GOLDRICH MINING CO - Quarter Report: 2020 September (Form 10-Q)

The accompanying notes are an integral part of these consolidated financial statements.

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The accompanying notes are an integral part of these consolidated financial statements.

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As used in herein, the terms “Goldrich,” the “Company,” “we,” “us,” and “our” refer to Goldrich Mining Company.

This discussion and analysis contains forward-looking statements that involve known or unknown risks, uncertainties and other factors that may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Except for historical information, the matters set forth herein, which are forward-looking statements, involve certain risks and uncertainties that could cause actual results to differ. Potential risks and uncertainties include, but are not limited to, unexpected changes in business and economic conditions; significant increases or decreases in gold prices; changes in interest and currency exchange rates; unanticipated grade changes; metallurgy, processing, access, availability of materials, equipment, supplies and water; results of current and future exploration and production activities; local and community impacts and issues; timing of receipt and maintenance of government approvals; accidents and labor disputes; environmental costs and risks; competitive factors, including competition for property acquisitions; and availability of external financing at reasonable rates or at all, and those set forth under the heading “Risk Factors” in our Form 10-K filed with the United States Securities and Exchange Commission (the “SEC”) on November 4, 2020. Forward- looking statements can be identified by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continues” or the negative of these terms or other comparable terminology. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievements. Forward-looking statements are made based on management’s beliefs, estimates, and opinions on the date the statements are made, and the Company undertakes no obligation to update such forward-looking statements if these beliefs, estimates, and opinions should change, except as required by law.

This discussion and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes. The discussion and analysis of the financial condition and results of operations are based upon the unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis the Company reviews its estimates and assumptions. The estimates were based on historical experience and other assumptions that the Company believes to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions, but the Company does not believe such differences will materially affect our consolidated financial position or results of operations. Critical accounting policies, the policies the Company believes are most important to the presentation of its consolidated financial statements and require the most difficult, subjective and complex judgments are outlined below in “Critical Accounting Policies” and have not changed significantly.

General

Our Chandalar, Alaska gold mining property has seen over a hundred years of intermittent mining exploration and extraction history. There has been small extraction of gold from several alluvial, or placer gold streams, and from an array of small quartz veins that dot the property. However, only in very recent times is the primary source of the gold becoming evident. As a result of our exploration, considering structural geology, petrographic, geochemical and geophysical evidence, we have realized that all of the gold is sourced within a system of magmatic hydrothermal alteration features such as small pegmatitic dikes and chloritized schist. We believe these features are common to and link all of the hard-rock (lode) prospects, the weathering of which generated the gold placer deposits, and furthermore are an outlying expression of an underlying gold bearing pluton.

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We are currently defining drilling targets for a hard-rock (lode) gold deposit in an area of interest approximately 1,800 feet wide and over five miles long, possibly underlain by a granitic, mineralized intrusion. Exploration therefore has taken on two directions; one toward defining a low-grade, large tonnage body of mineralization running beneath the headwaters of Little Squaw Creek, the other a deeper, larger mineralized body from which mineralizing fluids have migrated through Chandalar country rock. Our main focus continues to be the exploration of these hard-rock targets. We were successful in raising funds for a limited exploration program in 2014 and reclamation work in 2015; however, weak financial markets prevented us from obtaining funds for significant exploration in other years from 2012 through 2019. Significant increases in the price of gold since 2019, appear to have increase the availability of funds so we are hopeful to secure sufficient funds for a major exploration program in the near future.

Because of the weak financial markets suffered by the mining industry in recent years, we endeavored to develop our placer properties as a source of internal cash to protect us from future market fluctuations and to provide funds for future exploration. In 2012, Goldrich and NyacAU LLC (“NyacAU”) formed Goldrich NyacAU Placer LLC (“GNP”), a 50/50 joint-venture company, managed by NyacAU, to mine Goldrich’s various placer properties at Chandalar.

As shown below, the placer gold extraction by GNP increased each year from 2015 through 2018, trending toward extraction figures that were anticipated by the Preliminary Economic Assessment authored by qualified geologists for us:

Although GNP’s extraction increased over the years, ultimately the extraction numbers attained over those years fell short of the Minimum Production Requirements required in the Operating Agreement. According to the terms of the agreement, GNP was required to pay a Minimum Production Requirement of 1,100 ounces for 2016, 1,200 ounces for 2017, and 1,300 ounces for 2018 to both Goldrich and NyacAU by October 31, 2018. This payment was not made. Under the joint venture Operating Agreement, GNP would be dissolved if GNP failed to meet the Minimum Production Requirement.

On August 20, 2018, we announced the intended dissolution of the GNP joint venture. Subsequently, the Panel ruled that GNP was dissolved at the end of the 2018 mining season (September 28, 2018) by failing to meet the Minimum Production Requirement of the GNP Operating Agreement rather than May 2019, when NyacAU published a formal notice of dissolution to the State of Alaska and to creditors. GNP is currently being liquidated with NyacAU managing the process and Goldrich and NyacAU are currently in arbitration as noted above.

Goldrich has commissioned an independent third-party mining engineering firm to complete a mining plan and Initial Assessment for the Company’s Chandalar Mine.

Joint Venture Agreement

On April 3, 2012, Goldrich Placer, LLC (“GP”), a subsidiary of Goldrich, entered into a term sheet for a joint venture with NyacAU, LLC (“NyacAU”), an Alaskan private company, to bring Goldrich’s Chandalar placer gold properties into production as defined in the joint venture agreement (the “Operating Agreement”), which was subsequently signed and made effective April 2, 2012. In each case as used herein in reference to the JV, ‘production’ is as defined by the JV agreement. As part of the agreement, Goldrich Placer, LLC (“GP”), a subsidiary of Goldrich and NyacAU (together the “Members”) formed a 50:50 joint venture company, Goldrich NyacAU Placer LLC (“GNP”), to operate the Chandalar placer mines, with NyacAU acting as

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managing partner. Goldrich has no significant control or influence over the JV, and therefore accounts for its investment using the cost less impairment method.

As of December 31, 2018, the JV had not achieved commercial production as required under the Operating Agreement, and as a result the JV was dissolved in 2018 and, as of September 30, 2020, is in the process of being liquidated. The Panel has jurisdiction over the liquidation process and has ruled that NyacAU should continue as the liquidator. Except for equipment needed for reclamation, most of the heavy equipment and the wash plant were removed on a winter trail in March through mid-April 2019.

Under the terms of the joint venture agreement (the “Agreement”), the JV was to make annual Member’s Distributions of 10% of the balance of revenue generated by the Joint Venture after deducting Operating Expenses as defined by the GNP Operating Agreement. Related to these distributions, on June 23, 2015, the Company raised net proceeds of $1.1 million through the sale of 12.5% of the cash flows GP, Goldrich’s subsidiary, receives in the future from its interest in GNP (“Distribution Interest”), paid in cash, to Chandalar Gold, LLC (“CGL”) and GVC Capital, LLC, (“GVC”), both of which are non-related entities. Goldrich retained its ownership of its 50% interest in GNP but, after the transaction, subject to the terms of the GNP operating agreement, Goldrich will effectively receive approximately 44%, CGL will effectively receive 6% (12% of Goldrich’s 50% of GNP = 6%) and GVC will effectively receive 0.25% (0.5% of Goldrich’s 50% of GNP = 0.25%) of any distributions produced by GNP. At December 31, 2019 and 2018, an amount of $35,794 has been accrued for the distribution which is included in accrued liabilities for distributions to us that were applied to Loan3. No amount was accrued for the 2018 distribution due to the dissolution of the JV, although during arbitration proceedings, Loan3 was determined and agreed to be paid in full (see Arbitration below). During the nine months ended September 30, 2020, Goldrich purchased 595,000 membership units, or approximately 49% of CGL’s membership units for $25,000. This provides Goldrich with 49% of any distributions produced by GNP and paid to CGL. The Company accounts for its investment in CGL using the cost less impairment method. The Company does not anticipate any distributions from CGL until the placer resumes production.

Concerning Loan3, in 2012, the joint venture purchased, on Goldrich’s behalf, a 2% royalty interest, payable on all production from certain Goldrich mining claims at the Chandalar, Alaska property for $250,000 from Jumbo Basin Corporation. This transaction gave rise to Loan3, was carried at an interest rate of the greater of prime plus 2% or 10%, and was to be repaid from distributions to Goldrich as defined in the Operating Agreement, prior to any distributions in cash to Goldrich. The 2016 and 2017 Members Distributions, as adjusted by the rulings of the arbitration Panel, were first applied against Loan3 in accordance with the terms of the Operating Agreement, the distributions were sufficient to pay all of Loan3 principal and interest in full.

Arbitration

In 2017, we, our subsidiary and the joint venture, as claimants, filed an arbitration statement of claim before a three-member Arbitration Panel (“the Panel”), against our JV partner and its affiliates; NyacAU, LLC (“NyacAU”), BEAR Leasing, LLC, and Dr. J. Michael James, as respondents. In 2018, the respondents filed a counter-claim against the Company, its subsidiaries and the certain members of our current and former management, the counterclaim respondents. The arbitration claim alleged, amongst other things, claims concerning related-party transactions, accounting issues including capital vs. operating leases, interpretation of the joint venture operating agreement, allocation of tax losses between the joint venture partners, and unpaid amounts due Goldrich relating to the Chandalar Mine.

During the year ended December 31, 2019, and in 2020 up through the date of this filing, the Panel has released various awards relating to the allegations of both parties. Some of which have been in favor of our positions some have been in favor of our JV partner and its affiliates. The arbitration is ongoing and the various parties to the claims and counterclaims continue to disagree on several matters.

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On May 25, 2019, the Panel issued an Interim Award, which requested input from the parties on a small number of discrete issues, all input to be supported by references to the arbitration record. On November 30, 2019, the Panel issued the Partial Final Award and concurrently the Second Interim Award RE Dissolution/Liquidation of GNP and Related Issues (“the Second Interim Award”). On September 4, 2020, the Arbitration Panel (the “Panel”) issued the Final Post Award Orders, wherein the Panel issued rulings on multiple material issues. On December 4, 2020, the Panel issued Supplemental Orders 5-8. A summary of each award is provided below. Matters of minor significance on which the Panel ruled or waived actions on matters over which the Panel had no jurisdiction are not included in the summary.

The Partial Final Award

A summary of the various matters addressed in the Partial Final Award is as follows:

Capital vs. Operating Leases.

In response to a claim made by Goldrich, the Panel ruled that certain leases were capital leases, rather than operating leases, which increased the basis upon which distributions are made to the JV partners.  In addition, the Panel modified the interest rates applicable to the leases, which decreased the profitability of the JV for the change in interest on all leases but only decreased the basis upon which distributions are made to Goldrich for leases that were deemed to be operating leases. The net change had no effect on the Company’s September 30, 2020 financial statements. The ruling did, however, affect the amount of interim distributions made from GNP to Goldrich for 2016 and 2017 as noted below.

Ownership by GNP of Leased Equipment.

The Panel ruled that certain continuing lease payments made by GNP for equipment treated as operating leases, which were subsequently ruled capital leases, represented buy-out payments at the conclusion of the capital lease. Therefore, ownership of the subject equipment was transferred to GNP. As a result of the ruling, certain leased equipment became the property of GNP, but was subsequently transferred to Bear Leasing to partially satisfy default of other lease agreements when GNP was dissolved.

Lease Charges and Ownership of Arctic Camp Purchased by NyacAU related party from Third-Party. 

The Panel ruled that lease payments made by GNP to Bear Leasing toward rented Arctic camp facilities that had been purchased from an unrelated third-party from 2012 through 2014 represented purchase consideration. As a result, GNP was deemed the beneficial owner of the camp in connection with the dissolution/liquidation process. Further, LOC1 was reduced by the lease payments GNP was charged beyond the purchase price for the Arctic camp.

Interim Distributions to Goldrich for 2016 and 2017.

As a result of the awards noted above, the Panel determined that the Company is entitled to an additional $214,797 in distributions for 2016 and an additional $198,644 for 2017, for a total of $413,442. In like manner, the Panel determined that NyacAU is entitled to an additional $413,442 in distributions for these years. As we are uncertain as to the collectability of these distributions, no recognition of these revenues is included in our Statement of Operations for the nine months ended September 30, 2020.

Payment of Interest Earned by LOC1.

The Partial Final Award also addressed our claim for payment of interest earned by LOC 1. The Panel determined that NyacAU should pay the Company 50% of the interest earned on LOC 1 actually received by NyacAU, or $126,666. NyacAU contested the amount of LOC1 interest paid by GNP to NyacAU. The matter is further discussed below in the summary for the Final Post Award Order and Supplemental Orders.

2012 Reclamation Work

The Panel ruled Goldrich is responsible to pay the full amount charged by GNP for the 2012 reclamation work to NyacAU and NyacAU is also entitled to 5% pre-judgement interest on the award from the date the first invoice was sent to Goldrich. Goldrich has accrued a liability for this ruling, however Goldrich has contested

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the party to whom payment should be made and whether additional amounts not invoiced by GNP should be included in the award.  

Allocation of Tax Losses 

From 2012 through 2018, NyacAU, as managers of GNP, had allocated net tax losses from GNP totaling $19,888,374 to NyacAU and $839,537 to Goldrich. Goldrich claimed it had a right to 50% of all tax losses under the GNP Operating Agreement and filed Form 8082 for each year with the Internal Revenue Service (“IRS”) to correct the GNP K-1’s filed by NyacAU. Goldrich claimed a total of $9,946,369, 50% of the total GNP losses for the years 2012 through 2018. The Panel generally agreed with that allocation but only during the periods where actual mining operations were being performed, since those rationally are the only periods in which both parties bore a material economic risk, in terms of the impact of mining operations on processed and unprocessed gold. Based on the evidence before the Panel, mining operations were performed in August-September 2013, and 2015-2018.

Prior to Goldrich receiving the award, the IRS had processed and accepted the Forms 8082, corrected GNP K-1’s, and amended tax returns filed by Goldrich for 2012 through 2017. The IRS also notified Goldrich that Goldrich’s 2012 through 2014 tax returns were closed for further changes due to the expiration of the statute of limitations for those years. The IRS also conducted an audit of Goldrich’s 2014 through 2017 tax returns with a ‘no change’ determination. Therefore, although Goldrich was not awarded 50% of all GNP 2012 to 2014 tax losses in the arbitration, Goldrich has been allowed to take the full total of its share of GNP tax losses of $9,946,369, which can be used to offset taxable profits Goldrich generates in future years.

In August 2020, the IRS issued an unfavorable ruling as it affects the Company in regard to the audit of the joint venture which, when the individual partners’ effects are communicated to us by the IRS, is probable to decrease our net federal and state net operating loss carryforwards by $2.0 million and $1.8 million, respectively, for the years under audit. The JV partners had been instructed by the Panel to refrain from taking positions with the IRS that would countermand or conflict with the positions and testimony before the Panel that had resulted in the rulings by the Panel on this matter. In the closing conference, it was evident that GNP had taken positions with the IRS that conflicted with the Panel. The recourse available to us in regard to the audit ruling is a challenge of the IRS ruling before the tax court, should we determine this to be in our best interests.

Other

·The arbitration awarded NyacAU’s request that an entry be made on GNP’s books for unpaid and unbilled interest expense of $66,180 under the appropriate Lease, incurred during the period of construction of the wash plant. In the liquidation process, NyacAU (through Bear Leasing) shall be treated as a third-party creditor with respect to the recovery of this amount from GNP.
 

·The Panel awarded Dr. James $9,858, plus prejudgment interest at 5% and legal fees, for personal expenses incurred relating to GNP’s operations. The award plus interest, totaling $13,713, is included in accounts payable and interest payable of the Company at June 30, 2020. An additional $181 has been accrued and is included in interest payable at September 30, 2020.  

·The Partial Final Award found the Company liable for an act of negligent misrepresentation regarding the concealment of certain technical information from NyacAU. We have vigorously disputed the concealment and the finding of negligence. Nevertheless, as a result of the Panel’s determination, the Panel awarded Dr. J. Michael James a reimbursement of 17% of his previous $350,000 stock investment in the Company or $59,500 plus prejudgment interest of 5% and legal fees. The award plus interest, totaling $83,588 is included in accounts payable and interest payable of the Company at June 30, 2020. An additional $1,106 has been accrued and is included in interest payable at September 30, 2020. Attorney’s fees and costs also awarded in the judgement plus interest totaling $898 have been included in accounts payable and interes payable of the Company at September 30, 2020.  

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·As requested by Goldrich and NyacAU, the Panel will retain jurisdiction and oversight over the dissolution/liquidation process to its completion.  The Panel stated, “there is likely more information the parties will have to provide on certain issues--including, among others, changes in the balance of LOC 1 and the issue of transfer of the permit to Goldrich--before a Final Award on dissolution/liquidation can be made.” As of the date of this report, the balance of LOC1 continues to change as a result of on-going rulings by the Panel. Additionally, the Panel has stated it lacks jurisdiction on the transfer of the mining permit, which the Panel has ruled is a matter to be negotiated between the parties. 

·The Panel ruled that “there has been no prevailing party in the arbitration to this point, although it reserves judgment as to whether a prevailing party will emerge from the Final Award with regard to issues which are now part of the Revised [Second] Interim Award. Accordingly, as to all issues covered by this Partial Final Award, the parties shall bear their own costs, expenses, and attorneys’ fees.” 

The Second Interim Award

The Second Interim Award was necessitated by the fact that the dissolution/liquidation of the joint venture had not yet run its course. A summary of the various matters addressed in the Second Interim Award is as follows:

Transfer of Mining Permits

The Panel ordered that:

a)No later than January 15, 2020, NyacAU and Goldrich shall attempt to establish, by agreement, a market value for the GNP permit in connection with a transfer of the Permit to Goldrich or a third party, taking into consideration the obligation of GNP, or any transferee of the permit, to complete reclamation in accordance with NyacAU’s government-approved reclamation plan. 

b)Reasonably prior to May 31, 2020, NyacAU shall perform its obligation to “make provision … for reclamation by (1) adding all reclamation expenses actually incurred by NyacAU to LOC 1; (2) from GNP’s assets, to the extent possible after payment of GNP’s debts and liabilities and liquidation expenses”. 

Neither order was successfully executed by the parties on the dates specified by the Panel. The Second Interim Award confirmed the dissolution of GNP and noted that “no provision of the Claims Lease or the Operating Agreement speaks directly to the rights or obligations of GNP to transfer its mining permit, which is held in the name of the manager, NyacAU. Although GNP no longer has the right to mine, GNP and specifically NyacAU have the liability of reclamation. Absent a transfer of the Permit, GNP (through NyacAU) would be obligated to complete reclamation, and obtain final approval from appropriate government authorities, as required by the Claims Lease—a process estimated to take several years.”

If NyacAU does not transfer the mining permit to Goldrich as part of the dissolution, they will retain the requirement to reclaim the mine, and Goldrich will be prevented from mining the property, since two mining permits cannot be issued for the same claims. The actual cost of the reclamation will be subject to many variables, not the least of which will be whether the remedial activity is undertaken while the mine is inactive or conversely, when the mine is actively producing gold. If the mining permit were to be transferred to Goldrich or another entity with the reclamation obligation intact, the reclamation activity could be undertaken as a key piece of a mining plan in order to mitigate reclamation costs. If an agreement cannot be reached to transfer the mining permit and the associated reclamation of prior mining activities, Goldrich will be prevented from mining its claims until a new mining permit is acquired after the current mining permit expires in 2024, and will be limited to exploration activities on the hard rock deposits of the Chandalar property.

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NyacAU has indicated they will not transfer the permit without also transferring the reclamation obligation, of which they believe to be $3 million. Goldrich has indicated they will not accept transfer of the permit together with the reclamation obligation, which they believe to be substantially greater. Both parties are in discussion to attempt to reach an agreement for the transfer of both the permit and the reclamation obligation, no transfer of either, or some other arrangement.

Balance and payment of LOC1 

The Panel calculated a tentative balance of LOC1 at $16,483,271 as of June 2019. This balance will be adjusted for any additional awards and/or adjustments made by the Panel.

Upon liquidation of GNP, 50% of the LOC1 liability would be recorded on Goldrich’s Balance sheet. Per the Operating Agreement and a separate Security Agreement between GNP and NyacAU, NyacAU was entitled to record a security interest in all placer gold production from the placer claims as collateral for repayment of fifty percent (50%) of LOC1. The agreements between GNP and NyacAU are silent concerning what happens if GNP is dissolved and is no longer producing gold, the basis of calculation, timing of remittance and other key factors related to repayment if mining activities were to be undertaken again.

The Panel ruled in the Final Post Award, discussed below, that LOC1 cannot be increased for costs incurred after mining operations have ceased, including costs for reclamation. Mining operations ceased on September 21, 2018. This deprives NyacAU of a security interest in 50% of future placer gold production at the site to repay NyacAU for expenses incurred subsequent to the cessation of mining operations.

If an agreement cannot be reached for the transfer of the mining permit and reclamation liability to Goldrich or an operating company that will harvest the placer gold in the deposit, mining will likely not continue at the mine and LOC1 likely will not be paid. Further, in order to operate the mine, Goldrich will be required to raise money to fund replacement equipment, wash plants, infrastructure and initial operating costs to restart the mine, due to the mining assets which have been removed as part of the liquidation of GNP. Goldrich is actively preparing a new mine plan and an initial assessment to show the mine’s potential, as announced in Goldrich’s news release dated July 29, 2020. However, at the date of this report, there is no candidate for operating the mine without a settling concession as part of the transfer of the permit and the associated reclamation and LOC1 obligations.

Goldrich may not have a reasonable avenue to pursue in restarting the mine and may be limited to raising investment funds for the sole purpose of exploration of the hard rock deposits.

Right to Offset Damages or Distributions 

The Panel granted the request that any damages awarded to one party can be an offset to distributions (or damages) due to the other party.

Judgements issued by Superior Court

On April 29, 2020, the Superior Court of the State of Alaska issued a judgement in favor of Dr. James, in the total amount of $13,713 (for the 2012 reclamation costs personally incurred, including interest) and $83,588 (for the adjustment to Dr. James’ stock purchase, including interest). The Court ordered both Goldrich and NyacAU to submit a status report to the Court in September 2020 regarding the Panel’s clarification of the amounts payable for the 2012 reclamation, including interest, and to clarify the correct party for the award, NyacAU or GNP. The status report has been filed by both parties, and these judgements remain unpaid and in force before the Superior Court. In June 2020, the Superior Court awarded additional amounts for attorney’s fees and costs. At September 30, 2020, a total of $100,370 is included in accounts payable and interest payable on the consolidated balance sheet for the judgements, additional costs, and interest.

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Final Post Award Orders

A summary of the various matters addressed in the Final Post Award is as follows:

On September 4, 2020, the Panel issued Final Post Award Orders, wherein the Panel issued rulings on multiple material issues:

Reclamation:

a)We had previously filed a motion to compel NyacAU to correct accruals for certain expenses including reclamation, demobilization, equipment rental and utilities. Most notably, we contended that an accrual for reclamation liability of approximately $2.1 million was woefully short of an $18.4 million estimate prepared by independent professionals as engaged by Goldrich. The Panel denied our motion and ruled that Goldrich does not have the authority to compel the establishment of any reserves on the GNP financial records; NyacAU having sole authority to establish reserves as manager of the joint venture. There was no direct financial consequence to us as a result of this ruling. The effect on the future balance of LOC1 and our liability for 50% of that balance is not determined yet. 

b)We had previously filed a motion to compel NyacAU to reclaim the disturbed acres as required under the Operating Agreement and the mining permit issued to NyacAU in 2013, and to require NyacAU to fund the reclamation reserve from cash that had been distributed to NyacAU. The Panel denied our motion and ruled that while there was express provision in the Operating Agreement to establish reserves necessary for contingent or unforeseen liabilities or obligations, which could conceivably include reclamation reserves, the agreement does not impose an express obligation to reclaim the project site. The obligation to perform reclamation is imposed by the claims lease and the mining permit issued to NyacAU, which requires the permit holder to reclaim the site in accordance with government regulations. The ruling also states that the determination of the scope of potential obligations to reclaim under the permit is beyond the jurisdiction of the Panel. Further, the Panel ruled that the Operating Agreement does not impose an obligation on the Company to pay 50% of the reclamation fee, confirming again the obligation resides with the permit holder. Still further, the Panel ruled that the reclamation fees were not operating expenses to bring the mine to commercial production and therefore by definition of the Operating Agreement, precludes reclamation expenses from being added to LOC1, for which Goldrich would be obligated to remit 50% to NyacAU upon liquidation of GNP. This ruling deprives NyacAU of a security interest in 50% of future placer gold production at the site to repay reclamation expenses which it advances. There was no direct financial consequence to us as a result of this ruling; however, the effect on the future balance of LOC1 and our liability for 50% of that balance would be significant now that NyacAU is not allowed to pass through reclamation costs to GNP but is required to retain responsibility for those costs as holder of the mining permit.  

c)NyacAU had previously filed a motion to compel the Company to recognize and remit a reclamation liability that had been invoiced by GNP to Goldrich in 2014 for reclamation work it performed on Goldrich’s behalf for violations resulting from our 2012 mining activities. We had previously challenged the validity of the invoice, citing back charges to GNP that had not been recognized or remitted to it. The Panel denied Goldrich’s claim and ruled in favor of NyacAU. While we continue to work with the Panel to clarify the party to whom the reclamation is payable, the specific amount of the payable and the calculation of interest associated with the liability, it has recorded an accrued liability totaling $ 421,366 for the year ended December 31, 2019, related to this reclamation liability and associated interest thereon, due to the liability now being estimable and probable under ASC 450. The total consists of $329,157 for reclamation expense and $92,209 for pre- and post-judgement interest expense, calculated at 5%. Additional interest of $12,355 has been accrued during the nine months ended September 30, 2020 and is included in interest payable at September 30, 2020. 

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Mining Claims

All of our mining claims remain the property of the Company; however, NyacAU staked several claims contiguous to the claims owned by the Company. We had previously filed a motion to compel the transfer of NyacAU’s claims from NyacAU to us. The motion was granted in part in that the claims held in NyacAU’s name were ruled to be owned by the Company, but would not be transferred immediately. They would remain in the possession of NyacAU as manager of the liquidation until the property covered by the claims was not being used for liquidation activities and could be transferred without disruption to the liquidation activity. There was no direct financial consequence to us as a result of this ruling. The claims are assured to be transferred to us at a reasonable future time.

Repayment of misappropriation of JV funds

We had previously filed a motion to compel NyacAU to repay funds we considered to be misappropriated as payments on LOC1 in contravention of the payment priority requirements as outlined in the Operating Agreement (See Note 3 Joint Venture). A successful challenge of these cash disbursements would return to GNP funds that we considered to be necessary to pay for reclamation costs, partner distributions, vendor obligations and other cash requirements that have precedence over repayment of LOC1. The ruling was deferred pending additional information to be determined in the future, such as the profitability of operations in 2018, which had not yet been determined when taking the Panel’s ruling into account. Subsequent to September 30, 2020, the Panel denied Goldrich’s claim, see Supplemental Orders 5-8 below.

Clarification concerning GNP’s 2018 Profitability and 2018 Interim Distributions.

We had made a challenge to the Panel’s understanding of facts related to GNP’s profitability for 2018 as presented in the arbitration proceedings, with a motion to distribute interim distribution after applying the rulings made to date. The Panel deferred ruling on the matter, retaining jurisdiction to decide the issue of interim distributions for 2018 and requested the parties to present evidence and argument (disregarding any jurisdictional issue) as to (i) whether Goldrich has a right to interim distributions for 2018, and (ii) the amount, if any, of distributions to be paid.  Goldrich has submitted a claim for approximately $680,000 plus prejudgment interest thereon at 5%; NyacAU claims that Goldrich is not entitled to any distributions for 2018. Subsequent to September 30, 2020, the Panel denied Goldrich’s claim on both accounts, see Supplemental Orders 5-8 below.

Clarification of LOC1 Interest Paid and Amounts Owed to Goldrich.

We had challenged the amount of payment of LOC1 interest by GNP to NyacAU and claimed reimbursement of 50% of the amount remitted as specified by the Operating Agreement. The Panel deferred a ruling and required more information from each party. Subsequent to September 30, 2020, the Panel ruled in our favor, see Supplemental Order 5-8 below.

Subordination of Mr. Gallagher’s Security to NyacAU’s Security.

A challenge to the validity of priority of security interest was ruled in the Company’s favor. NyacAU’s security interest for LOC1 was reaffirmed to be placer gold production from the mining claims, while Mr. Gallagher’s security is perfected in the mining claims themselves. The Panel determined there was no conflict between the two security interests. There was no direct financial consequence to us as a result of this ruling.

Supplemental Orders 5-8

On December 4, 2020, the arbitration Panel issued Supplemental Orders 5-8, wherein the Panel issued rulings on multiple material issues:

·2018 Profitability and 2018 Interim Distributions  

Under the GNP Operating Agreement, Goldrich was entitled to receive certain interim distributions based on GNP’s profitability. Goldrich received such distributions for 2016 and 2017.  Goldrich challenged the Panel’s understanding of facts related to GNP’s profitability for 2018 as presented in the arbitration proceedings and made a motion for GNP to distribute interim distributions for

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2018 after applying the arbitration rulings made to date. Goldrich submitted a claim to the arbitration Panel for approximately $680,000 plus prejudgment interest thereon at 5%.  The arbitration Panel denied Goldrich’s claim.  Based on the Panel’s ruling, the paydown by NyacAU, as manager of GNP, of Line of Credit 1 (“LOC1”) with GNP funds, rather than the payment of a 2018 interim distribution to Goldrich, is not considered a misappropriation of funds.  LOC1 is a related party loan between GNP and NyacAU.

The Panel ruled that GNP was dissolved at the end of the 2018 mining season (September 28, 2018) by failing to meet the Minimum Production Requirement of the GNP Operating Agreement rather than May 2019, when NyacAU published a formal notice of dissolution to the State of Alaska and to creditors.  Based on this and other evidence, the Panel found that GNP was dissolved by no later than October 9, 2018, which precedes the date by which any interim distribution would otherwise have been due under the GNP Operating Agreement (October 31 - December 31, 2018).  Accordingly, the Panel ruled that Goldrich is precluded from receiving any interim distributions for 2018 under the GNP Operating Agreement, which provides that “[m]embers have a right to Distributions from the Company before the dissolution and winding up of the Company.”

·Goldrich’s Portion of Interest Paid on LOC1 

Under the GNP Operating Agreement, Goldrich is to receive 50% of any interest on LOC1 paid by GNP to NyacAU.  Goldrich made a claim to the arbitration Panel that GNP had paid interest to NyacAU and that Goldrich was entitled to 50% of the amount paid.  The Panel ruled that NyacAU is obligated to pay Goldrich 50% of $241,797 in interest “received” by NyacAU up to October 2018, when GNP was dissolved and commenced liquidation, in the total principal amount of $120,883.  Goldrich is also entitled to recover 5% prejudgment interest on unpaid LOC1 interest as it fell due.  The Panel further ruled that LOC1 interest totaled (cumulatively) $3,394.21 as of December 2012; $22,663.46 as of December 2013; $55,632.71 as of December 2014; $101,823.60 as of December 2015; $155,337.06 as of December 2016; $205,817.76 as of December 2017; and $241,797.20 as of October 1, 2018.   Goldrich is awarded 12 months of accrued prejudgment interest at 5% per annum on each of these year-end amounts.  Goldrich has no entitlement to a share of LOC1 interest beyond this.

·Clarification of Award 

In the Partial Final Award given in 2019, the arbitration Panel made an award to NyacAU of $377,253 in damages and pre-award interest relating to 2012 reclamation expenses incurred on Goldrich’s behalf.  Goldrich made an “Application for Modification and Correction of Arbitration Award, for Vacation of Award, or for Resubmission to Arbitration Panel for Clarification”, requesting an order from the Alaska court, under the Alaska Arbitration Act, that the damages awarded for unpaid 2012 reclamation expenses were to be paid to GNP, not NyacAU, and that the Panel clarify the appropriate amount of damages and interest to be paid.  The Panel ruled that it will resolve these issues after the parties submit evidence and argument supporting their respective positions on the merits.

Liquidity and Capital Resources

We are an exploration stage company and have incurred losses since our inception. We currently do not have sufficient cash to support the Company through 2020 and beyond. In addition to the current liabilities on our consolidated balance sheet at September 30, 2020, we anticipate that we will incur approximately $650,000 for general operating expenses and property maintenance, $800,000 for interest, and $50,000 for additional notes payable to related party over the next 12 months as of September 30, 2020. Additional funds will be needed for any exploration expenditures, should any be undertaken. We also anticipate additional unknown and undeterminable costs for arbitration, but a significant portion of this would be recouped if we are successful in the arbitration.  We plan to raise the financing through a combination of debt and/or equity placements, sale of mining property interests, and revenue from placer operations.

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We have filed an arbitration claim against our joint venture operating partner to challenge certain accounting treatment of capital leases, allocations of tax losses, charges to the JV for funding costs related to the JV manager’s financing, related-party transactions, and other items of dispute. For recent developments in the arbitration proceedings, see the sections entitled Joint Venture Agreement and Arbitration above and Subsequent Events below. The arbitration is proceeding on the basis that GNP has been dissolved. As noted above, NyacAU has recorded a secured interest in all placer gold production from certain claims owned by Goldrich as collateral for repayment of fifty percent (50%) of LOC1. Arbitration proceedings may significantly affect the balance of LOC1, the magnitude of which cannot be estimated at the date of this report.

The audit opinion and notes that accompany our consolidated financial statements for the year ended December 31, 2019, disclose a ‘going concern’ qualification to our ability to continue in business. The accompanying consolidated financial statements have been prepared under the assumption that we will continue as a going concern. We are an exploration stage company and we have incurred losses since our inception. We do not have sufficient cash to fund normal operations and meet debt obligations for the next 12 months without deferring payment on certain current liabilities and raising additional funds. We believe that the going concern condition cannot be removed with confidence until the Company has entered into a business climate where funding of its activities is more assured.

We currently have only a brief recent history of a recurring source of revenue. If we profitably execute a production business plan, our ability to continue as a going concern may improve and become less dependent on our ability to raise capital to fund our future exploration and working capital requirements. Our plans for the long-term include the profitable exploitation of our mining properties and financing our future operations through sales of our common stock and/or debt. Additionally, the current capital markets and general economic conditions in the United States are significant obstacles to raising the required funds. These factors raise substantial doubt about our ability to continue as a going concern.

During the nine months ended September 30, 2020, we completed financings of $615,600, compared to $573,000 net cash for note financings and placements of our securities during the nine months ended September 30, 2019. Subsequent to the close of the nine months ended September 30, 2020, we borrowed an additional $113,000, net of discount, of notes payable, bringing the total notes payable obligation as of January 29, 2021, to $4,727,369, of which $3,052,632 came due October 31, 2018. Notes payable to third parties totaling $967,371 were subsequently amended to extend the due date to February 28, 2019, and then notes payable and notes payable related party were subsequently amended to make the notes due on demand.

If we are unable to timely satisfy our obligations under these secured senior notes payable, the notes payable in gold, originally due November 2018 subsequently extended to March 31, 2019, and subsequently extended to due on demand, and the interest on both the secured senior note due quarterly and the notes payable in gold, and we are not able to re-negotiate the terms of such agreements, the holders will have rights against us, including potentially seizing or selling our assets. The notes payable in gold are secured against our right to future distributions of gold extracted by our joint venture with NyacAU or subsequent gold production. At September 30, 2020, we had outstanding total notes payable in gold of $502,469, representing 266.789 ounces of fine gold deliverable on demand. To date, the gold notes have not been paid, the note holders have not demanded payment or delivery of gold.

We believe we will be able to secure sufficient financing for further operations and exploration activities of our Company but we cannot give assurance we will be successful in attracting financing on terms acceptable to us, if at all. Additionally, anticipating continued placer production after dissolution of GNP, we look forward to internal cash flow and additional options for financing. A successful mining operation may provide the long-term financial strength for the Company to remove the going concern condition in future years. To increase its access to financial markets, Goldrich intends to also seek a listing of its shares on a recognized stock exchange in Canada in addition to its listing on the OTCBB in the United States.

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The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. If the going concern basis were not appropriate for these financial statements, adjustments would be necessary in the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used.

Results of Operations

On September 30, 2020, we had total liabilities of $9,417,635 and total assets of $1,024,214. This compares to total liabilities of $8,084,670 and total assets of $724,992 on December 31, 2019. As of September 30, 2020, our liabilities consist of $260,630 for remediation and asset retirement obligations, $502,469 of notes payable in gold, $1,062,106 of notes payable, $3,546,316 of notes payable – related party, $2,006,066 of trade payables and accrued liabilities, $394,693 of accrued interest payable, $825,670 of accrued interest payable – related party, $738,467 due to related party, $50,600 of notes payable under the CARES Act, and $30,618 for dividends payable. Of these liabilities, $9,127,524 is due within 12 months. The increase in liabilities compared to December 31, 2019 is due to an increase in trade and related party payables, additional borrowings under notes payable - related party, largely resulting from costs associated with arbitration, and amortization of the discount and warrants of the notes payable. Total assets and its components did not experience significant changes, with the exception of an increase in cash due to financing activities and an increase in prepaid expenses during the nine months ended September 30, 2020.

On September 30, 2020, we had negative working capital of $8,754,741 and a stockholders’ deficit of $8,393,421 compared to negative working capital of $7,525,082 and stockholders’ deficit of $7,359,678 for the year ended December 31, 2019. Working capital decreased during the nine months ended September 30, 2020 due to the accruals of accounts and trade payables that exceeded cash proceeds from notes payable and notes payable – related party. Stockholders’ equity decreased due to an operating loss for the period ended September 30, 2020.

During the nine months ended September 30, 2020, we used cash from operating activities of $574,048 compared to $645,337 for the period ended September 30, 2019. Net losses were slightly higher year over year due largely to an insurance refund of professional service costs in relation to the arbitration in 2019, and an increase in trade payables. Net operating losses were $535,597 and $1,479,531 for the three and nine months ended September 30, 2020, respectively, compared with $645,770 and $1,438,188 for the three and nine months ended September 30, 2019, respectively, including depreciation of $714 and $982 for the respective nine-month periods.

During the nine months ended September 30, 2020, we used cash from investing activities of $25,000 compared to $nil for the same period of 2019.

During the nine months ended September 30, 2020, cash of $615,600 was provided by financing activities, compared to $573,000 provided during the same period of 2019.

Private Placement Offerings

No private placement offerings occurred during the nine months ended September 30, 2020 and 2019, respectively.

Notes Payable in Gold, Notes Payable & Notes Payable – Related Party

At September 30, 2020, we owed $502,469 for notes payable in gold, $1,062,106 for notes payable and $3,546,316 for notes payable – related party. Interest payable on these borrowings totaled $1,085,674. These borrowings have matured beyond their original due dates and have been amended to be due upon demand.

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During September of 2020, the holders of the notes payable and notes payable – related party, received shares in lieu of cash for interest. A total of 13,719,248 common shares with a basis of $0.015 per share, were issued to the lenders, reducing interest payable by $205,789, of which $168,976 was to a related party.

Effective November 1, 2019, we entered into an Amended and Restated Loan, Security, and Intercreditor Agreement (the “Amended Agreement”) with Nicholas Gallagher, a related party and member of our Board of Directors, in his capacity as agent for and on behalf of the holders of the notes payable.

As a result of the borrowings under the notes payable in gold, notes payable and notes payable – related party (collectively, the “Notes”), we are faced with a significant hurdle in financing the Company going forward, whether to conduct exploration programs or initiate a mining program at the Chandalar mine. Our near-term cash requirements are greater than the assets we have available to satisfy them, and the holders of the Notes could choose to exercise their rights to demand payment, which would result in a default situation relative to the Notes. Mr. Gallagher is secured in his lending to the Company by means of the Amended Agreement, and if he were to demand payment, the Company would not be able to pay him the amounts due and he would be entitled to sell our claims and other assets for payment of the debt. We believe these holders to be friendly to the Company and that they will refrain from demanding payment, but the Company cannot control the potential demands nor the consequences that would be extracted as a result of default on the Notes.  

Subsequent Events

Subsequent to the nine months ended September 30, 2020, the Company entered into additional notes payable totaling $113,000, net of discounts from a related party.

Subsequent to the nine months ended September 30, 2020, the Company received $199,000 cash as a result of exercise of Class Q, Class S, and Class T warrants at an exercise price of $0.03 per common share. Ownership of these warrants had been in the hands of a related party and were sold by him personally to unrelated parties. The unrelated parties then exercised the warrants for cash, resulting in the issuance of 6,633,333 common shares.

Mining Permit and Future Mining Activities

The recent upward movements in the price of gold to a range of $1,800 to $2,000 per ounce or higher during 2020 have created renewed interest in gold mining, gold exploration and investments in companies engaging in those activities, including the junior mining/exploration sector in which we participate. Additionally, the fact that we own a mine that has produced over 40,000 ounces in recent years along an annual increasing trend has caught the interest of placer mining companies and investors who support placer mining operations. We believe we have the fundamentals to raise capital and continue our primary strategy of exploration and secondarily placer mining.

If we can attract the type of investor who is comfortable with reinstating the placer mining operation, we may have a viable and productive path forward toward obtaining financing in the short-term to achieve long-term profitability. To effectively pursue this strategy, (1) the mining permit for the Chandalar mine must be transferred to us from NyacAU, our former JV partner and the current holder of the permit, (2) financial concessions must be made relative to LOC1, which is currently to be satisfied from gold produced from the claims at the Chandalar mine, and (3) reclamation costs for the Chandalar mine that currently are the responsibility of NyacAU must be mitigated by a mining plan that accomplishes much of the reclamation costs as part of the ongoing mining activity. We do not believe an investor or group of investors will be willing to step forward to fund the placer mining activity without these three factors aligning themselves as described.

Additionally, without a profitable mining operation, the ability to pay back the Notes may not be available to us. If that is the case, the payback would require us to raise money from placements of equity instruments to raise the cash to satisfy the obligations. Such a use of funds may present a funding effort that receives tepid or little response in the equity markets.

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However, we do believe there are investors motivated to provide funding for exploration programs to locate and exploit the hard rock deposits from which the placer mineralization is coming from. This strategy can be pursued independent of any mining activities.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Inflation

We do not believe that inflation has had a significant impact on our consolidated results of operations or financial condition.

Contractual Obligations

See Subsequent Events above.

Critical Accounting Policies

We have identified our critical accounting policies, the application of which may materially affect the financial statements, either because of the significance of the financials statement item to which they relate, or because they require management’s judgment in making estimates and assumptions in measuring, at a specific point in time, events which will be settled in the future. The critical accounting policies, judgments and estimates which management believes have the most significant effect on the financial statements are set forth below:

·Estimates of the recoverability of the carrying value of our mining and mineral property assets. We use publicly available pricing or valuation estimates of comparable property and equipment to assess the carrying value of our mining and mineral property assets. However, if future results vary materially from the assumptions and estimates used by us, we may be required to recognize an impairment in the assets’ carrying value. 

·Estimates of our environmental liabilities. Our potential obligations in environmental remediation, asset retirement obligations or reclamation activities are considered critical due to the assumptions and estimates inherent in accruals of such liabilities, including uncertainties relating to specific reclamation and remediation methods and costs, the application and changing of environmental laws, regulations and interpretations by regulatory authorities. 

·Accounting for Investments in Joint Ventures. For joint ventures in which we do not have joint control or significant influence, the cost method is used. Under the cost method, these investments are carried at the lower of cost or fair value. For those joint ventures in which there is joint control between the parties and in which we have significant influence, the equity method is utilized whereby our share of the ventures’ earnings and losses is included in the statement of operations as earnings in joint ventures and our investments therein are adjusted by a similar amount. We have no significant influence over our joint venture described in Note 3 Joint Ventures to the financial statements, and therefore account for our investment using the cost method. For joint ventures where we hold more than 50% of the voting interest and has significant influence, the joint venture is consolidated with the presentation of a non-controlling interest. In determining whether significant influence exists, we consider our participation in policy-making decisions and our representation on the venture’s management committee. We currently have no joint venture of this nature. 

Not applicable.

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Evaluation of 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, our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were not effective, and that information required to be disclosed by the Company in its reports that it files or submits to the SEC under the Exchange Act, is recorded, processed, summarized and reported within the time period specified in applicable rules and forms.

Our Chief Executive Officer and Chief Financial Officer have also determined that the disclosure controls and procedures are not effective, and that material information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow for accurate required disclosure to be made on a timely basis.

Changes in internal controls over financial reporting

During the quarter ended September 30, 2020, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

In 2017, the Company, its subsidiary and the joint venture, as claimants, filed an arbitration statement of claim against NyacAU, LLC (“NyacAU”), BEAR Leasing, LLC, and Dr. J. Michael James, as respondents. In 2018, the respondents filed a counter-claim against us, the claimants. The arbitration claim alleges, amongst other things, claims concerning related-party transactions, accounting issues, interpretation of the joint venture operating agreement, allocation of tax losses between the joint venture partners, and unpaid amounts due Goldrich relating to the Chandalar Mine. The arbitration occurred during July and August 2018 in Anchorage, Alaska before a three-member Panel. Under the terms of the Operating Agreement, both partners are required to abide by the rulings proceeding from the Panel. We have received an Interim Award, a Partial Final Award, a Second Interim Award, a Final Post Award, and Supplemental Orders and are awaiting the outcome of the arbitration that would come in the form of a Final Award from the Panel.

Item 1A.  Risk Factors

There have been no changes to our risk factors as reported in our annual report on Form 10-K for the year ended December 31, 2019.

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See full disclosure in section entitled “Sale of Unregistered Securities” above, which is incorporated by reference to this Item 2.

None.

Our exploration properties are subject to regulation by the Federal Mine Safety and Health Administration ("MSHA") under the Federal Mine Safety and Health Act of 1977 (the "Mine Act"). Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (The "Dodd-Frank 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 quarter ended September 30, 2020, we had no such specified health and safety violations, orders or citations, related assessments or legal actions, mining-related fatalities, or similar events in relation to our United States operations requiring disclosure pursuant to Section 1503(a) of the Dodd-Frank Act.

None.

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SIGNATURES

In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant has caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:  January 29, 2021

GOLDRICH MINING COMPANY 

By   /s/  William Schara                                                      

William Schara, Chief Executive Officer and President  

In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant has caused Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:  January 29, 2021

GOLDRICH MINING COMPANY 

By    /s/ Ted R. Sharp                                           

Ted R. Sharp, Chief Financial Officer 

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