S-1 1 rmes20130814_s1.htm FORM S-1 rmes20130814_s1.htm

Table Of Contents

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 15, 2013

 

REGISTRATION NO. 333-[___________]

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

Red Metal Resources Ltd.

(Exact name of registrant as specified in its charter)

 

Nevada

 

1000

 

20-2138504

(State or jurisdiction of

 

(Primary Standard Industrial

 

(I.R.S. Employer

incorporation or

organization)

 

Classification Code Number)

 

Identification No.)

 

195 Park Avenue

Thunder Bay

Ontario, Canada P7B 1B9

 

 (Address and telephone number of principal executive offices)

 

Caitlin Jeffs

Chief Executive Officer

195 Park Avenue

Thunder Bay

Ontario, Canada P7B 1B9

(807) 345-7384

 

(Name, address and telephone number of agent for service)

 

Copies to:

 

Mary Ann Sapone, Esq.

Richardson & Patel, LLP

1100 Glendon Avenue, 8th Floor

Los Angeles, California 90024

(707) 937-2059

(310) 208-1154 (fax)

 

Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☐

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. 

  

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. 

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 Large accelerated filer

 Accelerated filer

 Non-accelerated filer

 Smaller reporting company

 

CALCULATION OF REGISTRATION FEE

 

Title of Securities to be registered 

 

Amount to be registered(1) 

Proposed maximum offering price per share(2) 

Proposed maximum aggregate offering price(2) 

 

Amount of registration fee 

         

Common Stock

15,000,000

$0.05

$750,000

$102.30

(1) This Registration Statement shall also cover any additional shares of common stock which become issuable by reason of any stock dividend, stock split, recapitalization or other similar transaction effected without the registrant’s receipt of consideration which results in an increase in the number of the outstanding shares of registrant’s common stock.

(2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933.

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

  

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION, DATED AUGUST 15, 2013

 

RED METAL RESOURCES LTD.

 

We are offering 15,000,000 shares of our common stock, par value $0.001 per share, to holders of our promissory notes and invoices for services provided to us. These individuals have agreed to accept shares of our common stock in payment of this indebtedness. The indebtedness will be paid at the rate of $0.05 per share.

 

Our common stock is traded on the OTC QB under the ticker symbol “RMES”.  The last reported sales price was $0.04 on August 14, 2013.

 

Investment in the Common Stock involves a high degree of risk.  You should consider carefully the risk factors beginning on page 4 of this prospectus before purchasing any of the shares offered by this prospectus.

 

We may amend or supplement this prospectus from time to time by filing amendments or supplements as required.  You should read the entire prospectus and any amendments or supplements carefully before you make your investment decision.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete.  Any representation to the contrary is a criminal offense.

 

The date of this prospectus is _________, 2013

 

 

 RED METAL RESOURCES LTD.

TABLE OF CONTENTS

 

 

Prospectus Summary

1

Risk Factors

4

Forward-Looking Statements

10

Use of Proceeds

10

Capitalization

11

Plan of Distribution

12

Description of Securities to be Registered

12

Interests of Named Experts and Counsel

13

Description of Business

13

Description of Property

36

Legal Proceedings

36

Management’s Discussion and Analysis of Financial Condition and Results of Operations

36

Market for Registrant’s Common Equity and Related Stockholder Matters

48

Directors, Executive Officers, Promoters and Control Persons

48

Executive Compensation

50

Security Ownership of Certain Beneficial Owners and Management

51

Certain Relationships and Related Transactions, and Corporate Governance

52

Additional Information

55

Disclosure of Commission Position on Indemnification for Securities act Liabilities 

55

Financial Statements And Supplementary Data

57

 

 

 

ABOUT THIS PROSPECTUS

 

You should rely only on the information contained in this prospectus.  We have not authorized anyone to provide you with information different from that contained in this prospectus.  We are offering our securities only in jurisdictions where offers and sales are permitted.  The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.  The prospectus will be updated and updated prospectuses made available for delivery to the extent required by the federal securities laws.

 

No person is authorized in connection with this prospectus to give any information or to make any representations about us, the securities or any matter discussed in this prospectus, other than the information and representations contained in this prospectus.  If any other information or representation is given or made, such information or representation may not be relied upon as having been authorized by us.  This prospectus does not constitute an offer to sell or a solicitation of an offer to buy the securities in any circumstances under which the offer or solicitation is unlawful.  Neither the delivery of this prospectus nor any distribution of securities in accordance with this prospectus shall, under any circumstances, imply that there has been no change in our affairs since the date of this prospectus.  The prospectus will be updated and updated prospectuses made available for delivery to the extent required by the federal securities laws.

 

 

PROSPECTUS SUMMARY

 

This summary highlights information contained elsewhere in this prospectus.  You should read the entire prospectus carefully, including the section entitled “Risk Factors” before deciding to invest in our Common Stock.

 

About Us

 

We are a start-up exploration stage company without operations.  We are in the business of acquiring and exploring mineral claims.  All of our claims are located in the III Region of Atacama, Chile.  We have not determined whether our claims contain mineral reserves that are economically recoverable.  We have not produced revenues from our principal business and are considered an exploration stage company as defined by “Accounting and Reporting by Development Stage Enterprises.”

 

Our ability to realize a return on our investment in mineral claims depends upon whether we maintain the legal ownership of the claims.  Title to mineral claims involves risks inherent in the process of determining the validity of claims and the ambiguous transfer history characteristic of many mineral claims.  Some of our pedimentos may have been staked over other owners’ claims as permitted by the Chilean mining code, which means that our rights in these claims will not crystallize unless the owners of the underlying claims fail to pay their taxes or otherwise forfeit their interests in their claims.  To the best of our knowledge, and after consultation with an attorney knowledgeable in the practice of mining, we believe that we have taken the steps necessary to ensure that we have good title to our mineral claims.  We have had our contracts and deeds notarized, recorded in the registry of mines and published in the mining bulletin and we review the mining bulletin regularly to determine whether other parties have staked claims over our ground.  We have discovered no such claims.

 

Chile’s mining and land tenure policies were established to secure the property rights of both domestic and foreign investors to stimulate development of mining in Chile.  The government of Chile owns all mineral resources, but exploration and exploitation of these resources are permitted through exploration and mining concessions.  A mineral concession must pass through three stages to become a permanent mining concession, namely, pedimento, manifestacion and mensura.

 

A pedimento is an initial exploration claim. It can be placed on any area, whereas the survey to establish a permanent mensura claim can only be completed on free areas where no other mensuras exist.  A pedimento is valid for a maximum of two years.  At the end of this period it may either be reduced in size by at least 50% and renewed for an additional two years or entered into the manifestacion process to establish a permanent mensura claim.  New pedimentos can overlap existing pedimentos, but the pedimento with the earliest filing date takes precedence providing the claim holder maintains the pedimento in accordance with the mining code and the applicable regulations.

 

Manifestacion is the process by which a pedimento is converted to a permanent mining claim.  At any stage during its two-year life, the holder of a pedimento can submit a manifestacion application, which is valid for 220 days.  To begin the manifestacion process, the owner must request a survey (mensura) within 220 days.  After the survey request is accepted, the owner has approximately 12 months to have the claim surveyed by a government-licensed surveyor, inspected and approved by the national mining service, and affirmed as a mensura (equivalent to a patented claim) by a judge.  Thereafter, an abstract describing the claim is published in Chile’s official mining bulletin (published weekly) and 30 days later the claim is inscribed in the appropriate mining registry.

 

A mensura is a permanent property right that does not expire so long as the annual taxes (patentes) are paid in a timely manner.  Failure to pay the patentes for an extended period can result in the claim being listed for sale at auction, where a third party can acquire a claim for the payment of the back taxes owed and a penalty.

 

In Chile, we have both pedimento and mensura claims.  We cannot guarantee that any of our pedimento claims will convert to mensura claims.  Some of our pedimentos are still in the registration process and some are in the manifestacion stage.  We may decide, for geologic, economic or other reasons, not to complete a registration or manifestacion or to abandon a claim after it is registered.  Some of our pedimentos may have been staked over other owners’ claims as permitted by the Chilean mining code.  Our pedimento rights in these claims will not crystallize unless the owners of the underlying claims fail to pay their taxes or otherwise forfeit their interests in their claims.  Our purpose in over-staking is to claim free ground around others’ claims and to have the first right to forfeited claims if we want them.  Over-staking is easier and less costly than staking available ground around claims and ensures that all available ground is covered that might otherwise be missed.

 

 

We have a close working relationship with Minera Farellon Limitada, a Chilean company owned equally by Kevin Mitchell, Polymet’s legal representative in Chile, and Richard Jeffs, the father of our president who holds more than 5% of our shares of common stock.  Minera Farellon investigates potential claims and often ties them up by staking new claims, optioning existing claims, or buying others’ claims, all at its cost.  This gives us an opportunity to review the claims to decide whether they are of interest to us.  If we are interested, then we either proceed to acquire an interest in the property directly from the owner, or, if Minera Farellon has already obtained an interest, we take an option to acquire its interest.  Minera Farellon, which is located in the city of Vallenar, also provides all of our logistical support in Vallenar under month-to-month contracts, which enables us to limit our operating expenses to those needed from time to time.

 

Corporate History

 

Red Metal Resources Ltd. was incorporated in Nevada on January 10, 2005 as Red Lake Exploration, Inc.  We changed our name to Red Metal Resources Ltd. on August 27, 2008.

 

On August 21, 2007, we formed Minera Polymet Limitada, a limited liability company, under the laws of the Republic of Chile.  We own 99% of Polymet, which holds our Chilean mineral property interests.  Under Chilean law, a resident of Chile must be a stockholder in a limitada.  To meet this requirement, 1% of Polymet is owned by a Chilean resident, an experienced manager who has organized an office and other resources for us to use and is Polymet’s legal representative in Chile. Polymet’s office is located in Vallenar, III Region of Atacama, Chile.

 

Our resident agent’s office is at 711 S. Carson Street, Suite 4, Carson City, Nevada, 89701.  Our business office is at 195 Park Avenue, Thunder Bay, Ontario, Canada, P7B 1B9.  Our telephone number is (807) 345-7384; our email address is admin@redmetalresources.com; and our web address is www.redmetalresources.com.  Information on our web site is not a part of this registration statement.

 

Our shares of common stock are traded on the OTC QB under the ticker symbol “RMES”.

 

As used in this prospectus and the registration statement of which it forms a part, the terms the “Company”, “we”, “us”, or “our” refer to Red Metal Resources Ltd. and its subsidiary, unless the context indicates otherwise.

 

Payment of Certain Debts with Shares of our Common Stock

 

As of August 12, 2013 we owed $750,000 to ten non-affiliated debt holders, who are sometimes collectively referred to in this prospectus as the “Debt Holders”. We intend to pay this debt with shares of our common stock at a rate of $0.05 per share. We are registering 15,000,000 shares of common stock for issuance to the Debt Holders. None of the Debt Holders is affiliated with us.

 

 

About This Offering

 

This prospectus covers 15,000,000 shares of common stock that we intend to issue to the Debt Holders. Each of the Debt Holders will receive, in full payment of the debt held by the Debt Holder, a number of shares of our common stock computed by dividing the amount of the debt owed to the Debt Holder by $0.05.

 

Common stock offered by us

15,000,000 shares of common stock.

 

 

Common stock outstanding prior to the offering

17,956,969 (1)

 

 

Common stock to be outstanding after the offering

32,956,969 (1)

 

 

Use of proceeds

The common stock we are offering will be used to repay a total of $750,000 in debt.

 

(1) The number of shares of our common stock to be outstanding both before and after this offering is based on the number of shares outstanding as of August 12, 2013 and excludes:

 

 

 

1,040,000 shares of our common stock issuable upon exercise of stock options under our 2011 Equity Incentive Plan at a weighted average exercise price of $0.50 per share;

 

 

 

7,187,000 shares of our common stock reserved for issuance under outstanding warrant agreements, at a weighted average exercise price of $0.12 per share; and

 

 

 

560,000 shares of our common stock reserved for future issuance under our 2011 Equity Incentive Plan.

 

 

RISK FACTORS

 

We are subject to various risks that may materially harm our business, prospects, financial condition and results of operations.  An investment in our common stock is speculative and involves a high degree of risk. In evaluating an investment in shares of our common stock, you should carefully consider the risks described below, together with the other information included in this prospectus.

 

The risks described below are not the only risks we face.  If any of the events described in the following risk factors actually occurs, or if additional risks and uncertainties that are not presently known to us or that we currently deem immaterial later materialize, then our business, prospects, results of operations and financial condition could be materially adversely affected.  In that event, the trading price of our common stock could decline, and you may lose all or part of your investment in our shares. The risks discussed below include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements.

 

Risks Related to Our Business

 

During the fiscal years ended January 31, 2013 and 2012, and continuing during the quarter ended April 30, 2013, we earned no significant revenue while our operating expenses totaled $1,108,226, $2,928,188 and $147,484, respectively.  If we do not find sources of financing as and when we need them, we may be required to cease our operations.

 

Mineral exploration and development are very expensive.  During the fiscal year that ended on January 31, 2013, we earned $7,804 in geological consulting revenue while our operating expenses totaled $1,108,226.  During the quarter that ended on April 30, 2013 and the fiscal year that ended on January 31, 2012, we earned no royalty revenue while our operating expenses totaled $147,484 and $2,928,188, respectively.  This resulted in a total accumulated loss of $7,256,375 since inception.  As of April 30, 2013 we had cash of $39,682.  Since inception, we have sold our securities and borrowed money to fund our operations.  Our ability to continue our operations, including exploring and developing our properties, will depend on our ability to generate operating revenue, obtain additional financing, or enter into joint venture agreements.  Until we earn enough revenue to support our operations, which may never happen, we will continue to be dependent on loans and sales of our equity or debt securities to continue our development and exploration activities.  If we do not find sources of financing as and when we need them, we may be required to severely curtail, or even to cease, our operations.

 

Our auditors have expressed substantial doubt about our ability to continue as a going concern; as a result we could have difficulty finding additional financing.

 

Our financial statements have been prepared assuming that we will continue as a going concern.   Except for approximately $23,500 of royalty and consulting income, we have not generated any revenue since inception and have accumulated losses.  As a result, our auditors have expressed substantial doubt about our ability to continue as a going concern.  Our ability to continue our operations depends on our ability to complete equity or debt financings as we need capital or generate profitable operations.  Such financings may not be available or may not be available on reasonable terms.  Our financial statements do not include any adjustments that could result from the outcome of this uncertainty.

 

Unfavorable economic conditions have had a material adverse effect on us since raising capital to continue our operations is more difficult.

 

The financial crisis which began in 2007 and continues today has had an adverse impact on our business and financial position, since we must rely on sales of our securities and loans to continue our operations.  We have found that there is less capital available to us and less appetite for risk by investors.  Furthermore, we have found that locating other mineral exploration companies with available funds who are willing to engage in risky ventures such as the exploration of our properties has become very difficult since the economic downturn.  If we are unable to raise additional capital, we may not be able to develop our properties or continue our operations.

 

  

Our business was formed in January 2005 and our operations, to date, have earned only minimal revenues.  Due to the high costs of acquiring and exploring claims, we may never be profitable.  We expect to continue to incur operating losses during the next 12 months.

 

We were incorporated on January 10, 2005, and to date have been involved primarily in organizational activities, acquiring and exploring mineral claims and obtaining financing.  We have earned minimal revenues and we are not profitable.  Whether we will be successful as a mining company must be considered in light of the costs, difficulties, complications and delays associated with our proposed exploration programs.  These potential problems include, but are not limited to, finding claims with mineral deposits that can be cost-effectively mined, the costs associated with acquiring the properties and the unavailability of human or equipment resources.  We have a short history and have had no more than minimal operations until April 25, 2008 when we acquired the mining claims known as Farellon Alto 1 – 8 in Chile.  We cannot assure you that we will ever generate significant revenue from our operations or realize a profit.  We expect to continue to incur operating losses during the next 12 months.

 

Our joint development and operating arrangements may not be successful.

 

We have in the past, and may in the future, enter into joint venture arrangements in order to share the risks and costs of developing and operating properties. In a typical joint venture arrangement, the partners own a proportionate share of the assets, are entitled to indemnification from each other and are only responsible for any future liabilities in proportion to their interests in the joint venture. If a party fails to perform its obligations under a joint venture agreement, we could incur liabilities and losses in excess of our pro-rata share of the joint venture.  We make investments in exploration and development projects that may have to be written off in the event we do not proceed to a commercially viable mining operation.

 

Our joint venture agreements may not always be successful.  For example, on March 14, 2011, our subsidiary, Minera Polymet, granted to Revonergy Inc. the right to earn a 50% joint venture interest in the Perth property.  However, Revonergy decided not to exercise that right and the agreement has been terminated.

 

In some instances members of the board of directors or an officer may be liable for losses incurred by holders of our common stock.  If a stockholder were to prevail in such an action in the U.S., it may be difficult for the stockholder to enforce the judgment against any of our directors or officers, who are not U.S. residents.

 

In certain instances, such as trading securities based on material non-public information, a director or officer may incur liability to stockholders for losses sustained by the stockholders as a result of the director’s or officer’s illegal or negligent activity.  However, all of our directors and officers live and maintain a substantial portion of their assets outside the U.S.  As a result it may be difficult or impossible to effect service of process within the U.S. upon these directors and officers or to enforce in the courts any judgment obtained here against them predicated upon any civil liability provisions of the U.S. federal securities laws.

 

Foreign courts may not entertain original actions predicated solely upon U.S. federal securities laws against these directors or officers and judgments predicated upon any civil liability provisions of the U.S. federal securities laws may not be directly enforceable in foreign countries.

 

As a result of the foregoing, it may be difficult or impossible for a stockholder to recover from any of these directors or officers if, in fact, the stockholder is damaged as a result of the negligent or illegal activity of an officer or director.

 

Mineral exploration is highly speculative and risky; we might not find mineral deposits that can be extracted cost effectively on our claims.

 

Exploration for mineral deposits is a speculative venture involving substantial risk.  Problems such as unusual and unexpected rock formations often result in unsuccessful exploration efforts.  We cannot assure you that our claims contain mineral deposits that can be extracted cost effectively.

 

 

Mineral exploration is hazardous.  We could incur liability or damages as we conduct our business due to the dangers inherent in mineral exploration.

 

The search for minerals is hazardous.  We could become liable for hazards such as pollution, cave-ins and other hazards against which we cannot insure or against which we may elect not to insure.  We have no insurance for these kinds of hazards, nor do we expect to get such insurance for the foreseeable future.  If we were to suffer from such a hazard, the costs of rectifying it could exceed our asset value and require that we liquidate our assets.

 

We have no known mineral reserves and if we cannot find any, we may have to cease operations.

 

It is unknown whether our properties contain viable mineral reserves.  If we do not find a viable mineral reserve, or if we cannot exploit the mineral reserve, either because we do not have the money to do it or because it will not be economically feasible to do it, we may have to cease operations and you may lose your investment.  Mineral exploration is a highly speculative endeavor.  It involves many risks and is often non-productive.  Even if mineral reserves are discovered on our properties, our production capabilities will be subject to further risks and uncertainties including:

 

 

(i)

Costs of bringing the property into production including exploration work, preparation of production feasibility studies, and construction of production facilities, all of which we have not budgeted for;

 

(ii)

Availability and costs of financing;

 

(iii)

Ongoing costs of production; and

 

(iv)

Environmental compliance regulations and restraints.

 

In the future we may be required to comply with government regulations affecting mineral exploration and exploitation, which could adversely affect our business, the results of our operations and our financial condition.

 

The mining business is subject to various levels of government control and regulation, which are supplemented and revised from time to time.  We cannot predict what legislation or revisions might be proposed that could affect our business or when any such proposals, if enacted, might become effective.  Our exploration activities are subject to laws and regulations governing worker safety, and, if we explore within the national park that is part of our Farellon property, protection of endangered and other special status species as well as protection of significant archeological remains, if there are any, will likely require compliance with additional laws and regulations.   The cost of complying with these regulations has not been burdensome to date, but if we mine our properties and process more than 5,000 tonnes of ore monthly, we will be required to submit an environmental impact study for review and approval by the federal environmental agency.  We anticipate that the cost of such a study will be significant.  If the study were to show too great an adverse impact on the environment, we might be unable to develop the property or we might have to engage in expensive remedial measures during or after developing the property, which could make production unprofitable.  This requirement could materially adversely affect our business, the results of our operations and our financial condition if we were to proceed to mine a property or process ore on the property.  We have no immediate or intermediate plans to process ore on any of our properties.

 

If we do not comply with applicable environmental and health and safety laws and regulations, we could be fined, enjoined from continuing our operations, and suffer other penalties.  Although we make every attempt to comply with these laws and regulations, we cannot assure you that we have fully complied or will always fully comply with them.

 

We might not be able to market any minerals that we find on our mineral claims due to market factors that are beyond our control.

 

Even if we discover minerals that can be extracted cost-effectively, we may not be able to find a ready market for our minerals.  Many factors beyond our control affect the marketability of minerals.  These factors include market fluctuations, the proximity and capacity of natural resource markets and processing equipment, government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting minerals and environmental protection.  We cannot accurately predict the effect of these factors, but any combination of these factors could result in an inadequate return on invested capital.

 

 

We are not certain that we can successfully compete in the mineral exploration business.  We do not represent a significant presence in this industry.

 

The mineral exploration business is an extremely competitive industry.  We are competing with many other exploration companies looking for minerals.  We are one of the smallest exploration companies and we do not represent a significant presence in the mineral exploration business.  Being a junior mineral exploration company, we compete with other similar companies for financing and joint venture partners, and for resources such as professional geologists, camp staff, helicopters and mineral exploration contractors and supplies.  We may not have the means to compete successfully for these resources.

 

We conduct operations in a foreign jurisdiction, and are subject to certain risks that may limit or disrupt our business operations.

 

Our head office is in Canada and our mining operations are in Chile.  Mining investments are subject to the risks normally associated with the conduct of any business in foreign countries including uncertain political and economic environments; wars, terrorism and civil disturbances; changes in laws or policies, including those relating to imports, exports, duties and currency; cancellation or renegotiation of contracts; royalty and tax increases or other claims by government entities, including retroactive claims; risk of expropriation and nationalization; delays in obtaining or the inability to obtain or maintain necessary governmental permits; currency fluctuations; restrictions on the ability of local operating companies to sell gold, copper or other minerals offshore for U.S. dollars, and on the ability of such companies to hold U.S. dollars or other foreign currencies in offshore bank accounts; import and export regulations, including restrictions on the export of gold, copper or other minerals; limitations on the repatriation of earnings; and increased financing costs.

 

These risks could limit or disrupt our exploration programs, cause us to lose our interests in our mineral claims, restrict the movement of funds, cause us to spend more than we expected, deprive us of contract rights or result in our operations being nationalized or expropriated without fair compensation, and could materially adversely affect our financial position or the results of our operations.  If a dispute arises from our activities in Chile, we could be subject to the exclusive jurisdiction of courts outside North America, which could adversely affect the outcome of the dispute.

 

While we take the steps we believe are necessary to maintain legal ownership of our claims, title to mineral claims may be invalidated for a number of reasons, including errors in the transfer history or our acquisition of a claim we believed, after appropriate due diligence investigation, to be valid, but in fact, wasn’t.  If ownership of our claims was ultimately determined to be invalid, our business and prospects would likely be materially and adversely affected.

 

Our ability to realize a return on our investment in mineral claims depends upon whether we maintain the legal ownership of the claims.  Title to mineral claims involves risks inherent in the process of determining the validity of claims and the ambiguous transfer history characteristic of many mineral claims.  We take a number of steps to protect the legal ownership of our claims, including having our contracts and deeds notarized, recording these documents with the registry of mines and publishing them in the mining bulletin.  We also review the mining bulletin regularly to determine whether other parties have staked claims over our ground.  However, none of these steps guarantees that another party could not challenge our right to a claim.  Any such challenge could be costly to defend and, if we lost our claim, our business and prospects would likely be materially and adversely affected.

 

We cannot guarantee that any of our pedimento claims will convert to mensura claims.

 

Some of our exploration claims (pedimentos) are still in the registration process.  We cannot guarantee that any of our pedimento claims will convert to mining claims (mensuras).  Some of our pedimentos may have been staked over other owners’ claims, as permitted by the Chilean mining code.  The pedimento with the earliest filing date takes precedence providing the claim holder maintains its claim in accordance with the mining code and the applicable regulations.  Our pedimento rights in these claims will not crystallize unless the owners of the underlying claims fail to pay their taxes or otherwise forfeit their interests in their claims.  We will exercise any right that we acquire through forfeiture only if the ground remains of interest to us.

 

 

We sometimes hold a significant portion of our cash in United States dollars, which could weaken our purchasing power in other currencies and limit our ability to conduct our exploration programs.

 

Currency fluctuations could affect the costs of our operations and affect our operating results and cash flows.  Gold and copper are sold throughout the world based principally on the U.S. dollar price, but most of our operating expenses are incurred in local currencies, such as the Canadian dollar and the Chilean peso.  The appreciation of other currencies against the U.S. dollar can increase the costs of our operations.

 

We sometimes hold a significant portion of our cash in U.S. dollars.  Currency exchange rate fluctuations can result in conversion gains and losses and diminish the value of our U.S. dollars.  If the U.S. dollar declined significantly against the Canadian dollar or the Chilean peso, our U.S.-dollar purchasing power in Canadian dollars and Chilean pesos would also significantly decline and that could make it more difficult to conduct our business operations.  We have not entered into derivative instruments to offset the impact of foreign exchange fluctuations.

 

Risks Related to Our Common Stock

 

We owe approximately $1.8 million to various individuals.  The common stock we are offering will pay a portion of this debt, but the issuance of these shares will result in a substantial dilution of the shares of common stock owned by our existing stockholders.

 

As of August 12, 2013, we owed approximately $1.8 million to various individuals for loans and for services rendered to us.  We do not have the cash resources to pay this debt, therefore we are making this offering to partially pay these individuals by issuing shares of our common stock to them.  Because the market value of our common stock is very low, we must issue a total of 15,000,000 shares of our common stock. This will result in a substantial dilution of the shares of common stock owned by our current stockholders.

 

The price of our common stock could decline as a result of the number of shares of common stock we are offering.

 

If the registration statement, of which this prospectus is a part, is declared effective by the Securities and Exchange Commission, the shares we are offering can be resold by the Debt Holders without restriction. The large number of shares we are offering could have the effect of driving down the price of our common stock in the market.

 

Because our directors are not independent they can make and control corporate decisions that may be disadvantageous to other common stockholders.

 

Our securities are not listed on a national securities exchange or quoted on an inter-dealer quotation system that requires that directors be independent.  Using the definition of “independent” in Rule 5605 of Nasdaq’s Rules, we have determined that none of our directors are independent. Our directors have a significant influence in determining the outcome of all corporate transactions or other matters, including mergers, consolidations, and the sale of all or substantially all of our assets.  They also have the power to prevent or cause a change in control. The interests of our directors may differ from the interests of the other stockholders and thus result in corporate decisions that are disadvantageous to other stockholders.

 

We do not expect to declare or pay dividends in the foreseeable future.

 

We have never paid cash dividends on our common stock and have no plans to do so in the foreseeable future. We intend to retain any earnings to develop, carry on, and expand our business.

 

 

“Penny stock” rules may make buying or selling our common stock difficult, and severely limit its marketability and liquidity.

 

Because our securities are considered a penny stock, stockholders will be more limited in their ability to sell their shares. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system. Because our securities constitute “penny stocks” within the meaning of the rules, the rules apply to us and to our securities. The rules may further affect the ability of owners of shares to sell our securities in any market that might develop for them. As long as the trading price of our common shares is less than $5.00 per share, the common shares will be subject to Rule 15g-9 under the Exchange Act. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that:

 

 

contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;

 

 

contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of securities laws;

 

 

contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price;

 

 

contains a toll-free telephone number for inquiries on disciplinary actions;

 

 

defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and

 

 

contains such other information and is in such form, including language, type, size and format, as the SEC shall require by rule or regulation.

 

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such shares; and (d) a monthly account statement showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our shares.

 

 

FORWARD-LOOKING STATEMENTS

 

Statements in this prospectus may be “forward-looking statements.” Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described below and those risks discussed from time to time in this prospectus, including the risks described under “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus and in other documents which we file with the Securities and Exchange Commission.  Other factors that might cause such a difference include, but are not limited to:

 

 

general economic conditions, because they may affect our ability to raise money

 

our ability to raise enough money to continue our operations

 

changes in regulatory requirements that adversely affect our business

 

changes in the prices for minerals that adversely affect our business

 

political changes in Chile, which could affect our interests there

 

other uncertainties, all of which are difficult to predict and many of which are beyond our control

 

Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this prospectus, except as may be required under applicable securities laws.

 

USE OF PROCEEDS

 

We will not receive any cash proceeds as a result of this offering. We will use the common stock we are offering to pay a total of $750,000 to the ten Debt Holders. The unpaid principal amount and any accrued interest will be paid at the rate of $0.05 per share.

 

DETERMINATION OF OFFERING PRICE

 

The price of the shares offered by this prospectus has been determined by negotiation between us and the Debt Holders. Among the factors considered in determining the offering price of the shares were:

 

 

 

our history and our prospects;

 

 

 

the industry in which we operate;

 

 

 

our past and present operating results;

 

 

 

the previous experience of our executive officers; and

 

 

 

the general condition of the securities markets at the time of this offering.

 

The offering price stated on the cover page of this prospectus should not be considered an indication of the actual value of the shares. That price is subject to change as a result of market conditions and other factors, and we cannot guarantee that the shares can be resold at or above the public offering price.

 

DILUTION

 

Our net tangible book value as of April 30, 2013 was approximately $(1,337,106), or $(0.07) per share of our common stock. Our net tangible book value per share represents our total tangible assets less total liabilities divided by the number of shares of our common stock outstanding on April 30, 2013. Assuming that we issue all of the shares of our common stock offered by us at the offering price of $0.05 per share, our net tangible book value as of April 30, 2013 would have been approximately $(587,106) million, or $(0.02) per share of our common stock. This amount represents an immediate increase in net tangible book value of $0.05 per share to our existing stockholders and an immediate dilution in net tangible book value of $0.07 per share to the Debt Holders.

 

 

We determine dilution by subtracting the adjusted net tangible book value per share after this offering from the offering price per share of our common stock. The following table illustrates the dilution in net tangible book value per share to the Debt Holders:

 

Offering price per share

          $ 0.05  

Net tangible book value per share as of April 30, 2013

  $ (0.07 )        

Increase per share attributable to Debt Holders

  $ 0.05          

Adjusted net tangible book value per share after this offering

          $ (0.02 )

Dilution in net tangible book value per share to Debt Holders

          $ (0.07 )

 

The following shares were not included in the above calculation:

 

●     1,040,000 shares of our common stock issuable upon exercise of stock options under our 2011 Equity Incentive Plan at a weighted average exercise price of $0.50 per share;

 

●     7,187,000 shares of our common stock reserved for issuance under outstanding warrant agreements, at a weighted average exercise price of $0.12 per share; and

 

●     560,000 shares of our common stock reserved for future issuance under our 2011 Equity Incentive Plan.

 

Unless otherwise specifically stated, information throughout this prospectus assumes that none of our outstanding options or warrants to purchase shares of our common stock, or any convertible securities that we have outstanding, are exercised or converted.

 

CAPITALIZATION

 

Table 1 sets forth our actual cash and cash equivalents and capitalization, each as of April 30, 2013:

 

 

on an actual basis; and

 

 

 

 

on a pro forma as adjusted basis to give effect to the issuance of the common stock offered hereby and the use of proceeds, as described in the section entitled “Use of Proceeds.”

 

You should consider this table in conjunction with our financial statements and the notes to those financial statements included in this prospectus. 

  

Table 1: Capitalization

   

As of April 30, 2013

 
   

Actual

   

As Adjusted(1)

 
                 

Total debt

  $ 2,239,416     $ 1,489,416  
                 

Shareholders’ equity:

               

Common stock, $0.001 par value; authorized 500,000,000; 17,956,969 shares issued and outstanding, actual; 32,956,969 shares issued and outstanding, as adjusted

    17,957       32,957  

Additional paid in capital

    5,978,101       6,713,101  

Accumulated deficit

    (7,232,913

)

    (7,232,913

)

Accumulated other comprehensive loss

    (100,251 )     (100,251 )

Total stockholders’ deficit

  $ (1,337,106 )   $ (587,106 )

Total capitalization

  $ (902,310

)

  $ (902,310 )

 

(1)

Assumes that $750,000 in debt is being paid with 15,000,000 shares of our common stock at $0.05 per share.

 

  

PLAN OF DISTRIBUTION

 

The Company intends to enter into agreements with the Debt Holders to pay the outstanding debt we owe to each Debt Holder with shares of our common stock. The debt will be paid at the rate of $0.05 per share. The Debt Holders will collectively receive a total of 15,000,000 shares of common stock in payment of the debt they hold.

 

This offering will be facilitated by our officers and directors. Our officers and directors will not register as broker-dealers under Section 15 of the Securities Exchange Act of 1934 in reliance upon Rule 3a4-1. Rule 3a4-1 sets forth those conditions under which a person associated with an issuer may participate in the offering of the issuer’s securities and not be deemed to be a broker-dealer. The conditions are that:

 

 

 

the person is not statutorily disqualified, as that term is defined in Section 3(a)(39) of the Act, at the time of his participation; and

 

 

 

the person is not at the time of their participation an associated person of a broker-dealer; and

 

 

 

the person meets the conditions of paragraph (a)(4)(ii) of Rule 3a4-1 of the Exchange Act, in that he (i) primarily performs, or is intended primarily to perform at the end of the offering, substantial duties for or on behalf of the issuer otherwise than in connection with transactions in securities; and (ii) is not a broker or dealer, or an associated person of a broker or dealer, within the preceding 12 months; and (iii) does not participate in selling and offering of securities for any issuer more than once every 12 months other than in reliance on paragraphs (a)(4)(i) or (a)(4)(iii) of Rule 3a4-1 of the Exchange Act.

 

Our officers and directors are not statutorily disqualified, are not being compensated, and are not associated with a broker-dealer. They are and will continue to hold their positions as officers or directors following the completion of the offering and have not been during the past 12 months and are currently not brokers or dealers or associated with brokers or dealers. They have not nor will they participate in the sale of securities of any issuer more than once every 12 months.

 

DESCRIPTION OF SECURITIES TO BE REGISTERED

 

This prospectus covers 15,000,000 shares of our common stock that we intend to issue to our Debt Holders.  The following description of our common stock is only a summary.  You should also refer to our certificate of incorporation and bylaws, which have been filed as exhibits to the registration statement of which this prospectus forms a part.

 

General

 

Our authorized capital stock consists of 500,000,000 shares of common stock at a par value of $0.001 per share.

 

Common Stock

 

As at August 12, 2013, 17,956,969 shares of common stock were issued and outstanding and held by 33 stockholders of record.  This number does not include an indeterminate number of stockholders whose shares are held by brokers in street name.

 

Holders of our common stock are entitled to one vote for each share on all matters submitted to a stockholder vote.  Holders of common stock do not have cumulative voting rights.  Holders of a majority of the shares of common stock voting for the election of directors can elect all of the directors.  Holders of three percent of our shares of common stock issued and outstanding, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders.  A vote by the holders of a majority of our outstanding shares is required to make certain fundamental corporate changes such as a liquidation, a merger or an amendment to our Articles of Incorporation.

 

 

Holders of common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds.  In the event of liquidation, dissolution or winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock.  Holders of our common stock have no preemptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.

 

Section 2.3 of article 2 of our bylaws states that a special meeting of our stockholders may be called at any time only by the president or the secretary, by the resolution of the board of directors, or on the written request of stockholders owning a majority of our issued and outstanding voting shares.  This provision could prevent stockholders from calling a special meeting because, unless certain significant stockholders were to join with them, they might not obtain the majority necessary to request the meeting.  Therefore, stockholders holding less than a majority of the issued and outstanding common stock, without the assistance of management, may be unable to propose a vote on any transaction that would delay, defer or prevent a change of control, even if the transaction were in the best interests of our stockholders.

 

INTERESTS OF NAMED EXPERTS AND COUNSEL

 

No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis or had, or is to receive, in connection with the Offering, any interest, directly or indirectly, in the registrant or any of its parents or subsidiaries.

 

DESCRIPTION OF BUSINESS

 

The following is a glossary of selected mining terms used in the United States and Canada and referenced in this prospectus:

 

Term 

Definition 

Ag

Silver

Airborne survey

A survey made from an aircraft to obtain photographs, or measure magnetic properties, radioactivity, etc.

Assay

A chemical test performed on a sample of ores or minerals to determine the amount of valuable metals contained.

Au

Gold

Bulk sample

A large sample of mineralized rock, frequently hundreds of tonnes, selected in such a manner as to be representative of the potential mineral deposit (orebody) being sampled and used to determine metallurgical characteristics.

By-product

A secondary metal or mineral product recovered in the milling process.

Core

The long cylindrical piece of rock, about an inch in diameter, brought to surface by diamond drilling

Core sample

One or several pieces of whole or split parts of core selected as a sample for analysis or assay.

Cross-cut

A horizontal opening driven from a shaft and (or near) right angles to the strike of a vein or other orebody.  The term is also used to signify that a drill hole is crossing the mineralization at or near right angles to it.

Cu

Copper

Cut-off grade

The lowest grade of mineralized rock that qualifies as ore grade in a given deposit, and is also used as the lowest grade below which the mineralized rock currently cannot be profitably exploited.  Cut-off grades vary between deposits depending upon the amenability of ore to gold extraction and upon costs of production.

 

 

Diorite

An intrusive igneous rock composed chiefly of sodic plagioclase, hornblende, biotite or pyroxene.

Drift

A horizontal or nearly horizontal underground opening driven along a vein to gain access to the deposit.

Exploration

Prospecting, sampling, mapping, diamond drilling and other work involved in searching for or defining a mineral deposit.

Face

The end of a drift, cross-cut or stope in which work is taking place.

Fault

A break in the earth's crust caused by tectonic forces which have moved the rock on one side with respect to the other.

Grade

Term used to indicate the concentration of an economically desirable mineral or element in its host rock as a function of its relative mass.  With gold or silver, this term may be expressed as grams per tonne (g/t) or ounces per tonne (opt or oz/t).

Gram

0.0321507 troy ounces

g/t

Grams per metric tonne

Hydrothermal

Processes associated with heated or superheated water, especially mineralization or alteration.

Km

Kilometre(s). Equal to 0.62 miles.

Leaching

The separation, selective removal or dissolving-out of soluble constituents from a rock or ore body by the natural actions of percolating solutions.

M

Metre(s). Equal to 3.28 feet.

Metamorphic

Affected by physical, chemical, and structural processes imposed by depth in the earth’s crust.

Mine

An excavation on or beneath the surface of the ground from which mineral matter of value is extracted.

Net Smelter Return (“NSR”)

A payment made by a producer of metals based on the value of the gross metal production from the property, less deduction of certain limited costs including smelting, refining, transportation and insurance costs.

Orebody

A term used to denote the mineralization contained within an economic mineral deposit.

Outcrop

An exposure of rock or mineral deposit that can be seen on the surface, that is, not covered by soil or water.

Oxidation

A chemical reaction caused by exposure to oxygen that results in a change in the chemical composition of a mineral.

Oz

Ounce. A measure of weight in gold and other precious metals, correctly troy ounces, which weigh 31.1 grams as distinct from an imperial ounce which weigh 28.4 grams.

Shaft

A vertical passageway to an underground mine for moving personnel, equipment, supplies and material including ore and waste rock.

Strike

The direction, or bearing from true north, of a vein or rock formation measure on a horizontal surface.

Stringer

A narrow vein or irregular filament of a mineral or minerals traversing a rock mass.

Sulphides

A group of minerals which contains sulfur and other metallic elements such as copper and zinc.  Gold is usually associated with sulphide enrichment in mineral deposits.

Tailings

Material rejected from a mill after most of the recoverable valuable minerals have been extracted.

Vein

A fissure, fault or crack in a rock filled by minerals that have travelled upwards from some deep source.

Zone

An area of distinct mineralization.

 

Our Business

 

Red Metal Resources Ltd. was incorporated in Nevada on January 10, 2005 as Red Lake Exploration, Inc.  We changed our name to Red Metal Resources Ltd. on August 27, 2008.

 

On August 21, 2007, we formed Minera Polymet Limitada, a limited liability company, under the laws of the Republic of Chile.  We own 99% of Polymet, which holds our Chilean mineral property interests.  Under Chilean law, a resident of Chile must be a stockholder in a limitada.  To meet this requirement, 1% of Polymet is owned by a Chilean resident, an experienced manager who has organized an office and other resources for us to use and is Polymet’s legal representative in Chile. Polymet’s office is located in Vallenar, III Region of Atacama, Chile.  When we refer to “Red Metal”, the “company”, “we”, “us” or “our” in this prospectus, we mean Red Metal Resources Ltd. together with Minera Polymet Limitada.

 

 

Our resident agent’s office is at 711 S. Carson Street, Suite 4, Carson City, Nevada, 89701.  Our business office is at 195 Park Avenue, Thunder Bay, Ontario, Canada, P7B 1B9.  Our telephone number is (807) 345-7384; our email address is admin@redmetalresources.com; and our web address is www.redmetalresources.com.  Information on our web site is not a part of this prospectus.

 

We are a start-up exploration stage company without operations.  We are in the business of acquiring and exploring mineral claims. All of our claims are located in the III Region of Atacama, Chile. We have not determined whether our claims contain mineral reserves that are economically recoverable. We have not produced revenues from our principal business and are considered an exploration stage company as defined by “Accounting and Reporting by Development Stage Enterprises.”

 

Our ability to realize a return on our investment in mineral claims depends upon whether we maintain the legal ownership of the claims. Title to mineral claims involves risks inherent in the process of determining the validity of claims and the ambiguous transfer history characteristic of many mineral claims.  To the best of our knowledge, and after consultation with an attorney knowledgeable in the practice of mining, we believe that we have taken the steps necessary to ensure that we have good title to our mineral claims.  We have had our contracts and deeds notarized, recorded in the registry of mines and published in the mining bulletin and we review the mining bulletin regularly to determine whether other parties have staked claims over our ground.  We have discovered no such claims.

 

Chile’s mining and land tenure policies were established to secure the property rights of both domestic and foreign investors to stimulate development of mining in Chile. The government of Chile owns all mineral resources, but exploration and exploitation of these resources are permitted through exploration and mining concessions. A mineral concession must pass through three stages to become a permanent mining concession, namely, pedimento, manifestacion and mensura.

 

A pedimento is an initial exploration claim. It can be placed on any area, whereas the survey to establish a permanent mensura claim can only be completed on free areas where no other mensuras exist. A pedimento is valid for a maximum of two years. At the end of this period it may either be reduced in size by at least 50% and renewed for an additional two years or entered into the manifestacion process to establish a permanent mensura claim. New pedimentos can overlap existing pedimentos, but the pedimento with the earliest filing date takes precedence providing the claim holder maintains the pedimento in accordance with the mining code and the applicable regulations.

 

Manifestacion is the process by which a pedimento is converted to a permanent mining claim. At any stage during its two-year life, the holder of a pedimento can submit a manifestacion application, which is valid for 220 days. To begin the manifestacion process, the owner must request a survey (mensura) within 220 days. After the survey request is accepted, the owner has approximately 12 months to have the claim surveyed by a government-licensed surveyor, inspected and approved by the national mining service, and affirmed as a mensura (equivalent to a patented claim) by a judge. Thereafter, an abstract describing the claim is published in Chile’s official mining bulletin (published weekly) and 30 days later the claim is inscribed in the appropriate mining registry.

 

A mensura is a permanent property right that does not expire so long as the annual fees (patentes) are paid in a timely manner. Failure to pay the patentes for an extended period can result in the claim being listed for sale at auction, where a third party can acquire a claim for the payment of the back taxes owed and a penalty.

 

In Chile, we have both pedimento and mensura claims.  We cannot guarantee that any of our pedimento claims will convert to mensura claims. Some of our pedimentos are still in the registration process and some are in the manifestacion stage. We may decide, for geologic, economic or other reasons, not to complete a registration or manifestacion or to abandon a claim after it is registered.  Some of our pedimentos may have been staked over other owners’ claims as permitted by the Chilean mining code.  Our pedimento rights in these claims will not crystallize unless the owners of the underlying claims fail to pay their taxes or otherwise forfeit their interests in their claims.  Our purpose in over-staking is to claim free ground around others’ claims and to have the first right to forfeited claims if we want them.  Over-staking is easier and less costly than staking available ground around claims and ensures that all available ground is covered that might otherwise be missed.

 

 

We have a close working relationship with Minera Farellon Limitada (“Minera Farellon”), a Chilean company owned equally by Kevin Mitchell, Polymet’s legal representative in Chile, and Richard Jeffs, who holds more than 5% of our shares of common stock (see Table 26).  Minera Farellon investigates potential claims and often ties them up, by staking new claims, optioning or buying others’ claims, all at its own cost.  This gives us an opportunity to review the claims to decide whether they are of interest to us.  If we are interested, then we either proceed to acquire an interest in the property directly from the owner, or, if Minera Farellon has already obtained an interest, we take an option to acquire its interest. Minera Farellon, which is located in the city of Vallenar, also provides some of our logistical support in Vallenar under a month-to-month contract, which enables us to limit our operating expenses to those needed from time to time.

 

Unproved mineral properties

 

Due to a lack of operating capital, during the fiscal year ended January 31, 2013, we conducted no material exploratory operations on any of our properties.  Until we are able to raise operating capital, which we cannot assure that we can do, we will not be able to initiate new exploration efforts or continue the exploration efforts we have begun.  On February 11, 2013, we reported that we entered into a memorandum of understanding with Geoactiva SpA ("Geoactiva") pursuant to which Geoactiva expressed an intention to acquire our Perth property, subject to the results of a due diligence investigation.  On April 30, 2013, following the completion of Geoactiva’s due diligence investigation, we granted an option to Geoactiva to purchase the Perth property.  This transaction gives us confidence that there are opportunities to raise funds by selling some of our properties or by entering into joint venture agreements to develop some of our properties. We have three active properties which we have assembled since the beginning of 2007— the Farellon, Perth, and Mateo. These properties consist of both mining and exploration claims and are grouped into two district areas – Carrizal Alto area properties and Vallenar area properties.

 

Active properties

 

Table 2: Active properties

 

 

 

 

Property

Percentage, type of claim

 

Hectares

 

   

 

Gross area

 

 

Net areaa 

 

Carrizal Alto area 

 

Farellon

 

 

 

 

 

 

 

Farellon 1 – 8 claim

100%, mensura

 

 

66

 

 

 

 

Farellon 3 claim

100%, manifestacion

 

 

300

 

 

 

 

Cecil 1 – 49 claim

100%, mensura

 

 

230

 

 

 

 

Teresita claim

100%, mensura

 

 

1

 

 

 

 

Azucar 6 – 25 claim

100%, mensura

 

 

88

 

 

 

 

Stamford 61 – 101 claim

100%, mensura

 

 

165

 

 

 

 

Kahuna 1 – 40 claim

100%, mensura

 

 

200

 

 

 

 

 

 

 

 

1,050

 

 

 

1,050

 

Perth

 

 

 

 

 

 

 

 

 

Perth 1 al 36 claim

100%, mensura

 

 

109

 

 

 

 

 

Lancelot I 1 al 30 claim

100%, mensura in process

 

 

300

 

 

 

 

 

Lancelot II 1 al 20 claim

100%, mensura in process

 

 

200

 

 

 

 

 

Rey Arturo 1 al 30 claim

100%, mensura in process

 

 

300

 

 

 

 

 

Merlin I 1 al 10 claim

100%, mensura in process

 

 

60

 

 

 

 

 

Merlin I 1 al 24 claim

100%, mensura in process

 

 

240

 

 

 

 

 

Galahad I 1 al 10 claim

100%, mensura in process

 

 

50

 

 

 

 

 

Galahad IA 1 al 46 claim

100%, mensura in process

 

 

230

 

 

 

 

 

Percival III 1 al 30 claim

100%, mensura in process

 

 

300

 

 

 

 

 

Tristan II 1 al 30 claim

100%, mensura in process

 

 

300

 

 

 

 

 

Tristan IIA 1 al 5 claim

100%, mensura in process

 

 

15

 

 

 

 

 

Camelot claim

100%, manifestacion

 

 

300

 

 

 

 

 

 

 

 

 

2,404

 

 

 

 

 

Overlapped claims a

 

 

 

(121

)

 

 

2,283

 

Vallenar area 

 

Mateo

 

 

 

 

 

 

 

 

 

Margarita claim

100%, mensura

 

 

56

 

 

 

 

 

Che 1 & 2 claims

100%, mensura

 

 

76

 

 

 

 

 

Irene & Irene II claims

100% ,mensura

 

 

60

 

 

 

 

 

Mateo 1, 2, 3, 9,10,12, 13, 14 claims

100%, mensura in process

 

 

1,371

 

 

 

 

 

Mateo 4 and 5 claims

100%, pedimento

 

 

600

 

 

 

 

 

 

 

 

 

2,163

 

 

 

 

 

Overlapped claims a

 

 

 

(469

)

 

 

1,694

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,027

 

a Some pedimentos and manifestacions overlap other claims. The net area is the total of the hectares we have in each property (i.e. net of our overlapped claims).

 

 

 

Our active properties as of the date of this prospectus are set out in Figure 1.  These properties are accessible by road from Vallenar as illustrated in Figure 1 below.

 

Figure 1: Location and access to active properties.

 

 

 

Farellon property

 

The Farellon property consists of two groups of claims which are not contiguous but lie within the historical Carrizal Alto mining district southwest of the Carrizal Alto mine. Table 3 describes the claims and Figure 2 illustrates them.

 

Table 3: Farellon property

 

 

 

 

Type

Claim

 

Mensura

(ha)

 

  Manifestacion

(ha)

  Pedimento

(ha)

Farellon 1 – 8

 

 

66

 

 

 

Cecil 1 – 49

 

 

230

 

 

 

Teresita

 

 

1

 

 

 

Azucar 6 – 25

 

 

88

 

 

 

Stamford 61 – 101

 

 

165

 

 

 

Kahuna 1 – 40

 

 

200

 

 

 

Farellon 3

 

 

 

 

300

 

 

 

 

750

 

300

 

 

 

 

 

 

Figure 2: Farellon property

 

The Farellon 1 – 8 is the first mineral claim that we acquired in Chile. It covers 66 hectares and is centered about 309,150 east and 6,888,800 south UTM PSAD56 Zone 19 in Province of Huasco, Commune of Huasco, III Region of Atacama, Chile.

 

We acquired the claim on April 25, 2008, for $550,000 and owe a royalty equal to 1.5% of the net proceeds that we receive from the processor to a maximum of $600,000 with a monthly minimum of $1,000 when we start exploiting the minerals extracted from the claim.  We can pay any unpaid balance of the royalty at any time. We have not yet exploited the claim.

 

On September 17, 2008, we bought the Cecil 1 – 49, Cecil 1 – 40 and Burghley 1 – 60 claims for $27,676. On December 1, 2009, we initiated the manifestacion process when we applied to convert the Cecil 1 – 40 and Burghley 1 – 60 exploration claims to mining claims.  In January 2013 we abandoned the manifestacion process for the Cecil 1 – 40 and Burghley 1 – 60 claims due to the fact that several mensuras underlying the claims covered the most prospective ground as outlined in our prospecting and mapping program completed in April 2012.

 

 

 

The Cecil claim covers 230 hectares and is centered at 310,250 east and 6,891,500 south UTM PSAD56 Zone 19 and lies approximately 1.7 kilometers north of the Farellon 1 – 8 border. The claim covers a 700 metre strike length of a mineralized vein interpreted to be part of the same mineralizing system as the Farellon 1 – 8 vein. An investigation completed during the Farellon 1 – 8 acquisition uncovered a broad regional reconnaissance sampling program completed in 1996 showing results from the areas covered by the Cecil claim. Results from the 1996 sampling show copper and gold grades similar to grades returned from the Farellon vein, indicating that the Cecil claim could have similar mineralized bodies.  

 

Between July 2010 and November 2011 we registered seven pedimento, Farellon 3 through 9, at a cost of $2,408 to cover 1,800 hectares of ground around our Farellon 1 – 8 claim.  In January 2013 we allowed the Farellon 4 through 9 pedimentos to lapse due to underlying claims.  In February 2013 we commenced the manifestacion process with the Farellon 3 pedimento.

 

On August 21, 2012, we acquired four mineral claims – Azucar 6-25, Kahuna 1-40, Stamford 61-101, and Teresita – through the government auction for a total price of $19,784. The Azucar claim is the most prospective of these claims as it covers a 1,200 metre strike length of a mineralized vein interpreted to be part of the same mineralizing system as the Farellon 1 – 8 vein. Three parallel veins have also been identified on the Azucar claim during the 2012 mapping and prospecting program and can be seen on Figure 3.   

 

Location and means of access. The Farellon property is approximately 40 kilometers west of the Pan-American Highway, about 1 hour and 15 minutes by vehicle from the town of Vallenar which has a population of 40,000 and modern facilities.  High-tension power lines and a fiber-optic communications line run along the highway and both power and rail are connected to the Cerro Colorado iron ore mine only 20 kilometers from the Farellon property. The area is serviced from Copiapó, a city of 70,000 with daily air and bus services to Santiago and other centers.

 

The Farellon property can be accessed by driving approximately 20 kilometers north on the Pan-American Highway from Vallenar then turning northwest towards Canto del Agua.  From Canto del Agua, the Farellon property is approximately 10 kilometers along a well-maintained gravel road.  There are numerous gravel roads in the area, so a guide is necessary to access the property the first time.  All of the roads are well maintained and can support large machinery necessary to transport drills, backhoes and bulldozers.  Water is readily available in Canto del Agua and could probably be found on the Farellon property where all of the historic drill holes intersected water.

 

Exploration history .The Farellon property is in the Carrizal Alto mining district and lies 5 kilometers along strike south of the center of the historic Carrizal Alto copper-gold mine. Veins of the Farellon property were exploited as part of the Carrizal Alto mines. We have located no hard data summarizing all of the past mining activity, but tailings, slag dumps and the size of the shafts and some of the shallow surface workings are evidence of extensive historical mining.

 

Mine workings of various sizes are all along the Farellon property, but only one modern exploration program was completed prior to Red Metal acquiring the project.  In 1996, the Farellon and two other veins, the Fortuna and the Theresa, were explored by an Australian junior mining company Minera Stamford S.A.  Their exploration included a large mapping and surface sampling program followed by a 34-hole RC drilling program.  Of these 34 drill holes, 23 were drilled on the Farellon 1 – 8 claim.  The RC drilling program on the Farellon claim consistently intersected oxide and sulphide facies mineralization along a 2 kilometer-long zone covering the Farellon claim and strike extents to the south.  Mineralization is 2 to 35 meters wide with an average width of 5 meters.  The mineralized zone consists of one or more discrete veins and, in places, stockwork veining and mineralization.  While drilling covered the length of the property, gaps up to 350 meters are untested and infill drilling is required to confirm an economic ore body. Table 4 presents the significant intersections from the 23 holes drilled on the Farellon claim in the 1996 drilling.

 

 

 

Table 4: Farellon historic significant intersections (1996)

 

Drill hole

 

 

 

Significant intervals (m)

 

 

 

Assay results

 

FAR–96

 

 

 

From

 

 

 

To

 

 

Length

 

 

Gold (g/t)

 

 

Copper (%)

 

 

Cobalt (%)

 

 

06

 

 

 

49

 

 

 

54

 

 

 

5

 

 

 

0.15

 

 

 

0.73

 

 

 

0.01

 

 

07

 

 

 

25

 

 

 

34

 

 

 

9

 

 

 

0.38

 

 

 

1.05

 

 

 

0.02

 

 

09

 

 

 

57

 

 

 

84

 

 

 

27

 

 

 

0.51

 

 

 

0.91

 

 

 

0.03

 

 

010

 

 

 

31

 

 

 

36

 

 

 

5

 

 

 

1.00

 

 

 

0.68

 

 

 

0.04

 

 

011

 

 

 

20

 

 

 

26

 

 

 

6

 

 

 

0.67

 

 

 

0.46

 

 

 

0.02

 

 

013

 

 

 

86

 

 

 

93

 

 

 

7

 

 

 

0.87

 

 

 

1.68

 

 

 

0.04

 

 

014

 

 

 

77

 

 

 

83

 

 

 

6

 

 

 

0.66

 

 

 

0.85

 

 

 

0.06

 

 

015

 

 

 

59

 

 

 

79

 

 

 

20

 

 

 

0.99

 

 

 

0.98

 

 

 

0.06

 

 

 

 

 

 

99

 

 

 

109

 

 

 

10

 

 

 

0.18

 

 

 

1.02

 

 

 

0.03

 

 

016

 

 

 

24

 

 

 

26

 

 

 

2

 

 

 

0.95

 

 

 

1.57

 

 

 

0.02

 

 

 

 

 

 

64

 

 

 

70

 

 

 

6

 

 

 

0.73

 

 

 

0.81

 

 

 

0.07

 

 

020

 

 

 

14

 

 

 

16

 

 

 

2

 

 

 

0.46

 

 

 

1.85

 

 

 

0.05

 

 

 

 

 

 

39

 

 

 

43

 

 

 

4

 

 

 

0.75

 

 

 

0.90

 

 

 

0.03

 

 

021

 

 

 

22

 

 

 

25

 

 

 

3

 

 

 

4.17

 

 

 

5.29

 

 

 

0.11

 

 

022

 

 

 

29

 

 

 

39

 

 

 

10

 

 

 

1.53

 

 

 

1.31

 

 

 

0.04

 

 

 

 

 

 

100

 

 

 

108

 

 

 

8

 

 

 

3.72

 

 

 

2.49

 

 

 

0.06

 

 

 

 

 

 

50

 

 

 

53

 

 

 

3

 

 

 

0.48

 

 

 

1.10

 

 

 

0.06

 

 

023

 

 

 

59

 

 

 

64

 

 

 

5

 

 

 

0.28

 

 

 

0.78

 

 

 

0.03

 

 

 

 

 

 

132

 

 

 

147

 

 

 

15

 

 

 

0.60

 

 

 

1.42

 

 

 

0.03

 

 

024

 

 

 

33

 

 

 

36

 

 

 

3

 

 

 

0.94

 

 

 

2.89

 

 

 

0.06

 

 

025

 

 

 

65

 

 

 

85

 

 

 

20

 

 

 

0.97

 

 

 

1.22

 

 

 

0.02

 

 

028

 

 

 

55

 

 

 

58

 

 

 

3

 

 

 

0.12

 

 

 

0.52

 

 

 

0.06

 

 

029

 

 

 

30

 

 

 

34

 

 

 

4

 

 

 

0.18

 

 

 

1.15

 

 

 

0.07

 

 

 

 

 

 

82

 

 

 

87

 

 

 

5

 

 

 

0.09

 

 

 

0.96

 

 

 

0.01

 

 

Geology. The Farellon area has two major lithological units: Paleozoic metamorphic sediments consisting of schists, phyllites and quartzites; and the Franja Central diorites.  The metamorphosed sediments outcrop in the western part of the property and have been metamorphosed to lower greenschist facies and then extensively overprinted by hydrothermal alteration.  Hydrothermal alteration is directly associated with the shear zone.  The diorite underlies the eastern part of the project area and has been extensively intruded by northeasterly trending intermediate mafic dykes.  At the Farellon property, a small stock-like felsic body named Pan de Azucar intrudes the diorite.  The intrusive relationship between the diorite and metamorphic sediments always appear to be tectonic.  Within the property and at the main Carrizal Alto workings to the north, the major mineralization is intimately related to the south-southwest trending mylonitic sheared contact between the metamorphic sediments and the diorite.  The shear is considered a splay of the main Atacama Fault Zone and dips 30º to 65º west. This contact parallels the regional geological trend and coincides with a major lineament which extends for hundreds of kilometers.  The sheared contact is 50 meters to 200 meters wide over the 1.7-kilometre strike length of the Farellon property.  Veins are typically 3 to 15 meters wide, striking south-southwest and dipping approximately 65 degrees to the northwest.

 

Mineralization . The Farellon property lies within the Candelaria iron oxide-copper-gold (IOCG) belt of Chile. Ore bodies in the belt occur in veins, breccias, stringer bodies and layer parallel replacement bodies and are typically associated with north-south trending faults related to the Atacama Fault Zone.  All IOCG deposits have a strong association with iron oxides in the form of hematite or magnetite.  In the Candelaria region, larger ore bodies are located where the fault zones intersect a lithological contact with significant rheological contrast such as a sedimentary and volcanic intrusive contact.

 

Economic IOCG deposits are generally polymetallic and can include iron, copper, gold, zinc, lead, uranium and cobalt among others.  The Farellon property historically has been exploited for copper and to a lesser extent, gold.  Cobalt mineralization was observed during the 1996–97 exploration work, but we have found no records of cobalt extraction.

 

 

Drilling (Fall 2009). In September 2009 we completed a 725-metre RC drilling program on the Farellon property. Table 5 summarizes the results of our drilling.

 

The drilling program was designed to confirm historic drilling results and test mineralization down dip of previous drilling. Of the five holes drilled, three holes—FAR–09–A, B and E—tested historic intersections FAR–96–09, 021 and 022 summarized in Table 4; and two—FAR–09–C and D—tested depth extents of the previously known mineralization. Results of the drilling show grades and widths of mineralization consistent with historic exploration results and have given us valuable geological information showing the possibility of a shallow, 30-degree dip of the mineralization.

 

Table 5: Farellon drilling results (2009)

 

 

Drill hole

 

Assay interval (m)

 

 

Assay grade

 

 

FAR – 09

 

 

 

From

 

 

To

 

 

Core length

 

 

Gold (ppm)

 

 

Copper (%)

 

 

 

 

 

 

 

31

 

 

 

34

 

 

 

3.0

 

 

 

0.81

 

 

 

1.99

 

 

 

A

 

 

 

 

79

 

 

 

109

 

 

 

30.0

 

 

 

0.18

 

 

 

0.62

 

 

 

 

 

including

 

 

97

 

 

 

106

 

 

 

9.0

 

 

 

0.44

 

 

 

1.63

 

 

 

 

 

 

 

 

56

 

 

 

96

 

 

 

40.0

 

 

 

0.27

 

 

 

0.55

 

 

 

 

 

including

 

 

56

 

 

 

63

 

 

 

7.0

 

 

 

0.22

 

 

 

0.66

 

 

 

B

 

 

 

 

74

 

 

 

96

 

 

 

22.0

 

 

 

0.42

 

 

 

0.79

 

 

 

 

 

including

 

 

75

 

 

 

86

 

 

 

11.0

 

 

 

0.67

 

 

 

1.35

 

 

 

C

 

 

 

 

73

 

 

 

103

 

 

 

30.0

 

 

 

0.79

 

 

 

0.55

 

 

 

 

 

including

 

 

77

 

 

 

82

 

 

 

5.0

 

 

 

4.16

 

 

 

2.57

 

 

 

D

 

 

 

 

95

 

 

 

134

 

 

 

39.0

 

 

 

0.11

 

 

 

0.58

 

 

 

 

 

including

 

 

95

 

 

 

103

 

 

 

8.0

 

 

 

0.33

 

 

 

2.02

 

 

 

E

 

 

 

 

25

 

 

 

30

 

 

 

5.0

 

 

 

0.54

 

 

 

1.35

 

 

 

 

 

 

 

 

65

 

 

 

68

 

 

 

3.0

 

 

 

0.58

 

 

 

1.46

 

 

We commissioned Micon International Limited (“Micon”) to prepare a technical report that complies with Canadian National Instrument 43-101 summarizing the information obtained from this drilling program. Micon concluded that our drilling confirmed the general location and tenure of the mineralization identified during the 1996 drilling program and noted some minor disparities between historical 1996 gold and copper assays and the 2009 gold and copper assays in two of the drill holes—FAR–09–A and E. In FAR–09–E. Micon recommended that we investigate these disparities during the next phase of drilling.

 

The drilling identified that the copper and gold mineralization exhibited a direct correlation in both location and relative intensity and provided useful information for outlining the relative location and spacing of drill holes in our next exploration programs.

 

All of our 2009 drill holes intersected oxide facies mineralization with only minor amounts of sulphides observed in drill hole FAR–09–D. When we have established the general trend of the mineralization we can conduct some drilling to identify the oxide-sulphide interface.

 

Following the 2009 drilling program, Micon recommended that we conduct a two-phase drilling program. The first phase would consist of approximately 1,200 meters of diamond drilling to assist in defining the structural controls on the mineralization, which could have been misinterpreted in the past due to the limited geological information obtained from the historic RC drilling, and the depth and nature of the sulphide mineralization.  

 

QA/QC, sampling procedures and analytical methods. We conducted sampling on one-meter intervals, which is generally the industry-standard sampling practice for RC drilling. Sampling started at the collar of the hole and proceeded to the toe or bottom of the drill hole on one-meter increments. Generally, the sample recovery was good to excellent for the 2009 drilling program. Table 5 summarizes significant assay results.  They are reported as drill lengths as we have not established the width of the mineralized zone.

 

 

 

Drilling (Summer 2011). During June through September 2011 we conducted a combined RC/diamond drill program on the Farellon property. The program was designed to continue to expand on the results of the 2009 drill program, as well as to continue confirming historical results along the strike. During this program we completed 11 drillholes for a total of 2,233m with the goal not only of better defining structural controls on mineralization but to examine the continuity of mineralization along strike and at depth. The target of the program was to outline a 700m mineralized strike length down to 200m vertical depth with approximate 75m intercept spacing, and to infill gaps 300m further to the North to increase intercepts to 150m spacing.

 

Many of the existing intercepts in this area were from the 1996/97 drill program where no geological information can be located for these drill holes.  By infilling the area with drilling at 75 meter pierce points the aim was to increase confidence in the continuity and increase knowledge of the nature and structural controls on mineralization to aid further exploration planning. 2011 drill results confirmed that mineralization is still present downdip of past drilling intercepts and still open at depth. Infill drilling continued to confirm the continuity of the mineralization and aided in the development of a 3D model that will be used for any future drill planning.

 

2011 drilling confirmed the overall regional shear structural controls on mineralization occurring within the oblique fault contact between overlying Paleozoic Metasediments and underlying Jurassic intermediate intrusives. Supergene mineralization seems to occur within local faults not immediately within the lithological fault contact – possibly fault splays emanating off the main regional structure. In the 2011 drillholes, supergene copper-gold mineralization was intersected 50-150m downhole with abundant carbonate and iron oxide precipitation.

 

Hypogene mineralization occurred below 150m hosted in quartz and carbonate veins which appear closer to the main shear fault zone contact. Approximately within 20m downhole of intersected hypogene mineralized veins the lithological contact was encountered, passing through to the underlying intrusive package. The 2011 drill program was generally positive in better defining structural controls on mineralization and proving continuity of mineralization along strike and at depth. However, more drilling is needed to continue to expand on the mineralized zone along strike and at depth, and prove up infill targets for an initial resource estimation.

 

In spring of 2012 we commissioned Micon to complete a second 43-101 technical report. Micon now recommends that we conduct a much larger phase of exploration consisting of 5,000 meters of diamond drilling and 10,000 meters of RC drilling, and geophysical surveys and geological mapping. A geophysics survey using both magnetics and induced polarization will help to identify further mineralized structures on the property that may not have been noticed in the historic mapping. A phase two drill program would be at defined spacing to outline the continuity of mineralization leading to an initial resource estimation.  The depth of the drilling would be dependent on the results of the phase one drilling program. The estimated cost of this phase is $1.9 million.

 

Significant results of assays from the 2011 drill program are presented in Table 6 below.

 

Table 6: Farellon drilling results (2011)

 

 

Assay interval (m)

 

 

Assay grade

 

Drill Hole ID

 

From

 

 

To

 

 

Length

 

 

Copper %

 

 

Gold g/t

 

FAR-11-001

 

 

36

 

 

 

49

 

 

 

13

 

 

 

2.51

 

 

 

0.35

 

FAR-11-001

 

 

78

 

 

 

85

 

 

 

7

 

 

 

0.43

 

 

 

0.04

 

FAR-11-002

 

No Significant Intersections . Zone faulted off

 

FAR-11-003

 

 

150

 

 

 

155

 

 

 

5

 

 

 

0.40

 

 

 

0.28

 

FAR-11-003

 

 

177

 

 

 

182

 

 

 

5

 

 

 

0.44

 

 

 

0.15

 

FAR-11-004

 

 

141

 

 

 

145

 

 

 

4

 

 

 

0.73

 

 

 

0.01

 

FAR-11-005

 

 

124

 

 

 

133

 

 

 

9

 

 

 

0.84

 

 

 

0.26

 

FAR-11-006

 

 

80

 

 

 

112

 

 

 

32

 

 

 

1.35

 

 

 

0.99

 

FAR-11-007

 

 

56

 

 

 

74

 

 

 

18

 

 

 

0.50

 

 

 

0.40

 

FAR-11-008

 

 

98

 

 

 

102

 

 

 

4

 

 

 

0.85

 

 

 

0.26

 

FAR-11-009

 

 

202

 

 

 

211.55

 

 

 

9.55

 

 

 

0.95

 

 

 

0.42

 

FAR-11-010

 

 

179.13

 

 

 

183

 

 

 

3.87

 

 

 

0.50

 

 

 

0.39

 

FAR-11-011

 

 

54

 

 

 

56

 

 

 

2

 

 

 

0.97

 

 

 

0.48

 

 

 

 

Figure 3 below illustrates the Farellon geology and the 2006, 2009 and 2011 drillhole collar locations as well as surface traces of mineralized vein systems:

 

Figure 3: Farellon property geology

 

QA/QC, sampling procedures and analytical methods. Samples were taken at intervals between 0.5 and 2 metres. Sampling started at the collar of the hole and proceeded to the toe or bottom of the drill hole.  Samples were taken at two metre intervals outside the previously identified main zone of interest.  Through the main zone of interest samples were taken at one metre intervals.   Generally, the sample recovery was good to excellent for the 2011 drilling program. Table 6 above summarizes significant assay results.  They are reported as drill lengths as we have not established the width of the mineralized zone.

 

Our quality assurance, quality control (QA/QC) protocol consists of the addition of standards, blanks and laboratory duplicates to the sample stream.  We inserted these into the sample series using the same number sequence as the samples themselves.  One of the QA/QC check samples is inserted every 25 samples and it alternates between standards, blanks and laboratory duplicates.  

 

Spring 2012 mapping program: In April of 2012 we completed a detailed mapping, prospecting and rock sampling program over the Farellon Property.  This program was designed to extend the known mineralized zone to the north and the south and to identify the best potential to expand on the known mineralized zone.  As a result of the mapping program, new ground was acquired at public auction in August 2012 to cover the strike extent of the mineralized veins.

 

 

Perth Property

 

On March 10, 2011, we purchased for $35,000 a group of 12 claims (the “Perth”) as described in Table 7 and illustrated in Figure 4.

 

Table 7: Perth property

 

 

 

 

Type

Claim

 

Mensura

/Mensura in process

(ha)

 

Manifestacion

(ha)

Perth 1 al 36 claim

 

 

109

 

 

Lancelot I 1 al 30 claim

 

 

300

 

 

Lancelot II 1 al 20 claim

 

 

200

 

 

Rey Arturo 1 al 30 claim

 

 

300

 

 

Merlin I 1 al 10 claim

 

 

60

 

 

Merlin I 1 al 24 claim

 

 

240

 

 

Galahad I 1 al 10 claim

 

 

50

 

 

Galahad I 1 al 46 claim

 

 

230

 

 

Percival III 1 al 30 claim

 

 

300

 

 

Tristan II 1 al 30 claim

 

 

300

 

 

Tristan IIA 1 al 5 claim

 

 

15

 

 

Camelot

 

 

 

 

300

 

 

 

2,104

a 

300a 

aSome claims overlap others, reducing our net area to 2,283 hectares. See Figure 4.

 

 

 

 

Figure 4. The Perth property

 

The Perth property is adjacent to the west side of the historic Carrizal Alto mine and lies approximately 3.5 kilometers north of our Farellon project. It is a 45 minute drive from Vallenar city, with major road access, power and water supply close by. The project lies on a similar geologic contact as the Farellon and Carrizal Alto properties.

 

Location and means of access. The Perth property is centered about 308,750 east and 6,895,000 south UTM PSAD56 Zone 19 approximately 75 km northwest of the city of Vallenar with the highest point at approximately 925 meters above sea level.  The property is accessible by road from Vallenar. The Perth Property is accessed by taking the Pan American Highway north from Vallenar for 20 kilometres, then turning west onto the road to Canto del Agua a distance of 35 kilometres. Then take the Cardones Canyon road for 15 kilometres, turn southwest towards Cerro Cachina Grande along a secondary gravel road for 14 kilometres to the property.

 

Exploration history.  Exploration programs on the Perth property have historically been limited to surface sampling and mapping programs completed in 2007 and 2008. Significant results from historic channel samples across the veins are shown in Table 8. Numerous artisanal mine workings on the property have previously been exploited for both copper and gold; however, no records of grade or tonnage can be located.

 

 

 

Table 8: Perth historic significant channel samples

 

SAMPLE

 

 

Au g/t

 

 

Cu %

 

 

Co%

 

 

Length of Sample (m)

 

 

521617

 

 

 

2.5

 

 

 

0.39

 

 

 

0.03

 

 

 

1.0

 

 

521796

 

 

 

2.5

 

 

 

0.21

 

 

 

0.00

 

 

 

1.0

 

 

521629

 

 

 

2.8

 

 

 

0.76

 

 

 

0.19

 

 

 

3.5

 

 

56905

 

 

 

3.1

 

 

 

1.00

 

 

 

0.19

 

 

 

1.0

 

 

521610

 

 

 

3.5

 

 

 

0.30

 

 

 

0.02

 

 

 

0.5

 

 

521622

 

 

 

4.5

 

 

 

1.72

 

 

 

0.02

 

 

 

1.0

 

 

521788

 

 

 

4.5

 

 

 

0.19

 

 

 

0.00

 

 

 

2.0

 

 

56858

 

 

 

5.0

 

 

 

0.42

 

 

 

0.16

 

 

 

1.0

 

 

521789

 

 

 

5.5

 

 

 

0.29

 

 

 

0.00

 

 

 

2.0

 

 

521628

 

 

 

6.2

 

 

 

0.59

 

 

 

0.14

 

 

 

1.3

 

 

521609

 

 

 

10.7

 

 

 

0.35

 

 

 

0.07

 

 

 

1.0

 

 

Geology. The Perth property overlies the contact between Paleozoic metamorphic sediments and a Cretaceous tonalitic batholith. A swarm of north northeast trending fault related copper gold bearing quartz veins crosscuts the property. Surface mapping and sampling records show twelve veins identified so far on the south end of the property. The veins average two metres wide but have been measured up to six metres wide.

 

In spring of 2011 we completed a reconnaissance mapping and sampling program on the Perth property.  Geological mapping during the program identified four major areas where mineralization in veins appear to be concentrated.  Sampling consisted of 129 reconnaissance samples taken of vein material where veins outcropped at surface.  Significant results are summarized in Table 9 below.

 

Table 9: Perth 2011 significant reconnaissance samples

 

SAMPLE

 

 

Au g/t

 

 

Cu %

 

 

0003

 

 

 

7.47

 

 

 

1.73

 

 

0010

 

 

 

7.37

 

 

 

3.63

 

 

0016

 

 

 

8.86

 

 

 

2.29

 

 

0017

 

 

 

29.93

 

 

 

1.1

 

 

0033

 

 

 

21.66

 

 

 

2.85

 

 

0042

 

 

 

0.9

 

 

 

7.74

 

 

0077

 

 

 

10.2

 

 

 

2.43

 

 

0078

 

 

 

8.39

 

 

 

3.78

 

 

0097

 

 

 

4.42

 

 

 

0.14

 

 

0098

 

 

 

10.27

 

 

 

0.51

 

 

0099

 

 

 

3.61

 

 

 

0.19

 

 

0100

 

 

 

6.37

 

 

 

0.22

 

 

0110

 

 

 

22.58

 

 

 

1.51

 

 

0121

 

 

 

11.12

 

 

 

3.9

 

 

 

 

Figure 5 below illustrates the Perth geology as well as the historic and 2011 reconnaissance sample gold g/t assay results:

 

Figure 5 Perth Property Geology

 

Option with Geoactiva SpA.

 

On April 30, 2013, we granted Geoactiva SpA an option to purchase 100% of the Perth Property through the execution of a mining option purchase agreement (the “Option Agreement”). Terms of the Option Agreement are summarized below:

 

1. Option price. In order to maintain the option to purchase and to acquire the Perth property, Geoactiva must pay us the total amount of $1,000,000 USD in the following installments:

 

 

 

 

 

 

Payment Price

US$ 

 

Upon execution of Option Agreement (“Execution date”)

 

 

37,500

6 months after Execution date

 

 

37,500

 

12 months after Execution date

 

 

50,000

 

18 months after Execution date

 

 

50,000

 

24 months after Execution date

 

 

100,000

 

30 months after Execution date

 

 

100,000

 

36 months after Execution date

 

 

125,000

 

42 months after Execution date

 

 

250,000

 

48 months after Execution date

 

 

250,000

 

Total

 

 

1,000,000

 

*$37,500 was paid on April 30, 2013

 

 

 

All of the above payments shall be made only if Geoactiva wishes to keep the Option Agreement in force and finally to exercise the option to purchase.

 

Upon exercise of the Option Agreement and once the commercial production begins, Geoactiva will pay us NSR of 1.5% from the sale of gold, copper, and cobalt extracted from the Perth property. At any time after the exercise of the Option Agreement and Geoactiva’s fulfillment of the investment commitment of $3,500,000 in exploration expenditures, Geoactiva may purchase 100% of the NSR as follows:

 

Gold: paying US $5 per inferred ounce of gold, according to the definition of Inferred Mineral Resource in the CIM Definition Standards on Mineral Resources and Mineral Reserves

 

Copper: US $0.005 per inferred ounce of copper, according to the definition of Inferred Mineral Resource in the CIM Definition Standards on Mineral Resources and Mineral Reserves

 

Cobalt: If Geoactiva acquires the NSR with respect to gold, copper, or both, the NSR relating to cobalt will be terminate Geoactiva will incur exploration expenditures, as follows:

 

 

 

 

 

 

US$ 

 

Within 12 months from Execution date

 

 

500,000

 

12-24 months from Execution date

 

 

1,000,000

 

24-36 months from Execution date

 

 

1,000,000

 

36-48 months from Execution date

 

 

1,000,000

 

Total

 

 

3,500,000

 

 

If Geoactiva fails to incur the required exploration expenditures during a specific period it may fulfill its obligations by paying us the outstanding amount in cash.

 

MATEO PROPERTY

 

We have assembled a group of claims: the Che Uno and Che Dos, the Margarita, and the Irene Uno and Irene Dos mining claims, and the Mateo exploration claims as described in Table 10 and illustrated in Figure 6.  The Mateo exploration claims overlap the Che, Margarita and Irene claims to secure the areas around the claims. Some of them may overlap others’ prior claims. We will acquire rights to these overlapped prior claims only if the owners forfeit their rights, and if we want the property. We acquired all of these claims for the same geological reasons and consider them one property, which we call the Mateo property.

 

Table 10: Mateo property

 

Claim

 

Type

 

 

 

Mensura

(ha)

 

 

Mensura in processa

(ha)

 

 

Pedimentoa

(ha)

 

Che Uno 1 – 8

 

 

32

 

 

 

 

 

 

 

Che Dos 1 – 10

 

 

44

 

 

 

 

 

 

 

Margarita 1 – 14

 

 

56

 

 

 

 

 

 

 

Irene Uno 1 – 2

 

 

10

 

 

 

 

 

 

 

Irene Dos 1 – 10

 

 

50

 

 

 

 

 

 

 

Mateo  1, 2, 3, 9,10,12, 13, 14

 

 

 

 

 

 

1,371

 

 

 

 

Mateo 4

 

 

 

 

 

 

 

 

 

 

300

 

Mateo 5

 

 

 

 

 

 

 

 

 

 

300

 

 

 

 

192

 

 

 

1,371

 

 

 

600

 

 

 

a Some of the claims are staked over the mensuras to claim the ground surrounding them. See Figure 6.

 

 

 

 

Figure 6: Mateo property

 

CHE UNO AND CHE DOS CLAIMS

 

On October 10, 2008 Minera Farellon Limitada granted us the option to purchase the Che Uno and Dos claims. The Che claims cover 76 hectares centered about 339,002 east and 6,838,450 south UTM PSAD56 Zone 19. They are in the northwest corner of the Mateo property.  On April 12, 2011 we completed the acquisition of the Che claims by paying approximately $20,000 to Minera Farellon. 

 

We continue to owe a royalty equal to 1% of the net proceeds that we receive from the processor to a maximum of $100,000 with no monthly minimum when we start exploiting the minerals we extract from the claim.   We have not yet exploited the claim.

 

 

 

MARGARITA CLAIM

 

We bought the Margarita mining claim on November 27, 2008 through a public auction for a total of $15,984.  The Margarita claim covers 56 hectares centered around 340,353 east and 6,838,347 south UTM PSAD56 Zone 19 located within the northeast corner of the Mateo property.

 

 IRENE UNO AND IRENE DOS CLAIMS

 

On September 7, 2010, we entered into a purchase agreement with Minera Farellon to buy the Irene Uno and Irene Dos mining claims. Under the terms of the agreement, as amended, we paid $45,174 (equivalent of 21 million Chilean pesos) on May 10, 2011 to exercise the option and purchase the Irene claims.  The Irene claims cover 60 hectares centered about 341,002 east and 6,838,101 south UTM PSAD56 Zone 19, are located within the northeast corner of the Mateo property, and share their western border with the Margarita claim.

 

MATEO CLAIMS

 

The Mateo claims consist of eight mensura in process — Mateo 1 through 3, 9,10, and 12 through 14, and two pedimentos — Mateo 4 and 5, covering 1,371 hectares, which we staked between November 2008 and November 2011. The claims are centered about 337,675 east and 6,837,600 south UTM PSAD56 Zone 19 and cover a five-kilometer strike length of intensely altered volcanics with significant massive sulphide mineralization. 

 

Location and means of access. The Mateo property is centered about 337,675 east and 6,837,600 south UTM PSAD56 Zone 19 approximately 10 kilometers east of Vallenar with the highest point at approximately 1,050 meters above sea level.  A well-used road leads from the city of Vallenar and crosses through the middle of the west half of the properties and along the southern border of the east half of the properties.  Many unmarked dirt roads in the area provide reliable access to most areas of Mateo.

 

Description. The Mateo property is a copper-gold-silver project that lies in the Candelaria IOCG belt in the Chilean Coastal Cordillera.  The Mateo property has undergone limited modern exploration including surface and underground RC drilling and artisanal mining on three separate mine sites, the Irene, Margarita and Santa Theresa mines.  We have reviewed all available records of work completed to date, including some records of the mining activity. Our interpretation of the work completed to date indicates the potential for an economic ore body in mineralized mantos and skarn-style mineralization associated with IOCG deposits.  

 

Exploration history. Historical work includes several drill programs completed by different Chilean private and public companies.  Records exist from eight drillholes completed in 1994 on the Irene mine and include two full reports written by ENAMI (the Chilean national mining company) with interpretation of mineralization and recommendations for further exploration and mining work.

 

The Irene mine was investigated by ENAMI in 1994.  Work completed during this time included surface RC drilling, including 490 meters in four RC drillholes, and underground diamond drilling, including 220 meters in four drillholes.  We obtained ENAMI’s reports of mining activities from 1994 through 1997.  Approximately 11,875 tonnes of rock were mined in that time averaging 4.3% copper, 61.9 grams per tonne silver, and 1.01 grams per tonne gold.  During the period from June 2009 to December 2010 the vendor of the Irene, Minera Farellon, conducted small scale mining activities on a different area of the Irene claims and mined 1,705 tonnes grading 1.39% Cu, 1.39g/t Ag, 0.29g/t Au in sulphides and 1,477 tonnes grading 1.98% Cu in oxides.  The difference in grade between the historic work and the recent work is not an indication that further high grade material will not be found on the Mateo property and further modeling and exploration work needs to be completed to determine the best place to drill.

 

A private Chilean company, Minera Taurus, drilled 16 RC holes on the east end of the Irene claim, but we have no record from this drilling. An unknown company built a portal 250 meters long and approximately three meters wide by three meters high. The portal leads to three mined-out chimneys connected to the surface providing ventilation channels.  On one of the property visits with ENAMI’s geologists, we found an extension of the mineralized zone at the base of the tunnel below showing the potential for mineral resources.

 

 

 

GeologyGeologically, the Mateo property is located within the brittle-ductile north-south-trending Atacama Fault System that is known to host many of the major deposits in the Candelaria IOCG belt.  Known mineralization is hosted in an andesitic volcaniclastic sequence assigned to the Bandurrias Formation. Widespread iron oxide and potassic alteration indicates an IOCG mineralizing system further supported by significant amounts of economic grade mineralization.

 

Exploration (2011).  During August through October 2011 we carried out an in-depth geological mapping and sampling program on the Mateo property.  The Mateo property has very diverse mineralization styles through the property which includes mantos, veins, breccias and porphyries with significant gold and copper. A total of 138 reconnaissance samples were collected over the property, primarily from outcropping rocks. The highest assay values returned from reconnaissance samples were 21g/t Au and 10.3% Cu but more common values were between 1-3g/t Au and 1-3% Cu. Table 11 summarizes the significant assay results.

 

Table 11: Mateo significant reconnaissance samples

Sample

 

 

Cu%

 

 

Au g/t

 

 

201272

 

 

 

7.37

 

 

 

1.12

 

 

202871

 

 

 

2.63

 

 

 

1.14

 

 

202852

 

 

 

7.11

 

 

 

1.18

 

 

202849

 

 

 

10.3

 

 

 

1.73

 

 

201220

 

 

 

4.29

 

 

 

2.07

 

 

201277

 

 

 

9.39

 

 

 

2.42

 

 

202850

 

 

 

2.58

 

 

 

2.46

 

 

202810

 

 

 

2.44

 

 

 

2.49

 

 

202882

 

 

 

2.57

 

 

 

3.08

 

 

202812

 

 

 

0.50

 

 

 

3.10

 

 

202815

 

 

 

0.62

 

 

 

3.57

 

 

202880

 

 

 

1.46

 

 

 

5.70

 

 

202826

 

 

 

5.30

 

 

 

6.85

 

 

201217

 

 

 

3.46

 

 

 

10.11

 

 

202813

 

 

 

0.69

 

 

 

21.72

 

 

The detailed mapping identified nine significant mineralized zones where further work is recommended.

 

 

 

Figure 7 below illustrates the local Mateo geology including a thematic map of 2011 reconnaissance sample locations and corresponding percent copper assay ranges.

 

 

Figure 7: Mateo property geology

 

2011 Ground Magnetic Survey

 

During September 2011, we engaged Quantec International Project Services Ltd. to complete a ground magnetic survey on the Mateo Property. The ground magnetic survey consisted of 70 survey lines with an EW orientation, and two control lines with a NS orientation. The survey lines were separated by 100m, and data was collected at 10m intervals on all lines. A total of 218.49km of magnetic data was collected. The survey outlined areas of high and low magnetic response. Areas of high magnetic response indicated the presence of elevated levels of magnetic minerals such as magnetite, pyrrhotite and hematite whereas areas of low magnetic response may be caused by alteration processes such as magnetite destruction or may simply indicate rock types that never had magnetic minerals.

 

This ground magnetic survey demarcated the northern and western extent with a large, high magnetic anomaly with a southwest to northeast orientation. This magnetic high may correlate with the Jilguero Intermediate Intrusive formation which is only partially exposed on the property and underlies the Jurassic Punta Del Cobre volcanics, and mixed sedimentary sequence.

 

Two possible correlations with geology are drawn when looking at the magnetic geophysical response. Firstly, all artisanal mines, reconnaissance samples and documented surface mineralization are exposed on the Western edge of the magnetic high in an area where magnetic high-low gradients are greatest transitioning from high to low. Secondly, magnetic highs appear to persist away from the main magnetic high body in a NW direction. Although these persisting magnetic highs are only small stringers in appearance they possibly correlate to dominant NW trending faults on the property that are often mineralized. Visual correlations between magnetic high/low contrasts and geology seem strong enough to suggest further exploration including sampling and drilling along the steepest gradient of magnetic high/low dropoff.

 

 

VETA NEGRA (FORMER PROPERTY)

 

During June and July 2011 we carried out a preliminary exploration program on our former Veta Negra property. As a result of the program we discovered a defined and continuous copper mineralized manto continuing on from the main manto previously known to exist. At the conclusion of this program three mantos were traced on surface, one manto, the East Manto, was traced for 1.9km on surface before becoming buried by surface rock, a second manto, the West Manto, was traced for a one kilometer strike length and a third manto, the Far West Manto, was traced for a 500 metre strike length.

 

After reviewing exploration results and considering the acquisition costs we decided to terminate the active development of this property, writing off $81,233 in acquisition costs.

 

Generative claims

 

As an exploration company, from time to time we will stake, purchase or option claims to allow ourselves the time and access to fully consider the geological potential of the claims. This allows us to generate new properties in areas that have not been explored. We have conducted groundwork on numerous generative claims of interest to us in the areas of our active properties. We have acquired several of these claims, have options to acquire others, and have staked claims in the same areas. We continue to compile data on and review other claims and discuss terms with various owners.

 

Abandoned claims

 

During the year ended January 31, 2013, we wrote off the former Veta Negra property, abandoned several claims within the Farellon property and wrote off certain generative claims, which resulted in a write off of  acquisition costs  of $83,159.

 

During the year ended January 31, 2012, we wrote off certain mineral claims with a paid cost of $15,471 and capitalized non-cash expenditures of $2,433 as we decided not to pursue exploration of the claims.

 

Competition

 

The mineral exploration business is an extremely competitive industry.  We are competing with many other exploration companies looking for minerals.  We are one of the smallest exploration companies and a very small participant in the mineral exploration business.  Being a junior mineral exploration company, we compete with other similar companies for financing and joint venture partners, and for resources such as professional geologists, camp staff, helicopters and mineral exploration contractors and supplies.  We do not represent a competitive presence in the industry.

 

Raw materials

 

The raw materials for our exploration programs include camp equipment, hand exploration tools, sample bags, first aid supplies, groceries and propane.  All of these types of materials are readily available from a variety of local suppliers.

 

Dependence on major customers

 

We have no customers.  Our first customer likely will be ENAMI, which refines and smelts copper from the ore that it buys from Chile’s small- and medium-scale miners.  ENAMI is located in Vallenar.  We could also sell our ore to the Dos Amigos heap leach facility located approximately fifty kilometers south of Vallenar in Domeyko. 

 

 

 

Patents/Trademarks/Licenses/Franchises/Concessions/Royalty Agreements/Labor Contracts

 

We have no intellectual property such as patents or trademarks, and, other than the royalties that we must pay if we begin to exploit our Chilean properties, no royalty agreements or labor contracts.  

 

Government controls and regulations

 

We are not required to obtain permits or submit operational plans in order to conduct exploration on our properties.  The mining business, however, is subject to various levels of government controls and regulations, which are supplemented and revised from time to time.  We cannot predict what additional legislation or revisions might be proposed that could affect our business or when any proposals, if enacted, might become effective.  Such changes, however, could require more operating capital and expenditures and could prevent or delay some of our operations.

 

The various levels of government controls and regulations address, among other things, the environmental impact of mining and mineral processing operations.  For mining and processing, legislation and regulations in various jurisdictions establish performance standards, air and water quality emission standards and other design or operational requirements for various components of operations, including health and safety standards.  Legislation and regulations also establish requirements for decommissioning, reclaiming and rehabilitating mining properties following the cessation of operations, and may require that some former mining properties be managed for long periods of time. As we are not mining or processing, and are unlikely to for some years, we have not investigated these regulations.

 

None of the exploration work that we have completed to date requires an environmental permit. We must repair any damage done to the land during exploration. Some of our claims are within the boundaries of a national park. According to the Mining Code of Chile, we will have to get written authorization from the government to mine or complete any exploration work within the park boundaries. We submitted an application to the government in December 2011 to explore within the park boundaries.  We received a response to our application requesting we complete an environmental study on the area we are applying to work in.  As part of this study we will have to hire an environmental consultant to investigate if any significant archeological remains exist in the area we intend to work in. Mapping and prospecting work completed north of the park boundary on the Farellon property has shown potential to expand the mineralized zone to the north where exploitation would not fall within the park boundaries.  The Company has decided to focus exploration north of the park boundary to determine the potential of the entire mineralized area to host an economic deposit before pursuing the application to work within the park boundary any further.

 

If our operations in Chile become profitable, any earnings that we remit abroad will be subject to Chilean withholding tax.

 

We believe that we are in substantial compliance with all material government controls and regulations at each of our mineral claims.

 

Costs and effects of compliance with environmental laws

 

We have incurred no costs to date for compliance with environmental laws for our exploration programs on any of our claims.

 

Expenditures on research and development

 

We have incurred no research or development costs since our inception on January 10, 2005.

 

 

 

Number of total employees and number of full-time employees

 

Red Metal does not have any employees. Caitlin Jeffs, Michael Thompson, and John da Costa, who are directors and officers, provide their services to the company as independent consultants.  Polymet retains the services of Kevin Mitchell, who is Polymet’s legal representative and manager in Chile, and one administrative employee. We contract for the services of geologists, prospectors and other consultants as we require them to conduct our exploration programs.

 

DESCRIPTION OF PROPERTY

 

Our executive offices are located at 195 Park Avenue, Thunder Bay, Ontario, Canada, P7B 1B9.  Our president, Caitlin Jeffs, provides this space free of charge although she is under no obligation to do so.  We also have a field and administrative office in Vallenar, Chile, which we rent from month to month at the rate of 550,000 Chilean pesos (approximately $1,000) per month.   We believe that these properties are suitable and adequate for our business operations.

 

We have assembled interests in three mineral properties in Chile—the Farellon, Mateo, and Perth—which we have described above.

 

LEGAL PROCEEDINGS

 

We are not a party to any pending legal proceedings and, to the best of our knowledge, none of our properties or assets are the subject of any pending legal proceedings.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

 

We are a mineral exploration company engaged in locating, and eventually developing, mineral resources in Chile. Our business strategy is to identify, acquire and explore prospective mineral claims with a view to either developing them ourselves or, more likely, finding a joint venture partner with the mining experience and financial means to undertake the development. All of our claims are in the Candelaria IOCG belt in the Chilean Coastal Cordillera.

 

We have generated only minimal revenue from operations and are dependent upon the equity markets for our working capital. Despite the current market volatility, we are optimistic that we can raise equity capital under these market conditions. We completed an offering of 6,723,333 units on April 7, 2011 at $0.30 per unit. Each unit consisted of one share of our common stock and one warrant for the purchase of one share of common stock exercisable at $0.50 per share for two years.  We have since reduced the exercise price of the warrants to $0.10 per share and extended the term to April 7, 2014.  We realized net cash proceeds of $1,862,462 from this offering and the payment of $130,000 in debt.

 

On September 2, 2011, we adopted the Red Metal Resources Ltd. 2011 Equity Incentive Plan and reserved 1,600,000 shares of our common stock for awards under the Plan. On the same day we issued options to purchase 1,040,000 shares of our common stock to directors, officers, employees and consultants who provide services to Red Metal.  The options have an exercise price of $0.50 per share and a term of 2 years.

 

Consistent with our historical practices, we continue to monitor our costs in Chile by reviewing our mineral claims to determine whether they possess the geological indicators to economically justify the capital to maintain or explore them. Currently, we have three employees in Chile and engage part time assistants during our exploration programs. Most of our support — such as vehicles, office and equipment — is supplied under short-term contracts. The only long-term commitments that we have are for royalty payments on two of our mineral claims – Farellon and Che. These royalties are payable once exploitation begins.

 

 

 

Please refer to the section “Unproved Mineral Properties’ in the discussion of our business for a detailed description of our unproved mineral assets and associated exploration campaigns.

 

The cost and timing of all planned exploration programs are subject to the availability of qualified mining personnel, such as consulting geologists and geo-technicians, and drillers and drilling equipment. Although Chile has a well-trained and qualified mining workforce from which to draw and few early-stage companies such as Red Metal are competing for the available resources, if we are unable to find the personnel and equipment that we need when we need them and at the prices that we have estimated today, we might have to revise or postpone our plans.

 

Payment of Debt with Shares of our Common Stock

 

As at August 12, 2013, we owed approximately $750,000 to the Debt Holders.  We do not have the funds to pay this debt. We intend to pay the debt with the shares of common stock. Because of the low price of our common stock, we will issue 15,000,000 shares for this purpose.  The issuance of these shares will result in substantial dilution to the shares of common stock held by our existing stockholders.  Furthermore, by registering these shares, the Debt Holders will be able to immediately resell them, which could have the effect of driving down the price of our common stock in the market.

 

Option Grant to Geoactiva SpA

 

On April 30, 2013, Minera Polymet Limitada, our Chilean subsidiary, granted Geoactiva SpA, a Chilean mining company (“Geoactiva”), an option to purchase 100% of our Perth properties.  To maintain the option and acquire the properties, Geoactiva must pay Minera Polymet $1,000,000 and incur exploration expenses over 48 months as set out in the following table.

 

Date 

  

Option payments 

  

  

Exploration

expenditures 

  

April 30, 2013 (paid)

 

$

37,500

 

 

 

 

October 30, 2013

 

 

37,500

 

 

 

 

April 30, 2014

 

 

50,000

 

 

$

500,000

 

October 30, 2014

 

 

50,000

 

 

 

 

 

April 30, 2015

 

 

100,000

 

 

 

1,000,000

 

October 30, 2015

 

 

100,000

 

 

 

 

 

April 30, 2016

 

 

125,000

 

 

 

1,000,000

 

October 30, 2016

 

 

250,000

 

 

 

 

 

April 30, 2017

 

 

250,000

 

 

 

1,000,000

 

 

 

$

1,000,000

 

 

$

3,500,000

 

 

For further information about this transaction, see the discussion titled “Option with Geoactiva SpA” included in the section of this prospectus titled “Description of Business”.

 

Results of operations

 

SUMMARY OF FINANCIAL CONDITION

 

Table 12 summarizes and compares our financial condition at the three months ended April 30, 2013, to the year-ended January 31, 2013.

 

Table 12: Comparison of financial condition

  

  

April 30,

2013

  

  

January 31,

2013

  

Working capital deficit

  

$

(2,196,868

)

  

$

(2,083,112

)

Current assets

  

$

42,548

  

  

$

4,142

  

Unproved mineral properties

  

$

848,432

  

  

$

852,611

  

Total liabilities

  

$

2,239,416

  

  

$

2,087,254

  

Common stock and additional paid in capital

  

$

5,996,058

  

  

$

5,976,058

  

Deficit

  

$

(7,232,913

)

  

$

(7,085,429

)

 

 

 

COMPARISON OF PRIOR QUARTERLY RESULTS

 

Table 13 and Table 14 present selected financial information for each of the past eight quarters.

 

Table 13: Summary of quarterly results (July 31, 2012 – April 30, 2013)

  

  

July 31,

2012

  

  

October 31,

2012

  

  

January 31,

2013

  

  

April 30,

2013

  

Revenue

  

$

–