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.
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 the State of California on September
28, 1937, under the name West Coast Mines, Inc. In November 1998, the Company
re-domiciled from California to Delaware and changed its name to DynaResource,
Inc. ("DynaUSA").
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"), of which 79% are held directly and 1% are held by the
current CEO on behalf of DynaResoure, Inc., in compliance with Mexican law, and
DynaMéxico currently holds 20% of its shares recovered from Goldgroup Resources
Inc. as treasury shares. DynaMéxico owns 100% of mining concessions, equipment,
camp and related facilities which comprise the San Jose de Gracía 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 Gracía
Project, under contract with DynaMéxico. DynaOperaciones is the exclusive
management company for registered employees.
Project Improvements, Expansion and Increased Output (2017 to 2022)
The Company continues its business plan of operations at San Jose de Gracía,
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 700 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 $29.5 million USD in
non-operating costs, generally classified as project improvements and expansion
costs which have been expensed in the company's consolidated 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 $ 7,093,000
Tailings Pond Expansion 1,464,000
Machinery and Equipment 2,315,000
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
SIG Mining Concessions 2,014,000
Exploration and Developmental Drilling 2,484,000
Surface Rights and Permitting
793,000
Debt Retirement 3,528,000
Legal Fees 4,279,000
Total $ 29,504,000
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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 $11 million USD which is available to offset future taxable earnings.
Results for the Years Ended December 31, 2022 and 2021
Summary of Test Mining and Pilot Mill Operations for 2018 to 2022:
Total Reported Mill Reported Gross Gold Net Gold
Tonnes Feed Grade Recovery Concentrates Concentrates
Year Processed (g/t Au) % Produced (Au oz.) Sold(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
2022 137,740 8.18 88.05 % 31,905 25,554
DynaMexico continued to increase its test underground mining activity and pilot
milling operations in 2022 and increased output from 300 to 700 tons per 24-hour
operating /day during the 4th quarter.
Test pilot operations in 2022 yielded 137,740 Tons mined and processed from
underground test mining activity and pilot milling operations? and the
production of approximately 31,905 gross Oz Au, and net of dry weight
adjustments at the buyer's facilities, the production of approximately 25,554 Oz
Au. The Company reports net revenue of $39,757,460 net of buyer's price discount
and refining and treatment costs.
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.
DynaMexico expects to continue its test underground mining activity and pilot
milling operations in 2023? and projects the output of 700 tons per 24-hour
operating day from the mine and mill in 2023.
REVENUE: Revenues for the years ended December 31, 2022, and 2021 were
$39,767,460 and $35,886,046, respectively. The increase was the result of the
increase in tonnage mined and processed as a result of expansion of the Tres
Amigos mine in 2022 and the increase in milling capacity to 700 tons per day in
the fourth quarter of 2022. The increase in tonnage resulted in a slight drop
in yield from 9.67 g/t Au in 2021 to 8.18 g/t Au in 2022. Volume processed
however increased from 266 tons per 24hr day in 2021 to 377 tons per day in
2022. During 2022 Volume increased from 308 tons per day in the 1st quarter to
493 tons per day in the 4th quarter. The Company anticipates running an average
of 600 to 700 tons per day in 2023.
PRODUCTION COSTS RELATED TO SALES: Production costs related to sales for the
years ended December 31, 2022, and 2021 were $4,413,649 and $2,909,401,
respectively. These are expenses directly related to the milling, packaging and
shipping of gold and other precious metals product. This represents an increase
in the cost per ounce recovered of milling from
$109 per OZ to $138 per OZ. The increase was largely due to cost of bringing
the new ball mills online and is expected to drop in 2023.
MINE PRODUCTION COSTS: Mine production costs for the years ended December 31,
2022, and 2021 were $6,500,974 and $3,965,467 respectively. These costs were
directly related to the extraction of mine tonnage to be processed at the mill.
The increase was a result of the increase in tonnage mined. Cost per ton rose
from $45.57 per ton in 2021 to $47.98 per ton in 2022.
MINE EXPLORATION COSTS: Mine exploration costs for the years ended December 31,
2022, and 2021 were $5,707,832 and $5,198,057, 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 volume. However, the
percentage of waste tonnage dropped from 49.2% of total tonnage mined in 2021 to
45.6% in 2022.
FACILITIES EXPANSION COSTS: Facilities expansion costs for the years ended
December 31, 2022, and 2021 were $6,058,588 and $1,478,725, respectively. These
were the costs associated with the expansion of the mining facilities. Primary
costs in 2022 were the purchase and installation of the two new ball mills and
the construction of a new tailings pond. These are cost which would normally
have been treated as capital expenditures under U.S. GAAP but the Company is
required to expense because of the lack of proven and probable reserves.
EXPLORATION DRILLING: Exploration drilling expenses for the years ended
December 31, 2022 and 2021 were $2,484,072 and $0, respectively. The Company
began a new drilling program in 2022 to update its National Instrument 43-101
reserve report.
TRANSPORTATION: Transportation costs for the years ended December 31, 2022, and
2021 were $2,261,681 and $1,330,414, respectively. These were the costs of
transporting the product to the customer for treatment and sale. The increase
was a result with the overall increase in production and sales and the general
increase in fuel and trucking costs.
CAMP, WAREHOUSE AND FACILITIES: Camp, warehouse and facility cost for the years
ended December 31, 2022, and 2021 were $4,403,660 and $2,913,832, 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 ended December 31,
2022, and 2021 were $149,571 and $127,731, 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 ended December 31, 2022, and 2021 were $4,134,902 and $3,738,250
respectively. These were the costs of operating the Company not directly
associated with the mine operations including management, accounting, and legal
expenses.
STOCK COMPENSATION EXPENSE: Stock compensation expense for the years ended
December 31, 2022 and 2021 was $881,250 and $1,005,223, respectively.
OTHER INCOME (EXPENSE): Other income (expense) for the years ended December 31,
2022, and 2021 was $1,336,841 and $(4,622,364), respectively. Included in this
category in 2022 was interest expense of $(450,324), change in derivative
liability of $1,726,497, currency transaction gain of $58,426, and other income
of $2,242. 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, an arbitration award payment of $(1,111,111) and
other income of $1,072. The decrease in derivative liability is the result of
two of the derivatives expiring due to the maturity of the underlying
securities. See Item See Legal Proceedings for discussion of the arbitration
award payment.
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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 ended
December 31, 2022, and 2021 consisted of unrealized currency gains (losses) of
$359,743 and $(685,757), respectively. The current year change is due to the
variances in the peso exchange rates throughout the two years.
Liquidity and Capital Resources
As of December 31, 2022, the Company had working capital of $11,789,578,
comprised of current assets of $33,123,955 and current liabilities of
$21,334,377. This represented an increase of$10,661,867 from the working capital
maintained by the Company of $1,347,711 as of December 31, 2021. The primary
reason for the increase is the cash, inventory and receivables from the
Company's operating profit and from funds raised by the issuance of common
stock.
Net cash provided by (used in) operations for the year ended December 31, 2022
was $(1,781,225) compared to $17,516,205 in the year ended December 31, 2021.
The decrease is largely due to the drop in net income and the increase in
exploration activities and an increase in working capital.
Net cash provided by (used) in investing activities for the years ended December
31, 2022, and 2021 was $0 and $0, respectively. In 2022 and 2021, expenditures
necessary for the expansion of mining operations totaling $6,058,588 and
$1,478,725 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 ended December
31, 2022, was $4,778,958 compared to $(2,557,721) for the year ended December
31, 2021. The 2022 funds are the result of the issuance of common stock due to
the exercise of stock warrants. The 2021 usage was for the retirement of Series
D debt.
Off-Balance Sheet Arrangements
As of December 31, 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 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 seven years, the
Company has gradually increased its output to approximately 300 tons per 24-hour
operating day from the mines and processing plant. In 2023, the Company projects
to complete its next phase of expansion to reach the output of approximately 700
tons per 24-hour operating day from the mine and the processing plant.
The Company funds its general and administrative expenses in the U.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 2023.
Capital Expenditures
The Company's primary activities relate to the test mining and pilot milling
operations of the SJG property through its Mexican subsidiaries.
Exploration Stage
The Company is an exploration stage issuer has started extraction without
determining mineral reserves.
Exploitation Amendment Agreement ("EAA")
On May 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 of December
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 in April 2005, wherein DynaMineras was named the Exclusive Operating
Entity at SJG. The Operating Agreement was previously amended in September 2006
(the "First Amendment") and amended again at July 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 in October
2021 and all operations consolidated into Dyna Mexico.
DynaMéxico General Powers of Attorney
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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