Dakota Gold Corp. - Quarter Report: 2023 June (Form 10-Q)

Note 5 - Accounts Payable and Accrued Liabilities

A summary of the Company's accounts payable and accrued liabilities is as follows:

Note 8 - Income Taxes (Continued)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of the Company's financial condition and results of operations together with the Company's financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related footnotes included in our Transition Report on Form 10-KT for the nine-month transition period ended December 31, 2022.

Forward-Looking Statements

This Quarterly Report on Form 10-Q and the exhibits attached hereto contain "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, including statements concerning our anticipated results and developments of our operations in future periods, planned exploration and development of our properties, plans related to our business and other matters that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.

Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as "expects", "anticipates", "plans", "estimates" or "intends", the negatives thereof, variations thereon and similar expressions, or stating that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements. Forward-looking statements in this quarterly report include, but are not limited to:

• the progress, potential and uncertainties of the Company's exploration program at our properties located in the Homestake District of South Dakota;

• our assessment that the Homestake District is a safe, low-cost jurisdiction in a favorable regulatory environment,

• our planned exploration activities across our portfolio of exploration targets, including our plan to prepare an estimate of mineral resources under S-K 1300;

• proposed expenditures for exploration and general and administrative costs during the fiscal year ending December 31, 2023;

• the success of getting the necessary permits for future drill programs and future project exploration;

• expectations regarding the sufficiency of the Company's existing funds for the remainder of the current fiscal year and our ability to raise capital and to continue the Company's exploration plans on our properties in the future; and

• plans regarding anticipated expenditures at the Black Hills Property.

Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation, risks associated with or related to:

• the potential lack of defined mineral resources pursuant to S-K 1300;

• the potential failure to successfully execute management's strategy;

• the Company's history of losses and need for additional financing;

• our limited operating history;

• our properties all being in the exploration stage;

• our lack of history in producing metals from our properties;

• our need for additional financing to develop a producing mine, if warranted;

• our exploration activities not being commercially successful;

• ownership of surface rights at our Black Hills Property;

• any increase in operational costs, which may affect our financial condition;

• any shortage of equipment and supplies adversely affecting our ability to operate;

• mining and mineral exploration being inherently dangerous;

• mineralization estimates;

• any changes in mineralization estimates affecting the economic viability of our properties;

• potential uninsured perils;

• our mineral operations being subject to market forces beyond our control;

• future fluctuations in commodity prices;

• the permitting, licenses and approval processes;

• governmental and environmental regulations;

• pending or future legislation regarding the mining industry and climate change;

• potential environmental lawsuits;

• our land reclamation requirements;

• the potential health risks present in gold mining;

• possible amendments to mining laws, mineral withdrawals of similar actions;

• any weaknesses that may be identified in our internal controls over financial reporting;

• ongoing or future pandemics;

• cybersecurity and cyber-attacks;

• title in our properties;

• competition in the gold and silver mining industries;

• changing economic conditions;

• our ability to manage our growth;

• the potential difficulty of attracting and retaining qualified personnel, both employees and skilled contractors;

• our dependence on key personnel;

• our SEC filing history; and

• our securities.

This list is not exhaustive of the factors that may affect the Company's forward-looking statements. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those described in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Except as required by law, the Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. The Company qualifies all the forward-looking statements contained in this Quarterly Report on Form 10-Q by the foregoing cautionary statements.

This management's discussion and analysis should be read in conjunction with the Company's financial statements and notes thereto as set forth herein. Readers are also urged to carefully review and consider the various disclosures made by the Company, which attempt to advise interested parties of the factors which affect its business, including without limitation, the disclosures made under "Risk Factors" of its most recent Form 10-KT.

The Company's unaudited financial statements are stated in United States dollars and are prepared in accordance with U.S. GAAP.

Since the Company is an exploration stage company as defined under S-K 1300 and has not generated revenues to date, its business is subject to numerous contingencies and risk factors beyond its control, including exploration and development risks, competition from well-funded competitors, and its ability to manage growth.

Overview

The Company's goal is to create stockholder value through the acquisition, responsible exploration, and future development of high caliber gold properties in the Homestake District of South Dakota. Management and the technical teams cumulatively have several hundred years of international mining and exploration experience and key personnel have more than 50 combined years in the Homestake District, mostly with the Homestake Mining Company, as well as other exploration companies that have operated in the region. We believe that the vast experience of our personnel uniquely positions us to leverage our knowledge of past exploration and mining activities in the Homestake District. Combined with our use of modern exploration and mining techniques, geologic understanding from experience in other mines and new research and information extracted from our recent new geophysical surveys, we plan to focus our programs to build upon the historic dominance of the Homestake Mining Company from the 1990s.

The Homestake District has yielded approximately 44.6 million ounces of gold production as of 2022, with most of it coming from within a small area. The production ledges of the old mine define a cumulative surface projection area of much less than 3 square miles. Homestake Mining Company's historic gold production and exploration in the Homestake District was overwhelmingly focused on the underground mine. Modern statistical studies of ore deposit trends and a widely accepted understanding of the distribution of large gold camps around the world indicates that large gold deposits generally form in distinct camps, which normally occur in clusters that show predictable distributions. The Company believes this might be true for the Homestake District. Outside of the mine area, the Homestake District has been underexplored and lacks the modern exploration efforts required to search for other deposits, especially under the cover of younger rocks that dominate the surface.

Since 2012, the Company has consistently pursued a strategy of expanding its portfolio of brownfield properties located exclusively within the Homestake District to build a dominant land position with the goal of consolidating mineral potential. Property acquisitions are focused and based on (i) past exploration, (ii) access to proprietary data sets that the Company has assembled over the years, and (iii) new research and remote data magnetics, gravity and radiometric data acquisition that have been recently conducted over the district that hosts the Homestake gold deposit.

The Company has not established that any of its projects or properties contain mineral resources or mineral reserves under S-K 1300 nor do they guarantee their exploration work will ever establish an economic gold deposit. The Company believes the Homestake District is in a safe, low-cost jurisdiction with well-developed infrastructure and is in a favorable regulatory environment in which authorities have consistently demonstrated a willingness to work with responsible operators to permit well-planned compliant projects.

Drill Programs and Results 

Permitting and site preparations were initiated for the first drilling program on the iron-formation target and other Tertiary-age replacement targets in the Maitland area and drilling commenced in early 2022. Drilling is ongoing, both at Maitland and at Richmond Hill. Dakota Gold has completed permit applications and environmental fieldwork for exploration in three project areas and currently has eight active permits in place. A ninth permit application is also in progress with the South Dakota Department of Agriculture and Natural Resources (SDDANR). Targeting and permitting in some of the other brownfield areas may also be identified and advanced for drilling as exploration activities continue and priorities change throughout the year. Dakota Gold completed 105,256 feet (31,896 meters) of core drilling on three projects in the six months ended June 30, 2023 and 190,231 (57,646 meters) feet since drilling commenced in the first quarter of 2022. The areas drilled were located within the Maitland Project, the Richmond Hill Project, and the Cambrian Unconformity Project.

On February 8, 2023, the Company announced the discovery of the Unionville Zone, a Tertiary-age replacement style gold system hosted in Precambrian rocks located below Tertiary-age Cambrian hosted replacement mineralization, which was extracted from the overlying, historical Maitland Mine during the early part of the 1900s.

On May 4, 2023, the Company announced it discovered the JB Gold Zone at the Maitland Gold Project with drill hole MA23C-017 intersecting 0.365 oz/ton Au over 15.3 feet (12.51 grams/tonne over 4.7 meters). The intersection is in the same high-grade quartz-carbonate vein, chlorite-arsenopyrite-pyrrhotite mineralization style as the Homestake Mine and we believe is part of the same Precambrian mineralizing event.

On June 8, 2023, the company announced an infill and validation drilling program within the historical resource areas at Richmond Hill. The work includes preliminary metallurgical test work and a new geologic model based on core drilling completed by the Company.

On August 3, 2023 announced it had extended the JB Gold Zone Discovery by 562 feet (171.3 meters) with Drill Hole MA23C-022 intersecting 0.570 oz/ton over 16.5 feet (19.55 grams/tonne over 5.0 meters) on its Maitland Gold Project in South Dakota.

Planned Activities

The Company's continued activities in fiscal 2023 will be focused on advancing exploration drilling on its Maitland and Richmond Hill projects and validation and infill drilling, in order to complete an estimate of mineral resources under S-K 1300 on the historical resources at Richmond Hill.

The Company continues to model and evaluate data acquired through its regional high-definition airborne magnetic survey, supplemented by other geophysical surveys completed in 2021 and 2022, to enhance possible drill targets as well as to screen targets on other brownfields areas of interest within the Homestake District. Field sampling and mapping programs have been initiated at the Maitland, Blind Gold, Richmond Hill, Tinton, City Creek, and the Barrick Option properties. The Company continues to locate, evaluate, and add to the historic information in its regional and project level data sets much of which is from the 145-year-old Homestake Mining Company files acquired in the Barrick Option agreement but also from other private and public sources.

At the current rate of drilling activity at the project, the Company anticipates expenditures of approximately $30 million during the fiscal year ending December 31, 2023, of which approximately $18 million has been spent during the six months ending June 30, 2023. In order to fund the anticipated level of expenditures, the Company will need to raise additional capital. Should we be unable to raise such capital, the Company will scale down the exploration program to ensure that more than 12 months of funding is available as of December 31, 2023.

The Company has not established that any of its properties or projects contain mineral resources or mineral reserves as defined under S-K 1300. Expenditure projections are subject to numerous contingencies and risk factors beyond the Company's control, as described under "Forward-Looking Statements" above. The Company cannot offer assurance that its expenses will either meet or exceed its projections.

Liquidity and Capital Resources

The Company is in the exploration-stage and does not generate revenues. As such, the Company finances its operations and the acquisition and exploration of its mineral properties through the issuance of common stock, and the Company could be materially adversely affected if it is unable to raise capital because of market or other factors.

As of June 30, 2023, the Company has working capital of approximately $13.68 million and an accumulated deficit of approximately $25.30 million. The Company had a net loss for the six months ended June 30, 2023 of approximately $19.09 million.

During the six months ended June 30, 2023, the Company issued a total of 3,284,064 shares of common stock under its ATM program for net proceeds of approximately $9.38 million, another 37,500 shares of common stock for the exercise of stock options for proceeds of approximately $0.01 million and 9,018 shares of common stock for the exercise of share purchase warrants for proceeds of approximately $0.02 million.

Subsequent to June 30, 2023, the Company utilized its ATM to raise gross proceeds of approximately $5.37 million. During 2023, the Company anticipates total cash expenditures of approximately $30 million.

Results of Operations

Comparison of Three-Month Periods ended June 30, 2023 and 2022

We had losses from operations for the three months ended June 30, 2023 and 2022, totaling approximately $10.18 million and $7.08 million respectively, losses before income tax of approximately $10.14 million and $7.03 million respectively, and deferred tax benefits of approximately $0.31 million and $1.22 million respectively, leading to net losses of approximately $9.82 million and $5.81 million, respectively.

Revenue

We had no operating revenues during the three months ended June 30, 2023 and 2022 and do not expect to generate revenues at any time in the near future.

Exploration Expenses

During the three months ended June 30, 2023 and 2022, our exploration expenses totaled approximately $7.60 million and $3.77 million, respectively. The year-over-year increase primarily related to the level of activity associated with drilling, where there were four drills operating on the Black Hills Property during the quarter, compared to an average of one in the prior year. Included in these costs were non-cash exploration-related stock-based compensation expenses of approximately $0.21 million and $0.34 million for the three months ended June 30, 2023 and 2022, respectively.

General and Administrative Expenses

Our general and administrative expenses for the three months ended June 30, 2023 and 2022, were approximately $2.58 million and $3.31 million, respectively. These expenditures were primarily for legal, accounting, and professional fees, investor relations and other general and administrative expenses necessary for our operations. The decrease was primarily due to decreased stock-based compensation allocated to administration expenses of $1.05 million for the three months ended June 30, 2023 (compared to approximately $1.59 million for the three months ended June 30, 2022 due to a one-time stock grant associated with the acquisition of Dakota Territory), decreased support costs included in general and administrative costs of approximately $1.22 million (compared to approximately $1.35 million for the three months ended June 30, 2022), decreased investor relations expenses of approximately $0.05 million for the three months ended June 30, 2023 (compared to approximately $0.11 million for the three months ended June 30, 2022, when there were higher costs related to the DTRC Merger and listing on the NYSE American) and decreased consulting expenses of approximately $0.04 million for the three months ended June 30, 2023 (compared to approximately $0.79 million for the three months ended June 30, 2022, largely relating to the acquisition of Dakota Territory), partially offset by increased professional fees of approximately $0.16 million for the three months ended June 30, 2023 (compared to approximately $0.13 million for the three months ended June 30, 2022, largely due to the acquisition of Dakota Territory).

We earned interest income from bank accounts for the three months ended June 30, 2023 and 2022 of approximately $0.04 million and $0.02 million, respectively, which was higher as a result of a higher interest rates.

Comparison of Six Month Periods ended June 30, 2023 and 2022

We had losses from operations for the six months ended June 30, 2023 and 2022, totaling approximately $19.75 million and $14.72 million respectively, losses before income tax of approximately $19.68 million and $14.53 million respectively, and deferred tax benefits of approximately $0.59 million and $6.52 million respectively, leading to net losses of approximately $19.09 million and $8.00 million.

Revenue

We had no operating revenues during the six months ended June 30, 2023 and 2022 and do not expect to generate revenues at any time in the near future.

Exploration Expenses

During the six months ended June 30, 2023 and 2022, our exploration expenses totaled approximately $14.44 million and $4.99 million, respectively. The increase year over year primarily related to the level of activity associated with drilling, where there was an average of four drills operating on the Black Hills property during the six months ending June 30, 2023, compared to only one in the prior year. Included in these costs were non-cash exploration-related stock-based compensation expenses of approximately $0.41 million and $0.85 million for the six months ended June 30, 2023 and 2022, respectively.

General and Administrative Expenses

Our general and administrative expenses for the six months ended June 30, 2023 and 2022, were approximately $5.32 million and $9.73 million, respectively. These expenditures were primarily for legal, accounting, and professional fees, investor relations, and other general and administrative expenses necessary for our operations. The decrease was primarily due to decreased stock-based compensation allocated to administration expenses of $2.14 million for the six months ended June 30, 2023 (compared to approximately $3.90 million for the six months ended June 30, 2022, largely relating to a one-time grant associated with the acquisition of Dakota Territory), decreased support costs included in general and administrative costs of approximately $2.68 million for the six months ended June 30, 2023 (compared to $4.68 million for the six months ended June 30, 2022), decreased consulting expenses of approximately $0.05 million for the six months ended June 30, 2023 (compared to approximately $0.32 million for the six months ended June 30, 2022, largely relating to the acquisition of Dakota Territory) and decreased investor relations expenses of approximately $0.07 million for the six months ended June 30, 2023 (compared to approximately $0.29 million for the six months ended June 30, 2022, when there were higher costs related to the DTRC Merger and listing on the NYSE American) and decreased professional fees of approximately $0.25 million for the six months ended June 30, 2023 (compared to approximately $0.46 million for the six months ended June 30, 2022, largely relating to the acquisition of Dakota Territory).

We earned interest income of approximately $0.09 million from bank accounts in each of the six months ended June 30, 2023 and 2022.

The effective tax rate for the six months ended June 30, 2023 is less than the statutory rate, due to a lower tax benefit for stock-based compensation related to RSUs that were issued during the period, when compared to what was recognized during the vesting period for those units, and a change in our valuation allowance related to our net operating losses.

Cash Flows Used in Operating Activities

During the six months ended June 30, 2023 and 2022, the Company's cash flows used in operating activities were approximately $17.04 million and $8.97 million, respectively. Cash used in operations for six months ended June 30, 2023 increased year over year, primarily as a result of an increasing number of drill rigs from one in January 2022 to four by June 30, 2023.

Cash Flows Used in Investing Activities

During the six months ended June 30, 2023 and 2022, cash flow used in investing activities were approximately $0.58 million and $2.79 million, respectively. In the six months ended June 30, 2023, the cash used in investing activities consisted of approximately $0.10 million for acquisition of mineral properties and $0.48 million for property and equipment. In the six months ended June 30, 2022, the cash used in investing activities consisted of approximately $2.51 million for acquisition of mineral properties and $0.24 million for property and equipment and $0.04 million for reclamation deposits. The decrease in property acquisition costs was due to having completed strategic acquisitions by the end of June 2022. The higher acquisition of property and equipment in the six months ended June 30, 2022 related to start-up costs required to initiate the drilling program in January 2022.

Cash Flows from Financing Activities

During the six months ended June 30, 2023 and 2022, cash flows from financing activities were approximately $9.14 million and $0.01 million respectively. During the six months ended June 30, 2023, the Company issued 3,284,064 shares of common stock under the ATM program for net proceeds of approximately $9.38 million, 37,500 shares of common stock for the exercise of stock options for proceeds of $0.01 million and 9,018 shares of common stock for the exercise of share purchase warrants for proceeds of $0.02 million. In addition, the Company paid income taxes related to vested RSUs and PSUs totaling approximately $0.26 million on behalf of the employees.

Critical Accounting Estimates

Management's discussion and analysis of financial condition and results of operations is based on the Company's consolidated financial statements, which have been prepared in accordance with U.S. GAAP. Preparation of financial statements requires management to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and the related disclosures of contingencies. Management bases its estimates on various assumptions and historical experience, which are believed to be reasonable; however, due to the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that the Company's consolidated financial statements are fairly presented in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from the Company's assumptions and estimates, and such differences could be material. Management believes that the following critical accounting estimates and judgments have a significant impact on the Company's consolidated financial statements; valuation of options granted to directors and officers using the Black-Scholes option pricing model and valuation of PSUs granted to officers using Monte Carlo simulation. The Company's accounting policies are described in greater detail in Note 2 to the Company's audited annual consolidated financial statements for the nine months ended December 31, 2022. There have been no material changes to the Company's critical accounting policies and estimates as compared to the Company's critical accounting policies and estimates described in the Form 10-KT for the nine months ended December 31, 2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

At the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision of and with the participation of the Company's management, including its chief executive officer ("CEO") and chief financial officer ("CFO"), of the effectiveness of the design and operations of its disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). Based on that evaluation, the CEO and the CFO have concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company's disclosure controls and procedures were effective as of June 30, 2023.

Changes to Internal Controls and Procedures over Financial Reporting

Management, with the participation of the CEO and CFO, concluded that there were no changes in our internal control over financial reporting during the three months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors

There have been no material changes from the risk factors as previously disclosed in the Company's Transition Report on Form 10-KT for the nine months ended December 31, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the six months ended June 30, 2023, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. During the three months ended June 30, 2023, the Company's exploration properties were not subject to regulation by the Federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977.

Item 5. Other Information

None.

Item 6. Exhibits.

The following exhibits are attached hereto or are incorporated by reference:

________________

* Filed herewith

** Furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DAKOTA GOLD CORP.