Silverado Gold Mines Ltd. is an explorations stage company engaged in the acquisition and exploration of mineral properties in Alaska. The company operates with its wholly-owned subsidiaries Silverado Gold Mines Inc. and Silverado Green Fuel Inc. Silverado primarily targets potential gold exploration sites. They are currently exploring Nolan Gold Project in north Alaska. The exploration activities include lode diamond drilling and trenching, geochemical and geophysical surveys, placer rotary drilling, and placer test mining work carried out as part of Silverado's exploration programs. Silverado also holds interest in Hammond property, Eagle Creek Property and Easter Dome property.
The company is consistently late with their regulatory filings with the Securities and Exchange Commission.
For the last quarter ended August 31, 2007, the company had no revenues. However according to the latest SEC filing they have actually gained profit during the last quarter despite millions worth of losses over the previous quarters. In October 2007, the company has announced the sale of recovered gold which made up over $660 thousand in revenues as stated in 8-K form filed the on same month.
The company had only $647 thousand in cash by the end of third quarter of 2007. Considering gains from the sale of recovered gold the company's only had cash resources adequate to sustain their activities for another quarter. Silverado planned to spend approximately $800,000 on its exploration activities connected with the Nolan Gold Project during the 4th quarter of 2007. The company has been actively issuing stock to raise capital over the 4th quarter. However their current financial situation remains questionable until disclosed in SEC filing.
On November 19, 2007, the company has obtained a permit to carry out underground explorations on Nolan Creek Property. In relation, the company stated they will be obtaining a customized front end loader to carry out a year round exploration program. Also the company has announced the completion of environmental health and safety program at Nolan property. The program included road upgrades and installation of appliances to provide safety and health protection to mine personnel.
Silverado also seeks to get funding from the United States federal and state governments in connection with the establishment of demonstration Green Fuel facility in Mississippi. The project should be worth approximately $26,000,000 however the company hasn't got any assurance of financing yet.
The stock has been on general downtrend from the beginning of May, 2007 and the situation doesn't seem to change much. The company has been raising cash by issuing common stock, warrants and convertible debentures. In our opinion the share price might continue to drop until the company will be able to produce revenue of its mining operations. Current situation seems rather favorable as the company has already made all the necessary preparations for the start of mining activities. The only remaining obstacle is their uncertain financial state.
The company is consistently late with their regulatory filings with the Securities and Exchange Commission.
For the last quarter ended August 31, 2007, the company had no revenues. However according to the latest SEC filing they have actually gained profit during the last quarter despite millions worth of losses over the previous quarters. In October 2007, the company has announced the sale of recovered gold which made up over $660 thousand in revenues as stated in 8-K form filed the on same month.
The company had only $647 thousand in cash by the end of third quarter of 2007. Considering gains from the sale of recovered gold the company's only had cash resources adequate to sustain their activities for another quarter. Silverado planned to spend approximately $800,000 on its exploration activities connected with the Nolan Gold Project during the 4th quarter of 2007. The company has been actively issuing stock to raise capital over the 4th quarter. However their current financial situation remains questionable until disclosed in SEC filing.
On November 19, 2007, the company has obtained a permit to carry out underground explorations on Nolan Creek Property. In relation, the company stated they will be obtaining a customized front end loader to carry out a year round exploration program. Also the company has announced the completion of environmental health and safety program at Nolan property. The program included road upgrades and installation of appliances to provide safety and health protection to mine personnel.
Silverado also seeks to get funding from the United States federal and state governments in connection with the establishment of demonstration Green Fuel facility in Mississippi. The project should be worth approximately $26,000,000 however the company hasn't got any assurance of financing yet.
The stock has been on general downtrend from the beginning of May, 2007 and the situation doesn't seem to change much. The company has been raising cash by issuing common stock, warrants and convertible debentures. In our opinion the share price might continue to drop until the company will be able to produce revenue of its mining operations. Current situation seems rather favorable as the company has already made all the necessary preparations for the start of mining activities. The only remaining obstacle is their uncertain financial state.
Here's the description from company's SEC filing:
INTRODUCTION
We are engaged in the acquisition and exploration of mineral properties in the State of Alaska. Our primary focus is the exploration of our Nolan Gold Project, located 175 miles north of Fairbanks, Alaska. Our plan of operations is to carry out exploration activities at the Nolan Gold Project. Our exploration activities include test mining activities that we carry out as part of our exploration programs.
We are also seeking financing to enable us to proceed with the construction of a commercial test facility to establish the viability of the production of low-rank coal-water fuel as a replacement for oil fired boilers and utility generators. There is no assurance that we will be able to obtain any financing for this project.
CORPORATE ORGANIZATION
Silverado Gold Mines Ltd. was incorporated under the laws of British Columbia, Canada in June 1963. We operate in the United States through our wholly owned subsidiary, Silverado Green Fuel Inc. (formerly Silverado Gold Mines Inc.) (“Silverado Green Fuel”), an Alaskan company incorporated in 1981. We filed a transition application and notice of articles with the British Columbia Registrar of Companies on April 20, 2004 in order to replace our former memorandum adopted under the British Columbia Company Act and to alter our current articles to the extent necessary to ensure compliance with the British Columbia Business Corporations Act (the “BC Business Corporations Act”). The BC Business Corporations Act came into force in British Columbia on March 29, 2004 and replaced the former British Columbia Company Act. The transition notice and notice of articles was filed under the BC Business Corporations Act that requires any British Columbia company incorporated under the former British Columbia Company Act to, within two years following the coming into force of the BC Business Corporations Act, transition under the BC Business Corporations Act by filing with the British Columbia Registrar of Companies a transition application and notice of articles.
Our exploration activities are managed and conducted by affiliated companies, Tri-Con Mining Ltd. (“Tri-Con”), Tri-Con Mining Inc. and Tri-Con Mining Alaska Inc. pursuant to written operating agreements. Each of Tri-Con, Tri-Con Mining Inc. and Tri-Con Mining Alaska Inc. are privately owned corporations controlled by Garry L. Anselmo, who is our president, chief executive officer and chief financial officer and is the chairman of our board of directors. See Certain Relationships and Related Transactions.
MINERAL EXPLORATION BUSINESS
We hold interests in four groups of mineral properties in Alaska, as described below:
1. our Nolan Gold Project;
2. our Ester Dome Gold properties;
3. our Hammond properties; and
4. our Eagle Creek properties.
We are an exploration stage company. All of our properties are presently in the exploration stage. We do not have any commercially viable reserves on any of our properties. There is no assurance that a commercially viable mineral deposit exists on any of our mineral properties. Further exploration will be required before a final evaluation as to the economic and legal feasibility of mining of any of our properties is determined. There is no assurance that further exploration will result in a final evaluation that a commercially viable mineral deposit exists on any of our mineral properties.
Our plan of operations for each of our groups of mineral properties is discussed below:
1. NOLAN GOLD property
a. The Nolan Test Mining - Swede Channel and Mary's East
During the period covered by this report, mining concentrated on washing and processing the Swede Channel and Mary's East 2006 stockpiles, which consisted of 18,320 loose cubic yards (LCY) of gold-bearing gravels. A total of 2,811.74 ounces of nugget gold ¼" and larger were recovered during the sluicing operations this summer. These large nuggets were systematically removed from the upper portions of the wash plant gold-recovery system throughout the past three months. The nugget gold recovered this year ranges from 1/10th of an ounce to 18.32 ounces.
In addition, 207.23 pounds of concentrate that contains gold particles smaller than ¼" in size were separated and delivered for refining in October 2007 yielding 915.06 troy ounces of gold and 65.12 troy ounces of silver, for a combined season total of 3,726.8 troy ounces of gold. The 2007 expected gold recoveries will be nearly four times that of 2006. Management is hopeful that gold recovery may exceed annual costs associated with extraction and processing, especially since this year's costs are relatively lower that those of 2006 in which upfront investment was required before extraction and processing could occur.
Exploration costs comprising exploration, test mining extraction and processing activities are recorded as incurred in an exploration stage company; thus may fluctuate widely due to activity levels of the period and gold recoveries posted.
Exploration costs are not only reduced by gold proceeds from the sale of gold inventory, but also by the value of the gold inventory held by the Company. The net increase in the inventory balance at August 31, 2007 was also deducted from exploration costs of the company, resulting in negative exploration costs for the quarter. Any future spot rate increases or decreases from the August 31, 2007 level of $672 will be deducted from or added to the exploration costs, respectively, in the future period in which inventory is re-valued or the gold is sold.
b. Nolan Lode and Placer Exploration
During June, July and August, lode exploration focused on soil sampling, ground geophysical surveying, trenching and drilling on its Nolan property.
Silverado undertook backhoe trenching on its Nolan Creek property, resulting in the excavation of seven trenches totaling 1,420 feet to further investigate the gold-antimony-bearing quartz vein systems in Zone 1, Zone 2 and Zone 3 of the southern portion of the five-mile long Solomon's Shear zone. A total of 168 combined select chip and continuous chip rock samples were collected during the trenching program and submitted to ALS Chemex in Fairbanks for analysis. Of the 136 samples analyzed to date, 16 are still being quantitatively assayed for total antimony. Gold values analyzed thus far reach as high as 5.22 ounces gold per ton and antimony values reach as high as 48.07% .
The company also conducted reconnaissance work in other areas on its Nolan Creek property.
A total of 989 soil samples were collected during the 2007 ground geochemical survey and have been sent to ALS Chemex in Fairbanks for analysis. The 417 samples analyzed to date show a distinct arsenic and antimony anomalous trend on the eastern part of the Solomon Shear trend. Arsenic anomalies are strong indicators of the presence of gold, and these arsenic and co-incident geophysical anomalies, in part, exist uphill from the areas where Silverado in past years has recovered its largest gold nuggets, the largest over 41 troy ounces alone.
Along with the soil sampling campaign, Silverado conducted an extensive very low frequency electromagnetic (VLF-EM) ground geophysical survey to identify structures such as shear zones, faults, and veins that occur within the bedrock.
Exploration drilling started in mid August using the company's recently purchased diamond drill rig. By the end of the third quarter of the fiscal year, a total of 680 feet had been drilled. The drilling program focuses on an area North of Smith Creek, where company backhoe trenching previously identified three zones that contain gold-antimony bearing quartz vein systems.
The Company plans to continue with exploration at the Nolan Lode and Placer properties within the Nolan Gold Project. The objective of this geological exploration program is to further define both lode and placer gold occurrences in order to provide a basis for future exploration activities, test-mining and eventually continuous mining activities at the Nolan Gold Project. Silverado's lode exploration work is intended to increase Silverado's geological knowledge on the Solomon Shear Trend and other lode gold occurrences on the properties.
Silverado plans to spend approximately $800,000 during the next three months on its exploration activities connected with the Nolan Gold Project. It is anticipated approximately $300,000 will be spent on test mining activities and bulk sampling, and $500,000 will be spent on exploration activities, including a placer and diamond core drilling exploration program for exploration for lode gold and antimony occurrences.
We are engaged in the acquisition and exploration of mineral properties in the State of Alaska. Our primary focus is the exploration of our Nolan Gold Project, located 175 miles north of Fairbanks, Alaska. Our plan of operations is to carry out exploration activities at the Nolan Gold Project. Our exploration activities include test mining activities that we carry out as part of our exploration programs.
We are also seeking financing to enable us to proceed with the construction of a commercial test facility to establish the viability of the production of low-rank coal-water fuel as a replacement for oil fired boilers and utility generators. There is no assurance that we will be able to obtain any financing for this project.
CORPORATE ORGANIZATION
Silverado Gold Mines Ltd. was incorporated under the laws of British Columbia, Canada in June 1963. We operate in the United States through our wholly owned subsidiary, Silverado Green Fuel Inc. (formerly Silverado Gold Mines Inc.) (“Silverado Green Fuel”), an Alaskan company incorporated in 1981. We filed a transition application and notice of articles with the British Columbia Registrar of Companies on April 20, 2004 in order to replace our former memorandum adopted under the British Columbia Company Act and to alter our current articles to the extent necessary to ensure compliance with the British Columbia Business Corporations Act (the “BC Business Corporations Act”). The BC Business Corporations Act came into force in British Columbia on March 29, 2004 and replaced the former British Columbia Company Act. The transition notice and notice of articles was filed under the BC Business Corporations Act that requires any British Columbia company incorporated under the former British Columbia Company Act to, within two years following the coming into force of the BC Business Corporations Act, transition under the BC Business Corporations Act by filing with the British Columbia Registrar of Companies a transition application and notice of articles.
Our exploration activities are managed and conducted by affiliated companies, Tri-Con Mining Ltd. (“Tri-Con”), Tri-Con Mining Inc. and Tri-Con Mining Alaska Inc. pursuant to written operating agreements. Each of Tri-Con, Tri-Con Mining Inc. and Tri-Con Mining Alaska Inc. are privately owned corporations controlled by Garry L. Anselmo, who is our president, chief executive officer and chief financial officer and is the chairman of our board of directors. See Certain Relationships and Related Transactions.
MINERAL EXPLORATION BUSINESS
We hold interests in four groups of mineral properties in Alaska, as described below:
1. our Nolan Gold Project;
2. our Ester Dome Gold properties;
3. our Hammond properties; and
4. our Eagle Creek properties.
We are an exploration stage company. All of our properties are presently in the exploration stage. We do not have any commercially viable reserves on any of our properties. There is no assurance that a commercially viable mineral deposit exists on any of our mineral properties. Further exploration will be required before a final evaluation as to the economic and legal feasibility of mining of any of our properties is determined. There is no assurance that further exploration will result in a final evaluation that a commercially viable mineral deposit exists on any of our mineral properties.
Our plan of operations for each of our groups of mineral properties is discussed below:
1. NOLAN GOLD property
a. The Nolan Test Mining - Swede Channel and Mary's East
During the period covered by this report, mining concentrated on washing and processing the Swede Channel and Mary's East 2006 stockpiles, which consisted of 18,320 loose cubic yards (LCY) of gold-bearing gravels. A total of 2,811.74 ounces of nugget gold ¼" and larger were recovered during the sluicing operations this summer. These large nuggets were systematically removed from the upper portions of the wash plant gold-recovery system throughout the past three months. The nugget gold recovered this year ranges from 1/10th of an ounce to 18.32 ounces.
In addition, 207.23 pounds of concentrate that contains gold particles smaller than ¼" in size were separated and delivered for refining in October 2007 yielding 915.06 troy ounces of gold and 65.12 troy ounces of silver, for a combined season total of 3,726.8 troy ounces of gold. The 2007 expected gold recoveries will be nearly four times that of 2006. Management is hopeful that gold recovery may exceed annual costs associated with extraction and processing, especially since this year's costs are relatively lower that those of 2006 in which upfront investment was required before extraction and processing could occur.
Exploration costs comprising exploration, test mining extraction and processing activities are recorded as incurred in an exploration stage company; thus may fluctuate widely due to activity levels of the period and gold recoveries posted.
Exploration costs are not only reduced by gold proceeds from the sale of gold inventory, but also by the value of the gold inventory held by the Company. The net increase in the inventory balance at August 31, 2007 was also deducted from exploration costs of the company, resulting in negative exploration costs for the quarter. Any future spot rate increases or decreases from the August 31, 2007 level of $672 will be deducted from or added to the exploration costs, respectively, in the future period in which inventory is re-valued or the gold is sold.
b. Nolan Lode and Placer Exploration
During June, July and August, lode exploration focused on soil sampling, ground geophysical surveying, trenching and drilling on its Nolan property.
Silverado undertook backhoe trenching on its Nolan Creek property, resulting in the excavation of seven trenches totaling 1,420 feet to further investigate the gold-antimony-bearing quartz vein systems in Zone 1, Zone 2 and Zone 3 of the southern portion of the five-mile long Solomon's Shear zone. A total of 168 combined select chip and continuous chip rock samples were collected during the trenching program and submitted to ALS Chemex in Fairbanks for analysis. Of the 136 samples analyzed to date, 16 are still being quantitatively assayed for total antimony. Gold values analyzed thus far reach as high as 5.22 ounces gold per ton and antimony values reach as high as 48.07% .
The company also conducted reconnaissance work in other areas on its Nolan Creek property.
A total of 989 soil samples were collected during the 2007 ground geochemical survey and have been sent to ALS Chemex in Fairbanks for analysis. The 417 samples analyzed to date show a distinct arsenic and antimony anomalous trend on the eastern part of the Solomon Shear trend. Arsenic anomalies are strong indicators of the presence of gold, and these arsenic and co-incident geophysical anomalies, in part, exist uphill from the areas where Silverado in past years has recovered its largest gold nuggets, the largest over 41 troy ounces alone.
Along with the soil sampling campaign, Silverado conducted an extensive very low frequency electromagnetic (VLF-EM) ground geophysical survey to identify structures such as shear zones, faults, and veins that occur within the bedrock.
Exploration drilling started in mid August using the company's recently purchased diamond drill rig. By the end of the third quarter of the fiscal year, a total of 680 feet had been drilled. The drilling program focuses on an area North of Smith Creek, where company backhoe trenching previously identified three zones that contain gold-antimony bearing quartz vein systems.
The Company plans to continue with exploration at the Nolan Lode and Placer properties within the Nolan Gold Project. The objective of this geological exploration program is to further define both lode and placer gold occurrences in order to provide a basis for future exploration activities, test-mining and eventually continuous mining activities at the Nolan Gold Project. Silverado's lode exploration work is intended to increase Silverado's geological knowledge on the Solomon Shear Trend and other lode gold occurrences on the properties.
Silverado plans to spend approximately $800,000 during the next three months on its exploration activities connected with the Nolan Gold Project. It is anticipated approximately $300,000 will be spent on test mining activities and bulk sampling, and $500,000 will be spent on exploration activities, including a placer and diamond core drilling exploration program for exploration for lode gold and antimony occurrences.
2. Ester Dome Property
The properties comprising our Ester Dome gold project are discussed in detail under the heading Description of Properties in this annual report. We are presently not undertaking any exploration activities on the Ester Dome Gold Project. However, we have commissioned a technical report that will include the Ester Dome Gold Project in order to update and consolidate our technical information on the Ester Dome Gold Project. That report was completed in December of 2005.
We plan to convert the Grant mine mill located on the Ester Dome properties into a research and development facility for the low-rank coal-water fuel business, as discussed below. We also plan to continue reclamation work on our Ester Dome holdings during 2006. We plan to use our heavy equipment presently located at the Nolan Gold Project to do this work during August 2006.
3. Hammond Property
The properties comprising our Hammond property are discussed in detail under the heading Description of Properties in this annual report. We are presently not undertaking any exploration activities on the Hammond property. This property is also referred to as the “Slisco Bench” property.
4. Eagle Creek Property
The properties comprising our Eagle Creek property are discussed in detail under the heading Description of Properties in this annual report. We are presently not undertaking any exploration activities on the Eagle Creek property.
LOW-RANK COAL-WATER FUEL BUSINESS
We commenced development of a low-rank coal-water fuel business in 2000. Our determination to enter into this business was based on a decision to broaden our business beyond mineral exploration and production. This aspect of our business is still in the start-up phase of operations and no revenues have been achieved to date. We do not anticipate that revenues from this technology will be achieved until commercialization of the technology has been established.
We entered the fuel sector in 2000 by forming a new “Fuel Technology” division which operates out of Fairbanks, Alaska. This division of the business is operated by our wholly owned subsidiary, Silverado Green Fuel Inc. (formerly Silverado Gold Mines Inc.), under the supervision of Dr. Warrack Willson, Vice-President of Fuel Technology. The fuel product is called low-rank coal-water fuel (LRCWF), which is a low-cost, non-toxic, non-hazardous alternative to oil fuels used in commercial boilers for the production of electricity and industrial heat. As a liquid fuel enjoys all the benefits of liquid handling and storage, LRCWF allows coal to be used sight unseen and is made from America’s most abundant fossil energy resource. This fuel is produced from ground low-rank coal that has been hydrothermally treated. Hydrothermal treatment (HT) is an advanced technology, featuring moderate temperature/pressure, non-evaporative drying, which irreversibly removes much of the inherent moisture from low-rank coal and allows the formulation of commercially viable LRCWFs. HT is similar in many respects to pressure cooking, and it retains all of the desirable combustion characteristics of low-rank coal. When LRCWF is injected into a boiler, the particles ignite and burn rapidly, which leads to little or no boiler derating when substituted for oil. We believe that demand for the LRCWF and its production and utilization technology exists because of the high cost of oil and the desire for economical alternatives to oil that are environmentally friendly.
Our objective is to establish the commercial viability of the low-rank coal-water fuel technology by adapting our Grant Mill located on the Ester Dome property into a commercial-scale demonstration facility for producing and testing LRCWF. The estimated cost of a three-year demonstration project is $20,000,000. In 2002, we applied to the United States Department of Energy (DOE) under the first solicitation of their Clean Coal Power Initiative on July 30, 2002 for a 50:50 cost share funding with objective of achieving the financing necessary to proceed with the demonstration project. Our application was not selected. Based on news from the Department of Energy (DOE), we determined in 2004 not to submit a proposal to the DOE’s second solicitation under the Clean Coal Initiative in September 2004, as the DOE imposed a narrower focus for the second round of solicitations, namely “technology advancements for gasification-based electricity production, advanced mercury control, and sequestration and sequestration-readiness.” We are continuing work to gain alternate funding through the US Government and through private sources for this project. There is no assurance that we will obtaining any funding.
From time to time as conditions or funds warrant, we may re-evaluate our development programs in response to changing economic or environmental conditions. Such a re-evaluation may result in us not pursuing the commercialization of the low-rank coal-water fuel technology or the construction of a demonstration facility.
GOVERNMENT REGULATION
Our Nolan Gold Project is comprised of non-patented federal mining claims located on federal land managed by the U.S. Bureau of Land Management. Our exploration activities on the Nolan Gold Project must be carried out in accordance with a permit issued by the Bureau of Land Management. Current exploration activities, including test mining activities, on the Nolan Gold Project are currently being carried out under a permit approved by the Bureau of Land Management under a 2002 to 2006 plan of operations submitted by us to the Bureau of Land Management. Permit applications are submitted under a tri-agency application, and are reviewed by agencies of the State of Alaska government, including the Department of Natural Resources, the Department of Environmental Conservation, and Fish and Game. We post a reclamation bond annually in an amount required by the State of Alaska for each acre of proposed disturbance exceeding reclaimed acreage in a permit period. Presently, we have posted the appropriate bonding, and as a matter of company policy, endeavour to reclaim disturbed areas to equal or exceed any new disturbance. Our current reclamation bond is approximately $20,294 , of which $6,412 is refundable.
In addition to the federal permit, we also hold U.S. Environmental Protection Agency water discharge permits for wastewater discharges, which must be monitored and kept in compliance with EPA permit conditions for turbidity, suspended solids, and heavy metals. We submit Discharge Monitoring reports annually to the EPA. Nolan Creek is one of two waterways in the State of Alaska classified as primary industrial usage. Classification of a waterway for industrial usage does not relieve us from the obligations of the Clean Water Act but serve to place industry ahead of other potential uses for the Nolan Creek area.
We maintain a closed-circuit zero-discharge operation at our Nolan operations.
The U.S. Army Corps of Engineers also reviews permit applications for wetland determinations. The Nolan Deep Channel Project is not located in wetlands, although we report annually to the ACOE on activities.
Our exploration activities are regulated by Mine Safety Health Administration (MSHA). MSHA inspectors periodically visit our project to monitor health and safety for the workers, and to inspect equipment and installations for code requirements. All of our workers have completed MSHA safety training and must take refresher courses annually when working on our project. A safety officer for the project is also on site.
Other regulatory requirements monitor the following:
a. Explosives and explosives handling.
b. Use and occupancy of site structures.
c. Hazardous materials and waste disposal.
d. State Historic site preservation.
e. Archaeological and paleontological finds.
f. Transportation and storage of hazardous materials.
COMPETITION
We are a mineral resource exploration company. We compete with other mineral resource exploration companies for financing and for the acquisition of new mineral properties. Many of the mineral resource exploration companies with whom we compete have greater financial and technical resources than those available to us. Accordingly, these competitors may be able to spend greater amounts on acquisitions of mineral properties of merit, on exploration of their mineral properties and on development of their mineral properties. In addition, they may be able to afford more geological expertise in the targeting and exploration of mineral properties. This competition could result in competitors having mineral properties of greater quality and interest to prospective investors who may finance additional exploration. This competition could adversely impact on our ability to finance further exploration and to achieve the financing necessary for us to develop our mineral properties.
EMPLOYEES
We do not have any employees. Our operating and administrative activities are carried out through our agreement with the Tri-Con Mining Group. This relationship is explained in detail under the section of this annual report entitled Certain Relationships and Related Transactions.
RESEARCH AND DEVELOPMENT EXPENDITURES
We have spent the following amounts on research and development activities during the past two fiscal years:
December 1, 2003 December 1, 2004 to November 30, 2004 to November 30, 2005 Research and Development Expenditures: $79,967 $120,293 Research and development activities were primarily attributable to the pursuit of the development of our Low-Rank Coal-Water Fuel business. During 2004 and 2005, the majority of the research and development costs attributable to the low-rank coal-water fuel technology related to further technical work on the fuel creation temperature and the preparation of a United States grant application.
RISK FACTORS
We face risks in completing our exploration plans and achieving revenues. The following risks are material risks that we face. We also face the risks identified elsewhere in this Annual Report, including those risks identified under Item 1 - Description of Business and Item 6 - Management Discussion and Analysis or Plan of Operation. If any of these risks occur, our business, our ability to achieve revenues, our ability to produce gold, our operating results and our financial condition could be seriously harmed.
If we do not obtain new financings, the amount of funds available to us to pursue exploration activities at the Nolan Gold Project and to pursue further exploration of our mineral properties will be reduced.
We have relied on recent private placement financings in order to fund exploration of the Nolan Gold Project. We will continue to require additional financing to complete our plan of operations for exploration work at the Nolan Gold Project and to carry out our exploration programs on our other mineral properties. While our financing requirements may be reduced if gold recoveries are achieved, any impairment in our ability to raise additional funds through financings would reduce the available funds for the exploration of the Nolan Gold Project, including additional test mining activities, with the result that our plan of operations may be adversely affected and potential recoveries reduced or delayed.
As we have a working capital deficit and we have not reported revenues in our last three fiscal years there is no assurance that we will be able to achieve the financing necessary to enable us to proceed with our exploration activities, including test mining activities.
We had a working capital deficiency of $855,147 as of November 30, 2005. We did not report revenues in our last three fiscal years ended November 30, 2005, 2004 or 2003. Our plan of operations calls for expenditures of a minimum of $759,000 to be incurred by us over the next six months in order to continue our Swede Channel underground test mining activities at the Nolan Gold Project. While we will apply proceeds from gold sales generated from our test mining activities to cover our exploration expenditures, we anticipate that proceeds from gold sales over the next twelve months will not exceed our projected expenditures during this period with the result that we will require substantial financing in order for us to pursue our plan of operations. If we do not achieve the necessary financing, then we will not be able to proceed with our planned exploration activities, including our planned test mining activities, and our financial condition, business prospects and results of operations will be materially adversely affected.
As we have not established that there are any commercially viable mineral deposits on our Nolan property and we have not established commercially viable operations on the Nolan Gold Project, there is no assurance that any amounts we recover from test mining activities on the Nolan Gold Project will exceed the costs of recovering this gold.
Our activities at the Nolan Gold Project are in the exploration stage. While we have undertaken test mining activities at the Nolan Gold Project as part of our exploration programs, we have not yet established a commercially viable operation on our Nolan Gold Project. Further, we have historically attempted to mine the placer gold deposits at the Nolan Gold Project without obtaining sufficient drilling and sampling information to meet data density standards commonly used by commercial-sized placer mining companies. We may continue with test mining activities at the Nolan Gold Project without establishing that the placer deposits contain commercially viable mineral deposits. As we may proceed with these activities without first establishing that the placer deposits contain commercially viable mineral deposits, there is no assurance that we will recover quantities of gold that will enable us to achieve sales of gold that will exceed our costs of recovering the gold. In this event, our costs of exploration will exceed any amount recovered from test mining activities that we carry out as part of our exploration program on the Nolan Gold Project.
If we are unable to achieve projected gold recoveries from our test mining activities at the Nolan Gold Project, then our financial condition will be adversely affected and we will have less cash with which to pursue our operations.
We plan to undertake test mining activities as part of our exploration program for the Nolan Gold Project. Our objective is to recover gold from test mining activities to off-set the exploration cost of our test mining activities. As we have not established any reserves on this property, there is no assurance that actual recoveries of gold from material mined during test mining activities will equal or exceed our exploration costs. If gold recoveries are less than projected, then our gold sales will be less than anticipated and may not equal or exceed the cost of exploration and recovery in which case our operating results and financial condition will be adversely affected.
If the price of gold declines, our financial condition and ability to obtain future financings will be impaired.
Our business is extremely dependent on the price of gold. Our recoveries from sales of gold for the current fiscal year are dependent on the price of gold in addition to the quantity of gold that we are able to recover. If gold prices decline prior to the recovery and sale of gold from the Nolan Gold Project, then our recoveries from sales of gold and financial condition will be adversely impacted. We have not undertaken any hedging transactions in order to protect us from a decline in the price of gold. A decline in the price of gold may also decrease our ability to obtain future financings to fund our planned exploration programs activities.
The price of gold is affected by numerous factors, all of which are beyond our control. Factors that tend to cause the price of gold to decrease include the following:
(a) Sales or leasing of gold by governments and central banks;
(b) A low rate of inflation and a strong US dollar;
(c) Speculative trading;
(d) Decreased demand for gold’s industrial, jewellery and investment uses;
(e) High supply of gold from production, disinvestment, scrap and hedging;
(f) Sales by gold producers and foreign transactions and other hedging transactions;
(g) Devaluing local currencies (relative to gold price in US dollars) leading to lower production costs and higher production in certain major gold producing regions.
If costs of gold recovery at our Nolan Gold Project are higher than anticipated, then our financial condition and ability to pursue additional exploration will be adversely affected.
We have proceeded with test mining activities on the Nolan Gold Project on the basis of estimated capital and operating costs. If capital and operating costs are greater than anticipated, then cash used in test mining activities at the Nolan Gold Project will be greater than anticipated. Increased cash used in test mining activities will cause us to have less funds for other expenses, such as administrative and overhead expenses and exploration of our other mineral properties and further test mining activities on the Nolan Gold Project. In this event, our financial condition will be adversely affected and will have less funds with which to pursue our exploration programs.
If our exploration costs are higher than anticipated, then our financial condition and ability to pursue additional exploration will be adversely affected.
We are currently proceeding with exploration of our mineral properties on the basis of estimated exploration costs. This exploration program includes drilling programs at various locations within the Nolan Gold Project. If our exploration costs are greater than anticipated, then we will have less funds for our exploration activities, including test mining activities, that we plan to carry out at our Nolan Gold Project, and for our general and administrative expenses. In this event, our financial condition will be adversely affected, our losses will increase and we will have less funds with which to pursue our exploration programs. Factors that could cause exploration costs to increase include adverse weather conditions, difficult terrain and shortages of qualified personnel.
Exploration activities, including test mining and operating activities, are inherently hazardous.
Mineral exploration activities, including test mining activities, involve many risks that even a combination of experience, knowledge and careful evaluation may not be able to overcome. Operations that we undertake will be subject to all the hazards and risks normally incidental to exploration, test mining and recovery of gold and other metals, any of which could result in work stoppages, damage to property and possible environmental damage. The nature of these risks are such that liabilities might result in us being forced to incur significant costs that could have a material adverse effect on our financial condition and business prospects.
There is no assurance that any of our mineral resources will ever be classified as reserves under the disclosure standards of the Securities and Exchange Commission.
This annual report discusses our mineral resources in accordance with Canadian National Instrument 43-101, as discussed under the section of this annual report entitled “Description of Properties”. Resources are classified as “measured resources”, indicated resources” and “inferred resources” under NI 43-101. However, U.S. investors are cautioned that the United States Securities and Exchange Commission does not recognized these resource classifications. There is no assurance that any of our mineral resources will be converted into reserves under the disclosure standards of the United States Securities and Exchange Commission. Further, “‘inferred 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 an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. Investors are cautioned not to assume that part or all of an “inferred resource” exists, or is economically or legally mineable.
If we experience exploration accidents or other adverse events at our Nolan Gold Project, then our financial condition and profitability could be adversely affected.
Our exploration activities, including test mining activities, at the Nolan Gold Project are subject to adverse operating conditions. Exploration accidents or other adverse incidents, such as cave-ins or flooding, could affect our ability to continue test mining activities at the Nolan Gold Project. A particular concern at the Nolan Gold Project is warm temperatures that can reduce the winter season during which we can safely conduct underground test mining activities. The occurrence of any of these events could cause a delay in production of gold or could reduce the amount of gold that we are able to recover, with the result that our ability to achieve recoveries from gold sales and to sustain operations would be adversely impacted. Adverse operating conditions may also cause our operating costs to increase. Exploration accidents or other adverse events could also result in an adverse environmental impact to the land on which our operations are located with the result that we may become subject to the liabilities for environmental clean up and remediation.
If we become subject to increased environmental laws and regulation, our operating expenses may increase.
Our exploration activities, including test mining activities, are regulated by both US Federal and State of Alaska environmental laws that relate to the protection of air and water quality, hazardous waste management and mine reclamation. These regulations may impose operating costs on us. If the regulatory environment for our operations changes in a manner that increases costs of compliance and reclamation, then our operating expenses would increase with the result that our financial condition and operating results would be adversely affected.
As we have not reported revenues in recent fiscal periods, there is no assurance that we will be able to continue as a going concern.
Our financial statements included with this Annual Report for the year ended November 30, 2005 have been prepared assuming that we will continue as a going concern. Our auditors have made reference to the substantial doubt as to our ability to continue as a going concern in their audit report on our audited financial statements for the year ended November 30, 2005. If we are not able to achieve revenues, then we may not be able to continue as a going concern and our financial condition and business prospects will be adversely affected.
Because of the speculative nature of exploration of mineral properties, there is no assurance that our exploration activities will result in the discovery of new commercially exploitable quantities of minerals or that we will be able to establish proven and probable reserves as a result of our exploration.
We plan to continue exploration on our mineral properties. The search for valuable minerals as a business is extremely risky. We can provide investors with no assurance that additional exploration on our properties will establish that additional commercially exploitable reserves of gold exist on our properties. Problems such as unusual or unexpected geological formations or other variable conditions are involved in exploration and often result in exploration efforts being unsuccessful. The additional potential problems include, but are not limited to, unanticipated problems relating to exploration and attendant additional costs and expenses that may exceed current estimates. These risks may result in us being unable to establish the presence of commercial exploitable quantities of ore on our mineral claims with the result that our ability to fund future exploration activities may be impeded.
As we face intense competition in the exploration industry, we will have to compete with our competitors for financing and for qualified managerial and technical employees.
The exploration industry is intensely competitive in all of its phases. Competition includes large established exploration companies with substantial capabilities and with greater financial and technical resources than we have. As a result of this competition, we may be unable to acquire additional attractive mining claims or financing on terms we consider acceptable. We also compete with other exploration companies in the recruitment and retention of qualified managerial and technical employees. If we are unable to successfully compete for financing or for qualified employees, our exploration programs may be slowed down or suspended.
Our business venture into the low rank coal water fuel business is subject to a high risk of failure.
Our business venture into the low rank coal water fuel technology business is at a very early stage and is subject to a high risk of failure. The low rank coal water fuel technology has not been proven by us to be a commercially viable fuel alternative. In order to establish commercial viability, we will have to undertake the construction and operation of the contemplated demonstration facility. The construction and three year operation of the demonstration facility would cost approximately $20 million. Even if the demonstration facility were constructed and operational, there is no assurance that the commercial viability of this process would be established or that we would be able to expand the facility into a commercially viable operation or to generate revenues from this technology. We are pursuing funding from the United States federal and state governments and from private sources to fund the construction of the demonstration facility. There is no assurance that we will succeed in obtaining government or private funding for this project. Even if funding is obtained and the demonstration facility constructed, there is no assurance that we would be able to generate profits or revenues from the operation of the demonstration facility.
