10-K 1 a13-26781_110k.htm 10-K

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2013

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from          to         

 

Commission file number 1-13627

 

GOLDEN MINERALS COMPANY

(Exact Name of Registrant as Specified in its Charter)

 

DELAWARE
(State of Incorporation or Organization)

 

26-4413382
(I.R.S. Employer Identification No.)

 

350 Indiana Street, Suite 800
Golden, Colorado

(Address of principal executive offices)

 

80401
(Zip Code)

 

(303) 839-5060

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Common Stock, $0.01 par value

 

NYSE MKT

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o  No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No x

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

 

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.

 

Large accelerated filer o

 

Accelerated filer o

 

Non-accelerated filer o
(Do not check if a
smaller reporting company)

 

Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o  No x

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchanges Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x  No o

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2013 was approximately $46.2 million, based on the closing price of the registrant’s common stock of $1.36 per share on the NYSE MKT on June 30, 2013. For the purpose of this calculation, the registrant has assumed that its affiliates as of June 30, 2013 included all directors and officers and one shareholder that held approximately 19.4% of its outstanding common stock. The number of shares of common stock outstanding on February 25, 2014 was 43,530,833.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s Definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the 2014 Annual Meeting of Stockholders are incorporated by reference in Part III of this annual report on Form 10-K.

 

 

 



 

References to “Golden Minerals, the “Company,” “our,” “we,” or “us” mean Golden Minerals Company, its predecessors and consolidated subsidiaries, or any one or more of them, as the context requires. Many of the terms used in our industry are technical in nature. We have included a glossary of some of these terms below.

 

FORWARD-LOOKING STATEMENTS

 

Some information contained in or incorporated by reference into this annual report on Form 10-K may contain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. These statements include statements relating to our plans, expectations and assumptions concerning the Velardeña Properties (as defined below), the El Quevar project and certain properties in our exploration portfolio, the timing and budget for a potential restart of mining and processing at the Velardeña Properties and other costs related to our El Quevar project and our exploration properties, our expected cash needs, and statements concerning our financial condition, business strategies and business and legal risks.

 

We use the words “anticipate,” “continue,” “likely,” “estimate,” “expect,” “may,” “could,” “will,” “project,” “should,” “believe” and similar expressions to identify forward-looking statements. Statements that contain these words discuss our future expectations and plans, including the potential restart of mining and processing at the Velardeña Properties and planned exploration activities, and contain projections of 2014 expenditures or other matters, or state other forward-looking information. Although we believe the expectations and assumptions reflected in those forward-looking statements are reasonable, we cannot assure you that these expectations and assumptions will prove to be correct. Our actual results could differ materially from those expressed or implied in these forward-looking statements as a result of various factors described in this annual report on Form 10-K, including:

 

·                                          Higher than anticipated holding and care and maintenance costs related to the suspension of mining and processing at the Velardeña Properties in Mexico;

 

·                                          Potential inability to develop a restart plan for the Velardeña Properties that at then current silver and gold prices would indicate a sustainable cash positive margin, and the feasibility and economic viability of restart at the Velardeña Properties;

 

·                                          Risks related to our Velardeña Properties, including variations in the nature, quality and quantity of any mineral deposits that may be located there, our ability to extract and sell minerals from the mines successfully or profitably at current, lower silver and gold prices, mining or processing problems, further decreases in expected silver and gold prices, our ability to obtain and maintain any necessary permits, consents, or authorizations for mining and processing at the Velardeña Properties, accidents and other unanticipated events and our ability to raise the necessary capital required to finance a potential restart of mining and processing at the Velardeña Properties;

 

·                                          Risks related to the El Quevar project in Argentina, including whether we will be able to find a joint venture partner to advance the project, results of future exploration, feasibility and economic viability, delays and increased costs associated with evaluation of the project;

 

·                                          Our ability to retain key management and mining personnel necessary to create a restart plan for our Velardeña Properties and to successfully run and grow our business;

 

·                                          Results of future exploration at our exploration properties;

 

·                                          Economic and political events affecting the market prices for silver, gold, zinc, lead and other minerals which may be found on our exploration properties;

 

·                                          Political and economic instability in Mexico and Argentina and other countries in which we may conduct our business and future actions of any of these governments with respect to nationalization of natural resources or other changes in mining or taxation policies; and

 

·                                          The factors set forth under “Risk Factors” in Item 1A of this annual report on Form 10-K.

 

Many of these factors are beyond our ability to control or predict. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, such expectations may prove to be materially incorrect due to known and unknown risk and uncertainties. You should not unduly rely on any of our

 



 

forward-looking statements. These statements speak only as of the date of this annual report on Form 10-K. Except as required by law, we are not obligated to publicly release any revisions to these forward-looking statements to reflect future events or developments. All subsequent written and oral forward-looking statements attributable to us and persons acting on our behalf are qualified in their entirety by the cautionary statements contained in this section and elsewhere in this annual report on Form 10-K.

 

CAUTIONARY STATEMENT REGARDING MINERALIZED MATERIAL

 

“Mineralized material” as used in this annual report on Form 10-K, although permissible under the United States Securities and Exchange Commission’s (“SEC”) Industry Guide 7, does not indicate “reserves” by SEC standards. We cannot be certain that any deposits at the Velardeña Properties or any part of the Yaxtché deposit at the El Quevar project will ever be confirmed or converted into SEC Industry Guide 7 compliant “reserves”. Investors are cautioned not to assume that all or any part of the disclosed mineralized material estimates will ever be confirmed or converted into reserves or that mineralized material can be economically or legally extracted.

 

CONVERSION TABLE

 

In this annual report on Form 10-K, figures are presented in both United States standard and metric measurements. Conversion rates from United States standard to metric and metric to United States standard measurement systems are provided in the table below. All currency references in this annual report on Form 10-K are to United States dollars, unless otherwise indicated.

 

U.S. Unit

 

Metric Measure

 

Metric Unit

 

U.S. Measure

 

1 acre

 

0.4047 hectares

 

1 hectare

 

2.47 acres

 

1 foot

 

0.3048 meters

 

1 meter

 

3.28 feet

 

1 mile

 

1.609 kilometers

 

1 kilometer

 

0.62 miles

 

1 ounce (troy)

 

31.103 grams

 

1 gram

 

0.032 ounces (troy)

 

1 ton

 

0.907 tonnes

 

1 tonne

 

1.102 tons

 

 

GLOSSARY OF SELECTED MINING TERMS

 

Assay” means to test ores or minerals by chemical or other methods for the purpose of determining the amount of valuable metals contained.

 

Autoclave” means cylindrical vessel used to subject materials to high pressure and temperature; used at mines using hydrometallurgy mineral processing techniques for refractory materials.

 

Base Metal” means a classification of metals usually considered to be of low value and higher chemical activity when compared with the precious metals (gold, silver, platinum, etc.). This nonspecific term generally refers to the high-volume, low-value metals copper, lead, tin, and zinc.

 

Breccia” means rock consisting of fragments, more or less angular, in a matrix of finer-grained material or of cementing material.

 

Calcareous Clastic” means sedimentary rock composed of siliciclastic particles usually of conglomerate, sand, or silt-size and cemented by calcium carbonate in the form of calcite.

 

Claim” means a mining interest giving its holder the right to prospect, explore for and exploit minerals within a defined area.

 

Concentrates” means the clean product of ore or metal separated from its containing rock or earth by froth flotation or other methods of mineral separation.

 

Concession” means a grant or lease of a tract of land made by a government or other controlling authority in return for stipulated services or a promise that the land will be used for a specific purpose.

 

Core Drill” means a rotary type of rock drill that cuts a core of rock and is recovered in long cylindrical sections, two centimeters or more in diameter.

 

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Deposit” means an informal term for an accumulation of mineral ores.

 

Development Stage” means a project with an established resource, not in production, engaged in the process of additional studies preparing for completion of feasibility study or for commercial extraction.

 

Diorite” means a grey to dark grey intermediate intrusive igneous rock composed principally of plagioclase feldspar (typically andesine), biotite, hornblende, and/or pyroxene.

 

Doré” means gold and silver bullion that remains in a cupelling furnace after the lead has been oxidized and skimmed off.

 

Epithermal Calcite-Quartz” means deposits, typically occurring in veins, of calcite-quartz from hydrothermal fluids at shallow depths under conditions in the lower ranges of temperature and pressure.

 

Euhedral” means a well-developed degree of which mineral grains show external crystal faces (fully crystal-faced).

 

Exploration Stage” means a project that is not yet in either the development or production stage.

 

Feasibility Study” means an engineering study designed to define the technical, economic, and legal viability of a mining project with a high degree of reliability.

 

Felsic” means igneous rocks that are relatively rich in elements that form feldspar and quartz.

 

Flotation” means the separating of finely crushed minerals from one another by causing some to float in a froth and others to remain in suspension in the pulp. Oils and various chemicals are used to activate, make floatable, or depress the minerals.

 

Formation” means a distinct layer of sedimentary rock of similar composition.

 

Fracture System” means a set or group of contemporaneous fractures related by stress.

 

Grade” means the metal content of ore, usually expressed in troy ounces per ton (2,000 pounds) or in grams per ton or metric tonnes which contain 2,204.6 pounds or 1,000 kilograms.

 

Hypabyssal rock” means an intrusive igneous rock that originates at medium to shallow depths within the crust, and has intermediate grain size and often porphyritic texture between that of volcanic and plutonic rocks.

 

Inferred Resource” means the part of a mineral resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.

 

Laramide Orogeny” means a period of mountain building in western North America, which started in the Late Cretaceous age, 70 to 80 million years ago, and ended 35 to 55 million years ago.

 

Mineralization” means the concentration of metals within a body of rock.

 

Mineralized Material” means a mineralized body that has been defined by appropriate drilling and/or underground sampling to establish continuity and support an estimate of tonnage and an average grade of the selected metals.

 

Mining” means the process of extraction and beneficiation of mineral reserves or mineral deposits to produce a marketable metal or mineral product. Exploration continues during the mining process and, in many cases, mineral reserves or mineral deposits are expanded during the life of the mine activities as the exploration potential of the deposit is realized.

 

Monzodiorite” means coarse-grained igneous rock consisting of essential plagioclase feldspar, orthoclase feldspar, hornblende and biotite, with or without pyroxene, with plagioclase being the dominant feldspar making up 6% to 90% of the

 

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total feldspar and varying from oligoclase to andesine in composition. The presence of the orthoclase feldspar distinguishes this rock from a diorite.

 

National Instrument 43-101” or “43-101” means the standards of disclosure for mineral projects prescribed by the Canadian Securities Administrations.

 

Net Smelter Return Royalty” means a defined percentage of the gross revenue from a resource extraction operation, less a proportionate share of transportation, insurance, and processing costs.

 

Open Pit” means a mine working or excavation open to the surface.

 

Ore” means material containing minerals that can be economically extracted.

 

Outcrop” means that part of a geologic formation or structure that appears at the surface of the earth.

 

Oxide” means mineralized rock in which some of the original minerals have been oxidized (i.e., combined with oxygen).

 

Precious Metal” means any of several relatively scarce and valuable metals, such as gold, silver, and the platinum-group metals.

 

Probable Reserves” means reserves for which quantity and grade and/or quality are computed from information similar to that used for Proven Reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for Proven Reserves, is high enough to assume continuity between points of observation.

 

Production Stage” means a project that is actively engaged in the process of extraction and beneficiation of mineral reserves or mineral deposits to produce a marketable metal or mineral product.

 

Proven Reserves” means reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established.

 

Reclamation” means the process of returning land to another use after mining is completed.

 

Recovery” means that portion of the metal contained in the ore that is successfully extracted by processing, expressed as a percentage.

 

Reserves” means that part of a mineral deposit that could be economically and legally extracted or produced at the time of reserve determination.

 

Sampling” means selecting a fractional part of a mineral deposit for analysis.

 

Sediment” means solid fragmental material that originates from weathering of rocks and is transported or deposited by air, water, or ice, or that accumulates by other natural agents, such as chemical precipitation from solution or secretion by organisms, and that forms in layers on the earth’s surface at ordinary temperatures in a loose, unconsolidated form.

 

Sedimentary” means formed by the deposition of sediment.

 

Silver Equivalent” means silver and gold only, with gold converted to silver equivalents at a 60 to 1 ratio.

 

Stock” means discordant igneous intrusion having a surface exposure of less than 40 square miles.

 

Sulfide” means a compound of sulfur and some other element.

 

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Tailings Pond” means a low-lying depression used to confine tailings, the prime function of which is to allow enough time for heavy metals to settle out or for cyanide to be destroyed before water is discharged into the local watershed.

 

Tertiary” means the first period of the Cenozoic Era (after the Cretaceous of the Mesozoic Era and before the Quaternary) thought to have covered the span of time between 2 to 3 million years ago and 65 million years ago.

 

Vein” means a fissure, fault or crack in a rock filled by minerals that have traveled upwards from some deep source.

 

Waste” means rock lacking sufficient grade and/or other characteristics of ore.

 

PART I

 

ITEMS 1 AND 2:  BUSINESS AND PROPERTIES

 

Overview

 

We are a mining company, and we own the Velardeña and Chicago precious metals mining properties (the “Velardeña Properties”) in the State of Durango, Mexico, the El Quevar advanced exploration property in the province of Salta, Argentina, and a diversified portfolio of precious metals and other mineral exploration properties located primarily in or near historical precious metals producing regions of Mexico and Argentina. The Velardeña Properties and the El Quevar advanced exploration property are our only material properties. Our management team is comprised of experienced mining professionals with extensive expertise in mineral exploration, mine construction and development, and mine operations. Our principal offices are located in Golden, Colorado at 350 Indiana Street, Suite 800, Golden, CO 80401, and our registered office is the Corporation Trust Company, 1209 Orange Street, Wilmington, DE 19801. We also maintain an office at the Velardeña Properties in Mexico and exploration offices in Argentina and Mexico.

 

We are primarily focused on efforts to create a new mining and processing plan for our Velardeña Properties and the continued advancement of the El Quevar project. We also are reviewing strategic opportunities, focusing primarily on development or operating properties in North America, including Mexico. We also plan to continue our exploration efforts on selected properties in our portfolio of approximately 30 exploration properties located primarily in Mexico and Argentina.

 

Effective June 19, 2013, we suspended mining and processing at our Velardeña Properties in order to conserve the asset until we are able to create new mining and processing plans that, at then current prices for silver and gold, indicate a sustainable cash margin. Earlier in 2013, we projected that mining at the Velardeña Properties would achieve cash neutrality during the third quarter 2013, assuming gold and silver prices of $1,600 per ounce and $30 per ounce, respectively. During the second quarter 2013, metals prices decreased significantly below those levels, which was the principal reason we suspended our mining and processing activities. We placed the mines and processing plants on a care and maintenance program to enable a restart when mining and processing plans and metals prices support a cash positive outlook for the properties.

 

During 2013 we continued efforts to actively solicit a partner to advance our El Quevar project and rationalize our exploration portfolio. We reduced general and administrative expenses in 2013 by 21% over 2012 expenses. We expect this reduced level of spending to continue in 2014.

 

No Proven or Probable Reserves/Exploration Stage Company

 

We are considered an exploration stage company under SEC criteria since we have not demonstrated the existence of proven or probable reserves at our Velardeña Properties or any of our other properties. In Industry Guide 7, the SEC defines a “reserve” as that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Proven or probable reserves are those reserves for which (a) quantity is computed and (b) the sites for inspection, sampling, and measurement are spaced so closely that the geologic character is defined and size, shape and depth of mineral content can be established (proven) or the sites are farther apart or are otherwise less adequately spaced but high enough to assume continuity between observation points (probable). Reserves cannot be considered proven or probable unless and until they are supported by a feasibility study, indicating that the reserves have had the requisite geologic, technical and economic work performed and are economically and legally extractable.

 

Prior to suspending mining and processing at the Velardeña Properties in June 2013, we had revenues from the sale of gold, silver, lead and zinc products from the Velardeña and Chicago mines. We have not completed a feasibility study with

 

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regard to all or a portion of any of our properties to date. Any mineralized material discovered or extracted by us should not be considered proven or probable reserves. As of December 31, 2013, none of our mineralized material met the definition of proven or probable reserves. We expect to remain as an exploration stage company for the foreseeable future, even though we were extracting and processing mineralized material. We will not exit the exploration stage until such time, if ever, that we demonstrate the existence of proven or probable reserves that meet the guidelines under SEC Industry Guide 7.

 

Company History

 

We were incorporated in Delaware under the Delaware General Corporation Law in March 2009, and we are the successor to Apex Silver Mines Limited (“Apex Silver”) for purposes of reporting under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). From March 2009 through September 2011, we focused on the advancement of our El Quevar silver project in Argentina. On September 2, 2011, we completed a business combination transaction with ECU Silver Mining Inc. (“ECU”) and now own the Velardeña and Chicago silver, gold and base metals mines located in the Velardeña mining district in the State of Durango, Mexico as further described under “—Velardeña Properties”. Since the business combination with ECU, we have focused primarily on the further advancement and improvement of the Velardeña Properties.

 

Corporate Structure

 

Golden Minerals Company, headquartered in Golden, Colorado, is the operating entity through which we conduct our business. Following our September 2, 2011 business combination, ECU became a wholly-owned subsidiary of Golden Minerals, and three of ECU’s wholly-owned Mexican subsidiaries hold the assets and rights associated with the Velardeña Properties. We have a number of other wholly-owned subsidiaries organized throughout the world, including in Mexico, Central America, South America, the Caribbean and Europe. We generally hold our exploration rights and properties through subsidiaries organized in the countries in which our rights and properties are located.

 

Our Competitive Strengths and Business Strategy

 

Our business strategy is to establish Golden Minerals as a mid-tier precious metals mining company, focusing on efforts to create new mining and processing plans for the Velardeña Properties and continued advancement of the El Quevar project. We also are focused on strategic opportunities, primarily on development or operating properties in North America, including Mexico.

 

Velardeña Properties.  During the first six months of 2013, we sold approximately 252,000 ounces of silver and approximately 2,350 ounces of gold. Since the shutdown of mining and processing at the Velardeña Properties in June 2013, we have continued to focus on evaluating plans for a restart of the Velardeña Properties, with the objective of implementing a plan that at then current prices for silver and gold indicates a sustainable cash margin. We also are searching for third party sources of oxide feed for the oxide plant.

 

El Quevar Project.  In early 2013, we completed a 2,400 meter, 16 hole drilling program at the Quevar North and South areas at El Quevar. Results may represent a significant extension of the previously defined Yaxtché deposit and a mineralized zone at Quevar North similar in structural control to the Yaxtché zone. In order to advance El Quevar, we are actively soliciting a partner to move the project forward with additional drilling in these areas, drilling in other potential areas and evaluations.

 

Exploration Portfolio.  During 2014, we plan to focus our exploration efforts on projects in northern Mexico, and we expect our expenditures for the exploration program to be approximately $3.5 million. During 2013 we completed rationalization of our portfolio of exploration properties. We realized in 2012 and 2013 exploration property sales totaling approximately $9.0 million, relinquished properties no longer of interest and closed or consolidated our explorations offices. We reduced our portfolio of about 80 properties containing about 730,000 hectares to about 30 properties containing about 150,000 hectares. Since 2011 we have reduced ongoing annual expenditures for the exploration program by approximately 75 percent.

 

Experienced Management Team.  We are led by a team of mining professionals with approximately 125 years of combined experience in exploration, project development, construction and operations all over the world. Our executive officers have held senior positions at various large mining companies including, among others, Cyprus Amax Minerals Company, Phelps Dodge Corporation, Barrick Gold Exploration and Noranda Exploration. Our executive team has a proven ability to manage large projects in challenging environments.

 

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Velardeña Properties

 

Location, Access and Facilities

 

The Velardeña Properties are comprised of two underground mines and two processing plants within the Velardeña mining district, which is located in the municipality of Cuencamé, in the northeast quadrant of the State of Durango, Mexico, approximately 65 kilometers southwest of the city of Torreón, Coahuila and approximately 140 kilometers northeast of the city of Durango, which is the capital of the State of Durango. The mines are reached by a seven kilometer road from the village of Velardeña which is reached by highway from Torreón and Durango. The Velardeña mining district is situated in a hot, semi-arid region.

 

Of the two underground mines comprising the Velardeña Properties, the Velardeña mine includes three different major vein systems including the Santa Juana, San Juanes and San Mateo systems. During the first half of 2013, we were mining the Santa Juana vein system, which has been the focus of mining efforts at Velardeña since 1995, as well as the San Juanes, Terneras and San Mateo vein systems. During May 2013, we completed the San Mateo ramp, which provides improved access to the Santa Juana mining area. The completed ramp, which provides more efficient and less costly haulage capacity from the mine, should be helpful to the restart economic analysis. We suspended mining and processing in June 2013. During the suspension period, we are using the San Mateo ramp to access mining areas for drilling access and to create and evaluate restart plans. The Chicago mine is located approximately two kilometers south of the Velardeña property. We mined less from the Chicago mine in 2013 than in 2012 due to changed blending requirements at the plant and for mine optimization.

 

We own a 300 tonne per day flotation sulfide mill situated near the town of Velardeña, which accounted for approximately 42% and 33% of our revenue from saleable metals during 2013 and 2012, respectively. The mill includes lead, zinc and pyrite flotation circuits in which we can process the sulfide ore to make lead, zinc and pyrite concentrates. Most of the silver is contained in the lead concentrate, and most of the gold is in the pyrite concentrate.

 

We also own a conventional 550 tonne per day cyanide leach oxide mill with a Merrill-Crowe precipitation circuit and flotation circuit located adjacent to our Chicago mine, which accounted for approximately 58% and 67% of our revenue from saleable metals during 2013 and 2012, respectively. The mill is used to process oxide and mixed sulfide/oxide material from the Velardeña Properties and during the first half of 2013, generated gold and silver bearing precipitates and lead concentrates that were sold to third party refineries. There is also a small refinery at the oxide plant capable of matching the throughput of the oxide plant up to about 300 tonnes per day, or slightly more than half the maximum capacity of the oxide plant, and capable of creating doré gold and silver bars. We did not make any doré in 2013.

 

Ore is trucked from the Velardeña and Chicago mines to the appropriate processing plant, and each plant has its own tailings ponds. In January 2012, we completed a tailings pond expansion at the sulfide plant, which is fully permitted and has capacity to treat tailings for two years at 285 tonnes per day. For the oxide plant, we completed the first stage of a new tailings pond during May 2013. If mining activities resume, the first stage provides capacity to treat tailings for approximately one year at the processing rate of 500 tonnes per day.  We would expect to complete the second stage approximately six months after the resumption of mining activities, which would provide tailings treatment capacity for approximately an additional two years at 500 tonnes per day. Completion of the third stage would provide tailings treatment capacity for approximately an additional 14 years at the 500 tonnes per day processing rate. We began using the new pond at the oxide plant during the second quarter 2013. We are actively searching for oxide feed from outside sources, which could enable us to restart the oxide plant ahead of and possibly during implementation of an economic restart plan at the Velardeña Properties.

 

Power for all of the mines is provided through a substation connected to the national grid. Water is provided for all of the mines by wells located in the valley adjacent to the Velardeña Properties.

 

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The following map shows the location of the Velardeña Properties.

 

 

Property History

 

Exploration and mining in the Velardeña district extends back to at least the late 1500s or early 1600s, with large scale mining beginning in 1888 with the Velardeña Mining and Smelter Company. In 1902, the mining properties were acquired by ASARCO, who mined the property until 1926 when the mines were closed. For the next 35 years, the mines were operated from time to time by small companies and local miners. The property was nationalized in 1961, and in 1968 the sulfide processing plant was built by the Mexican government. In 1994, William Resources acquired the concessions comprising the Velardeña Properties. In 1997, ECU Gold (the predecessor to ECU Silver Mining Inc.) purchased from William Resources the subsidiaries that owned the concessions. ECU built the oxide processing plant in 1998.

 

Title and Ownership Rights

 

We hold the concessions comprising the Velardeña Properties through our wholly-owned Mexican subsidiaries Minera William S.A. de C.V. and BLM Minera Mexicana S.A. de C.V. At present, a total of 29 mineral concessions comprise the Velardeña Properties. The Velardeña Properties encompass approximately 675 hectares. The mineral concessions vary in size, and the concessions comprising each mineral property are contiguous within each of the Velardeña and Chicago properties. We are required to pay annual concession holding fees to the Mexican government to maintain our rights to the Velardeña mining concessions. In 2013, we made such payments totaling approximately $9,000 and expect to pay approximately $11,800 in 2014.

 

The Velardeña Properties are subject to the Mexican ejido system requiring us to contract with the local communities, or ejidos, surrounding our properties to obtain surface access rights needed in connection with our mining and exploration activities. We currently have contracts with two ejidos to secure surface rights for our Velardeña Properties with a total annual cost of approximately $40,000. The first contract is a ten-year contract with the Velardeña ejido, which provides surface rights to certain roads and other infrastructure at the Velardeña Properties through 2021.  The second contract is a 25-year contract with the Vista Hermosa ejido signed in March 2013, which provides exploration access and access rights for roads and utilities for our Velardeña Properties. In 2012 we entered into an agreement with the Vista Hermosa ejido to purchase the surface rights to the 144 hectares area that contains the oxide plant, tailings area and access to

 

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the Chicago mine, along with surface lands that may be required for potential plant expansions. We paid the purchase price, filed the necessary documentation with the National Agrarian Registry (RAN), and are awaiting final approval.

 

The following Velardeña Properties exploitation concessions are identified below by name and number in the Federal government Public Registry of Mining.

 

Mine/Area

 

Name of Exploitation
Concession

 

Concession
Number

 

Velardeña

 

AMPL. DEL ÁGUILA MEXICANA

 

85580

 

 

 

ÁGUILA MEXICANA

 

168290

 

 

 

LA CUBANA

 

168291

 

 

 

TORNASOL

 

168292

 

 

 

SAN MATEO NUEVO

 

171981

 

 

 

SAN MATEO

 

171982

 

 

 

RECUERDO

 

171983

 

 

 

SAN LUIS

 

171984

 

 

 

LA NUEVA ESPERANZA

 

171985

 

 

 

LA PEQUEÑA

 

171988

 

 

 

BUEN RETIRO

 

172014

 

 

 

UNIFICACIÓN SAN JUAN EVANGELISTA

 

172737

 

 

 

UNIFICACIÓN VIBORILLAS

 

185900

 

 

 

BUENAVENTURA No. 3

 

188507

 

 

 

EL PÁJARO AZÚL

 

188508

 

 

 

BUENAVENTURA 2

 

191305

 

 

 

BUENAVENTURA

 

192126

 

 

 

LOS DOS AMIGOS

 

193481

 

 

 

VIBORILLAS NO. 2

 

211544

 

 

 

KELLY

 

218681

 

 

 

 

 

 

 

Chicago

 

SANTA TERESA

 

171326

 

 

 

SAN JUAN

 

171332

 

 

 

LOS MUERTOS

 

171986

 

 

 

EL GAMBUSINO

 

171987

 

 

 

AMPLIACIÓN SAN JUAN

 

183883

 

 

 

MUÑEQUITA

 

196313

 

 

 

SAN AGUSTÍN

 

210764

 

 

 

EL PISTACHÓN

 

220407

 

 

 

LA CRUZ

 

189474

 

 

Geology and Mineralization

 

The Velardeña district is located at the easternmost limit of the Sierra Madre Occidental on the boundary between the Sierra Madre Oriental and the Mesa Central sub-provinces. Both of these terrains are underlain by Paleozoic and possibly Precambrian basement rocks.

 

The regional geology is characterized by a thick sequence of limestone and minor calcareous clastic sediments of Cretaceous age, intruded by Tertiary plutons of acidic to intermediate composition. During the Laramide Orogeny, the sediments were folded into symmetrical anticlines and synclines that were modified into a series of asymmetrical overturned folds by a later stage of compression.

 

A series of younger Tertiary stocks have intruded the older Cretaceous limestone over a distance of approximately 15 kilometers along a northeast to southwest trend. The various mineral deposits of the Velardeña mining district occur along the northeast southwest axis and are spatially associated with the intrusions and their related alteration.

 

An important northwest southeast fracture system is associated with these intrusions and, in many cases, acts as the main focus of mineralization. The Velardeña Properties are underlain by a thick sequence of limestone that corresponds to rocks of the Aurora and Cuesta del Cura formations of Lower Cretaceous age.

 

Several types of Tertiary intrusive rocks are present in the Velardeña district. The largest of these rocks outcrops on the western flank of the Sierra San Lorenzo and underlies a portion of the Velardeña Properties. It is referred to as the Terneras pluton and forms a northeast oriented, slightly elongated body, considered to represent a diorite or monzodiorite that outcrops over a distance of about 2.5 kilometers. The adjacent limestone has been altered by contact metamorphism (exoskarn), and locally the intrusive has been metamorphosed (endoskarn).

 

10



 

The following is a description of the individual geological characteristics and mineralization found on each of the properties comprising the Velardeña Properties.

 

Velardeña Mine

 

The Santa Juana, Terneras, San Juanes and San Mateo vein deposits on the Velardeña property are hosted by Aurora Formation limestone, the Terneras intrusion and related skarn. The limestone is intruded by a series of multiphase diorite or monzodiorite stocks (Terneras intrusion) and dikes of Tertiary age that outcrop over a strike length of approximately 2.5 kilometers.

 

Two main vein systems are present on the Velardeña property. The first is a northwest striking system as found in the Santa Juana deposit, while the second is east-west trending and is present in the Santa Juana, Terneras, San Juanes and San Mateo deposits.

 

In the Santa Juana deposit, two main sets of vein trends are observed. The most significant is a steeply northeast dipping, northwest trending set that has acted as the main conduit for the mineralizing fluids in the Santa Juana deposit. This direction includes both linear and curved northwest vein sets.

 

The Terneras, San Juanes and San Mateo veins all strike east-west and dip steeply north. The most extensive of these is the Terneras vein, which was mined in the past over a strike length of 1,100 meters. All of these veins are observed to have extensive strike lengths and vertical continuity for hundreds of meters. The mineralogy of the east west system is somewhat different in that it contains less arsenic than the northwest Santa Juana veins.

 

Mineralization in the deposits located at the Velardeña mines belongs primarily to epithermal calcite quartz veins with associated lead, zinc, silver, gold and copper mineralization, typical of the polymetallic vein deposits of northern Mexico. The veins are usually thin, normally in the 0.2 meter to 0.5 meter range, but consistent along strike and down dip. Coxcomb and rhythmically banded textures are common.

 

Chicago Mine

 

On the Chicago property, the oldest rocks outcropping are Cretaceous limestone of the Aurora Formation which are highly folded. This limestone is locally metamorphosed by the intrusion of the Tertiary dioritic stocks and dykes. The general geology of the Chicago property is very similar to the geology of the Velardeña property. The Chicago veins strike northeast and dip steeply southeast. Chicago ore tends to be higher in lead and zinc and lower in arsenic than the Santa Juana ore. Vein widths at Chicago are variable and tend to be narrower than at the Santa Juana deposit, especially in the skarn host.

 

2012 Technical Report

 

During the second quarter 2012, the engineering firm of Chlumsky, Armbrust and Meyer (“CAM”) completed an estimate of mineralized material at the Velardeña Properties, set forth in the following table:

 

Mineralized Material

 

Tonnes
(in
thousands)

 

Gold
(Au)
Grade
(Grams
per
tonne)

 

Contained
Gold (Au)
oz.

 

Silver
(Ag)
Grade
(Grams
per
tonne)

 

Contained
Silver (Ag)
oz.
(in thousands)

 

Lead
(Pb)
Grade
%

 

Contained
Lead (Pb)
lbs.
(in thousands)

 

Zinc (Zn)
Grade %

 

Contained
(Zinc) Zn lbs.
(in thousands)

 

Mineralized Material at January 1, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Velardeña Mine

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oxide and mixed

 

741

 

3.67

 

87,405

 

189

 

4,502

 

1.15

 

18,802

 

1.03

 

16,751

 

Sulfide

 

1,368

 

3.48

 

153,218

 

203

 

8,935

 

0.94

 

28,379

 

1.18

 

35,450

 

Chicago Mine

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oxide and mixed

 

106

 

3.01

 

10,242

 

142

 

484

 

2.85

 

6,660

 

2.43

 

5,667

 

Sulfide

 

118

 

2.31

 

8,765

 

187

 

710

 

2.98

 

7,752

 

2.83

 

7,362

 

Total Mineralized Material at January 1, 2012

 

2,333

 

3.46

 

259,629

 

195

 

14,631

 

1.20

 

61,594

 

1.27

 

65,229

 

 


Note: Results may not tie precisely due to rounding. Additionally, gold ounces are rounded to the nearest ounce and tonnes, silver ounces, zinc pounds and leads pounds are rounded to the nearest thousand. The variance in rounding different commodities and units is for convenience and does not reflect any differences in the level of accuracey of the calculated mineralized material estimate.

 

The CAM resource estimate assumed a gold price of $1,255.12 per troy ounce, a silver price of $23.28 per troy ounce and a cutoff grade of a net smelter return (“NSR”) of $120.00 per tonne.

 

11



 

The following table shows the commodity prices and metallurgical recoveries used to determine the cutoff grade.

 

Metal

 

Metal Prices*

 

Sulfide
Metallurgical
Recovery
%

 

Oxide
Metallurgical
Recovery
%

 

Mixed Metallurgical
Recovery
%

 

Gold

 

$

1,255.12(oz)

 

64

 

71

 

29

 

Silver

 

$

23.28(oz)

 

90

 

68

 

50

 

Lead

 

$

0.95(lb)

 

61

 

0

 

25

 

Zinc

 

$

0.91(lb)

 

65

 

0

 

37

 

 


* Amounts represent three-year average prices.

 

The cutoff grade of $120.00 NSR per tonne of mineralized material was determined by adding the estimated average costs of mining ($50.00 per tonne), processing ($40.00 per tonne) and general and administration ($30.00 per tonne). The average cost estimates are the same for both the Velardeña and Chicago mines. The NSR value of mineralized material was determined for each type of mineralized material (sulfide, mixed, and oxide) by multiplying a fractional factor that represents an estimated combination of metallurgical recovery, treatment charges, penalties and payment terms by the unit value of each metal and then multiplying by the expected amount of that metal in each block of inventoried material.

 

The following tables show the reduction in mineralized material reported in the CAM report that resulted from extraction and processing of mineralized material in 2012 and 2013.

 

Mineralized
Material

 

Tonnes
(in thousands)

 

Gold
(Au)
Grade
(Grams
per tonne)

 

Contained
Gold (Au)
oz.

 

Silver
(Ag)
Grade
(Grams
per
tonne)

 

Contained
Silver (Ag)
oz.
(in thousands)

 

Lead
(Pb)
Grade
%

 

Contained
Lead (Pb)
lbs.
(in thousands)

 

Zinc
(Zn)
Grade %

 

Contained
Zinc (Zn)
lbs.
(in thousands)

 

2012 Extraction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Velardeña Mine

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oxide and mixed

 

51

 

3.45

 

5,652

 

231

 

378

 

0.86

 

966

 

0.95

 

1,067

 

Sulfide

 

49

 

2.95

 

4,664

 

182

 

288

 

0.68

 

737

 

0.87

 

943

 

Chicago Mine

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oxide and mixed

 

14

 

2.07

 

934

 

109

 

49

 

2.28

 

705

 

1.61

 

498

 

Sulfide

 

20

 

2.52

 

1,643

 

153

 

100

 

2.85

 

1,274

 

3.75

 

1,676

 

Total Tonnes Extracted in 2012

 

134

 

2.98

 

12,894

 

189

 

815

 

1.24

 

3,683

 

1.41

 

4,185

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mineralized Material at December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Velardeña Mine

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oxide and mixed

 

690

 

3.68

 

81,752

 

186

 

4,124

 

1.17

 

17,836

 

1.03

 

15,684

 

Sulfide

 

1,321

 

3.50

 

148,777

 

204

 

8,665

 

0.95

 

27,683

 

1.19

 

34,558

 

Chicago Mine

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oxide and mixed

 

92

 

3.15

 

9,308

 

147

 

435

 

2.94

 

5,955

 

2.55

 

5,169

 

Sulfide

 

98

 

2.27

 

7,122

 

194

 

610

 

3.01

 

6,478

 

2.64

 

5,686

 

Total Mineralized Material at December 31, 2012

 

2,201

 

3.49

 

246,959

 

196

 

13,834

 

1.19

 

57,953

 

1.26

 

61,097

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2013 Extraction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Velardeña Mine

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oxide and mixed

 

11

 

3.53

 

1,294

 

393

 

144

 

2.03

 

510

 

1.26

 

317

 

Sulfide

 

40

 

4.38

 

5,664

 

212

 

275

 

0.96

 

849

 

1.39

 

1,232

 

Chicago Mine

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oxide and mixed

 

1

 

3.70

 

73

 

90

 

2

 

1.67

 

23

 

1.87

 

25

 

Sulfide

 

9

 

2.45

 

687

 

136

 

38

 

2.72

 

523

 

3.41

 

657

 

Total Tonnes Extracted in 2013

 

61

 

3.93

 

7,718

 

234

 

459

 

1.42

 

1,906

 

1.66

 

2,231

 

 

12



 

Mineralized
Material

 

Tonnes
(in thousands)

 

Gold
(Au)
Grade
(Grams
per tonne)

 

Contained
Gold (Au)
oz.

 

Silver
(Ag)
Grade
(Grams
per
tonne)

 

Contained
Silver (Ag)
oz.
(in thousands)

 

Lead
(Pb)
Grade
%

 

Contained
Lead (Pb)
lbs.
(in thousands)

 

Zinc
(Zn)
Grade %

 

Contained
Zinc (Zn)
lbs.
(in thousands)

 

Mineralized Material at December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Velardeña Mine

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oxide and mixed

 

679

 

3.69

 

80,458

 

182

 

3,979

 

1.16

 

17,326

 

1.03

 

15,367

 

Sulfide

 

1,279

 

3.48

 

142,890

 

204

 

8,372

 

0.95

 

26,793

 

1.18

 

33,274

 

Chicago Mine

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oxide and mixed

 

91

 

3.14

 

9,235

 

147

 

433

 

2.95

 

5,932

 

2.55

 

5,144

 

Sulfide

 

89

 

2.25

 

6,434

 

200

 

572

 

3.04

 

5,955

 

2.56

 

5,029

 

Total Mineralized Material at December 31, 2013

 

2,138

 

3.48

 

239,017

 

194

 

13,357

 

1.19

 

56,005

 

1.25

 

58,813

 

 

The following table shows the recovery rates for gold, silver, lead and zinc at each of our processing facilities for 2012 and 2013.

 

 

 

2012

 

2013

 

Oxide plant recovery

 

 

 

 

 

Gold

 

63.4

%

40.1

%

Silver

 

56.5

%

78.0

%

Sulfide plant recovery

 

 

 

 

 

Gold

 

64.4

%

61.2

%

Silver

 

89.5

%

72.1

%

Lead

 

60.9

%

62.3

%

Zinc

 

65.4

%

82.2

%

 

For further detail regarding mineralized material, see “CAUTIONARY STATEMENT REGARDING MINERALIZED MATERIAL”.

 

2013 Performance

 

On June 19, 2013, we suspended mining and processing at the Velardeña Properties in order to conserve the asset. During the first half of 2013, the processing facilities generated payable metals totaling approximately 393,000 silver equivalent ounces (equivalents calculated at 60:1 silver to gold) and included approximately 252,000 ounces of silver and 2,350 ounces of gold. Payable silver equivalents include only silver and gold equivalent ounces. Also, during the first half of 2013, the processing facilities generated approximately 500,000 pounds of payable lead and 706,000 pounds of payable zinc. The following table shows actual silver, gold and silver equivalent payables for the first six months of 2013 and the full year 2012.

 

 

 

Payable Metal

 

 

 

2012

 

2013(1)

 

 

 

 

 

 

 

Silver (oz)

 

457,265

 

252,256

 

Gold (oz)

 

6,435

 

2,349

 

Silver equivalent (AgEq)(oz)(2)

 

843,365

 

393,196

 

 


(1)  Mining and processing activities were suspended at the Velardeña Properties on June 19, 2013.

(2)  Equivalents calculated at 60:1 silver to gold.

 

Combined grades feeding both plants increased year over year by 27% for gold and 30% for silver. The amount of silver and gold payables for the first half of 2013 was negatively impacted by an approximately 33 day suspension of the explosives permit between the first and second quarters, which reduced mill throughput during the period, and the shutdown of mining and processing activities in June 2013. Our payable metals increased approximately 25% on a silver equivalent daily basis in the first half of the year compared to the previous year, but prices decreased significantly below the $1,600 and $30 per ounce levels originally projected. For the second quarter, on a daily basis, 2013 payable metals increased by 67% for silver and 15% for gold as compared to the second quarter 2012. Gold payables were negatively impacted in 2013 by reduced gold recoveries from material mined from new areas, which appeared to have different metallurgy, and a decrease in the percentage of oxide ores which achieve favorable recoveries in the leach circuit.

 

13



 

The table below sets forth the mining and processing statistics of our Velardeña Properties for the first six months of 2013 and the full year 2012.

 

 

 

The Year Ended December 31,

 

 

 

2013 (1)

 

2012

 

Tonnes Milled

 

 

 

 

 

(includes stockpiles)

 

 

 

 

 

Oxide plant

 

41,383

 

111,003

 

Sulfide plant

 

30,680

 

74,904

 

 

 

72,063

 

185,907

 

Combined plant grades

 

 

 

 

 

(Grams per tonne)

 

 

 

 

 

Gold

 

2.56

 

2.02

 

Silver

 

163

 

125

 

Combined plant recovery (2)

 

 

 

 

 

Gold

 

48.7

%

63.7

%

Silver

 

75.8

%

69.2

%

 

 

 

 

 

 

Contained Metals (2) 

 

 

 

 

 

(includes stockpiles)

 

 

 

 

 

Gold ounces

 

2,885

 

7,723

 

Silver ounces

 

286,394

 

534,372

 

Silver equivalent ounces (60:1)

 

459,494

 

997,740

 

Lead - pounds (000)

 

564

 

1,137

 

Zinc - pounds (000)

 

836

 

1,686

 

 

 

 

 

 

 

Payable Metals (2)

 

 

 

 

 

(includes stockpiles)

 

 

 

 

 

Gold ounces

 

2,349

 

6,435

 

Silver ounces

 

252,256

 

457,265

 

Silver equivalent ounces (60:1)

 

393,196

 

843,365

 

Lead - pounds (000)

 

500

 

1,042

 

Zinc - pounds (000)

 

706

 

1,388

 

 

 

 

 

 

 

Products sold

 

 

 

 

 

Doré - kilograms

 

 

2.55

 

Precipitate - kilograms

 

9.07

 

14.41

 

Lead concentrates - tonnes

 

1,147

 

1,526

 

Zinc concentrates - tonnes

 

1,054

 

1,766

 

Pyrite concentrates - tonnes

 

2,789

 

4,939

 

Copper concentrates - tonnes

 

 

173

 

 

 

 

 

 

 

Payable metals in products sold

 

 

 

 

 

Gold ounces

 

2,845

 

7,258

 

Silver ounces

 

310,791

 

486,087

 

Silver equivalent ounces (60:1)

 

481,491

 

921,567

 

Lead - pounds (000)

 

720

 

1,169

 

Zinc - pounds (000)

 

927

 

1,400

 

 


(1)  Mining and processing activities were suspended at the Velardeña Properties on June 19, 2013.

(2)  Current payable metals and recoveries include final metal settlements pertaining to sales of previously reported payable metals.

 

Velardeña Properties and Plans

 

On June 19, 2013 we suspended mining at our Velardeña Properties. We placed the mines and processing plants on a care and maintenance program to enable a restart when mining and processing plans and metals prices support a cash positive outlook. Approximately 420 positions at the Velardeña Properties were eliminated at the beginning of July 2013, with an additional approximately 20 positions eliminated in October 2013 following the completion of certain suspension activities primarily related to the idling of plant and mobile equipment. We currently plan to retain a core group of approximately 40 employees to facilitate a restart of mining activities and to maintain and safeguard the longer term value of the asset. This group may be further reduced in 2014 as we continue to evaluate restart plans.

 

Since the shutdown, we have continued to evaluate plans for a restart of mining at the Velardeña Properties, with the objective of implementing a plan that at then current prices for silver and gold indicates a sustainable cash margin for mining. We have been mapping and sampling veins underground containing higher grade shoots to verify mine modeling in support of restart planning.  We are analyzing the potential of mining from a combination of different veins at our Velardeña

 

14



 

Properties based primarily on grades and metallurgy. Additionally, we are reviewing alternative high grade narrow vein mining methods to determine the most beneficial mining method for a potential restart. In these efforts, we are using our own technical personnel as well as independent third party consultants.  During the first quarter 2014 we commenced a 5,000 meter underground drill program at the Velardeña mine in order to obtain additional information to assist us in creating our restart plan. We expect to receive the drill results in the second quarter 2014.

 

During 2013 we continued to work on treatment options to improve gold recoveries from gold bearing pyrites. Testing to date for an autoclave process and roasting technologies has demonstrated significant improvement in recoveries, but both of these processes require a larger scale mining project than data currently suggests is feasible. Other enhanced recovery technologies, including fine grinding and leaching, ferric chloride oxidation and leaching and other oxidation processes, have not demonstrated an economic benefit in lab testing thus far.  Our current efforts are focused on whether different types of pyrites can be separated to enhance gold recoveries.

 

We also are actively searching for oxide feed from outside sources, which could enable us to restart the oxide plant at the Velardeña Properties ahead of and possibly during implementation of an economic restart mining plan.

 

Product Mix

 

In 2013 the Company sold from the Velardeña Properties primarily precipitates containing payable quantities of gold and silver and lead, zinc and pyrite concentrates containing payable quantities of gold, silver, lead and zinc. In addition to the product mix described in the foregoing sentence, in 2012, the Company also sold doré.

 

Precipitates

 

The oxide plant at the Velardeña Properties is a typical agitation leach circuit utilizing Merrill-Crowe to make a filtered precipitate product containing approximately 40% to 45% silver and about 0.5% gold. The precipitate also contains about 10% to 12% lead, 2% copper and 40% other base metals and insoluble elements. The precipitate is sold directly to customers or can be fed directly to a small furnace at the oxide plant to smelt the precipitates into a silver and gold doré bar. During 2013, we sold all of our precipitates from the oxide plant directly to customers, selling the precipitates to two different customers, as described below. Typically, we are paid for 95% to 97% of the contained gold and contained silver in the precipitates with minimal charges for treatment and refining costs. Minimal freight costs to ship the product to the customers are borne by the Company. Pricing is generally determined with reference to an average monthly price for gold and silver relating to the month the precipitates are received by the customer.

 

In 2013 we incurred approximately $0.2 million in smelting and refining charges for our precipitates sold. Treatment charges are netted against revenue in our consolidated statement of operations.

 

Doré

 

In 2012 we made silver and gold doré bars at the Velardeña Properties’ oxide plant, which typically contain about 85% to 90% silver, 2% to 3% gold, and 6% to 8% lead, with the balance being other base metals and insoluble elements. Bars generally weigh around 20 to 25 kilograms. Because of lower silver recoveries experienced during the smelting process, we ceased selling doré in the second quarter 2012.

 

Concentrates

 

The sulfide plant at the Velardeña Properties contains a typical flotation circuit that processes material from the Velardeña Properties into lead, zinc and pyrite concentrate products.

 

Lead concentrates comprise approximately 15% to 20% of total concentrate products from the sulfide plant. The lead concentrates have typical assays of 35% to 40% lead, 4,500 to 5,000 grams per tonne silver, 5 to 10 grams per tonne gold, 5% to 6% zinc and 3% to 4% copper. After metal deductions, we are typically paid for 95% of contained lead and silver with lesser amounts payable for the contained gold. Concentrate treatment charges are negotiated annually and generally reflect market terms for the industry for similar products. Treatment charges in 2013 ranged from $350.00 to $400.00 per tonne. Additional charges are incurred for gold and silver refining, and penalties are assessed for certain elements, such as arsenic and antimony that exceed agreed limits.

 

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Zinc concentrates comprise approximately 25% to 30% of total concentrate products from the sulfide plant. The zinc concentrates have typical assays of 40% to 45% zinc, 600 to 700 grams per tonne silver, 3 to 5 grams per tonne gold and 5% to 6% lead. After metal deductions, we are typically paid for approximately 80% of contained zinc and 55% of silver with lesser amounts payable for the contained gold. Concentrate treatment charges are negotiated annually and generally reflect market terms for the industry for similar products. Treatment charges in 2013 ranged from $175.00 to $200.00 per tonne. Additional charges are incurred for gold and silver refining, and penalties are assessed for certain elements, such as arsenic, that exceed agreed limits.

 

Pyrite concentrates comprise approximately 50% to 60% of total concentrate production from the sulfide plant. The pyrite concentrates have typical assays of 17 to 19 grams per tonne gold, approximately 200 grams per tonne silver and 33% to 38% sulfur. We are generally paid for only 60% to 65% of the contained gold. Concentrate treatment charges are negotiated annually and generally reflect market terms for the industry for similar products. Treatment charges currently range from $150.00 to $200.00 per tonne, with additional penalties assessed for certain elements, such as zinc, that exceed agreed upon limits.

 

In 2013, we incurred approximately $1.9 million in smelting and refining charges and approximately $0.7 million in penalty charges, primarily for arsenic and antimony included in our lead and zinc concentrates. Treatment and penalty charges are netted against revenue in our consolidated statement of operations.

 

Customers

 

During 2013 all of our revenues from mining were attributable to the sale of products from the Velardeña Properties, including precipitates and lead, zinc and pyrite concentrates. In 2013 we sold some of our precipitates to a single customer under a contract that expired at the end of 2013. Under this contract, we were required to deliver to the customer a minimum of 65% of all our precipitates during the contract period. We have one additional customer to which we sold precipitates during 2013 on a spot basis. During 2013, we also sold lead, zinc and pyrite concentrate products to various customers under exclusive annual contracts that are generally re-negotiated each calendar year. Our sales contracts include terms typical for the industry, including deductions for smelting and refining charges (or treatment charges) and penalties for contaminates present in our products sold.

 

Our customer contracts are such as ordinarily accompany the kind of business conducted by us and our subsidiaries and are entered into in the ordinary course. Most of our customer contracts are not material in amount, and any contract that is material in amount is not a contract on which our business is substantially dependent. Most of our customer contracts are for a term of one year or less, and many of the contract terms are negotiable during the term of the contract. The global gold and silver markets are competitive with numerous refineries willing to buy precipitates and concentrates on short notice. If any one of our customer contracts were terminated, including the contract pursuant to which a customer purchased approximately 65% of our precipitates, we have identified other precipitate customers during the bidding process as additional avenues in which to sell our product. We do not believe that a loss of the customer that purchased approximately 65% of our precipitates would materially delay, disrupt or reduce revenues in the future if we resume mining activities.

 

Environmental Matters and Permitting

 

We conducted environmental audits of the Velardeña Properties in 2011, 2012 and 2013 and identified non-compliance matters that have been remediated, including general site clean-up and permit renewals. We have completed 92% of the remediation plan and expect to have fully completed the plan in March 2014. During 2013 we spent approximately $135,000 remediating or otherwise addressing these issues and currently anticipate that future costs of addressing these issues will not exceed $70,000. In early 2012, for the sulfide plant, we applied for and were accepted into the Mexican National Environmental Auditing Program (“NEAP”). Under NEAP, we are participating in an audit program that verifies compliance with existing regulations and identifying non-regulated potential issues that could result in environmental contingencies. Under the program, we have received recommendations regarding steps to be taken to achieve compliance, and we have agreed to a schedule for achieving compliance. If we comply with the recommendations, and if and when we resume mining and processing at the Velardeña Properties, we expect to obtain a “clean industry” certification issued by the Mexican government. We hold various permits required to conduct mining activities at the Velardeña Properties, and our participation in NEAP allows us to continue mining activities during the remediation of non-compliance matters.

 

We are required to update our environmental licenses and environmental impact assessments for expansion of or modification to any of the existing two plants. The construction of new infrastructure beyond the current plant facilities also

 

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would require additional permitting, which could include environmental impact assessments and land use permits. We do not expect to have difficulty obtaining additional permits or environmental impact assessments.

 

Certain Laws Affecting Mining in Mexico

 

Mexico, officially the United Mexican States, is a federal constitutional republic in North America and bordered by the United States of America, Belize and Guatemala. Mexico is a federal democratic republic with 31 states and one federal district. Each state has its own constitution and its citizens elect a governor, as well as representatives, to their respective state congresses. The President of Mexico is the head of the executive federal government. Executive power is exercised by the President, while legislative power is vested in the two chambers of the Congress of the Union. The three constitutional powers are the Judiciary, the Executive and the Legislature which are independent of each other.

 

Legislation Affecting Mining

 

The Mining Law, originally published in 1992 and amended in 1996, 2005 and 2006, is the primary legislation governing mining activities in Mexico. Other significant legislation applicable to mining in Mexico includes the regulations to the Mining Law, the Federal Law of Waters, the Federal Labour Law, the Federal Law of Fire Arms and Explosives, the General Law on Ecological Balance and Environmental Protection and regulations, the Federal Law of Duties and the Federal Law on Metrology and Standards.

 

The Concession System

 

Under Mexican law, mineral deposits are property of the Mexican republic, and a mining concession, granted by the executive branch of the federal government, is required for the exploration, exploitation and processing of mineral deposits. Mining concessions may only be granted to Mexican individuals domiciled in Mexico or companies incorporated and validly existing under the laws of Mexico. Mexican companies that have foreign shareholders must register with the National Registry of Foreign Investments and renew their registration on an annual basis. Mining concessions grant rights to explore and exploit mineral deposits but do not grant surface rights over the land where the concession is located. Mining concession holders are required to negotiate surface access with the land owner or holder (e.g., agrarian communities) or, should such negotiations prove unsuccessful, file an application with the corresponding administrative authority (Ministry of Economy or Ministry of Agrarian-Territorial-Urban Development) to obtain an easement, temporary occupancy, or expropriation of the land, as the case may be. An application for a concession must be filed with the Mining Agency or Mining Delegation located closest to the area to which the application relates.

 

Mining concessions have a term of 50 years from the date on which title is recorded in the Public Registry of Mining. Holders of mining concessions are required to comply with various obligations, including the payment of certain mining duties based on the number of hectares of the concession and the number of years the concession has been in effect. Failure to pay the mining duties can lead to cancellation of the relevant concession. Holders of mining concessions are also obliged to carry out and prove assessment works in accordance with the terms and conditions set forth in the Mining Law and its regulations. The regulations to the Mining Law establish minimum amounts that must be spent or invested on mining activities. A report must be filed in May of each year regarding the assessment works carried out during the preceding year. The mining authorities may impose a fine on the mining concession holder if one or more proof of assessment work reports is not timely filed.

 

Pursuant to amendments to the federal corporate income tax law, effective January 2014, new additional duties will be imposed on mining concession holders; see “—Taxes in Mexico”.

 

Environmental Legislation

 

Mining projects in Mexico are subject to Mexican federal, state and municipal environmental laws and regulations for the protection of the environment. The principal legislation applicable to mining projects in Mexico is the federal General Law of Ecological Balance and Environmental Protection, which is enforced by the Federal Bureau of Environmental Protection, commonly known as “PROFEPA”. PROFEPA is the federal entity in charge of carrying out environmental inspections and negotiating compliance agreements. Voluntary environmental audits, coordinated through PROFEPA, are encouraged under the federal General Law of Ecological Balance and Environmental Protection. PROFEPA monitors compliance with environmental legislation and enforces Mexican environmental laws, regulations and official standards. If warranted, PROFEPA may initiate administrative proceedings against companies that violate environmental laws, which proceedings may result in the temporary or permanent closure of non-complying facilities, the revocation of operating

 

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licenses and/or other sanctions or fines. According to the Federal Criminal Code, PROFEPA must inform the relevant governmental authorities of any environmental crimes that are committed by a mining company in Mexico.

 

Concession holders may submit themselves to comply with the Mexican Official Norm: NOM-120-SEMARNAT-1997, which provides, among other things, that mining exploration activities to be carried out within certain areas must be conducted in accordance with the environmental standards set forth in NOM-120-SEMARNAT-1997; otherwise, concession holders are required to file a preventive report or an environmental impact study prior to the commencement of the exploration, exploitation and processing of mineral resources. However, an environmental impact study may not be necessary if the concessionaire files an application with the environmental authorities confirming the concessionaire’s commitment to observe and comply with NOM-120-SEMARNAT-1997.

 

Taxes in Mexico

 

Mexico has a federal corporate income tax rate of 30%, and there are no state taxes on corporate net income. In determining their corporate income tax, entities are allowed to subtract from gross income various deductions permitted by law, and they are allowed a ten-year carry-forward of net operating losses. Pursuant to recent amendments to the federal tax laws, a 10% withholding tax will be charged on dividends distributed to shareholders, regardless of the tax residence of the recipient, out of after tax profits generated beginning January 1, 2014. A foreign resident company is subject to income tax if it has a permanent establishment in Mexico. In general, a permanent establishment is a place of business where the activities of an enterprise are totally or partially carried out and includes, among others, offices, branches and mining sites.

 

Mexico has several taxes in addition to income tax that are relevant to most business operations, including (i) the Single Rate Business Tax (the “Flat Tax”); (ii) the Value Added Tax (“VAT”); (iii) import duties; (iv) various payroll taxes; (v) statutorily entitled employee profit sharing (“PTU”); and (vi) mining duties and royalties. In addition, annual mining concession fees are charged by the government. Pursuant to recent amendments to the federal tax laws, the Flat Tax has been repealed effective January 1, 2014.

 

The Flat Tax applies to a taxpayer’s income from worldwide sources, as well as to a foreign resident on the income attributed to its permanent establishments located in Mexico, at a rate of 17.5%. In general, the Flat Tax follows a cash flow system, and in some ways operates similarly to an alternative minimum tax. Any income tax effectively paid in the same fiscal year is creditable against the Flat Tax; thus a taxpayer pays the higher of income tax or the Flat Tax in a given year. However, Flat Tax payments (i.e., credits) may not be used to offset the regular income tax in future years. Any losses calculated from the Flat Tax may be carried forward for up to 10 years to be offset against future income subject to the Flat Tax.

 

VAT in Mexico is charged upon alienation of goods, performance of independent services, grant of temporary use or exploitation of goods, or import of goods or services that occur within Mexico’s borders, at a rate of 16%. There is no VAT in the case of export of goods or services or for the sale of gold, jewelry, and gold metalwork with a minimum gold content of 80%, excluding retail sale to the general public. The sale of mining concessions is subject to VAT as concessions are not considered to be land. VAT paid by a business enterprise on its purchases and expenses may usually be credited against its liability for VAT collected from customers on its own sales. In addition, VAT may also be refunded, or overpayments may be used to offset tax liabilities arising from other federal taxes.

 

Import duties apply for goods and services entering the country, unless specifically exempted due to a free trade agreement or if registered under specific programs like IMMEX, under which we are currently registered. Payroll taxes are payable in most states including Durango, and social security, housing and pension contributions must be made to the federal government when paying salaries.

 

Employees of Mexico entities are statutorily entitled to a portion of the employer’s pre-tax profits, called PTU. The rate of profit sharing is currently 10% of the employer’s taxable income as defined by the Income Tax law. A taxpayer may reduce its income tax base by an amount equal to the PTU. Certain companies are exempt from paying PTU, which include companies in the extractive industry (principally the mining industry) during the period of exploration.

 

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Under 2013 amendments to the federal corporate income tax law, titleholders of mining concessions will be required to pay an annual special duty of 7.5% of their mining related profits, determined by deducting from mining related revenues certain specified types of cash expenditures. Payment of the special duty will be due at the end of March each year commencing in 2015.

 

Titleholders of mining concessions also will be required to pay a 0.5% special mining duty, or royalty, on an annual basis, on revenues obtained from the sale of gold, silver and platinum. Similar to the 7.5% annual special duty, the 0.5% duty will be due at the end of March each year commencing in 2015.

 

El Quevar

 

Location and Access

 

Our El Quevar silver project is located in the San Antonio de los Cobres municipality, Salta Province, in the altiplano region of northwestern Argentina, approximately 300 kilometers by road northwest of the city of Salta, the capital city of the province. The project is also accessible by a 300 kilometer dirt and gravel road from the city of Calama in northern Chile. The small village of Pocitos, located about 20 kilometers to the west of El Quevar, is the nearest settlement. We have established a camp approximately 10 kilometers west of the project to house project workers. A high tension power line is located approximately 40 kilometers from the site, and a high pressure gas line devoted to the mining industry and subsidized by the Salta government is located within four kilometers of the El Quevar camp.

 

The El Quevar project is located near Nevado Peak with altitudes at the concessions ranging from 3,800 to 6,130 meters above sea level. The climate of the area is high mountain desert, with some precipitation in summer (such as snow) and little snow in winter.

 

The following map shows the location of the El Quevar project.

 

 

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Property History

 

Mining activity in and around the El Quevar project dates back at least 80 years. Between 1930 and 1950, there was lead and silver extraction of mineralized materials from small workings in the area, but we have no mining records from that period. The first organized exploration activities on the property occurred during the 1970s, although no data from that period remains. Over the last 30 years, several companies have carried out exploration activity in the area, including BHP Billiton, Industrias Peñoles, Mansfield Minerals and Hochschild Mining Group, consisting primarily of local sampling with some limited drilling programs.

 

Title and Ownership Rights

 

The El Quevar project is currently comprised of 31 mining concessions. We hold 30 of the concessions directly, and we control the Nevado I concession, located approximately four kilometers from the Yaxtché target, pursuant to a purchase option agreement with the third party concession owner. We made two interim payments in 2013 totaling $200,000 on the Nevado I option agreement. Our remaining payment on the option agreement totals $550,000 and has been extended to June 2014. In total, the El Quevar project encompasses approximately 55,000 hectares. The area of most of our exploration activities at El Quevar is within the concessions that are owned by Silex Argentina S.A., our wholly-owned subsidiary.

 

We are required to pay a 1% net smelter return royalty on the value of all minerals extracted from the El Quevar II concession and a 1% net smelter return royalty on one-half of the minerals extracted from the Castor concession to the third party from whom we acquired these concessions. The Yaxtché deposit is located primarily on the Castor concession. We are also required to pay a 3% royalty to the Salta Province based on the mine mouth value of minerals extracted from any of our concessions. To maintain all of the El Quevar concessions, in 2013, we paid canon payment fees to the Argentine government of approximately $34,000 and expect to pay approximately $34,000 in 2014. We do not expect this annual holding payment to continue to increase annually since the exploration concessions have been converted into mining concessions.

 

The following El Quevar mine concessions are identified below by name and file number in the Salta Province Registry of Mines.

 

Name of Mine Concession

 

Concession
File Number

 

Quevar II

 

17114

 

Nevado I

 

18359

 

Quirincolo I

 

18036 (Cateo 17573)

 

Quirincolo II

 

18037 (Cateo 17574)

 

Castor

 

3902

 

Vince

 

1578

 

Armonia

 

1542

 

Quespejahuar

 

12222

 

Toro I

 

18332

 

Quevar Primera

 

19534

 

Quevar Novena

 

20215

 

Quevar Decimo Tercera

 

20501

 

Quevar Tercera

 

19557

 

Quevar Vigesimo Tercero

 

21043

 

Quevar 10

 

20219

 

Quevar Vigesimo Primera

 

20997

 

Quevar IV

 

19558

 

Quevar Vigesimo Cuarto

 

21044

 

Quevar 11

 

20240

 

Quevar Quinta

 

19617

 

Quevar 12

 

20360

 

Quevar Decima Quinta

 

20445

 

Quevar Sexta

 

19992

 

Quevar 19

 

20706

 

Quevar Vigesimo Sexta

 

22087

 

Quevar Vigesimo Segundo

 

21042

 

Quevar Séptima

 

20319

 

Quevar Veinteava

 

20988

 

MARIANA CANTERA (1)

 

15190

 

 

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Arjona

 

18080

 

Quevar Vigesimo Quinto

 

21054

 

 


(1) None of the mine concessions expire except for the MARIANA CANTERA concession, which expires on April 25, 2017.

 

The surface rights at El Quevar are controlled by the Salta Province. There are no private properties within the concession area. To date, no issues involving surface rights have impacted the project. Although we have unrestricted access to our facilities, we have applied for and recently been granted easements to further protect our access rights.

 

Geology and Mineralization

 

The geology of the El Quevar project is characterized by silver-rich veins and disseminations in Tertiary volcanic rocks that are part of an eroded stratovolcano. Silver mineralization at El Quevar is hosted within a broad, generally east-west-trending structural zone and occurs as a series of north-dipping parallel sheeted vein zones, breccias and mineralized faults situated within an envelope of pervasively silicified brecciated volcanic rocks. There are at least three sub-parallel structures that extend for an aggregate length of approximately 6.5 kilometers. Several volcanic domes (small intrusive bodies) have been identified and mineralization is also found in breccias associated with these domes, especially where they are intersected by the structures. The silver mineralization at the Yaxtché zone is of epithermal origin. The cross-cutting nature of the mineralization, the assemblage of sulfide and alteration minerals, and the presence of open spaces with euhedral minerals, all point to an origin at shallow to moderate depths (a few hundred meters below surface) from hydrothermal solutions.

 

2012 Technical Report

 

During 2012 RungePincockMinarco (“RPM”) (formerly Pincock Allen & Holt) completed an updated estimate of mineralized material at our El Quevar project. This SEC Industry Guide 7 estimate assumed mining of oxide material from an open pit on the east end of the Yaxtché deposit and sulfide material from both the open pit and an underground mine on the western portion of the Yaxtché deposit. According to the RPM estimate, based on results from 270 core drill holes, mineralized material in the Yaxtché zone, at a cut-off grade of 26 grams per tonne silver for the open pit and 100 grams per tonne silver for underground material, and using a three-year average silver price of $24.41 per ounce, was as follows:

 

Tonnes
(000s)

 

Average silver
grade (grams/tonne)

 

6,024

 

147.5

 

 

The estimate of mineralized material increased significantly over the 2010 estimate based on data from the 168 drill holes then available. The RPM estimate used preliminary mining pit and underground stope shapes and conceptual economic factors and grade capping parameters that reduced the reported grade from that previously estimated.

 

The RPM estimate includes a smaller tonnage of mineralized material in the possible open pit at a higher likely grade as compared to the technical report prepared by RPM pursuant to Canadian National Instrument 43-101 (“43-101”). In the RPM report pursuant to 43-101, RPM used inferred resources beneficially to the possible operation in the optimization of a resource level open pit. When preparing its mineralized material estimate under Industry Guide 7, RPM did not use the inferred resources calculated pursuant to 43-101 to beneficially optimize the pit. As such, optimization without the benefit of inferred material yielded a smaller tonnage of mineralized material in the possible open pit at a higher likely grade as compared to the RPM report pursuant to 43-101.

 

For further detail regarding mineralized material, see “CAUTIONARY STATEMENT REGARDING MINERALIZED MATERIAL”.

 

Sampling

 

Drill cores are maintained in a secure facility at the El Quevar campsite before and after splitting. Golden Minerals personnel were responsible for logging, sampling, splitting, and shipping cores to the laboratory facilities. The insertion of standards and blanks is carried out at the project site, while the duplicate coarse rejects and pulps are selected by each commercial laboratory. El Quevar samples have been analyzed at two independent laboratories. The quality assurance/quality control program used at El Quevar includes regular insertion and analysis of blanks and standards to monitor laboratory performance. Blanks are used to check for contamination and standards are used to check for grade-dependent biases.

 

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Duplicate samples are used to monitor sample batches for potential sample mix-ups and to monitor the data variability as a function of laboratory error and sample homogeneity. Standard reference materials were not inserted at the project site or at the lab after April 2011. Selected high grade samples were re-assayed.

 

Exploration and Advancement of El Quevar

 

The Yaxtché deposit is the primary target currently identified at the El Quevar project. Our early work at El Quevar indicated that underground mining of the Yaxtché deposit should be more economically feasible than open pit mining methods. Following initial drill programs, we conducted underground drifting to provide us with larger volume samples than otherwise available through drilling.

 

In 2011 the drifting encountered more than 40 mineralized structures believed to be tension faults that were not anticipated in the early modeling of the El Quevar deposit, in which mineral concentrations were modeled to follow the alteration envelope. Although the structures are narrow, generally less than a quarter of a meter in width, results from detailed sampling show that the structures tend to be of substantial grade, typically in excess of one kilogram per tonne of silver.

 

Based on further drilling and analysis conducted in 2011 and 2012, we believe that the El Quevar deposit may be amenable to bulk mining, which could include an open pit on the eastern and central areas of the Yaxtché deposit and bulk underground mining in the western area. The analysis included metallurgical analyses of composites made from core samples from the central and west portions of the El Quevar project that was focused on determining the response to various types of processing and recovery methods, including whole ore cyanidation, sulfide flotation, and a combination of cyanidation of flotation concentrates and tailings leach. In 2013 we spent approximately $2.6 million at our El Quevar project on holding and maintenance costs and continued project evaluation including geologic studies. From the inception of our exploration activities in 2004 through December 31, 2013 we have spent approximately $72.6 million on exploration and related activities at El Quevar.

 

In early 2013, we completed a 2,400 meter, 16 hole drilling program at the Quevar North and South areas at El Quevar. As of January 2013, we have completed a project total of approximately 100,000 meters of core drilling in 410 drill holes. Of these holes, 272 were drilled to test the Yaxtché zone for potential mineralization, with about 75% of the holes intersecting significant silver mineralization. Our work indicates that the Yaxtché deposit is at least 2 kilometers in strike length and is continuous laterally and to depths of more than 300 meters below surface in the main area. The recent results also support a possible eastward extension of the Yaxtché deposit and recognize an emerging new mineralized trend five kilometers north of the Yaxtché deposit. We recognize that more drilling is needed in these new areas and are actively soliciting a joint venture partner to move the project forward with additional drilling in these areas, drilling in other potential areas and evaluations. In 2014 we expect to spend approximately $1.0 million at our El Quevar project on holding and maintenance costs and continued project evaluation.

 

Environmental Liability and Permitting

 

We have obtained all necessary permits for our current exploration activities at the El Quevar project from the Mining Secretary of the Salta Province. If the El Quevar project proceeds to development and construction, we would be required to obtain numerous additional permits from national, provincial and municipal authorities in Argentina. We have completed environmental baseline studies, and a further environmental impact assessment process would be required to support the permits necessary for construction and mining. While we are not aware of any significant obstacle to obtaining the required permits, we have not yet formally begun to seek the necessary approvals.

 

Certain Laws Affecting Mining in Argentina

 

The Republic of Argentina is a federal republic located in South America and bordered by Chile, Bolivia, Paraguay, Brazil and Uruguay. The federal government coexists with the governments of 23 provinces and one autonomous city, Buenos Aires. Each province regulates its own administrative, legislative and judicial structure, complying with the republican system of government and the division of powers.

 

According to Argentine law, mineral resources are subject to regulation in the provinces where the resources are located. Each province has the authority to grant mining exploration permits and mining exploitation concession rights to applicants. The Federal Congress has enacted the National Mining Code and other substantive mining legislation, which is applicable throughout Argentina; however, each province has the authority to regulate the procedural aspects of the National Mining Code and to organize the enforcement authority within its own territory.

 

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In the province of Salta, where the El Quevar project is located, all mining concessions are granted by a judge in the Salta Mining Court. The El Quevar project is comprised of exploitation concessions. Exploitation concessions are subject to a canon payment fee (maintenance fee) which is paid in advance twice a year (before June 30th and December 31st of each calendar year). Each time a concession is granted, concession holders are exempt from the canon payment fee for a period of three years from the concession grant date. We currently pay approximately $34,000 a year in canon payment fees to maintain our El Quevar exploitation concessions.

 

Exploitation concessions may be granted (i) if any mineral is discovered as a consequence of an exploration process (with an exploration permit); (ii) if any mineral is discovered by “chance” (without an exploration process or what is called “direct discovery”); or (iii) when an exploitation concession has been posted in the register as vacant due to the lack of compliance with the requirements stated by law and timely applied by a third party. An environmental impact report should be provided with a mining exploitation concession application and must be approved by the provincial mining authority. The environmental impact report must be updated every two years and be approved by the provincial mining authority. Subject to compliance with all the requirements provided under Argentine law, including but not limited to timely canon fee payment, timely filing of the legal labor and legal survey requests, timely submission and compliance with the mining investment plan, and timely performance of the legal survey, an exploitation concession may be maintained indefinitely. In addition to the canon payment (maintenance fee), metals mines in the Salta Province are subject to a mine mouth royalty of 3% of metals extracted.

 

Our activities in Argentina are also subject to both federal and provincial environmental laws and regulations. We currently expect the impact of these laws and regulations on our El Quevar project to be minimal. Legislation passed in 2010 by Argentina’s federal legislature intended to protect the country’s glaciers could potentially affect the mining industry in Argentina. In order to offset the effect of the new legislation, many provincial legislative bodies, including those in the province of Salta, have passed their own glacier-related legislation. Neither the federal nor the provincial legislation is currently expected to affect the El Quevar project.

 

Additionally, in October 2011, the president of Argentina announced, by way of a presidential decree, that mining companies with operations in Argentina would be required to repatriate all their export proceeds. Under the new decree, all export revenues generated by mining companies are repatriated into Argentina for local foreign-exchange conversion prior to transfer overseas. As such, if we ultimately produce minerals from the El Quevar project in Argentina, the repatriation policy may increase foreign exchange transaction costs.

 

Taxes in Argentina

 

Argentina has a federal income tax rate of 35%, and the income tax law allows for a five-year carry-forward of net operating losses. Argentina has several taxes in addition to income tax, including (i) a VAT charged at an average rate of 21% for the majority of goods and services provided in Argentina, as well as for imports into Argentina, unless specifically exempted, and which is refunded through exports or other procedures; (ii) an import duty for goods and services entering the country, unless specifically exempted due to the mining investment legislation or free trade agreements; (iii) a provincial gross receipts tax of 1% applied to non-exported sales transactions in addition to VAT; (iv) a minimum presumed tax equivalent to 1% of the total asset value of an entity; (v) a wealth tax of 0.5% of the equity value of an entity; (vi) a bank tax of 0.6% of each debit and credit transaction; and (vii) a stamp tax of 1% applied over the gross value of executed agreements. For the metals extraction business, there is a 3% royalty on the mine mouth value of the mineral extracted for those companies not inscribed under the Argentina Mining Investment Law (described below). Also, for exported minerals, Argentina imposes an export tax of 5% for silver doré and 10% for silver concentrates.

 

The tax laws applicable to exploration, prospecting, development, and mining extraction, as set forth in the Argentina Mining Investment Law, as well as other legislation provide for significant benefits to the general tax system for those companies inscribed under this law and which meet certain conditions. These benefits include (i) fiscal stability; (ii) double deductions for certain exploration costs; (iii) voluntary accelerated depreciation; (iv) import duty exemptions; (v) an exemption from the minimum presumed tax, the provincial gross receipts tax and the stamp tax described in the previous paragraph; (vi) a decrease from 5% to 3% on the royalty on minerals extracted; and (vii) a partial refund of the export tax on doré and concentrate. A fiscal stability agreement with the federal government can be obtained with a term of 30 years from the date a project’s economic feasibility is presented to the government along with the corresponding application. During the 30-year term, in general, a party to such an agreement with the federal government will not suffer a change in its total effective tax rate. New taxes or increases/decreases in tax rates could occur while keeping the effective tax unchanged. However, a fiscal stability agreement does not limit changes in VAT, contributions to the social security system, provincial mining royalty, indirect taxes, or partial refund of the export tax, and it does not prevent the government from extending rules passed for a specified term or exempt the government from eliminating tax exemptions that have a scheduled

 

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date of expiration. Also, for companies that initiate production, VAT paid on the import and purchase of goods and services is refunded through exports. On the other hand, for companies that do not initiate production, so long as the company remains an exploration company, VAT paid on the import and purchase of goods and services used to carry out exploration activities, that remains as a credit for greater than 12 months, may be refunded. Argentina also allows for the exemption from import duties when importing capital goods and special equipment or components, spare parts of said goods, or leased goods used to carry out mining and exploration activity defined by the Mining Department.

 

As mentioned in the preceding paragraph, the Argentina Mining Investment Law provides a double deduction on certain mining-related costs. If we begin production at El Quevar, activities such as prospecting, exploration, special studies of mineralogy, metallurgy, feasibility and pilot plant studies may be offset 100% against taxable profits, and such costs may also be depreciated for tax purposes. In addition, we may benefit from tax depreciation on an accelerated basis on investments in infrastructure, machinery, equipment and vehicles used in constructing processing capacity or carrying out new mining projects.

 

Exploration Properties

 

In addition to El Quevar, we currently control a portfolio of approximately 30 exploration properties located primarily in certain traditional precious metals producing regions of Mexico and Argentina. We do not consider any of our exploration properties to be material, including those noted below.

 

During 2013, we made significant progress with our strategy to rationalize our portfolio of exploration properties, realizing in 2012 and 2013 exploration property sales totaling approximately $9.0 million. We closed our office in Peru, exploration offices in Argentina and our exploration office at the Zacatecas project and combined our Mexico exploration base with our Velardeña Properties office in Torreon, Mexico. We also relinquished properties no longer of interest, and reduced our portfolio of about 80 properties containing about 730,000 hectares to about 30 properties containing about 150,000 hectares. Since 2011, we have reduced ongoing annual expenditures for the exploration program by approximately 75 percent.

 

We plan to focus exploration efforts in 2014 on selected targets in northern Mexico. During 2014, we expect our expenditures for the exploration program to total approximately $3.5 million, approximately $0.4 million of which is expected to be attributable to property holding costs in Mexico.

 

Los Azules (Mexico)

 

In the first quarter 2013, we acquired the 233 hectare Los Azules property in Chihuahua, Mexico under a purchase agreement with Minera Socavato, a private Mexico mining company. The purchase agreement requires a series of option payments over a four-year period totaling $2.0 million, with $0.1 million required during each of the first and second years, and a 5% net smelter return royalty, half of which may be repurchased for $1.0 million.

 

The Los Azules property is located 20 kilometers west of San Francisco de Oro in southernmost Chihuahua, Mexico.  Los Azules hosts a north south trending gold bearing epithermal quartz vein system cutting Tertiary felsic volcanics and a felsic hypabyssal stock.  We hold the concessions in the Los Azules property through our wholly-owned Mexican subsidiary Minera de Cordilleras, S. De R.L. de C.V.

 

In the fourth quarter 2013, we began drilling at the Los Azules property as part of a planned 2,000 meter phase one drill program to test down dip targets on the previously mined vein system.  Based on initial drill results, we are planning a phase two drill program. We are continuing to rehabilitate an underground access adit as required for our underground drilling program.

 

Zacatecas (Mexico)

 

Our 100% controlled Zacatecas silver and base metals project in Mexico is in an advanced stage of exploration. Although we believe that the Zacatecas project may contain significant silver and other mineralization, we have not completed a feasibility study on the property, and the property may not advance further.

 

The Zacatecas Mining District is located in the central part of Mexico, in the Faja de Plata mineral belt. Our Zacatecas project surrounds the municipalities of Zacatecas, Veta Grande, Guadalupe, Pánuco, and Morelos in the state of Zacatecas, Mexico. We own approximately 194 concessions totaling approximately 8,600 hectares in the Zacatecas project.

 

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To maintain all of the concessions in the Zacatecas project, we pay approximately $120,000 per year to the Mexican government. We are party to a finder’s fee agreement with an individual, which requires that we pay a 1% net smelter return royalty on any mineral production from certain of our Zacatecas claims. We also have the obligation to pay a 1% net smelter return royalty on the San Sabino concession, which we may buy back for $1.0 million and a 2% net smelter return royalty on the San Gil concession. For the San Gil concession, on the first anniversary of production, we will be required to purchase the San Gil royalty for $575,000. At that time we will no longer be obligated to pay the 2% royalty.

 

San Diego (Mexico)

 

We own a 50% interest in the San Diego silver and gold exploration property, which is subject to a joint venture agreement between ECU and Golden Tag Resources Ltd. (“Golden Tag”), with each company holding 50% of the joint venture. The property consists of four concessions and the exploration activities of the joint venture are currently managed by Golden Tag. Golden Tag has the option to earn an additional 10% interest in this joint venture by making expenditures related to further exploration drilling and completing an updated resource assessment.  We hold the concessions in the San Diego property through our wholly-owned Mexican subsidiary Minera William S.A. de C.V.

 

The San Diego property, located in the State of Durango, Mexico, is situated approximately nine kilometers northeast of the Velardeña Properties and contains the La Cruz-La Rata and El Trovador mines as well as a number of other shallower shafts which were sunk on narrower veins such as the Cantarranas, Montanez and El Jal. The mineralization at San Diego is similar in many respects to that at our Velardeña Properties but appears to contain less gold.

 

Farm-outs, Royalties and Other Dispositions

 

Exploration properties that we choose not to advance are evaluated for joint venture, sale of all or a partial interest and royalty potential. We currently have minority ownership interests and/or royalties in or have disposed of the following properties that were once part of our exploration portfolio:

 

·                  Zacatecas Royalty (Mexico)With respect to certain concessions in a portion of our Zacatecas project in Mexico sold to a subsidiary of Capstone Mining Corp. in 2009, we are entitled to a net smelter return of 1.5% on the first one million tonnes of production from the concessions sold, and a 3% net smelter return on production in excess of one million tonnes from the concessions sold. Additionally, the net smelter return on production in excess of one million tonnes escalates by 0.5% for each $0.50 increment in copper price above $3.00 per pound of copper. There is currently no production on these concessions.

 

·                  Minera Silex Peru (Peru)In February 2013, we sold most of our exploration concessions in Peru to Compañía de Minas Buenaventura S.A.A. for approximately $3.5 million.

 

Executive Officers of Golden Minerals

 

Name

 

Age

 

Position

 

Jeffrey G. Clevenger

 

64

 

Chairman, President and Chief Executive Officer

 

Deborah J. Friedman(1)

 

61

 

Senior Vice President, General Counsel and Corporate Secretary

 

Warren M. Rehn

 

59

 

Senior Vice President, Exploration and Chief Geologist

 

Robert P. Vogels

 

56

 

Senior Vice President and Chief Financial Officer

 

 


(1)                                 Ms. Friedman is a partner at Davis Graham & Stubbs LLP and devotes approximately half her time to service as Senior Vice President, General Counsel and Corporate Secretary of Golden Minerals.

 

Jeffrey G. Clevenger.  Mr. Clevenger has served as our Chairman of the Board and as our President and Chief Executive Officer since March 2009. He served as a director and President and Chief Executive Officer of Apex Silver from October 2004 until March 2009. Mr. Clevenger worked as an independent consultant from 1999 when Cyprus Amax Minerals Company, his previous employer, was sold until he joined us in 2004. Mr. Clevenger served as Senior Vice President and Executive Vice President of Cyprus Amax Minerals Company from 1993 to 1998 and 1998 to 1999, respectively, and as President of Cyprus Climax Metals Company and its predecessor, Cyprus Copper Company, a large integrated producer of copper and molybdenum with operations in North and South America, from 1993 to 1999. He was Senior Vice President of Cyprus Copper Company from August 1992 to January 1993. From 1973 to 1992, Mr. Clevenger held various technical, management and executive positions at Phelps Dodge Corporation, including President and General Manager of Phelps Dodge Morenci, Inc. He is a Member of the American Institute of Mining, Metallurgical and Petroleum Engineers and the Metallurgical Society of America. Mr. Clevenger holds a B.S. in Mining Engineering with Honors from

 

25



 

the New Mexico Institute of Mining and Technology and is a graduate of the Advanced International Senior Management Program of Harvard University.

 

Deborah J. Friedman.  Ms. Friedman was appointed Senior Vice President, General Counsel and Corporate Secretary in March 2009. She served as Senior Vice President, General Counsel and Corporate Secretary of Apex Silver Mines from July 2007 until March 2009. Ms. Friedman is also a partner at Davis Graham & Stubbs LLP, where her practice focuses primarily on securities, finance and transactional matters for publicly-traded mining companies. She was on leave from Davis Graham & Stubbs LLP from July 2007 to May 2009 while she was employed by Apex Silver. Ms. Friedman has been a partner at Davis Graham & Stubbs LLP since August 2000, and she was of counsel to the firm from May 1999 through August 2000. From 1982 through 1994, Ms. Friedman held various positions in the law department of Cyprus Amax Minerals Company, including General Counsel and Associate General Counsel, and served from 1994 to 1998 as the General Counsel of AMAX Gold Inc. Prior to working for Cyprus, Ms. Friedman was an associate in several Denver law firms from 1977 to 1982. Ms. Friedman holds a B.A. in History from the University of Illinois and a J.D. from the University of Michigan Law School.

 

Warren M. Rehn.  Mr. Rehn was appointed Vice President, Exploration and Chief Geologist in February 2012 and subsequently promoted to Senior Vice President, Exploration and Chief Geologist in December 2012. From 2006 until February 2012, Mr. Rehn held various positions at Barrick Gold Exploration, Inc., serving most recently as Chief Exploration Geologist for the Bald Mountain and Ruby Hill mining units. From 2005 until 2007, Mr. Rehn was a consulting geologist for Gerson Lehman Group, which provides consulting services to various industries, including geology and mining. Mr. Rehn served as a Consulting Senior Geologist at Placer Dome Exploration, Inc. in 2004 and as an independent consulting geologist throughout the Americas from 1994 until 2003. He served as a Senior Geologist at Noranda Exploration, Inc. from 1988 until 1994. Mr. Rehn holds an M.S. in Geology from the Colorado School of Mines and a B.S. in Geological Engineering from the University of Idaho.

 

Robert P. Vogels.  Mr. Vogels was named Senior Vice President and Chief Financial Officer in March 2009. Mr. Vogels served as Controller of Apex Silver from January 2005 to March 2009 and was named Vice President in January 2006. Prior to joining Apex Silver, Mr. Vogels served as corporate controller for Meridian Gold Company from January 2004 until December 2004. He served as the controller of INCO Limited’s Goro project in New Caledonia from October 2002 to January 2004. Prior to joining INCO, Mr. Vogels worked from 1985 through October 2002 for Cyprus Amax Minerals Company, which was acquired in 1999 by Phelps Dodge Corp. During that time, he served in several capacities, including as the controller for its El Abra copper mine in Chile from 1997 until March 2002. Mr. Vogels began his career in public accounting as a CPA. He holds a B.Sc. in accounting and an MBA degree from Colorado State University.

 

Board of Directors of Golden Minerals

 

Name

 

Age

 

Occupation

 

Jeffrey G. Clevenger

 

64

 

Chairman, President and Chief Executive Officer, Company

 

W. Durand Eppler (1),(3)

 

60

 

Partner, Sierra Partners, LLC

 

Michael T. Mason (3)

 

69

 

Chief Executive Officer and Director, Geovic Mining Corporation

 

Ian Masterton-Hume (2)

 

63

 

Corporate Director and Member, Sentient Business Council

 

Kevin R. Morano (2),(3)

 

60

 

Managing Principal, KEM Capital LLC

 

Terry M. Palmer (1),(3)

 

69

 

Principal, Marrs, Sevier & Company LLC

 

Andrew N. Pullar

 

42

 

Chief Executive Officer and Director, The Sentient Group

 

David H. Watkins (1),(2)

 

69

 

Chairman, Atna Resources Ltd.

 

 


Committee Membership

(1)  Audit

(2)  Compensation

(3)  Corporate Governance

 

Metals Market Overview

 

We are an emerging precious metals exploration company with silver and gold mining properties in Mexico and a large silver advanced exploration project in Argentina. Descriptions of the markets for these metals are provided below.

 

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Silver Market

 

Silver has traditionally served as a medium of exchange, much like gold. Silver’s strength, malleability, ductility, thermal and electrical conductivity, sensitivity to light and ability to endure extreme changes in temperature combine to make it a widely used industrial metal. While silver continues to be used as a form of investment and a financial asset, the principal uses of silver are industrial, primarily in electrical and electronic components, photography, jewelry, silverware, batteries, computer chips, electrical contacts, and high technology printing. Silver’s anti-bacterial properties also make it valuable for use in medicine and in water purification. Additionally, the use of silver in the photovoltaic and solar panel industries is growing rapidly, and new uses of silver are being developed in connection with the use of superconductive wire and radio frequency identification devices.

 

Most silver product is obtained from mining in which silver is not the principal or primary product. The CPM Group, a precious metal and commodities consultant, estimates in its Yearbook 2013 that approximately 75% of mined silver is produced as a by-product of mining lead, zinc, gold or copper deposits.

 

The following table sets forth for the periods indicated on the London Fix high and low silver fixes in U.S. dollars per troy ounce. On February 25, 2014, the closing price of silver was $21.73 per troy ounce.

 

 

 

Silver

 

Year

 

High

 

Low

 

2009

 

$

19.18

 

$

10.51

 

2010

 

$

30.70

 

$

15.14

 

2011

 

$

48.70

 

$

26.16

 

2012

 

$

37.23

 

$

26.67

 

2013

 

$

32.23

 

$

18.61

 

2014*

 

$

22.05

 

$

19.27

 

 


*                                         Through February 25, 2014.

 

Gold Market

 

Gold has two main categories of use: fabrication and investment. Fabricated gold has a variety of end uses, including jewelry, electronics, dentistry, industrial and decorative uses, medals, medallions and official coins. Gold investors buy gold bullion, official coins and jewelry. The supply of gold consists of a combination of production from mining and the draw-down of existing stocks of gold held by governments, financial institutions, industrial organizations and private individuals.

 

The following table sets forth for the periods indicated on the London Fix AM high and low gold fixes in U.S. dollars per troy ounce. On February 25, 2014, the closing price of gold was $1,332.75 per troy ounce.

 

 

 

Gold

 

Year

 

High

 

Low

 

2009

 

$

1,218.25

 

$

813.00

 

2010

 

$

1,426.00

 

$

1,052.25

 

2011

 

$

1,896.50

 

$

1,316.00

 

2012

 

$

1,790.00

 

$

1,537.50

 

2013

 

$

1,693.75

 

$

1,192.00

 

2014*

 

$

1,333.00

 

$

1,219.75

 

 


*                                         Through February 25, 2014.

 

Employees

 

We currently have approximately 65 employees, including 10 in Golden, approximately 40 in Torreón, Mexico or at the Velardeña Properties following the reduction of approximately 90% of the workforce after we suspended mining and processing in June 2013, approximately 10 in Argentina in connection with the El Quevar project, and approximately 5 in various foreign exploration offices, down approximately 67% from 2012 as a result of our continued efforts to reduce our exploration expenditures.

 

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Competition

 

There is aggressive competition within the mining industry for the acquisition of a limited number of mineral resource opportunities, and many of the mining companies with which we compete have greater financial and technical resources than we do. Accordingly, these competitors may be able to spend greater amounts on acquisitions of mineral properties of merit, as well as on exploration and advancement of their mineral properties. We also compete with other mining companies for the acquisition and retention of skilled mining engineers, mine and processing plant operators and mechanics, geologists, geophysicists and other experienced technical personnel. Our competitive position depends upon our ability to successfully and economically advance new and existing silver and gold properties. Failure to achieve and maintain a competitive position could adversely impact our ability to obtain the financing necessary for us to advance our mineral properties.

 

Available Information

 

We make available, free of charge through our website at www.goldenminerals.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Information on our website is not incorporated into this annual report on Form 10-K and is not a part of this report.  Additionally, the public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

 

ITEM 1A:  RISK FACTORS

 

Investors in Golden Minerals should consider carefully, in addition to the other information contained in, or incorporated by reference into, this annual report on Form 10-K, the following risk factors:

 

The Velardeña Properties may not have mining activities again.

 

In late June 2013, we shut down the mines and processing plants at our Velardeña Properties and placed them on a care and maintenance program. Commencing mining again is subject to numerous risks and uncertainties, including:

 

·                  whether we are able to create mine plans or gold recovery improvements that can achieve sustainable cash positive results at current and future metals prices;

 

·                  unexpected events, including difficulties in maintaining the properties on a care and maintenance basis, potential sabotage or damage to the assets related to the suspension of mining, and variations in ore grade and relative amounts, grades and metallurgical characteristics of oxide and sulfide ores;

 

·                  continued decreases or insufficient increases in gold and silver prices to permit us to achieve sustainable cash positive results;

 

·                  technical, permitting, water, mining, metallurgical or processing issues;

 

·                  whether results of the underground drill program will be favorable;

 

·                  changes in interpretation of geological or metallurgical information;

 

·                  actual holding and care and maintenance costs resulting from the shutdown exceeding current estimates or including unanticipated costs;

 

·                  whether we are able to locate outside sources of oxide feed;

 

·                  loss of and inability to adequately replace skilled mining and management personnel;

 

·                  strikes or other labor problems; and

 

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·                  our ability to obtain additional funding for general and administrative costs and other working capital needs to fund our continuing business activities as currently conducted and possibly for a potential restart of our Velardeña Properties.

 

Based on these risks and uncertainties, there can be no assurance that we will be able to restart mining activities at our Velardeña Properties in the future.

 

We expect to incur operating losses and operating cash flow deficits through at least 2014 and our profitability in the foreseeable future would depend on our ability to restart mining activities at our Velardeña Properties on a profitable basis and on our ability to generate sufficient revenue from other sources to fund our continuing activities.

 

We have a history of operating losses, and we expect that we will continue to incur operating losses for the foreseeable future.  Operating losses will continue unless and until we are able to generate enough revenue to fund our continuing business activities.  With mining at the Velardeña Properties currently suspended, we have no revenues.  We may not be able to construct a profitable mine plan for the Velardeña Properties or, depending on metals prices and other factors, it may not be possible to do so in the foreseeable future.  If we are able to restart mining at the Velardeña Properties on a profitable basis, it is unlikely that those activities will generate sufficient revenue to fund all of our continuing business activities as currently conducted.  In that case, operating losses would continue until we develop or acquire sufficient additional sources of revenue, which could be generated by a newly acquired mining property, the commencement of profitable mining at the El Quevar project in Argentina, or at another of our exploration properties.

 

In addition, if we do construct a profitable mine plan for the Velardeña Properties, the profitability of the mine will be based on a number of assumptions. For example, the actual holding and care and maintenance costs resulting from the shutdown may exceed current estimates or include unanticipated costs such as potential sabotage or damage to the assets, or a potential restart could require expenditures significantly in excess of those anticipated.  Additionally, profitability would depend on metal prices, costs of materials and supplies, costs at the mines and processing plants and the amounts and timing of expenditures other than at the Velardeña Properties, which could include expenditures to maintain and advance our El Quevar project and to continue exploration at these and other properties, potential strategic acquisitions or other transactions, in addition to other factors, many of which are and will be beyond our control.  We cannot be certain we will be able to restart mining at the Velardeña Properties in the future, or generate sufficient revenue from the Velardeña Properties or other sources, to achieve profitability and eliminate operating cash flow deficits, or to cease to require additional funding.

 

Whether we are able to restart mining and processing at our Velardeña Properties, we expect to require additional funding.

 

Whether we are able to restart mining and processing at our Velardeña Properties, we expect to require additional funding for general and administrative costs and other working capital to fund our continuing business activities in the future.

 

As of December 31, 2013, we had approximately $19.1 million in cash and cash equivalents and short term investments. If mining at the Velardeña Properties remains suspended during 2014, we expect that continuing care and maintenance costs will total approximately $3.5 million for 2014. If mining at the Velardeña Properties remains suspended in 2014, we expect that our current cash and investment balance would be depleted to approximately $5.0 million by the end of 2014.  Absent a source of cash flow in and beyond 2014, our cash would be depleted by midyear 2015.  If we restart mining at the Velardeña Properties in 2014, we could require additional funding, and it is unlikely that mining at the Velardeña Properties will generate sufficient revenue to fund all of our continuing business activities as currently conducted. Therefore, whether or not we recommence mining at the Velardeña Properties, we expect to require additional funding in 2014 or 2015 for general and administrative costs and other working capital needs to fund our continuing business activities.

 

We do not have a credit, off-take or other commercial financing arrangement in place that would finance our general and administrative costs and other working capital needs to fund our continuing business activities in the future, and we believe that securing credit for these purposes may be difficult given our limited history and the continuing volatility in global credit markets. In addition, commercial financing arrangements may not be available on favorable terms or on terms that would not further restrict our flexibility and ongoing ability to meet our cash requirements over a reasonable period of time. Access to public financing has been negatively impacted by the volatility in the credit markets and metals prices, which may affect our ability to obtain equity or debt financing in the future and, if obtained, to do so on favorable terms. We also may not be able to obtain funding by monetizing additional non-core exploration or other assets at an acceptable price. We cannot assure you that we will be able to obtain financing to fund our general and administrative costs and other working capital needs to fund our continuing business activities in the future on favorable terms or at all.

 

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If we recommence mining at our Velardeña Properties, we are likely to enter into a collective bargaining agreement with a union and we will remain subject to Mexican labor and employment regulations, which may adversely affect our mining activities and financial condition.

 

Prior to the suspension of our Velardeña Properties, our employees in Mexico were represented by a union, and our relationship with our employees was governed by collective bargaining agreements. If we are able to recommence mining at our Velardeña Properties, we expect that initially our mining activities will not be subject to collective bargaining agreements. However, we have agreed with the union that at an appropriate point following the recommencement of mining activities, which may be when we are achieving on a sustainable basis target payable metal levels under a new mine plan, we will negotiate a new collective bargaining agreement with the union. Any collective bargaining agreement that we enter into with the union may restrict our mining flexibility in and impose additional costs on our mining activities. In addition, relations between us and our employees in Mexico may be affected by changes in regulations or labor union requirements regarding labor relations that may be introduced by the Mexican authorities or by labor unions. Changes in legislation or in the relationship between us and our employees may have a material adverse effect on our mining activities and financial condition.

 

Our ability to restart our Velardeña Properties and potentially obtain long-term cash flow and profitability from our Velardeña Properties or other properties in the future will be affected by changes in prices of silver, gold and other metals.

 

Our ability to restart mining activities at our Velardeña Properties, to establish reserves and advance our exploration properties, and to become profitable in the future, as well as our long-term viability, depend, in large part, on the market prices of silver, gold, zinc, lead, copper and other metals. The market prices for these metals are volatile and are affected by numerous factors beyond our control, including:

 

·                  global or regional consumption patterns;

 

·                  supply of, and demand for, silver, gold, zinc, lead, copper and other metals;

 

·                  speculative activities and hedging activities;

 

·                  expectations for inflation;

 

·                  political and economic conditions; and

 

·                  supply of, and demand for, consumables required for extraction and processing of metals.

 

The declines in gold and silver prices in 2013 had a significant impact on our mining activities and a continued decline or insufficient increase in prices could negatively affect our ability to restart mining at the Velardeña Properties. Additionally, future weakness in the global economy could increase volatility in metals prices or depress metals prices, which could also affect our plans to restart our Velardeña Properties or make it uneconomic for us to engage in mining or exploration activities. Volatility or sustained price declines may also adversely affect our ability to build or continue our business.

 

As a result of our business combination with ECU, we have assumed all historical ECU liabilities, some of which are known or which may become known by Golden Minerals.

 

On September 2, 2011, we completed a business combination with ECU (the “Transaction”), which at that time owned the Velardeña Properties. As a result of the Transaction, we are now subject to the environmental, contractual, tax and other obligations and liabilities of ECU, some of which may be unknown. For example, we received notices from Mexican tax authorities regarding approximately $1.4 million in social security taxes alleged to be due for previous years, which have been paid by us but which we have challenged for refund. There can be no assurance that we are aware of all obligations and liabilities related to the historical business of ECU. These liabilities, and other liabilities related to ECU’s business not currently known to us or that prove to be more significant than we currently anticipate, could negatively impact our business, financial condition and results of operations.

 

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The Velardeña Properties, the El Quevar project and our other properties may not contain mineral reserves.

 

We are considered an exploration stage company under SEC Industry Guide 7, and none of the properties at our Velardeña Properties, the El Quevar project, or any of our other properties have been shown to contain proven or probable mineral reserves. Expenditures made in mining at the Velardeña Properties or the exploration and advancement of our El Quevar project or other properties may not result in positive cash flow or in discoveries of commercially recoverable quantities of ore. Most exploration projects do not result in the discovery of commercially mineable ore deposits, and we cannot assure you that any mineral deposit we identify will qualify as an orebody that can be legally and economically exploited or that any particular level of recovery from discovered mineralization will in fact be realized.

 

Chlumsky, Armbrust and Meyer completed a technical report on our Velardeña Properties, which indicated the presence of mineralized material, and RungePincockMinarco (formerly Pincock Allen & Holt) completed a technical report on our El Quevar property, which indicated the presence of mineralized material. Mineralized material figures based on estimates made by geologists are inherently imprecise and depend on geological interpretation and statistical inferences drawn from drilling and sampling that may prove to be unreliable or inaccurate. We cannot assure you that these estimates are accurate or that proven and probable mineral reserves will be identified at the Velardeña Properties, El Quevar or any of our other properties. Even if the presence of reserves is established at a project, the economic viability of the project may not justify exploitation. We have spent significant amounts on the evaluation of El Quevar prior to establishing the economic viability of that project.

 

Estimates of reserves, mineral deposits and mining costs also can be affected by factors such as governmental regulations and requirements, fluctuations in metals prices or costs of essential materials or supplies, environmental factors, unforeseen technical difficulties and unusual or unexpected geological formations. In addition, the grade of ore ultimately mined may differ from that indicated by drilling results, sampling, feasibility studies or technical reports. Short-term factors relating to reserves, such as the need for orderly development of ore bodies or the processing of new or different grades, may also have an adverse effect on mining and on the results of operations. Silver, gold or other minerals recovered in small-scale laboratory tests may not be duplicated in large-scale tests under on-site processing conditions.

 

The Velardeña Properties, the El Quevar project and our other properties are subject to foreign environmental laws and regulations which could materially adversely affect our business.

 

We conduct mining activities in Mexico and mineral exploration activities primarily in Argentina and Mexico. These countries have laws and regulations that control the exploration and mining of mineral properties and their effects on the environment, including air and water quality, mine reclamation, waste generation, handling and disposal, the protection of different species of flora and fauna and the preservation of lands. These laws and regulations require us to acquire permits and other authorizations for conducting certain activities. In many countries, there is relatively new comprehensive environmental legislation, and the permitting and authorization process may not be established or predictable. We may not be able to acquire necessary permits or authorizations on a timely basis, if at all. Delays in acquiring any permit or authorization could increase the cost of our projects and could suspend or delay the commencement of extraction and processing of mineralized material.

 

Our Velardeña Properties are subject to regulation by SEMARNAT, the environmental protection agency of Mexico. In order to permit new facilities at or expand existing facilities, regulations require that an environmental impact statement, known in Mexico as a Manifestación de Impacto Ambiental, be prepared by a third-party contractor for submission to SEMARNAT. Studies required to support the Manifestación de Impacto Ambiental include a detailed analysis of soil, water, vegetation, wildlife, cultural resources and socio-economic impacts. The Manifestación is then published on SEMARNAT’s web page and in its official gazette in a national and local newspaper. The Manifestación is discussed at various open hearings, including hearings in the local communities, at which third parties may voice their views. We would be required to provide proof of local community support of the Manifestación as a condition to final approval.

 

Environmental legislation in Mexico is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects, and a heightened degree of responsibility for companies and their officers, directors and employees. For example, in January 2011, Article 180 of the Mexican Federal General Law of Ecological Balance and Environmental Protection was amended. Among other things, this amendment extended the term during which an individual or entity having a legitimate interest may contest administrative acts, including environmental authorizations, permits or concessions granted, without the need to demonstrate the actual existence of harm to the environment, natural resources, flora, fauna or human health, making it sufficient to argue that harm may be caused. Further, the amendment permits the contesting party to challenge a Manifestación de Impacto

 

31



 

Ambiental through a variety of administrative or court procedures. As a result of the amendment, more legal actions supported or sponsored by non-governmental groups interested in halting projects may be filed against companies operating in all industrial sectors, including the mining sector. Mexican operations are also subject to the environmental agreements entered into by Mexico, the United States and Canada in connection with the North American Free Trade Agreement. Further, in August 2011, certain amendments to the Civil Federal Procedures Code of Mexico (“CFPC”) were published in the Official Daily of the Federation. The amendments establish three categories of collective actions by which 30 or more people claiming injury resulting from, among other things, environmental harm, will be deemed to have a sufficient and legitimate interest in seeking, through a civil procedure, restitution, economic compensation or suspension of the activities from which the alleged injury derived. These amendments to the CFPC may result in more litigation by plaintiffs seeking remedies for alleged environmental harms, including suspension of the activities alleged to cause harm. Future changes in environmental regulation in the jurisdictions where the Velardeña Properties are located may adversely affect our business, make our business prohibitively expensive, or prohibit it altogether.

 

Environmental legislation in many other countries, in addition to Mexico, is evolving in a manner that will likely require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. We cannot predict what environmental legislation or regulations will be enacted or adopted in the future or how future laws and regulations will be administered or interpreted. For example, in September 2010, the Argentine National Congress passed legislation which prohibits mining activity in glacial and surrounding areas. Although we do not currently anticipate that this legislation will impact the El Quevar project, the legislation provides an example of the evolving environmental legislation in the areas in which we operate. Compliance with more stringent laws and regulations, as well as potentially more vigorous enforcement policies or regulatory agencies or stricter interpretation of existing laws, may (i) necessitate significant capital outlays, (ii) cause us to delay, terminate or otherwise change our intended activities with respect to one or more projects, or (iii) materially adversely affect our future exploration activities.

 

The Velardeña Properties and many of our exploration properties are located in historic mining districts where prior owners, including ECU in the case of the Velardeña Properties, may have caused environmental damage that may not be known to us or to the regulators. At the Velardeña Properties and in most other cases, we have not sought complete environmental analyses of our mineral properties. We have not conducted comprehensive reviews of the environmental laws and regulations in every jurisdiction in which we own or control mineral properties. Insurance fully covering many environmental risks (including potential liability for pollution or other hazards as a result of disposal of waste products occurring from exploration and mining) is not generally available. To the extent environmental hazards may exist on the properties in which we currently hold interests, or may hold interests in the future, that are unknown to us at present and that have been caused by us, or previous owners or operators, or that may have occurred naturally, and to the extent we are subject to environmental requirements or liabilities, the cost of compliance with these requirements and satisfaction of these liabilities could have a material adverse effect on our financial condition and results of operations. If we are unable to fully fund the cost of remediation of any environmental condition, we may be required to suspend activities or enter into interim compliance measures pending completion of the required remediation.

 

In addition, U.S. or international legislative or regulatory action to address concerns about climate change and greenhouse gas emissions could negatively impact our business.

 

Title to the Velardeña Properties and our other properties may be defective or may be challenged.

 

Our policy is to seek to confirm the validity of our rights to, title to, or contract rights with respect to, each mineral property in which we have a material interest. However, we cannot guarantee that title to our properties will not be challenged. Title insurance is not available for our mineral properties, and our ability to ensure that we have obtained secure rights to individual mineral properties or mining concessions may be severely constrained. Accordingly, the Velardeña Properties and our other mineral properties may be subject to prior unregistered agreements, transfers or claims, and title may be affected by, among other things, undetected defects. In addition, we may be unable to run our properties as permitted or to enforce our rights with respect to our properties, and the title to our mineral properties may also be impacted by state action. We have not conducted surveys of all of the exploration properties in which we hold direct or indirect interests and, therefore, the precise area and location of these exploration properties may be in doubt.

 

In most of the countries in which we operate, failure to comply with applicable laws and regulations relating to mineral right applications and tenure could result in loss, reduction or expropriation of entitlements, or the imposition of additional local or foreign parties as joint venture partners. Any such loss, reduction or imposition of partners could have a material adverse effect on our financial condition, results of operations and prospects.

 

32



 

Under the laws of Mexico, mineral resources belong to the state, and government concessions are required to explore for or exploit mineral reserves. Mineral rights derive from concessions granted, on a discretionary basis, by the Ministry of Economy, pursuant to the Mexican mining law and regulations thereunder. We hold title to the concessions comprising the Velardeña Properties and our other properties in Mexico through these government concessions, but there is no assurance that title to the concessions comprising the Velardeña Properties and other properties will not be challenged or impaired. The Velardeña Properties and other properties may be subject to prior unregistered agreements, interests or native land claims, and title may be affected by undetected defects. There would be valid challenges to the title of any of the claims comprising the Velardeña Properties that, if successful, could impair mining with respect to such properties in the future. A defect could result in our losing all or a portion of our right, title, and interest in and to the properties to which the title defect relates.

 

Our Velardeña Properties mining concessions and our other mining concessions in Mexico may be terminated if our obligations to maintain the concessions in good standing are not satisfied, including obligations to explore or exploit the relevant concession, to pay any relevant fees, to comply with all environmental and safety standards, to provide information to the Ministry of Economy and to allow inspections by the Ministry of Economy. In addition to termination, failure to make timely concession maintenance payments and otherwise comply strictly with applicable laws, regulations and local practices relating to mineral right applications and tenure could result in reduction or expropriation of entitlements.

 

Mining concessions in Mexico give exclusive exploration and exploitation rights to the minerals located in the concessions but do not include surface rights to the real property, which requires that we negotiate the necessary agreements with surface landowners. Many of our mining properties are subject to the Mexican ejido system requiring us to contract with the local communities surrounding the properties in order to obtain surface rights to land needed in connection with our mining exploration activities. In connection with our Velardeña Properties, we have contracts with two ejidos to secure surface rights with a total annual cost of approximately $40,000. The first contract is a ten-year contract with the Velardeña ejido, which provides surface rights to certain roads and other infrastructure at the Velardeña Properties through 2021. The second contract is a 25-year contract with the Vista Hermosa ejido signed in March 2013, which provides exploration access and access rights for roads and utilities for our Velardeña Properties. Our inability to maintain and periodically renew or expand these surface rights on favorable terms or otherwise could have a material adverse effect on our business and financial condition.

 

There are significant hazards involved in underground mining at our Velardeña Properties, not all of which are fully covered by insurance. To the extent we must pay the costs associated with such risks, our business may be negatively affected.

 

The mining and processing and maintenance of our Velardeña Properties, as well as the conduct of our exploration programs, are subject to numerous risks and hazards, including, but not limited to, environmental hazards, industrial accidents, encountering unusual or unexpected geological formations, formation pressures, cave-ins, underground fires or floods, power outages, labor disruptions, flooding, seismic activity, rock bursts, accidents relating to historical workings, landslides and periodic interruptions due to inclement or hazardous weather conditions. These occurrences could result in damage to, or destruction of, mineral properties or processing facilities, personal injury or death, environmental damage, reduced extraction and processing and delays in mining, asset write-downs, monetary losses and possible legal liability. Although we maintain insurance against risks inherent in the conduct of our business in amounts that we consider reasonable, this insurance contains, as in the case of our Velardeña Properties, exclusions and limitations on coverage, and will not cover all potential risks associated with mining and exploration activities, and related liabilities might exceed policy limits. As a result of any or all of the forgoing, particularly if the facilities are older, we could incur significant liabilities and costs that could adversely affect our results of operation and financial condition.

 

Our Velardeña Properties are located in Mexico and are subject to various levels of political, economic, legal and other risks with which we have limited or no previous experience.

 

Our Velardeña Properties are located in Mexico, and, as such, are exposed to various levels of political, economic, legal and other risks and uncertainties, including local acts of violence, such as violence from drug cartels; military repression; extreme fluctuations in currency exchange rates; high rates of inflation; labor unrest; the risks of war or civil unrest; expropriation and nationalization; renegotiation or nullification of existing concessions, licenses, permits and contracts; illegal mining; acts of political corruption; changes in taxation policies; restrictions on foreign exchange and repatriation; and changing political conditions, currency controls and governmental regulations that favor or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction.

 

33



 

In the past, Mexico has been subject to political instability, changes and uncertainties, which have resulted in changes to existing governmental regulations affecting mineral exploration and mining activities. Mexico’s status as a developing country may make it more difficult for us to obtain any required funding for our Velardeña Properties or other projects in Mexico in the future.

 

Our Mexican properties are subject to a variety of governmental regulations governing health and worker safety, employment standards, waste disposal, protection of historic and archaeological sites, mine development, protection of endangered and protected species and other matters. Specifically, our activities related to the Velardeña Properties are subject to regulation by SEMARNAT, the Comision Nacional del Agua, which regulates water rights, and Mexican mining laws. Mexican regulators have broad authority to shut down and levy fines against facilities that do not comply with regulations or standards.

 

Our Velardeña Properties and mineral exploration activities in Mexico may be adversely affected in varying degrees by changing government regulations relating to the mining industry or shifts in political conditions that increase the costs related to our mining and exploration activities or the maintenance of our properties. For example, effective January 2014, amendments to the Mexico federal corporate income tax law as described above under “Items 1 and 2: Business and Properties —Velardeña Properties—Taxes in Mexico” impose additional duties on mining concession holders, which will have a significant impact on the annual costs to maintain the concessions comprising the Velardeña Properties and our other Mexico exploration properties if we restart mining activities in the future.

 

Changes, if any, in mining or investment policies, changes or increases in the legal rights of indigenous populations or in the difficulty or expense of obtaining rights from them that are necessary for our Velardeña Properties or shifts in political attitude may adversely affect our business and financial condition. Our mining and exploration activities may be affected in varying degrees by government regulations with respect to restrictions on extraction, price controls, export controls, currency remittance, income and other taxes, expropriation of property, foreign investment, maintenance of claims, environmental legislation, land use, land claims of local people, water use and mine safety. Restart of our facilities will also be subject to the need to assure the availability of adequate supplies of water and power, which could be affected by government policy and competing businesses in the area. The occurrence of these various factors and uncertainties cannot be accurately predicted and could have an adverse effect on our mining and exploration activities and financial condition.

 

Future changes in applicable laws and regulations or changes in their enforcement or regulatory interpretation could negatively impact current or planned exploration or mining activities at our Velardeña Properties or in respect of any of our other projects in Mexico or with which we become involved in Mexico. Any failure to comply with applicable laws and regulations, even if inadvertent, could result in the interruption of exploration and mining or material fines, penalties or other liabilities.

 

Results from our Velardeña Properties are subject to exchange control policies, the effects of inflation and currency fluctuations between the U.S. dollar and the Mexican peso.

 

Our revenues are primarily denominated in U.S. dollars. However, operating costs of our Velardeña Properties are denominated principally in Mexican pesos. These costs principally include electricity, labor, maintenance, local contractors and fuel. Accordingly, when inflation in Mexico increases without a corresponding devaluation of the Mexican peso, our financial position, results of operations and cash flows could be adversely affected. The annual inflation rate in Mexico was 4.0% in 2013, 3.6% in 2012 and 3.8% in 2011. At the same time, the peso has been subject to significant fluctuation, which may not have been proportionate to the inflation rate and may not be proportionate to the inflation rate in the future. The value of the peso decreased by 0.6% in 2013, increased by 7.0% in 2012 and decreased by 12.9% in 2011. In addition, fluctuations in currency exchange rates may have a significant impact on our financial results. There can be no assurance that the Mexican government will maintain its current policies with regard to the peso or that the peso’s value will not fluctuate significantly in the future. We cannot assure you that currency fluctuations, inflation and exchange control policies will not have an adverse impact on our financial condition, results of operations, earnings and cash flows.

 

If we are unable to obtain all of our required governmental permits or obtain property rights on favorable terms or at all, our business could be negatively impacted.

 

A potential restart of the Velardeña Properties, the continued evaluation of the El Quevar project and other exploration activities will require additional permits from various governmental authorities. Our business is and will continue to be governed by laws and regulations governing exploration, prospecting, mining, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety, mining royalties and other matters. We may also be required to obtain certain property rights to access or use our properties. Obtaining or renewing licenses and permits, and acquiring property rights, can be complex and time-consuming processes. There can be

 

34



 

no assurance that we will be able to acquire all required licenses, permits or property rights on reasonable terms or in a timely manner, or at all, and that such terms will not be adversely changed, that required extensions will be granted, or that the issuance of such licenses, permits or property rights will not be challenged by third parties. Delays in obtaining or a failure to obtain any licenses, permits or property rights or any required extensions; challenges to the issuance of licenses, permits or property rights, whether successful or unsuccessful; changes to the terms of licenses, permits or property rights; or a failure to comply with the terms of any licenses, permits or property rights that have been obtained could have a material adverse effect on our business by delaying, preventing or making a potential restart of the Velardeña Properties and other continued mining activities economically unfeasible. U.S. or international legislative or regulatory action to address concerns about climate change and greenhouse gas emissions could also negatively impact our business. While we will continue to monitor and assess any new policies, legislation or regulations regarding such matters, we currently believe that the impact of such legislation on our business will not be significant.

 

We own our interest in the San Diego exploration property in Mexico in a 50-50 joint venture and are therefore unable to control all aspects of exploration and advancement of this property.

 

We hold the San Diego exploration property in Mexico in a 50-50 joint venture with Golden Tag Resources Ltd., which has a right to acquire an additional 10% interest by making expenditures related to further exploration drilling and completing an updated resource assessment at the property. Our interest in the San Diego property is subject to the risks normally associated with the conduct of joint ventures. A disagreement between joint venture partners on how to conduct business efficiently, the inability of joint venture partners to meet their obligations to the joint venture or third parties, or litigation arising between joint venture partners regarding joint venture matters could have a material adverse effect on the viability of our interests held through the joint venture. For example, in 2009, ECU received a notice of arbitration from Golden Tag Resources Ltd. The dispute was settled in September 2010 and resulted in an increase in ECU’s mining property costs of approximately $61,000. Additionally, if Golden Tag Resources Ltd. exercises its right to acquire an additional 10% interest, our ability to control exploration and advancement will be further reduced.

 

We depend on the services of key executives.

 

Our business strategy is based on leveraging the experience and skill of our management team. We are dependent on the services of key executives, including Jeffrey Clevenger, Robert Vogels and Warren Rehn. Due to our relatively small size, the loss of any of these persons or our inability to attract and retain additional highly skilled employees may have a material adverse effect on our business and our ability to manage and succeed in our mining and exploration activities.

 

The exploration of our mineral properties is highly speculative in nature, involves substantial expenditures and is frequently non-productive.

 

Mineral exploration is highly speculative in nature and is frequently non-productive. Substantial expenditures are required to:

 

·                  establish mineral reserves through drilling and metallurgical and other testing techniques;

 

·                  determine metal content and metallurgical recovery processes to process metal from the ore;

 

·                  determine the feasibility of mine development and production; and

 

·                  construct, renovate or expand mining and processing facilities.

 

If we discover ore at a property, it usually takes several years from the initial phases of exploration until production is possible. During this time, the economic feasibility of a project may change because of increased costs, lower metal prices or other factors. As a result of these uncertainties, we may not successfully acquire additional mineral rights, or our exploration programs may not result in proven and probable reserves at all or in sufficient quantities to justify developing the El Quevar project or any of our exploration properties.

 

The decisions about future advancement of exploration projects may be based on feasibility studies, which derive estimates of reserves, operating costs and project economic returns. Estimates of economic returns are based, in part, on assumptions about future metal prices and estimates of average cash operating costs based upon, among other things:

 

·                  anticipated tonnage, grades and metallurgical characteristics of ore to be mined and processed;

 

·                  anticipated recovery rates of silver and other metals from the ore;

 

·                  cash operating costs of comparable facilities and equipment; and

 

35



 

·                  anticipated climatic conditions.

 

Actual cash operating costs, production and economic returns may differ significantly from those anticipated by our studies and estimates.

 

Lack of infrastructure could forestall or prevent further exploration and advancement.

 

Exploration activities, as well as any advancement activities, depend on adequate infrastructure. Reliable roads, bridges, power sources and water supply are important factors that affect capital and operating costs and the feasibility and economic viability of a project. Unanticipated or higher than expected costs and unusual or infrequent weather phenomena, or government or other interference in the maintenance or provision of such infrastructure, could adversely affect our business, financial condition and results of operations.

 

Our exploration activities are in countries with developing economies and are subject to the risks of political and economic instability associated with these countries.

 

We currently conduct exploration activities almost exclusively in Latin American countries with developing economies, including Argentina and Mexico. These countries and other emerging markets in which we may conduct business have from time to time experienced economic or political instability. We may be materially adversely affected by risks associated with conducting exploration activities in countries with developing economies, including:

 

·                  political instability and violence;

 

·                  war and civil disturbance;

 

·                  acts of terrorism or other criminal activity;

 

·                  expropriation or nationalization;

 

·                  changing fiscal, royalty and tax regimes;

 

·                  fluctuations in currency exchange rates;

 

·                  high rates of inflation;

 

·                  uncertain or changing legal requirements respecting the ownership and maintenance of mineral properties, mines and mining activities, and inconsistent or arbitrary application of such legal requirements;

 

·                  underdeveloped industrial and economic infrastructure;

 

·                  corruption; and

 

·                  unenforceability of contractual rights.

 

Changes in mining or investment policies or shifts in the prevailing political climate in any of the countries in which we conduct exploration activities could adversely affect our business.

 

We explore and mine in countries that may be adversely affected by changes in the local government’s policies toward or laws governing the mining industry.

 

We have mining activities in Mexico and exploration activities primarily in Mexico and Argentina. In these regions there exist uncertainties regarding future changes in applicable law related to mining and exploration. For instance, in January 2014, amendments to the Mexico federal corporate income tax law require titleholders of mining concessions to pay annually a 7.5% duty of their mining related profits and a 0.5% duty on revenues obtained from the sale of gold, silver and platinum. These additional duties applicable to Mexico mining concession titleholders will have a significant impact on the annual costs to maintain the concessions comprising the Velardeña Properties if we restart mining activities at the Velardeña Properties and have revenues in the future.

 

Additionally, in October 2011, the president of Argentina announced, by way of a presidential decree, that mining companies with operations in Argentina would be required to repatriate all export revenues generated into Argentina for local foreign-exchange conversion prior to transfer overseas. This decree overturns a previous exemption for mining companies

 

36



 

from Argentina’s currency repatriation laws that apply to oil and gas producers in the country. Consequently, if we ultimately have payable metals from the El Quevar project in Argentina, the new repatriation policy may increase foreign exchange transaction costs.

 

In addition to the risk of increased transaction costs, we do not maintain political risk insurance to cover losses that we may incur as a result of nationalization, expropriation or similar events in Argentina or other Latin American countries in which we explore or have mining and processing activities.

 

We compete against larger and more experienced companies.

 

The mining industry is intensely competitive. Many large mining companies are primarily makers of precious or base metals and may become interested in the types of deposits on which we are focused, which include silver and other precious metals deposits or polymetallic deposits containing significant quantities of base metals, including zinc, lead, copper and gold. Many of these companies have greater financial resources, experience and technical capabilities than we do. We may encounter increasing competition from other mining companies in our efforts to acquire mineral properties and hire experienced mining professionals. Increased competition in our business could adversely affect our ability to attract necessary capital funding or acquire suitable mining properties or prospects for mineral exploration in the future.

 

We are dependent on information technology systems, which are subject to certain risks, including cybersecurity risks and data leakage risks.

 

We are dependent upon information technology systems in the conduct of our business. Any significant breakdown, invasion, virus, cyber attack, security breach, destruction or interruption of these systems by employees, others with authorized access to our systems, or unauthorized persons could negatively impact our business. To the extent any invasion, cyber attack or security breach results in disruption to our business, loss or disclosure of, or damage to, our data or confidential information, our reputation, business, results of operations and financial condition could be materially adversely affected. Our systems and insurance coverage for protecting against cyber security risks may not be sufficient. Although to date we have not experienced any material losses relating to cyber attacks, we may suffer such losses in the future. We may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.

 

Our stockholders may suffer additional dilution to their equity and voting interests as a result of future financing transactions.

 

We could require additional funding to support a potential restart of mining and processing at our Velardeña Properties, and expect to require additional funding for general and administrative costs and other working capital needs to fund our continuing business activities as currently conducted. Because debt financing is difficult to obtain for early-stage mining companies, it is likely that we will seek such financing in the equity markets. If we were to engage in an equity financing, the current ownership interest of our stockholders would be diluted.

 

The existence of a significant number of options and warrants may have a negative effect on the market price of our common stock.

 

In connection with our financing in September 2012, we issued a total of 6,863,298 five year warrants to purchase shares of our common stock at an exercise price of $8.42 per share expiring September 2017. Additionally, in connection with our business combination with ECU, we issued warrants and options to purchase shares of our common stock. While the ECU transaction warrants and certain options have expired, there remain outstanding options to purchase approximately 126,000 shares of our common stock at an exercise price of $16.00 expiring October 2014. The existence of securities available for exercise and resale is referred to as an “overhang”, and, particularly if the options and warrants are “in the money”, the anticipation of potential sales could exert downward pressure on the market price of our common stock.

 

ITEM 1B:  UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 3:  LEGAL PROCEEDINGS

 

None.

 

37



 

ITEM 4:  MINE SAFETY DISCLOSURES

 

Not applicable.

 

PART II

 

ITEM 5:  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our common stock began trading on the NYSE MKT under the symbol “AUMN” on March 19, 2010. The following table sets forth the high and low sales prices per share and volume traded on the NYSE MKT from January 1, 2012 through December 31, 2013.

 

 

 

High

 

Low

 

Volume
Traded
(shares)

 

2012

 

 

 

 

 

 

 

First Quarter

 

$

10.60

 

$

5.94

 

17,017,800

 

Second Quarter

 

$

8.76

 

$

3.24

 

19,530,700

 

Third Quarter

 

$

7.22

 

$

3.80

 

27,937,800

 

Fourth Quarter

 

$

5.36

 

$

3.50

 

23,245,000

 

 

 

 

High

 

Low

 

Volume
Traded
(shares)

 

2013

 

 

 

 

 

 

 

First Quarter

 

$

4.87

 

$

2.16

 

22,167,600

 

Second Quarter

 

$

2.47

 

$

1.26

 

23,835,600

 

Third Quarter

 

$

1.64

 

$

0.90

 

21,376,400

 

Fourth Quarter

 

$

0.98

 

$

0.42

 

12,190,000

 

 

Our common stock is also listed on the Toronto Stock Exchange, also referred to as the “TSX”, and trades under the symbol “AUM”. The following table sets forth the high and low sales prices per share expressed in Canadian dollars and volume traded on the TSX from January 1, 2012 through December 31, 2013.

 

 

 

High
(Cdn$)

 

Low
(Cdn$)

 

Volume
Traded
(shares)

 

2012

 

 

 

 

 

 

 

First Quarter

 

$

10.52

 

$

6.00

 

2,907,500

 

Second Quarter

 

$

8.59

 

$

3.34

 

2,353,100

 

Third Quarter

 

$

6.99

 

$

3.87

 

2,916,300

 

Fourth Quarter

 

$

5.23

 

$

3.51

 

2,012,800

 

 

 

 

High
(Cdn$)

 

Low
(Cdn$)

 

Volume
Traded
(shares)

 

2013

 

 

 

 

 

 

 

First Quarter

 

$

4.79

 

$

2.23

 

1,444,900

 

Second Quarter

 

$

2.53

 

$

1.10

 

1,914,200

 

Third Quarter

 

$

1.74

 

$

0.94

 

617,900

 

Fourth Quarter

 

$

1.00

 

$

0.44

 

1,182,200

 

 


(1)                                 Prices are in Canadian dollars.

 

As of February 25, 2014, we had 232 record holders of our common stock of record based upon the stockholders list provided by our transfer agent, Computershare Trust Company, N.A.

 

38



 

Dividends

 

We have not declared or paid any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain all future earnings, if any, to fund the growth of our business.

 

ITEM 6:  SELECTED CONSOLIDATED FINANCIAL DATA

 

The selected consolidated financial data for all periods presented has been derived from our audited financial statements for that period. Apex Silver emerged from Chapter 11 reorganization on March 24, 2009, and the Company became the successor to Apex Silver for purposes of reporting under the U.S. federal securities laws. In the table below references to “Successor” refer to the accounts of the Company and its subsidiaries on or after March 25, 2009, the day following emergence from Chapter 11. References to “Predecessor” refer to the accounts of Apex Silver and its subsidiaries prior to March 25, 2009. Our financial statements are reported in U.S. dollars and have been prepared in accordance with generally accepted accounting principles in the United States. The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Form 10-K.

 

 

 

 

 

 

 

 

 

 

 

The Year Ended
December 31, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For The Period
March 25, 2009

 

 

For The
Period
January 1,
2009

 

 

 

 

 

The Year Ended December 31,

 

Through

 

 

Through

 

 

 

2013

 

2012

 

2011

 

2010

 

December 31,
2009

 

 

March 24,
2009

 

 

 

 

 

 

 

(Successor)

 

 

 

 

(Predecessor)

 

 

 

 

 

 

 

(in thousands, except per share amounts)

 

Statement of Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

10,680

 

$

26,086

 

$

1,836

 

$

11,216

 

$

11,067

 

 

$

1,350

 

Income (loss) from continuing operations(1)

 

$

(240,380

)

$

(92,025

)

$

(62,671

)

$

(33,274

)

$

(20,276

)

 

$

243,621

 

Income (loss) from continuing operations per common share

 

$

(5.61

)

$

(2.45

)

$

(2.94

)

$

(3.72

)

$

(6.78

)

 

$

4.13

 

 

 

 

At December 31,

 

 

 

 

 

 

 

2013

 

2012

 

2011

 

2010

 

 

2009

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

54,881

 

$

348,102

 

$

413,015

 

$

135,618

 

 

$

21,700

 

Long term liabilities

 

$

2,655

 

$

49,524

 

$

59,672

 

$

802

 

 

$

651

 

Dividends:

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

 

$

 

$

 

$

 

 

$

 

 


(1)                                 The year ended December 31, 2013 includes a $244.0 million impairment of long-lived assets charge and an $11.7 million impairment of goodwill charge. Both charges are related to our Velardeña Properties in Mexico and are the result of a significant decrease in metals prices during 2013 and the shutdown of mining and processing at the Velardeña Properties at the end of the second quarter 2013, which were events requiring an assessment of the recoverability of the Velardeña Properties assets. The year ended December 31, 2012 includes a $58.5 million impairment of goodwill charge related to our Velardeña Properties in Mexico and is the result of an approximately 20% decrease in our forecast of future gold and silver prices and certain assumptions related to ore processing throughput rates and other aspects of the long-term mining plan. The Predecessor period ended March 24, 2009 includes a $248.2 million gain from extinguishment of debt and a $9.1 million fresh start accounting gain both related to the reorganization and emergence from Chapter 11 bankruptcy.

 

ITEM 7:  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes beginning on page F-1 in this annual report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may

 

39



 

differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Risk Factors” in this annual report on Form 10-K.

 

Our Company

 

We were incorporated in Delaware under the Delaware General Corporation Law in March 2009, and are the successor to Apex Silver for purposes of reporting under the Exchange Act. During the year ended December 31, 2013, our only sources of income were revenues from the sale of precipitates and concentrates from our Velardeña Properties, royalty and interest income, and sales of non-core exploration properties. We incurred net operating losses for the years ended December 31, 2013 and 2012.

 

2013 Highlights

 

During the first six months of 2013 we focused our efforts primarily on mining and processing improvements at our Velardeña Properties. On June 19, 2013 we suspended mining and processing at the Velardeña Properties primarily due to decreased gold and silver prices in order to conserve the asset. We are continuing to evaluate alternative plans for a restart of our Velardeña Properties.  Our objective is to implement a mining and processing plan that at then current prices for silver and gold indicates a sustainable cash margin at the Velardeña Properties.  During 2013 we continued efforts to actively solicit a partner to advance our El Quevar project and rationalize our exploration portfolio.  We reduced general and administrative expenses in 2013 by 21% over 2012 expenses and we expect this reduced level of spending to continue in 2014.  We also are reviewing strategic opportunities, focusing on development or operating properties in North America, including Mexico.

 

Velardeña Properties

 

·                  Payable metals during the first six months of 2013 totaled approximately 393,000 silver equivalent ounces (equivalents calculated at 60:1 silver to gold) and included approximately 252,000 ounces of silver and 2,350 ounces of gold.  Payable silver equivalent ounces include only silver and gold.  During the first six months of 2013 we also sold approximately 500,000 pounds of payable lead and 706,000 pounds of payable zinc.  Our output increased by approximately 25% on a silver equivalent daily basis in the first half of the year compared to the previous year.

 

·                  On June 19, 2013 we suspended mining and processing at our Velardeña Properties in Mexico primarily due to decreased gold and silver prices.  We placed the mines and processing plants on a care and maintenance program to enable a restart when mining and processing plans and metals prices support a cash positive outlook.

 

·                  Prior to the suspension, we completed the San Mateo ramp at the Velardeña Properties, which provides access to the Santa Juana mining area. The completed ramp, which provides more efficient and less costly haulage capacity from the mine, should be helpful to the restart economic analysis. During the suspension period, we are using the ramp to access mining areas to construct and evaluate restart mining plans.

 

·                  Since the shutdown, we have continued to evaluate plans for a restart of mining at the Velardeña Properties, with the objective of implementing a plan that at then current prices for silver and gold indicates a sustainable cash margin for mining. We have been mapping and sampling veins underground containing higher grade shoots to verify mine modeling in support of restart planning.  We are analyzing the potential of mining from a combination of different veins at our Velardeña Properties based primarily on grades and metallurgy. Additionally, we are reviewing alternative high grade narrow vein mining methods to determine the most beneficial mining method for a potential restart. In these efforts, we are using our own technical personnel as well as independent third party consultants. During the first quarter 2014 we commenced a 5,000 meter underground drill program at the Velardeña mine in order to obtain additional information to assist us in creating our restart plan. We expect to receive the drill results in the second quarter 2014.

 

·                  During 2013 we continued to work on treatment options to improve gold recoveries from gold bearing pyrites. Testing to date for an autoclave process and roasting technologies has demonstrated significant improvement in recoveries but both of these processes require a larger scale mining project than data currently suggests is feasible. Other enhanced recovery technologies, including fine grinding and leaching, ferric chloride oxidation and leaching and other oxidation processes, have not demonstrated an economic benefit in lab testing thus far.  Our current efforts are focused on whether different types of pyrites can be separated to enhance gold recoveries.

 

·                  We also are actively searching for oxide feed from outside sources, which could enable us to restart the Velardena oxide plant ahead of and possibly during implementation of an economic restart plan.

 

40



 

El Quevar

 

·                  In early 2013, we completed a 2,400 meter, 16 hole drilling program at the Quevar North and South areas at El Quevar. Results may represent a significant extension of the previously defined Yaxtché deposit and a mineralized zone at Quevar North similar in structural control to the Yaxtché zone.  In order to advance El Quevar, the Company is actively soliciting a partner to move the project forward with additional drilling in these areas, drilling in other potential areas and evaluations.

 

Exploration Portfolio

 

·                  In the first quarter 2013, we acquired the 233 hectare Los Azules property in Chihuahua, Mexico.  In the fourth quarter 2013, we began drilling at the Los Azules property as part of a planned 2,000 meter phase one drill program to test down dip targets on the previously mined vein system. We are continuing to rehabilitate an underground access adit as required for our underground drilling program.  Based on initial drill results, we are planning in a phase two drill program.

 

·                  We have completed rationalization of our portfolio of exploration properties, realizing in 2012 and 2013 exploration property sales totaling approximately $9.0 million.  These sales, together with relinquishment of properties no longer of interest, have reduced our portfolio of about 80 properties containing about 730,000 hectares to about 30 properties containing about 150,000 hectares. Since 2011, we have reduced ongoing annual expenditures for the exploration program by approximately 75 percent.

 

Results of Operations

 

For the results of operations discussed below, we compare the results of operations for the year ended December 31, 2013 to the results of operations for the year ended December 31, 2012.

 

Revenue from the sale of metals.  We recorded $10.7 million and $26.1 million of revenue for the years ended December 31, 2013 and 2012, respectively, all from the sale of products from our Velardeña Properties in Mexico. The decrease in revenue from the sale of metals during 2013 as compared to 2012 is primarily the result of the suspension of mining and processing at our Velardeña Properties effective June 19, 2013, as discussed above.

 

Costs of metals sold.  We recorded $17.5 million and $33.4 million of costs applicable to sales for the years ended December 31, 2013 and 2012, respectively, all from the sale of products from our Velardeña Properties in Mexico. The decrease in cost of metals sold during 2013 as compared to 2012 is primarily the result of the suspension of mining and processing at our Velardeña Properties effective June 19, 2013, as discussed above. Included in costs of metals sold for the period ended December 31, 2012 was a $2.7 million write down of finished goods inventory to estimated net realizable value.

 

Exploration Expense.  Our exploration expense, including property holding costs and allocated administrative expenses, totaled $4.6 million for the year ended December 31, 2013, as compared to $7.0 million for the year ended December 31, 2012.  Exploration expense for both years was incurred primarily in Mexico, Peru, and Argentina (excluding amounts spent on the Yaxtché deposit at the El Quevar project) and includes property holding costs and costs incurred by our local exploration offices. The decrease in exploration expenses for the year ended December 31, 2013 as compared to the year ended December 31, 2012 is the result of our reduced spending on exploration as we rationalized and monetized our exploration portfolio.

 

Velardeña Project Expense.  During the years ended December 31, 2013 and 2012 we incurred approximately $3.1 million and $7.9 million of expenses, respectively, primarily related to construction of the San Mateo ramp, other mine construction and engineering work at our Velardeña Properties in Mexico.  In addition to amounts expensed during the years ended December 31, 2013 and 2012, we incurred capital expenditures of approximately $1.8 million and $9.5 million, respectively for plant construction, mining and other equipment. We suspended mining and processing at our Velardeña Properties effective June 19, 2013, as discussed above.

 

Velardeña shutdown and care and maintenance costs.  During the year ended December 31, 2013 we recorded a $6.4 million expense related to the severance of 440 positions and other shutdown and care and maintenance costs at our Velardeña Properties as the result of the suspension of mining and processing activities at the Velardeña Properties effective June 19, 2013.  We had no such charges during the year ended December 31, 2012.

 

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El Quevar Project Expense.  During the years ended December 31, 2013 and 2012 we incurred $2.6 million and $5.1 million of expenses, respectively, primarily related to furthering our evaluation of the Yaxtché deposit at our El Quevar project in Argentina. The reduction in costs for 2013 is primarily the result of placing the El Quevar project in a holding and maintenance state during 2013 while we actively solicit a partner to move the project forward. For both years, costs incurred for work performed outside of the Yaxtché deposit are included in “Exploration Expense” discussed above.

 

Administrative Expense.  Administrative expenses totaled $5.6 million for the year ended December 31, 2013 compared to $7.1 million for the year ended December 31, 2012. Administrative expenses, including costs associated with being a public company, are incurred primarily by our corporate activities in support of the Velardeña Properties, El Quevar project and our exploration portfolio. The $5.6 million of administrative expenses we incurred during 2013 is comprised of $2.2 million of employee compensation and directors’ fees, $1.4 million of professional fees and $2.0 million of insurance, rents, travel expenses, utilities and other office costs. The $7.1 million of administrative expenses we incurred during 2012 is comprised of $2.9 million of employee compensation and directors’ fees, $1.7 million of professional fees and $2.5 million of insurance, travel expenses, rents, utilities and other office costs.

 

Stock based compensation.  During the year ended December 31, 2013 we incurred expense related to stock based compensation in the amount of $1.6 million compared to $2.6 million for the year ended December 31, 2012. Stock based compensation varies from period to period depending on the number and timing of shares granted, the type of grant, the market value of the shares on the date of grant and other variables.

 

Reclamation and accretion expense.  During the year ended December 31, 2013 we incurred $0.2 million of reclamation expense related to the accretion of an asset retirement obligation at the Velardeña Properties.  During the year ended December 31, 2012 we incurred $0.2 million of reclamation expense, which included $0.1 million of reclamation costs related to the accretion of an asset retirement obligation at the Velardeña Properties and actual reclamation expenses of $0.1 million incurred at the El Quevar project. During 2012 we completed a revised closure plan for our Velardeña Properties and recorded a reduction of the accretion of the asset retirement obligation of approximately $0.1 million which was netted against the expense for the period.

 

Impairment of long lived assets and goodwill.  We assess the recoverability of our long lived assets, including goodwill, at least annually or whenever events or changes in circumstances indicate that the carrying value of the assets may be impaired.  The significant decrease in metals prices during 2013 and the shutdown of mining and processing at the Velardeña Properties during June 2013 were events that required an assessment of the recoverability of the Velardeña Properties asset group and goodwill.  We completed an impairment analysis using a market valuation approach which relies upon assumptions related to the Velardeña Properties asset group in comparison to other corroborated observable market data.  At June 30, 2013 we determined that both the long lived assets and the goodwill associated with the Velardeña Properties and the San Diego property were impaired.  As a result at June 30, 2013 we recorded a $237.8 million impairment charge related to the long lived assets and an $11.2 million impairment charge related to goodwill.  At December 31, 2013 we reviewed the remaining carrying value of the long lived assets and goodwill based on the corroborated observable market data at that date and determined that the long lived assets and goodwill were further impaired.  As a result, at December 31, 2013 we recorded an additional $6.1 million impairment charge related to the long lived assets and a $0.5 million impairment charge related to goodwill which reduced the carrying value of the goodwill to zero.  During 2012, as the result of decreased gold and silver prices and changes to certain assumptions related to the long term plan for the Velardeña Properties we completed an impairment analysis of the goodwill carrying value, which indicated that goodwill was impaired. As a result of the impairment analysis we recorded goodwill impairments of $58.5 million, reducing the goodwill carrying value from $70.2 million to $11.7 million at December 31, 2012.

 

Other Operating Income, Net.  We recorded other operating income of $3.6 million for the year ended December 31, 2013 compared to $2.5 million for the year ended December 31, 2012. The net amounts for both years consist primarily of net gains recorded on the sales of certain fixed assets and non strategic exploration properties.

 

Depreciation, depletion and amortization.  During the year ended December 31, 2013 we incurred depreciation, depletion and amortization expense of $6.9 million compared to $10.0 million for the year ended December 31, 2012. Depreciation, depletion and amortization includes a $0.8 million write down of finished goods inventory to estimated net realizable value at December 31, 2012. There was no write down of finished goods inventory at December 31, 2013. The decrease in depreciation, depletion and amortization for the year ended December 31, 2013 as compared to the year ended December 31, 2012 is primarily the result of the impairment of long lived assets at the Velardeña Properties during 2013 which resulted in a significant decrease in the carrying value of property, plant and equipment.

 

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Interest and Other Income.  During the year ended December 31, 2013 we recorded approximately $0.4 million of interest and other income primarily related to the reduction of a loss contingency liability related to foreign withholding taxes that the government could assert are owed by the Company, acting as withholding agent, on certain interest payments made to a third party. We recorded interest and other income of $2.5 million for the year ended December 31, 2012. The 2012 amount is comprised of a $1.8 million gain on the sale of the Platosa net smelter royalty to Excellon, a $0.6 million reduction of the loss contingency liability discussed above and $0.1 million of income from tolling agreements at our Velardeña Properties.

 

Royalty Income.  During the year ended December 31, 2012 we recorded royalty income of approximately $0.4 million. The royalty income was all related to Excellon’s Platosa mine in Mexico, on which we retained a net smelter return royalty. We sold the net smelter return royalty to Excellon during the second quarter 2012.  At December 31, 2013 we had no other sources of royalty income and we did not record any royalty income during the year then ended.

 

Interest and Other Expense.  We recorded no interest and other expense during the year ended December 31, 2013. During the year ended December 31, 2012, we recorded interest and other expense of $0.3 million comprised of $0.2 million related to interest incurred on a value added tax audit in Mexico and $0.1 million related to losses on investments.

 

Gain (Loss) on Foreign Currency.  We recorded a $0.6 million foreign currency loss for the year ended December 31, 2013 compared to a $0.5 million foreign currency gain for the year ended December 31, 2012. Foreign currency gains and losses are primarily related to the effect of currency fluctuations on monetary assets net of liabilities held by our foreign subsidiaries that are denominated in currencies other than US dollars. Such foreign currency denominated monetary assets and liabilities have increased with the acquisition of the Velardeña Properties.

 

Income Taxes.  For the year ended December 31, 2013 we recorded an income tax benefit of $49.7 million primarily related to the impairment of long lived assets during the year. Our income tax benefit for the year ended December 31, 2012 was $8.0 million primarily related to an increase in net operating losses and the amortization of the mineral deposit at our Velardeña Properties in Mexico.

 

Liquidity and Capital Resources

 

At December 31, 2013 our aggregate cash and short-term investments totaled $19.1 million.  During the first quarter of 2013 we completed the sale of certain Peruvian exploration properties to a third party for net proceeds of $3.5 million. We received other proceeds of $0.5 million related to joint venture option payments on other Mexican and Peruvian exploration properties. With the cash balance at December 31, 2013, and the assumptions described below, and excluding costs related to a potential restart of the Velardeña Properties, we expect to have sufficient funding to continue our long term business strategy through 2014, ending 2014 with a cash balance of approximately $5.0 million. Absent a source of cash flow beyond 2014, our cash balance would be depleted by midyear 2015.  In addition, a potential restart of the Velardeña Properties during 2014 could require additional funding.  We will be required to seek additional funding from equity or debt or from monetization of non-core assets.  There can be no assurance that we would be successful in obtaining sufficient funding from any of these actions or sources in the future on terms acceptable to us or at all.

 

Our cash and short-term investment balance at December 31, 2013 of $19.1 million is $25.5 million lower than the $44.6 million in similar assets held at December 31, 2012 due primarily to $6.9 million in operating losses at the Velardeña Properties; $6.4 million related to Velardeña shutdown and care and maintenance costs; $4.8 million in Velardeña Properties capital and development expenditures; $4.6 million in exploration expenditures; $5.6 million in general and administrative expenses; and $2.6 million spent on the El Quevar project; offset in part by net proceeds of $4.0 million from the sale of non strategic exploration property interests and a decrease in working capital of $1.4 million primarily related to a reduction in inventories and receivables at the Velardeña Properties.

 

With the cash balance at December 31, 2013 of $19.1 million we plan to spend the following amounts totaling approximately $14.0 million during 2014.  These amounts do not include costs related to a potential restart of the Velardeña Properties.

 

·                  Approximately $3.5 million on care and maintenance activities at the Velardeña Properties, primarily related to labor and contractor costs;

 

·                  Approximately $1.0 million on drilling costs at the Velardeña Properties related to the development of restart plans;

 

43



 

·                  Approximately $1.0 million at the El Quevar project to fund ongoing maintenance activities and property holding costs;

 

·                  Approximately $3.5 million on other exploration activities and property holding costs related to the Company’s portfolio of exploration properties located primarily in Mexico; and

 

·                  Approximately $5.5 million on general and administrative costs partially offset by $0.5 million in decreased working capital, primarily related to the collection of VAT receivables.

 

The actual amount that we spend through year-end 2014 and the projected year-end cash balance may vary significantly from the amounts specified above and will depend on a number of factors, including the timing and costs associated with a potential restart of the Velardeña Properties, and the results of continued project assessment work at our other exploration properties. If we are able to restart mining at the Velardeña Properties on a profitable basis, it is unlikely that those activities will generate sufficient revenue to fund all of our continuing business activities as currently conducted. We will be required to seek additional funding from equity or debt or from monetization of non-core assets. Therefore, whether or not we recommence mining at the Velardeña Properties, we expect to require additional funding in 2014 or 2015 for general and administrative costs and other working capital needs to fund our continuing business activities.

 

Critical Accounting Policies and Estimates

 

The selection and application of accounting policies is an important process that has developed as our business activities have evolved and as the accounting rules have changed. Accounting rules generally do not involve a selection among alternatives, but involve an implementation and interpretation of existing rules, and the use of judgment, to the specific set of circumstances existing in our business. Discussed below are the accounting policies that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue or expense being reported.

 

Mineral Reserves

 

When and if we determine that a mineral property has proven and probable reserves, subsequent development costs are capitalized to mineral properties. When mineral properties are developed and operations commence, capitalized costs are charged to operations using the units-of-production method over proven and probable reserves. “Mineralized material” as used in this annual report, although permissible under SEC’s Industry Guide 7, does not indicate “reserves” by SEC standards, and therefore all development costs incurred by us are expensed when incurred. The Company cannot be certain that any part of the deposits at the Velardeña Properties or the Yaxtché deposit at the El Quevar project will ever be confirmed or converted into SEC Industry Guide 7 compliant “reserves”.

 

Asset Retirement Obligations

 

We record asset retirement obligations in accordance with Auditing Standards Codification (“ASC”) 410, “Asset Retirement and Environmental Obligations” (“ASC 410”), which establishes a uniform methodology for accounting for estimated reclamation and abandonment costs. According to ASC 410, the fair value of a liability for an asset retirement obligation (“ARO”) is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. An offsetting asset retirement cost is capitalized as part of the carrying value of the assets with which it is associated, and depreciated over the useful life of the asset. During 2012, a third party engineering firm completed a detailed closure plan for our Velardeña Properties which resulted in a reduction to the original ARO estimate, recorded in conjunction with the acquisition of the Velardeña Properties, of approximately $1.7 million (see Note 11 to the accompanying consolidated financial statements).

 

Long Lived Assets and Goodwill

 

We assess the recoverability of our long lived assets, including goodwill, at least annually or whenever events or changes in circumstances indicate that the carrying value of the assets may be impaired.  The significant decrease in metals prices during 2013 and the shutdown of mining and processing at the Velardeña Properties during June 2013 were events that required an assessment of the recoverability of the Velardeña Properties asset group and goodwill.  We completed an impairment analysis using a market valuation approach which relies upon assumptions related to the Velardeña Properties asset group in comparison to other corroborated observable market data.  At June 30, 2013 we determined that both the long lived assets and the goodwill associated with the Velardeña Properties and the San Diego property were impaired.  As a result at June 30, 2013 we recorded a $237.8 million impairment charge related to the long lived assets and an $11.2 million impairment charge related to goodwill.  At December 31, 2013 we reviewed the remaining carrying value of the long lived assets and goodwill based on the corroborated observable market data at that date and determined that the long lived assets and goodwill were further impaired.  As a result, at December 31, 2013 we recorded an additional $6.1 million impairment

 

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charge related to the long lived assets and a $0.5 million impairment charge related to goodwill which reduced the carrying value of the goodwill to zero.  During 2012, as the result of decreased gold and silver prices and changes to certain assumptions related to the long term plan for the Velardeña Properties we completed an impairment analysis of the goodwill carrying value, which indicated that goodwill was impaired. As a result of the impairment analysis we recorded goodwill impairments of $58.5 million, reducing the goodwill carrying value from $70.2 million to $11.7 million at December 31, 2012.

 

Deferred Taxes

 

In accordance with ASC 740, “Income Taxes”, the Company presents deferred tax assets net of its deferred tax liabilities on a tax jurisdictional basis on its Consolidated Balance Sheets.  The net deferred tax liability as of December 31, 2013 was zero, while the net deferred tax liability as of December 31, 2012 was $47.1 million.  Our income tax benefit of $49.7 million for the year ended December 31, 2013 was due primarily to the deferred tax benefit of $47.2 million, primarily related to the long lived assets impairment of the Velardeña Properties.  The impairment of long lived assets required the removal of the deferred tax liability existing at the time of impairment.  The deferred tax liability existed as a result of the acquisition of our Velardeña Properties and was calculated taking the difference between the fair value and the tax basis of the assets acquired and liabilities assumed multiplied by the Mexico income tax rate.

 

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Table of Contractual Obligations

 

The following table summarizes our contractual obligations at December 31, 2013:

 

Contractual Obligations

 

Total

 

Less Than
1 Year

 

1 - 3
Years

 

3 - 5
Years

 

More
Than
5 Years

 

 

 

(in thousands of $)

 

Operating leases(1)

 

1,651

 

397

 

512

 

503

 

239

 

El Quevar and Velardeña concession payments(2)

 

230

 

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92

 

92

 

(3)

 


(1)                                 The operating lease obligations are related to our corporate headquarters office in Golden, Colorado, as well as another office lease associated with our Velardeña Properties. The lease for the corporate headquarters office space was renegotiated and extended during the first quarter 2014. The new lease reflects an approximately 46% reduction in space and an approximately 44% reduction in cost beginning March 1, 2014. The new lease expires November 30, 2019. The lease for the Velardeña Properties office expires in 2015.

 

(2)                                 We make annual maintenance payments of approximately $11,800 to the Mexico federal government to maintain the Velardeña Properties concessions and approximately $34,000 to the Argentine federal government to maintain the El Quevar project concessions. These payments include payments for both owned concessions and concessions held under purchase option agreements.

 

(3)                                 We cannot currently estimate the life of the Velardeña Properties or El Quevar project. This table assumes that no annual maintenance payments will be made more than five years after December 31, 2013. If we restart the Velardeña Properties beyond five years, we expect that we would make annual maintenance payments of approximately $11,800 per year for the life of the Velardeña mine. If we continue to construct a mine at the El Quevar project, we expect that we would make annual maintenance payments of approximately $34,000 per year for the life of the El Quevar mine.

 

From time to time we enter into lease or option agreements related to exploration properties that are of interest to us. These agreements typically contain escalating payments required to maintain our exploration rights to the property. Such agreements are not included in the above table because exploration success is historically low and we have the right to terminate the agreements at any time. For example, at the El Quevar project we control the Nevado I concession pursuant to a purchase option agreement with a third party concession owner. Our remaining payment on the Nevado I option agreement totals $550,000 and has been extended to June, 2014.

 

Off-Balance Sheet Arrangements

 

We do not have any off balance sheet arrangements.

 

ITEM 7A:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Interest Rate Risk

 

We invest substantially all of our excess cash in U.S. government and debt securities rated “investment grade” or better. The rates received on such investments may fluctuate with changes in economic conditions. Based on the average cash, restricted cash, investments and restricted investment balances outstanding during the year ended December 31, 2013, a 1.0% decrease in interest rates would have resulted in a reduction in interest income for the period of approximately $0.3 million.

 

Foreign Currency Exchange Risk

 

Although most of our expenditures are in U.S. dollars, certain purchases of labor, supplies and capital assets are denominated in other currencies. As a result, currency exchange fluctuations may impact the costs of our mining and exploration activities. To reduce this risk, we maintain minimum cash balances in foreign currencies and complete most of our purchases in U.S. dollars.

 

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Commodity Price Risk

 

We are primarily engaged in the exploration and mining of properties containing gold, silver, zinc, lead and other minerals. As a result, decreases in the price of any of these metals have the potential to negatively impact our ability to establish reserves and mine on our properties. For further detail regarding the effect on our expected cash flow from fluctuations in silver and gold prices, see “Item 7: Management’s Discussion and Analysis—Liquidity and Capital Resources” above.

 

ITEM 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The consolidated financial statements and supplementary information filed as part of this Item 8 are listed under Part IV, Item 15, “Exhibits, Financial Statement Schedules” and contained in this annual report on Form 10-K at page F-1.

 

ITEM 9:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A:  CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

The management of Golden Minerals Company has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of December 31, 2013.

 

Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2013, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective and designed to provide reasonable assurance that (i) information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

 

The management of Golden Minerals, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

 

Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

 

Management’s Report on Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on our assessment, management has concluded that, as of December 31, 2013, our internal control over financial reporting is effective based on these criteria.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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ITEM 9B:  OTHER INFORMATION

 

None.

 

PART III

 

ITEM 10:  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

For Information regarding our executive officers, see “Items 1 and 2: Business and Properties—Executive Officers of Golden Minerals” and “Items 1 and 2: Business and Properties—Board of Directors of Golden Minerals.”

 

Additional information is incorporated by reference from the information in our proxy statement for the 2014 Annual Meeting of Stockholders, which we will file with the Securities and Exchange Commission within 120 days of the end of the fiscal year to which this report relates.

 

We have adopted a code of ethics that applies to all of our employees, including the principal executive officer, principal financial officer, principal accounting officer, and those of our officers performing similar functions. The full text of our code of ethics can be found on the Corporate Governance page on our website. In the event our Board of Directors approves an amendment to or waiver from any provision of our code of ethics, we will disclose the required information pertaining to such amendment or waiver on our website.

 

ITEM 11:  EXECUTIVE COMPENSATION

 

Incorporated by reference from the information in our proxy statement for the 2014 Annual Meeting of Stockholders, which we will file with the Securities and Exchange Commission within 120 days of the end of the fiscal year to which this report relates.

 

ITEM 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

Incorporated by reference from the information in our proxy statement for the 2014 Annual Meeting of Stockholders, which we will file with the Securities and Exchange Commission within 120 days of the end of the fiscal year to which this report relates.

 

ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Incorporated by reference from the information in our proxy statement for the 2014 Annual Meeting of Stockholders, which we will file with the Securities and Exchange Commission within 120 days of the end of the fiscal year to which this report relates.

 

ITEM 14:  PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Incorporated by reference from the information in our proxy statement for the 2014 Annual Meeting of Stockholders, which we will file with the Securities and Exchange Commission within 120 days of the end of the fiscal year to which this report relates.

 

PART IV

 

ITEM 15:  EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)                                 Documents filed as part of this annual report on Form 10-K or incorporated by reference:

 

(1)                                 Our consolidated financial statements are listed on the “Index to Financial Statements” on Page F-1 to this report.

 

(2)                                 Financial Statement Schedules (omitted because they are either not required, are not applicable, or the required information is disclosed in the notes to the financial statements or related notes).

 

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(3)                                 The following exhibits are filed with this annual report on Form 10-K or incorporated by reference.

 

EXHIBITS

 

Exhibit
Number

 

Description

1.1

 

Underwriting Agreement between Golden Minerals Company and Wells Fargo Securities, LLC dated as of September 13, 2012.(1)

 

 

 

3.1

 

Amended and Restated Certificate of Incorporation of Golden Minerals Company.(2)

 

 

 

3.2

 

First Amendment to the Amended and Restated Certificate of Incorporation of Golden Minerals Company.(3)

 

 

 

3.3

 

Bylaws of Golden Minerals Company.(2)

 

 

 

4.1

 

Specimen of Common Stock Certificate.(4)

 

 

 

4.2

 

Supplemental Warrant Indenture, dated as of September 2, 2011, by and among Golden Minerals, ECU Silver Mining Inc., and Computershare, including Form of Warrant Certificate.(3)

 

 

 

4.3

 

Third Supplemental Warrant Indenture, dated as of September 2, 2011, by and among Golden Minerals, ECU Silver Mining Inc., and Computershare, including Form of Bilingual Warrant Certificate.(3)

 

 

 

4.4

 

Warrant Agreement by and between Golden Minerals Company and Computershare Trust Company N.A. dated as of September 19, 2012.(1)

 

 

 

4.5

 

Warrant by and between Golden Minerals Company and Sentient Global Resources Fund IV, L.P. dated as of September 19, 2012.(1)

 

 

 

10.1

 

Form of Indemnification Agreement.(2)

 

 

 

10.2

 

Form of Change of Control Agreement.(2)

 

 

 

10.3

 

Amendment No. 1 to Change of Control Agreement.(5)

 

 

 

10.4

 

Golden Minerals Company 2009 Equity Incentive Plan.(6)

 

 

 

10.5

 

Form of Restricted Stock Award Agreement Pursuant to the 2009 Equity Incentive Plan.(7)

 

 

 

10.6

 

Golden Minerals Company Replacement Stock Option Plan.(8)

 

 

 

10.7

 

Non-Employee Directors Deferred Compensation and Equity Award Plan.(7)

 

 

 

10.8

 

Form of Non-Qualified Stock Option Award Agreement Pursuant to the 2009 Equity Incentive Plan.(9)

 

 

 

10.9

 

Registration Rights Agreement by and among Golden Minerals Company, Sentient Global Resources Fund III, L.P., SGRF III Parallel I, L.P. and Sentient Global Resources Fund IV, L.P. dated as of October 7, 2011.(10)

 

 

 

10.10

 

Subscription Agreement between Golden Minerals Company and Sentient Global Resources Fund IV, L.P. dated as of September 18, 2012.(1)

 

 

 

10.11

 

Registration Rights Agreement between Golden Minerals Company and Sentient Global Resources Fund IV, L.P. dated as of September 19, 2012.(1)

 

 

 

10.12

 

Stock Surrender and Unit Grant Agreement dated as of December 13, 2013.(11)

 

 

 

10.13

 

Golden Minerals Company 2013 Key Employee Long-Term Incentive Plan.(11)

 

 

 

16.1

 

Letter from PricewaterhouseCoopers LLP dated as of August 13, 2013. (12)

 

 

 

21.1

 

Subsidiaries of the Company.*

 

 

 

23.1

 

Consent of EKS&H, LLLP.*

 

 

 

23.2

 

Consent of PricewaterhouseCoopers.*

 

 

 

23.3

 

Consent of RungePincockMinarco.*

 

 

 

23.4

 

Consent of Chlumsky, Armburst & Meyer.*

 

49



 

Exhibit
Number

 

Description

31.1

 

Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002).*

 

 

 

31.2

 

Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002).*

 

 

 

32.1

 

Certificate of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).*

 

 

 

101.INS

 

XBRL Instance Document**

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document**

 

 

 

101.CAL

 

XBRL Taxonomy Calculation Linkbase Document**

 

 

 

101.DEF

 

XBRL Taxonomy Definition Document**

 

 

 

101.LAB

 

XBRL Taxonomy Label Linkbase Document**

 

 

 

101.PRE

 

XBRL Taxonomy Presentation Linkbase Document**

 


(1)                                 Incorporated by reference to our Current Report on Form 8-K filed September 19, 2012.

 

(2)                                 Incorporated by reference to our Current Report on Form 8-K filed March 30, 2009.

 

(3)                                 Incorporated by reference to our Current Report on Form 8-K filed September 9, 2011.

 

(4)                                 Incorporated by reference to our Form S-1/A Registration Statement filed November 16, 2009.