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.
We currently conduct operations in México through our operating subsidiaries. We
currently own 80% of the outstanding shares of DynaResource de México, S.A. de
C.V. ("DynaMéxico"), and DynaMéxico currently holds 20% of its outstanding
shares recovered from Goldgroup Resources Inc. DynaMéxico owns 100% of mining
concessions, equipment, camp and related facilities which comprise the San José
de Gracia Property, in northern Sinaloa State, México. We also own 100% of
Mineras de DynaResource S.A. de C.V. ("DynaMineras"), the exclusive operator of
the San José de Gracia Project, under contract with DynaMéxico. DynaOperaciones
is the exclusive management company for registered employees.
Project Improvements, Expansion and Increased Output (2017 To Present)
The Company continues its business plan of operations at San José de Gracia,
which is to improve, increase and expand test mining and pilot milling
operations and generally, to increase production of gold ounces. Since January
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 400 tons per 24-hour operating day, and during second quarter 2022 the
Company expects to achieve production output of 600 tons per 24-hour operating
day. (Note the Summary of Test Mining and Pilot Mill Operations for 2018 to 2022
below).
Since January 2017, the Company has expended over 27 million USD in
non-operating costs, generally classified as project improvements and expansion
costs which have been expensed in the company's financial statements. These
funds have been provided primarily from cash flows from operations. An itemized
list of these non-operating costs is described below:
Mill Expansion: $ 5,893,000
Tailings Pond Expansion 1,464,000
Machinery and Equipment 2,143,000
Mining Camp Expansion 146,000
Medical Facility 126,000
Mine Development - San Pablo 2,748,000
Mine Expansion - San Pablo East 915,000
Mine Expansion - Tres Amigos 1,599,000
Exploration Drilling 2,028,000
SIG Mining Concessions 2,014,000
Surface Rights and Permitting 792,000
Debt Retirement 3,528,000
Legal Fees 4,043,000
Total $ 27,439,000
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 $18.5 million USD which is available to offset future taxable earnings.
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Summary of Test Mining and Pilot Mill Operations for 2018 to 2022:
Gross Gold Net Gold
Total Tonnes Reported Mill Reported Concentrates Concentrates
Mined & Feed Grade (g/t Recovery Recovered Sold
Year Processed 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
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 gross Oz Au, and net of dry weight
adjustments at the buyer's facilities, the production of approximately 22,566 Oz
Au. The Company reports net revenue of $35,886,046 net of buyer's price discount
and refining and treatment costs.
Summary of Test Mining and Pilot Mill Operations for the nine months ended
September 30, 2022 and 2021:
Total Gross Gold
Tonnes Reported Reported Concentrates Net Gold (1)
Mined & Mill Feed Recovery Recovered Concentrates
Processed Grade (g/t Au) % (Au oz.) Sold (Au oz.)
Nine
Months
Ended
Sept.
30,
2022 100,206 8.67 79.86 % 22,314 17,823
Nine
Months
Ended
Sept.
30,
2021 66,695 9.48 89.45 % 18,141 16,036
(1) Gold concentrate sold during the quarter is not equal to gold concentrate
recovered during the quarter due to timing of shipments & buyers discount.
Test pilot operations in Q1 2022 yielded 27,511 tons mined and processed through
mill operations (306 tons per day) ? and the recovery of 7,110 gross Oz Au
resulting in sales of 6,000 gross Au Oz contained in gold-silver concentrates,
and the receipt of $10,492,503 in revenues net of buyer's price discount,
refining and treatment costs.
Test pilot operations in Q2 2022 yielded 33,655 tons mined and processed through
mill operations (370 tons per day) ? and the recovery of 7,834 gross Oz Au
resulting in sales of 6,004 gross Au Oz contained in gold-silver concentrates,
and the receipt of $10,492,511 in revenues net of buyer's price discount,
refining and treatment costs. The Company record a negative adjustment to
revenue of $337,969 from final settlements of prior periods deliveries providing
a net revenue of $10,098,010 for the quarter.
Test pilot operations in Q3 2022 yielded 39,040 tons mined and processed through
mill operations (424 tons per day) ? and the recovery of 9,551 gross Oz Au
resulting in sales of 7,370 gross Au Oz contained in gold-silver concentrates,
and the receipt of $9,235,141 in revenues net of buyer's price discount,
refining and treatment costs. The Company record a negative adjustment to
revenue of $1,202,584 from final settlements of prior periods deliveries
providing a net revenue of $8,032,557 for the quarter.
Additional Test Mining and Mill Operations Disclosure
DynaMineras expects to continue its test underground mining activity and pilot
milling operations in the third quarter 2022, and projects an increased output
of 500 tons per 24-hour operating day from the mine and mill during the quarter.
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Results for the three and nine months ended September 30, 2022 and 2021
REVENUE. The Company processed 100,206 tons (367 per day) during the first nine
months of 2022 compared to 66,695 tons (244 per day) in 2021. As a result of the
increased volume the grade of ore processed dropped from 9.48 g/t Au per ton in
the prior year to 8.67 g/t Au per ton for the current year. In addition the
percentage of ore recovered has dropped from 89% to 80%. The net result is an
increase of ounces recovered from 18,141 in 2021 to 22,314 in the first nine
months of 2022. This resulted in an increase in gross ounces sold from 16,036 in
2021 to 17,823 in 2022, increasing revenues from $25,906,083 to $28,623,070 for
the nine months ended September 30, 2021 and 2022, respectively.
Revenues for the quarter ended September 30, 2022, and September 30, 2021 were
$8,032,557 and $10,467,058, The decrease was the result of a decrease in the
grade of ore from 10.13 g/t Au per ton in 2021 to 7.61 per g/t Au per ton in
2022 and the recovery percentage from 83% to 79%. The Company's net revenue for
the quarter reflected an negative adjustment of $1,202,584 for final settlement
of provisional invoices reported in prior quarters.
PRODUCTION COSTS RELATED TO SALES. Production costs related to sales for the
nine months ended September 30, 2022 and September 30, 2021 were $2,876,902 and
$1,917,049, respectively. Production cost for the three months ended September
30, 2022, and 2021 were $964,172 and $756,898, respectively. These are expenses
directly related to the milling, packaging and shipping of gold and other
precious metals product. The increase is consistent with the increase in tonnage
process.
MINE PRODUCTION COSTS. Mine production costs for the nine months ended September
30, 2022, and 2021 were $4,786,236 and $3,385,340 respectively and $1,946,981
and $1,135,938 for the three months ended September 30, 2022, and 2021,
respectively. These costs were directly related to the extraction of mine
tonnage to be processed at the mill. The increase is consistent with the
increase in tonnage mined. Cost per ton of ore mined increase from $42 per ton
in 2021 to $45 per ton in the current year.
MINE EXPLORATION COSTS. Mine exploration costs for the nine months ended
September 30, 2022, and 2021 were $3,792,405 and 3,437,009 respectively and
$1,335,437 and $1,151,020 for the three months ended September 30, 2022, and
2021, respectively. These were the costs of extracting waste material to reach
the materials to be extracted for processing. The Company allocates total mining
costs between production and waste based on tonnage on a monthly basis. Mine
exploration cost remained at approximately 13% of revenue from year to year.
The increase cost of mining was offset by a drop in waste tonnage as a
percentage of total tonnage mined.
FACILITIES EXPANSION COSTS: Facilities expansion costs for the nine months ended
September 30, 2022, and 2021 were $4,744,792 and 579,432, respectively. The
major expense was the installation of two new Ball Mill which upon completion
will increase processing capacity to 700 tons a day. The Company expects the
expansion to be complete by October These are cost which would normally be
capitalized under U.S Gaap but are expensed under Reg. S-K, Item 1300 because of
the Company is an exploration stage issuer lacking proven and probable reserves.
EXPLORATION DRILLING. During the 1st quarter of 2022 the Company begin an
exploration drilling program for the purposes of updating the Company's 43-101
Mineral Resource Estimate. Total cost of the exploratory drilling program in
the first nine months of 2022 was $1,993,082 including $770,892 in the 3rd
quarter.
TRANSPORTATION. Transportation costs for the nine months ended September 30,
2022, and 2021 were $1,682,986 and $968,672, respectively. Transportation cost
for the three months ended September 30, 2022 and 2021 were $572,772 and
$374,974, respectively. These were the costs of transporting the product to the
customer for treatment and sale. The increase in reflective of the increase in
fuel and transportation costs.
CAMP, WAREHOUSE AND SUPPORT FACILITIES. Camp, warehouse and support facility
cost for the nine months September 30, 2022 and 2021 were $3,147,312 and
$1,956,168 respectively and 911,284 and $697,446 for the three months ended
September 30, 2022 and 2021, respectively. These were the support costs of the
mining facilities including housing, food, security and warehouse operations.
The increases were the result of the Company's increase in mining operations
PROPERTY HOLDING COSTS. Property holding costs for the nine months ended
September 30, 2022, and 2021 were $112,093 and $116,516, respectively. These
costs were concessions taxes, leases on land and other direct costs of
maintaining the property. These cost are relatively consistent from year to year
regardless of the level of mining activity.
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GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the
nine months ended September 30, 2022, and 2021 were $3,177,917 and $2,252,156,
respectively. General and administrative costs for the three months ended
September 2022 and 2021 were 1,033,820 and 1,085,187 respectively. These were
the costs of operating the Company not directly associated with the mine
operations including management, accounting, and legal expenses. The increase
was an increase legal fees associated ongoing legal discussed in the legal
summary and an overall increase in administrative costs supporting the Companies
increase in activity.
OTHER INCOME (EXPENSE). Other income (expense) for the nine months ended
September 30, 2022, and 2021 was 1,698,184 and $(6,263,923), respectively.
Included in this category in 2022 was interest expense of $(345,049), change in
derivative of $1,993,836 currency transaction gain (loss) of $47,709 and
miscellaneous income of 1,688. Included in this category in 2021 was interest
expense of $(1,102,755), change in derivative of $(3,928,913), currency
transaction gain (loss) of $(121,725) and a one-time arbitration award expense
of $1,111,111. The decrease in the derivative liability was primarily due to
maturity of two of the underlying securities and the Company's common stock
value remaining under the conversion terms. The decrease in interest expense was
the result of a reduction in the Company's debt. For a more detailed
explanation of the 2021 arbitration award see Legal Proceedings.
OTHER COMPREHENSIVE INCOME (LOSS). Other 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 nine
months ended September 30, 2022 and 2021 consisted of unrealized currency gains
(losses) of $(174,043) and $(301,986), respectively. The change is due to the
variances in the peso exchange rates throughout the two periods.
Liquidity and Capital Resources
As of September 30, 2022, the Company had working capital of $10,640,537,
comprised of current assets of $29,627,568 and current liabilities of
$18,987,031. This represented an increase of $9,292,826 from the working capital
of $1,347,711 maintained by the Company as of December 31, 2021. The primary
reasons for the increase were funds generated from the Company's operating
profit and proceeds from the exercise of stock warrants.
Net cash provided by (used in) operations for the nine months ended September
30, 2022 and 2021 was $(3,881,727) and $14,747,383, respectively. The decrease
in the funds provided from operations was a result the decrease in operating
income and the increase in receivables and inventory required by increase
operations.
Net cash provided by (used in) investing activities for the nine months ended
September 30, 2022 and 2021 was $0 and $0, respectively. Expenditures necessary
for the expansion of mining operations totaled $ and $0 in the nine months ended
September 30, 2022 and 2021, respectively, $4,744,792 which would normally have
been included in this category were expenses due to the company's being an
exploration stage issuer as defined in SEC Reg. S-K, Item 1300.
Net cash provided by (used in) financing activities for the nine months ended
September 30, 2022 and 2021 was $4,790,399 and $(47,936), respectively. The
2021 usage represented principal payments on long-term debt. The 2022 source of
funds was proceeds from the exercise of stock warrants, offset by payments to
reduce debt.
Off-Balance Sheet Arrangements
As of September 30, 2022, 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 DynaMineras 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
anticipates completion of expansion to reach a capacity of 700 tons per 24-hour
operating days from the processing plant. The Company expects to operate at
approximately 600 tons per day in the fourth quarter of 2022.
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The Company funds its general and administrative expenses in the US, from the
Company's operating subsidiaries, DynaMineras and DynaOperaciones. These amounts
are eliminated in consolidation. 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 the subsequent twelve
months.
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