PURCHASE OF MINING RIGHTS

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

PURCHASE OF MINING RIGHTS

On October 1, 2005, the Company purchased 23 mining claims and related assets from two then unrelated third parties in exchange for 3,600,000 common shares.  Since the sellers did not obtain majority ownership of the Company in the transaction it was accounted for as a purchase rather than a reverse merger.

According to the FASB ASC Topic 845, transfers of nonmonetary assets to a company by its promoters or shareholders in exchange for stock prior to the company’s initial public offering normally should be recorded at the transferor’s historic cost basis determined under GAAP.  Since the sellers were unable to determine and document their historic cost as determined under GAAP, management elected to record the purchase at an investment of $100,000, the estimated scrap value of the equipment.

Additionally, according to the SEC, Issues in Extractive Industries No. 1 “Recoverability of capitalized costs is likely to be insupportable under FASB ASC 944 prior to determining the existence of a commercially minable deposit, as contemplated by SEC Industry Guide 7 for a mining company in the exploration stage.  As a result, the staff would generally challenge capitalization of exploration costs, and believes that those costs should be expensed as incurred during the exploration state under US GAAP.”