3. MINERAL PROPERTY INTEREST

6 Months Ended

Jun. 30, 2020

Extractive Industries [Abstract]

NOTE 3 - MINERAL PROPERTY INTEREST

The Company’s mineral property interest is a group of thirty-one claims known as the “Goldfield Bonanza Project” (the “Property”), in the State of Nevada. Pursuant to an option agreement dated October 14, 2014 with Lode-Star Gold INC. (“LSG”), a private Nevada corporation, the Company acquired an initial 20% undivided interest in and to the mineral claims owned by LSG and an option to earn a further 60% interest in the claims. LSG received 35,000,000 shares of the Company’s common stock and is its controlling shareholder. Until the Company has earned the additional 60% interest, the net smelter royalty will be split 79.2% to LSG, 19.8% to the Company and 1% to the former Property owner.

To earn the additional 60% interest, the Company is required to fund all expenditures on the Property and pay LSG an aggregate of $5 million in cash in the form of a net smelter royalty, commencing after December 11, 2014. If the Company fails to make any cash payments to LSG within one year of the date of the option agreement, it is required to pay LSG an additional $100,000, and in any subsequent years in which the Company fails to complete the payment of the entire $5 million, it must make quarterly cash payments to LSG of $25,000.

On January 11, 2017 LSG agreed to defer payment of all amounts due in accordance with the mineral option agreement until further notice. On January 17, 2017, the Company and LSG agreed that as of January 1, 2017, all outstanding balances shall carry a compound interest rate of 5% per annum. It was further agreed that the ongoing payment deferral shall apply to both interest and principal. The total amount of such fees due at June 30, 2020 was $573,901 (December 31, 2019: $523,913), with total interest due in the amount of $72,170 (December 31, 2019: $57,414).

On October 31, 2019, the Company and LSG executed an amendment (the “Amendment”) to their mineral option agreement dated October 4, 2014 (the “Option Agreement”). According to the terms of the Option Agreement the Company acquired an initial 20% undivided interest in and to the mineral claims owned by LSG and an option to earn a further 60% interest in the claims.

Under the Amendment, the exercise of the 60% option was restructured into two separate 30% options, such that the Company may now earn a 30% interest in the Property (for a total of 50%) (the “Second Option”) by completing the following actions:

● paying LSG $5 million in cash from the Property’s mineral production proceeds in the form of a NSR royalty (the “Initial Payment”);

● paying LSG all accrued and unpaid penalty payments under the Option Agreement;

● repaying to LSG (i) all loans, advances or other payments made by LSG to the Company and (ii) all expenditures on the Property funded by or on behalf of LSG until the date on which the Initial Payment has been completed; and

● funding all expenditures on the Property until the date on which the Initial Payment has been completed.

Following the exercise of the Second Option, the Company may earn an additional 30% interest in the Property (for a total of 80%) (the “Third Option”) by completing the following actions:

● paying LSG a further $5 million in cash from the Property’s mineral production proceeds in the form of an NSR royalty (the “Final Payment”); and

● funding all expenditures on the Property from the date on which the Second Option is exercised until the date on which the Final Payment has been completed.

The primary effect of the Amendment is therefore to increase to the purchase price for the additional 60% interest in the Property from $5 million to $10 million, while at the same time separating it into tranches.

The Amendment also corrects a number of inconsistencies in the Option Agreement, updates the defined terms to accommodate the creation of the Second Option and Third Option, and includes acknowledgements of the Company regarding accrued and unpaid penalty payments and amounts owing by the Company to LSG as of September 30, 2019.

On January 22, 2020, the Company executed a toll milling agreement (the “Agreement”) with Scorpio Gold Corporation’s affiliate, Goldwedge LLC. The Agreement will allow for the processing of ore delivered from the Company’s Property to the 400 ton per day Goldwedge milling facility located in Manhattan, Nevada.

Based on previous metallurgical testing, the Company’s ore requires gravity combined with flotation for optimal recoveries of contained precious metals. The Goldwedge milling circuit is currently configured with a gravity recovery circuit. Under the terms of the Agreement, the Company will advance funds required for the design, engineering, permitting and modifications to the Goldwedge facility to include the addition of a flotation circuit, supporting reagent tanks/silos, secondary lining of process containment ponds, leak detection and monitoring wells associated with fluid containments.

The Agreement provides for the Company to recoup the advanced funds through a reduction in toll milling rates until all advanced funds have been repaid. Following repayment, the toll charges will revert to standard rates.

The Company assessed its mineral property interest to the date of issue of these financial statements and concluded that facts and circumstances do not suggest that the mineral property interest’s carrying value exceeds its recoverable amount and therefore no impairment is required.