S. from its Mexican operations. The Company believes that cash on hand, and including cash flow generated from its current operations, is adequate to fund its ongoing general and administrative expenses through 2022. Capital Expenditures
The Company's primary activities relate to the test mining and pilot milling operations of the SJG property through its Mexican subsidiaries.
No Known Reserves The SJG property is without known reserves. UnderU.S. standards, mineralization may not be classified as a "reserve" unless a determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made.
Exploitation Amendment Agreement ("EAA")
OnMay 15, 2013 , DynaMineras entered into an Exploitation Amendment Agreement ("EAA") with DynaMéxico. The EAA grants to DynaMineras the right to finance, explore, develop and exploit the SJG Property, in exchange for: (A) Reimbursement of all costs associated with financing, maintenance, exploration, development and exploitation of the SJG Property, which costs are to be charged and billed by DynaMineras to DynaMéxico; and, (B) After Item (A) above, the receipt by DynaMineras of 75% of gross receipts received by DynaMéxico from the sale of all minerals produced from SJG, to the point that DynaMineras has received 200% of its advanced funds; and, (C) after items (A) and (B) above; the receipt by DynaMineras of 50% of all gross receipts received by DynaMéxico from the sale of all minerals produced from SJG, and throughout the term of the EAA; and, (D) in addition to Items (A), (B), and (C) above, DynaMineras shall receive a 2.5% NSR ("Net Smelter Royalty") on all minerals sold from SJG over the term of the EAA. The total Advances made by DynaMineras to DynaMéxico as ofDecember 31, 2014 is$4,025,000 . The EAA is the third and latest Amendment to the original Contract Mining Services and Mineral Production Agreement (the "Operating Agreement"), which was previously entered into by DynaMineras with DynaMéxico inApril 2005 , wherein DynaMineras was named the Exclusive Operating Entity at SJG. The Operating Agreement was previously amended inSeptember 2006 (the "First Amendment") and amended again atJuly 15, 2011 (the "Second Amendment"). The Term of the Second Amendment is 20 years, and the EAA (Third Amendment) provides for the continuation of the 20 Year Term from the date of the Second Amendment (July 15, 2011 ). The agreement was terminated inOctober 2021 and all operations consolidated inDyna Mexico .
DynaMéxico
The Chairman-CEO of DynaUSA also serves as the President of DynaMéxico and as
the President of DynaMineras. The President of DynaMéxico holds broad powers of
attorney granted by the shareholders of DynaMéxico which gives the current
President significant and broad authority within DynaMéxico.
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