Santa Fe Gold CORP - Annual Report: 2009 (Form 10-K)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended June 30, 2009

[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to______

Commission file number 0-20430

SANTA FE GOLD CORPORATION
(Exact name of registrant as specified in its charter)

(505) 255-4852
(Registrant's telephone number, including area code)

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

Securities registered pursuant to Section 12(g) of the Act:
Common stock, $.002 par value
(Title of class)

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

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

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

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.

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

The aggregate market value of the Common Stock of Santa Fe Gold Corporation held by non-affiliates as of the last
business day of the registrant’s most recently completed second fiscal quarter was $35,225,161.

As of October 7, 2009, there were 83,723,208 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None.

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TABLE OF CONTENTS

ADDITIONAL INFORMATION

          Descriptions of agreements or other documents contained in this report are intended as summaries and are not necessarily complete. Please refer to the agreements or other documents filed or incorporated herein by reference as exhibits. Please see the exhibit index at the end of this report for a complete list of those exhibits.

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CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

          This annual report on Form 10-K or incorporated by reference may contain certain “forward-looking” statements as such term is defined by the Securities and Exchange Commission in its rules, regulations and releases, which represent the registrant’s expectations or beliefs, including but not limited to, statements concerning the registrant’s operations, economic performance, financial condition, growth and acquisition strategies, investments, and future operational plans. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intent,” “could,” “estimate,” “might,” “plan,” “predict” or “continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements.

          This annual report contains forward-looking statements, many assuming that the Company secures adequate financing and is able to continue as a going concern, including statements regarding, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans, (e) our anticipated needs for working capital, (f) unfavorable weather conditions, (g) the lack of commercial acceptance of our product or by-products, (h) changes in environmental laws, (i) problems regarding availability of materials and equipment, (j) failure of equipment to process or operate in accordance with specifications, including expected throughput, which could prevent the production of commercially viable output, (k) our lack of necessary financial resources to complete development of our projects, successfully market our products and fund our other capital commitments and (l) our ability to seek out and acquire high quality gold, silver and/or copper properties. These statements may be found under “Management’s Discussion and Analysis or Plan of Operations” and “Business,” as well as in this annual report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this annual report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this annual report will in fact occur. In addition to the information expressly required to be included in this annual report, we will provide such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.

          These risks and uncertainties and other factors include, but are not limited to, those set forth under Item 1A. “Risk Factors”. All subsequent written and oral forward-looking statements attributable to the company or to persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Except as required by federal securities laws, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

          Given these risks and uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements.

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PART I

ITEM 1.      BUSINESS

History and Organization

          Santa Fe Gold Corporation (“the Company”, “our” or “we”) is a U.S. mining company, incorporated in 1991 in the state of Delaware. Our general business strategy is to acquire and develop mining properties amenable to low cost production. Presently, we have five projects: Our Summit silver-gold and Ortiz gold projects located in New Mexico; our Black Canyon mica and Planet micaceous iron oxide projects located in Arizona; and our Pilar gold property in the State of Sonora, Mexico. See “Item 2. Properties” for more information about our properties. We are constructing a mill and developing an underground mine at our Summit silver-gold project, which will be our first mine upon successful start-up, which is targeted for 2010. We expect commercial production to be achieved in 2010. Information about the Company, including a link to our most recent financial reports filed with the Securities and Exchange Commission (“SEC”), can be viewed on our website at www.santafegoldcorp.com.

          From July 1, 2006 through the current date, we completed private placements of our common stock, and notes convertible into our common stock, for amounts aggregating $2,856,757. In December 2007, we raised additional capital pursuant to a private placement of convertible debentures aggregating $13,500,000. In September 2009, we entered into a gold sale agreement with an investor that includes an upfront payment of $4,000,000, with an option to increase that amount by $1,000,000, to $5,000,000. We used the majority of the funds raised to acquire and construct the Summit mine and Banner mill and for working capital. We anticipate using the upfront payment provided by the September 2009 gold sale agreement to continue these efforts. See” Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation” for more information.

          Construction of the Summit mine and related Banner mill was the focus of our activities in 2009. In April 2007, we received results of a preliminary feasibility study carried out by an independent geological engineering firm that concluded that development of the Summit deposit would be economically viable. Capital cost was estimated as $13.4 million and the construction schedule was estimated to require 12 months. In December 2007, we arranged a financing of $13.5 million by way of a private placement of senior secured convertible debentures. We began construction activities during the first quarter of 2008, including development of the Summit mine and construction of the Banner mill. Underground mine development and stockpiling of ore is on-going. Construction of the Banner mill was completed in Q2 2009 except for the tailings disposal impoundment, for which on October 2, 2009 we received a conditional permit that allows us to proceed with construction. We estimate that construction of the tailings disposal impoundment will be completed in Q4 2009, following which we expect to be in a position to commence processing operations. We expect the Summit project will achieve commercial production in 2010. As of June 30, 2009, we have $47.1 million in tax loss carry-forwards to shelter federal income tax otherwise payable.

          Our principal executive offices are located at 1128 Pennsylvania NE, Suite 200, Albuquerque, New Mexico 87110, and our telephone number is (505) 255-4852. Our Summit operations in southwestern New Mexico are conducted through our wholly-owned subsidiary, the Lordsburg Mining Company. Our operations in Mexico are conducted through our wholly-owned subsidiary, Minera Sandia,

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S.A. de C.V. In connection with administration of the September 2009 gold sale agreement, we established a wholly-owned Barbados subsidiary, Santa Fe Gold (Barbados) Corporation.

          Please refer to page 34 of this report for a glossary of certain terms used herein.

Recent Developments

          On September 11, 2009, we entered into a definitive gold sale agreement with Sandstorm Resources Ltd. (TSX-V: SSL) (“Sandstorm”) to sell a portion of the life-of-mine gold production (but not silver production) from our Summit silver-gold mine. Under the agreement, we will receive an upfront cash deposit of $4.0 million and ongoing production payments equal to the lesser of $400 per ounce and the prevailing market price, for each ounce of gold delivered pursuant to the agreement. Gold production subject to the agreement includes 50% of the first 10,000 ounces of gold produced, and 22% of the gold thereafter. The amount of payable gold can be reduced from 22% to 15% provided that within 36 months the Summit mine reaches certain performance levels in any consecutive 12 month period, in compliance with prefeasibility estimates, including 1) the rate of ore mined and processed must average 400 tons per day or more, and 2) payable gold production must exceed 11,500 ounces during such consecutive 12 month period. Sandstorm made an initial payment of $500,000 and on October 7, 2009 paid the remaining $3,500,000 balance of the upfront cash deposit. We have the option, for the next nine months, to increase the size of the transaction by $1,000,000, to $5,000,000. If we exercise this option, the percentage of payable gold that Sandstorm will be entitled to purchase will increase by 25%. In certain circumstances, including failure to meet minimum production rates, interruption in production due to permitting issues and customary events of default, the agreement may be terminated. In such event, we may be required to return to Sandstorm the upfront cash deposit of $4.0 million less a credit for gold delivered up to the date of that event, which is determined using the difference between the market price and $400 per ounce for gold deliveries where the prevailing market price exceeded $400 per ounce.

          On December 21, 2007, we entered into a definitive agreement for the placement with a single investor of senior secured convertible debentures in the amount of $13,500,000. Proceeds from the debentures were used primarily for the development of the Summit project. The debentures were issued in accordance with a pre-determined funding schedule and the term of the debentures is 60 months. In fiscal 2008, we received advances aggregating $5,350,000 under the agreement, and in fiscal 2009 received advances aggregating $8,150,000, bringing the total received to $13,500,000.

          Effective June 30, 2009, we agreed with the investor to convert the aggregate accrued interest of $974,360 due June 30, 2009 under the convertible debentures, into 974,360 shares of the Company’s common stock. We also agreed that aggregate accrued interest on the outstanding principal amounts of the debentures for the quarters ending September 30, 2009 and December 31, 2009, shall be paid in shares of the Company’s common stock, to be valued at one dollar ($1.00) per share at the time of payment and issuance.

          On June 13, 2009, we entered into a purchase option contract on the Pilar gold property consisting of two mineral exploitation concessions covering 240 acres located 165 kilometers east-southeast of Hermosillo, State of Sonora, Mexico. We believe this exploration-stage property shows promising potential for discovery of an economic gold deposit, based on results from previous drilling that returned encouraging gold intersections. We plan to carry out additional work including surface mapping and sampling, geophysics and possibly drilling. Our wholly owned Mexican subsidiary, Minera Sandia S.A. de C.V., entered into the purchase option contract with Minera de Suaqui Grande, S. de R.L. de C.V. The contract provides for option payments of $1,000 upon signing, $99,000 on March 13, 2010, and $125,000 on March 13, 2011. The last payment of $1,307,000 is due March 13, 2012, and would complete the purchase. In connection with the acquisition, we agreed to issue 117,000 restricted shares of common stock to Minera de Suaqui Grande, S. de R.L. de C.V. under the terms of a consulting

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agreement, and agreed to pay creditors $11,150 in cash and 17,400 shares of restricted common stock valued at $19,836. We also agreed to pay finder’s fees of $15,000 in cash and 25,000 shares of restricted common stock valued at $28,500, and to match option and purchase payments when they become due by payments either in cash or in restricted common stock. We are not required to pay a production royalty under the agreements.

Competitive Business Conditions

          Many companies are engaged in the exploration and development of mineral properties. We are at a disadvantage with respect to those competitors whose technical staff and financial resources exceed our own. Our lack of revenues and limited financial resources further hinder our ability to acquire and develop mineral interests.

Government Regulations and Permits

          In connection with mining, milling and exploration activities, we are subject to extensive federal, state and local laws and regulations governing the protection of the environment, including laws and regulations relating to protection of air and water quality, hazardous waste management and mine reclamation as well as the protection of endangered or threatened species.

          At the Summit mine and Banner mill, we are continuing permitting activities as construction and development progress. On October 2, 2009 we received a Permit to Construct and Operate the Banner Mill Tailings Dam from the NM Office of the State Engineer (OSE). This permit specifies conditions under which we may proceed to construct a tailings disposal impoundment and commence discharge of mill tailings.

          Concurrent with the tailings disposal permit, New Mexico requires a Discharge Permit from the NM Environmental Department and a Reclamation Permit from Mining and Minerals Division under the NM Mining Act of 1993. Application for both of these permits have been made, ruled administratively complete and financial assurance for future reclamation has been established. The respective agencies have informed us they are proceeding to issue the Discharge and Reclamation permits.

          Safety of our employees is regulated by the Mine Safety and Health Administration (MSHA), a federal agency, and by the NM Office of the State Mine Inspector. We are continuing development of the Summit underground mine, and regulation require secondary escape routes, exhaust ventilation, wireless communications, and underground refuge and emergency rescue capabilities. Work on these issues is underway and is being coordinated with the regulatory agencies.

          With respect to the permits required for the Summit project mentioned above, as well as permits for the Ortiz project and for our other projects, we may be unable to obtain such permits in a timely manner, on reasonable terms, or at all. If we cannot obtain or maintain the necessary permits, or if there is a delay in receiving such permits, our timetable and business plan for development and mining of these properties could be adversely affected. See Item IA. “Risk Factors” for more information.

Employees

          We currently have 32 full-time employees, including our executive officer, head office support staff and Lordsburg management and operating personnel. We also engage consultants and independent contractors in connection with financial accounting, construction, and exploration and development of our mining properties.

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Office Facilities

          Our corporate offices are located in Albuquerque, New Mexico. We lease offices at 1128 Pennsylvania NE, Suite 200, Albuquerque, New Mexico 87110, totaling approximately 2,300 square feet. We believe this space is adequate for our needs for the foreseeable future.

ITEM 1A. RISK FACTORS

          This report, including Management’s Discussion and Analysis of Financial Condition and Results of Operation, contains forward looking statements that may be materially affected by numerous risk factors, including those summarized below:

Risk Factors Related to Our Business and Operations

          We are dependent upon production of precious metals and industrial minerals from a limited number of properties, have incurred substantial losses since our inception in 1991, and may never be profitable.

          Since our inception in 1991, we have not been profitable. As of June 30, 2009, our total accumulated (deficit) was approximately $(53.0) million. To become profitable, we must identify mineralization and establish reserves, and then either develop properties ourselves or locate and enter into agreements with third party operators. It could be years before we receive any revenues from industrial mineral or precious metals production. We may suffer significant additional losses in the future and may never be profitable. There can be no assurance we will receive revenue from operations in the foreseeable future, if at all. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

          We ceased mining operations at our Black Canyon mica property in 2002 after unsuccessful attempts to begin profitable operations. We have established only limited probable reserves at our Summit silver-gold property, and have not established proven or probable reserves at our Ortiz gold property or at our Planet micaceous iron property. If we are unable to economically produce silver or gold from our Summit or Ortiz properties, we will be forced to identify and invest substantial sums in one or more additional properties. Such properties may not be available to us on favorable terms or at all. Because of the numerous risks and uncertainties associated with exploration and development of mining properties, we are unable to predict the extent of any future losses or when we will become profitable, if at all.

          We will require significant additional capital to continue our exploration activities, and, if warranted, to develop mining operations.

          We will require significant additional funding for geological and geochemical analysis, metallurgical testing, and, if warranted, feasibility studies with regard to the results of our exploration. We may not benefit from such investments if we are unable to identify a commercial ore deposit. If we are successful in identifying reserves, we will require significant additional capital to establish a mine and construct a mill and other facilities necessary to mine those reserves. That funding, in turn, will depend upon a number of factors, including the state of the national and worldwide economy and the price of gold and other metals. We may not be successful in obtaining the required financing for these or other purposes, which would adversely affect our ability to continue operating. Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and the possible, partial or total loss of our potential interest in certain properties.

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          Our industry is highly competitive, attractive mineral lands are scarce, and we may not be able to obtain quality properties.

           We compete with many companies in the mining business, including large, established mining companies with substantial capabilities, personnel and financial resources far greater than our own. In addition, there is a limited supply of desirable mineral properties available for acquisition in the United States and in other areas where we may conduct exploration activities. For these reasons, we may be at a competitive disadvantage in acquiring mineral properties. Competition in the industry is not limited to the acquisition of mineral properties but also extends to the technical expertise to operate such properties and the financial ability to fund such properties. Our inability to compete with other companies in these areas could have a material adverse effect on our results of operation and business.

          The feasibility of mining our Summit silver-gold property or our Ortiz gold property has not been established, meaning that we have not completed engineering, permitting or other work necessary to determine if it is commercially feasible to develop these properties.

          We currently have established only limited probable reserves on the Summit silver-gold property and have not established proven or probable reserves on the Ortiz gold property. A “reserve,” as defined by regulation of the SEC, is that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. A reserve requires a feasibility study demonstrating with reasonable certainty that the deposit can be economically and legally extracted and produced. We have not received feasibility studies nor obtained necessary operating permits with regard to the Ortiz gold property. As a result, we have no reserves at the Ortiz gold property. At the Summit silver-gold property, a qualified independent engineering firm has completed a pre-feasibility study that concluded there would be minimal risk in proceeding to development and mining on the basis of estimates of mineralized material.

          Although preliminary scoping studies carried out on the Summit silver-gold and Ortiz gold properties have yielded promising results with respect to potential economic viability, substantial additional feasibility work and expenditures are required to demonstrate economic viability. The mineralized materials identified to date on these properties have not and may never demonstrate economic viability. The feasibility of mining has not been, and may never be, established. Whether a mineral deposit can be commercially viable depends upon a number of factors, including the particular attributes of the deposit, including size, grade and proximity to infrastructure; metal prices, which can be highly variable; and government regulations, including environmental and reclamation obligations. If we are unable to establish some or all of our mineralized material as proven or probable reserves in sufficient quantities to justify commercial operations, we may not be able to raise sufficient capital to develop a mine. If we are unable to establish such reserves, the market value of our securities may decline.

          Fluctuating gold and silver prices could negatively impact our business plan.

           The potential for profitability of gold and silver mining operations at our Summit silver-gold property and at our Ortiz gold property and the values of these properties are directly related to the market prices of gold and silver. The prices of gold and silver may also have a significant influence on the market price of our common stock. In the event that we obtain positive feasibility results and progress to a point where a commercial production decision can be made, our decision to put a mine into production and to commit the funds necessary for that purpose must be made long before any revenue from production would be received. A decrease in the price of gold or silver at any time during future development or mining may prevent our properties from being economically mined or result in the impairment of assets as a result of lower gold or silver prices. The prices of gold and silver are affected by numerous factors beyond our control, including inflation, fluctuation of the United States dollar and foreign currencies,

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global and regional demand, the purchase or sale of gold by central banks, and the political and economic conditions of major gold producing countries throughout the world. During the last five years, the average annual market price of gold has progressively increased from $410 per ounce to $872 per ounce, as shown in the table below:

          Although, if we identify commercially recoverable reserves on the Summit silver-gold property or on the Ortiz gold property, it may be possible for us to protect against future gold and silver price fluctuations through hedging programs, the volatility of metal prices represents a substantial risk that is impossible to completely eliminate by planning or technical expertise. In the event gold or silver prices decline and remain low for prolonged periods of time, we might be unable to develop our Summit silver-gold property or our Ortiz gold property or produce any revenue.

          Any proposal for commercial mining operations at our Summit silver-gold property or at our Ortiz gold property would be subject to permitting requirements that could cause us to delay, suspend or terminate our development plans.

          Mining and processing operations at the Summit silver-gold property or at the Ortiz gold property would require permits from the state and federal governments. We may be unable to obtain such permits in a timely manner, on reasonable terms, or at all. If we cannot obtain or maintain the necessary permits, or if there is a delay in receiving such permits, our timetable and business plan for development and mining of one or both of these properties could be adversely affected.

          We may not be able to obtain an adequate supply of water to complete desired development and mining of our Summit silver-gold property or of our Ortiz gold property.

          For successful development, we will need to obtain the rights for a sufficient amount of water to service the mining and processing operation. Our lease with Ortiz Mines, Inc. gives us all rights that Ortiz Mines, Inc. may have to initiate and use water and water rights in connection with the property, including among others the right to drill, pump, divert, transport and use water from wells, containment areas and drainages. However there can be no assurance we will be able to exercise our rights under the lease agreement or obtain access to the amount of water needed to operate a mine at the property. For our Summit silver-gold property, this risk is mitigated in that sufficient water for mining purposes can be purchased and trucked to the Summit property; and sufficient water is available for processing purposes on our Lordsburg mill site property, for which water we have usage rights.

          We may be at risk of losing title to our Ortiz gold property lease if we fail to perform our obligations.

          Under the terms of our lease with Ortiz Mines, Inc., we are required to meet certain obligations as is common in a mineral lease of this type. Among other requirements, we must begin mineral production by February 2112 (February 2117 in certain circumstances), make annual payments that escalate per acre of ground we retain under lease, pay a sliding-scale production royalty based on the price of gold and comply with all governmental permitting and other regulations. If we fail to make payments in a timely manner or to perform our other obligations as required under the lease, we are at risk that the lease could be cancelled.

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          The reserve estimations at our Summit property are imprecise.

          Although we have relied on expert independent consultants to calculate the reserve estimations disclosed in our reports, such estimations are necessarily imprecise because they depend upon the judgment of the individuals who review the geological and engineering information and upon statistical inferences drawn from only limited drilling and sampling. If the Summit mining operation were to encounter mineralization or geologic conditions different from those predicted, reserve estimations might have to be adjusted and mining plans altered. Changes to the planned operations could adversely affect forecast costs and profitability.

          The future prices of mica and feldspathic sand are uncertain.

          According to published information, mica prices have varied over the past several years, and the outlook for future mica prices is unclear. Manufactured sand prices in the Phoenix area generally have fluctuated over the past several years, with demand driven by the state of the housing, construction, and recreational markets. There are numerous factors beyond our control that could affect markets for both mica and feldspathic sand. No assurance can be given as to future prices or demand for products, if any, that could be produced from our Black Canyon mica project. Any decline in prices could have a material adverse effect on project economics.

          Titles to unpatented claims can be uncertain, and we are at risk of loss of ownership of our Black Canyon mica property and a portion of our Summit and Lordsburg properties.

          Our property holdings at the Black Canyon mica property and a portion of our holdings at our Summit and Lordsburg properties consist of unpatented mining claims and unpatented mill site claims located on public land and held pursuant to the General Mining Law of 1872. The validity of such unpatented mining claims may be subject to title defects and may be contested. Because a substantial portion of all mineral exploration, development and mining in the United States occurs on unpatented mining claims, this uncertainty is inherent in the mining industry. We have not obtained a title opinion on our entire property, with the attendant risk that title to some claims, particularly title to undeveloped property, may be defective. Although we believe that our claims are in good standing and held according to industry practice, we remain at risk that the mining claims may be forfeited either to the United States or to rival private claimants due to failure to comply with statutory requirements as to location and maintenance of the claims or challenges as to whether a discovery of a valuable mineral exists on every claim.

          In recent years the United States Congress has considered amendments to the General Mining Law of 1872, some of which would lower the value of unpatented mining claims by restricting activities and imposing additional user fees or production royalties. If enacted, these legislative changes could have an adverse impact on our operations.

          The development and completion of our properties entail significant risks.

           The development of mineral deposits involves significant risks that even the best evaluation, experience and knowledge cannot eliminate. The economic feasibility of our mining properties is based upon a number of factors, including estimations of reserves and mineralized material, extraction and process recoveries, engineering, capital and operating costs, future production rates and future prices of gold, silver, copper, mica, feldspathic sand and micaceous iron oxide.

          Our properties have no significant operating history upon which to base estimates of operating costs and capital requirements.

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          As a result, estimations of mineralized material and reserves, mining and process recoveries and operating costs must be based to a large extent upon the interpretation of geologic data obtained from drill holes, and upon scoping and feasibility estimates that derive forecasts of operating costs from anticipated tonnages and grades of mineralized material and reserves to be mined and processed, the configuration of the mineralized deposits, expected recovery rates of minerals, comparable facility and equipment costs, and climatic conditions and other factors. Commonly in new projects, actual construction costs, operating costs and economic returns differ materially from those initially estimated. Accordingly, there can be no assurance that our properties can be developed within the time frames or at the costs anticipated, or that any forecasted operating results can be achieved.

          The nature of mineral exploration and production activities involves a high degree of risk and the possibility of uninsured losses that could materially and adversely affect our operations.

          Exploration for minerals is highly speculative and involves greater risk than many other businesses. Most exploration programs fail to result in the discovery of economic mineralization. Our exploration and mining efforts are subject to the operating hazards and risks common to the industry, such as:

• economically insufficient mineralized materials;
• fluctuations in production cost that may make mining uneconomical;
• labor disputes;
• unanticipated variations in grade and other geologic problems;
• environmental hazards;
• water conditions;
• difficult surface or underground conditions;
• industrial accidents;
• metallurgical and other processing problems;
• mechanical and equipment performance problems;
• failure of pit walls or dams;
• unusual or unexpected formations;
• personal injury, fire, flooding, cave-ins and landslides; and
• decrease in reserves due to lower metal prices.

          Any of these risks can adversely affect the feasibility of development of our properties, production quantities and rates, and costs and expenditures. We currently have no insurance to guard against any of these risks. If we determine that capitalized costs associated with any of our mineral properties are likely not to be recovered, a write-down of our investment would be necessary. All of these factors may result in unrecoverable losses or cause us to incur potential liabilities, which could have a material adverse effect on our financial position.

          Our ongoing operations, including past mining activities, are subject to environmental risks that could expose us to significant liability and delay, suspension or termination of our operations.

          All phases of our operations will be subject to federal, state and local environmental regulations. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Environmental legislation is evolving in a manner that will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects, and a heightened degree of responsibility for companies and their officers, directors and employees. Future changes in environmental regulation, if any, may

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adversely affect our operations, make our operations prohibitively expensive, or prohibit them altogether. Environmental hazards may exist on the Black Canyon mica property, the Summit silver-gold property, the Lordsburg property, the Ortiz gold property, and the Planet micaceous iron oxide property and on properties in which we may hold interests in the future that are unknown to us at the present. Failure to comply with applicable environmental laws, regulations and permitting requirements may result in enforcement actions, including orders issued by regulatory or judicial authorities, causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions.

          Production, if any, at our projects may involve the use of hazardous materials.

          Should these materials leak or otherwise be discharged from their containment systems, then we may become subject to liability for hazards. We have not purchased insurance for environmental risks including potential liability for pollution or other hazards as a result of the disposal of waste products occurring from exploration and production, as it is not generally available at a reasonable price.

          In addition to environmental regulations, we are subject to a wide variety of laws and regulations directly and indirectly relating to mining that often change and could adversely affect our business.

          We are subject to extensive United States federal, state and local laws and regulations related to mine prospecting, development, transportation, production, exports, taxes, labor standards, occupational health and safety, waste disposal, protection and remediation of the environment, mine safety, hazardous materials, toxic substances and other matters. These laws and regulation frequently change. New laws and regulations or more stringent enforcement of existing ones could have a material adverse impact on us, causing a delay or reduction in production, increasing costs and preventing an expansion of mining activities.

          We depend on a limited number of personnel and the loss of any of these individuals could adversely affect our business.

          We are highly dependent on seven persons, namely Mr. Olson, our chairman; Mr. Pierce Carson, our president and chief executive officer and principal financial officer; Mr. Martinez, our controller; Mr. Ryan Carson, manager of legal affairs; Mr. Moore, general manager of our Summit project; Mr. Freeman, senior consultant; and Mr. Lowery, mill superintendent. We rely heavily on these seven individuals for the conduct of our business, and the loss of any of them could significantly and adversely affect our business. In that event, we would be forced to identify and retain a suitable replacement, which we may not be able to accomplish on terms acceptable to us. We have no life insurance on the life of any officer.

          Our Chief Executive Officer may face a conflict of interest relating to the acquisition of mineral properties by the Company.

          We have an agreement with Mr. Carson, which pre-dates his joining the Company as an officer and director, under which he identified properties that constitute potential acquisition targets. Although Mr. Carson has no pre-existing interest in the targeted properties, under the agreement he stands to gain if we acquire an identified property and either place it into production or sell it. This arrangement gives rise to potential conflicts of interest with regard to whether or not we should acquire a targeted property and the price we agree to pay for the property. While we have sought to mitigate the risk inherent in the arrangement with Mr. Carson by careful evaluation by the Board of Directors of any proposed transaction, this step may not be sufficient to eliminate the risk entirely. Acquisitions of the Summit

13

silver-gold property and Ortiz gold property are subject to the property identification agreement with Mr. Carson.

          Delaware law and our Articles of Incorporation may protect our directors from certain types of lawsuits. Delaware law provides that our directors will not be liable to our stockholders or to us for monetary damages for all but certain types of conduct as directors of the Company.

          Our Articles of Incorporation permit us to indemnify our directors and officers against all damages incurred in connection with our business to the fullest extent provided or allowed by law. The exculpation provisions may have the effect of preventing stockholders from recovering damages against our directors caused by their negligence, poor judgment or other circumstances. The indemnification provisions may require us to use our limited assets to defend our directors and officers against claims, including claims arising out of their negligence, poor judgment, or other circumstances.

Risks Related to our Common Stock

           The sale of our common stock by selling stockholders may depress the price of our common stock due to the limited trading market that exists.

          Due to a number of factors, including the lack of listing of our common stock on a national securities exchange, the trading volume in our common stock has historically been limited. Trading volume over the last 3 months has averaged approximately 77,000 shares per day. As a result, the sale of a significant amount of common stock by selling shareholders may depress the price of our common stock and the price of our common stock may decline.

          Completion of one or more new acquisitions could result in the issuance of a significant amount of additional common stock, which may depress the trading price of our common stock.

          Acquisition of one or more additional mineral properties, conceptually, could result in the issuance of a significant amount of common stock. Such issuance could depress the trading price of our common stock.

          Our stock price may be volatile and as a result you could lose all or part of your investment.

          In addition to volatility associated with OTC securities in general, the value of your investment could decline due to the impact of any of the following factors upon the market price of our common stock:

• changes in the worldwide prices for gold or silver;
• disappointing results from our exploration or development efforts;
• failure to meet our revenue or profit goals or operating budget;
• decline in demand for our common stock;
• downward revisions in securities analysts’ estimates or changes in general market conditions;
• technological innovations by competitors or in competing technologies;
• investor perception of our industry or our prospects; and
• general economic trends.

          In addition, stock markets have experienced extreme price and volume fluctuations and the market prices of securities generally have been highly volatile. These fluctuations commonly are unrelated to operating performance of a company and may adversely affect the market price of our common stock. As a result, investors may be unable to resell their shares at a fair price.

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          A small number of existing shareholders own a significant portion of our common stock, which could limit your ability to influence the outcome of any shareholder vote.

          Our executive officers and directors, together with our two largest shareholders, beneficially own approximately 40% of our common stock as of the date of this report. Under our Articles of Incorporation and Delaware law, the vote of a majority of the shares outstanding is generally required to approve most shareholder action. As a result, these individuals and entities will be able to influence the outcome of shareholder votes for the foreseeable future, including votes concerning the election of directors, amendments to our Articles of Incorporation or proposed mergers or other significant corporate transactions.

          We have never paid dividends on our common stock and we do not anticipate paying any in the foreseeable future.

          We have not paid dividends on our common stock to date, and we may not be in a position to pay dividends in the foreseeable future. Our ability to pay dividends will depend on our ability to successfully develop one or more properties and generate revenue from operations. Further, our initial earnings, if any, will likely be retained to finance our growth. Any future dividends will depend upon our earnings, our then-existing financial requirements and other factors and will be at the discretion of our Board of Directors.

ITEM 1B.      UNRESOLVED STAFF COMMENTS

          None.

ITEM 2.      PROPERTIES

Summit Silver-Gold Project

          Overview

          In May 2006, for cash consideration of $1,300,000, we acquired all of the outstanding shares of the Lordsburg Mining Company (“Lordsburg Mining”), a New Mexico corporation, from Imagin Minerals Inc., a privately-held industrial minerals company. We own and operate Lordsburg Mining as a wholly-owned subsidiary. Lordsburg Mining’s primary assets are the underground Summit silver-gold mine and related property consisting of 117 acres of patented mining claims and 740 acres of unpatented mining claims in Grant County, southwestern New Mexico; and the Banner mill, including mineral processing equipment consisting of a crushing and screening plant, a ball mill and a 400 ton-per-day flotation plant, and related property consisting of approximately 1,500 acres of wholly owned and leased patented and unpatented mining claims, located approximately 57 miles south of the Summit mine near Lordsburg, Hidalgo County, New Mexico;

          Our strategic objective is to develop the Summit project. In April 2007, we received results of an engineering study that concluded the Summit deposit would form the basis of an economically viable underground mining operation. On the basis of the results of the study, we determined to proceed to secure the capital necessary for development, and in December 2007 arranged for financing of $13.5 million by way of a private placement of senior secured convertible debentures. Construction of the Banner mill and development of the Summit mine were initiated in Q1 2008, with an anticipated construction period of a minimum of 12 months. The Summit mine development is on-going. Construction of the Banner mill was completed in Q2 2009, except for the tailings dam and

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impoundment, for which on October 2, 2009 we received a conditional permit allowing construction to proceed. We estimate that construction of the tailings disposal impoundment will be completed in Q4 2009, following which we expect to be in a position to commence processing operations. We expect to achieve commercial production in 2010.

          The Summit mining and processing operation is planned to involve underground mining of mineralized material from the Summit property at a rate of 400 tons per day (120,000 tons per year) and trucking of the mined material 57 miles to the Banner mill site where metallurgical processing will take place. At the Banner site, processing will be accomplished through conventional crushing, grinding and selective flotation to yield a bulk sulfide concentrate containing the recoverable precious metals. This concentrate is planned to be marketed to a smelter or to a third-party precious metals processing plant.

          Location and Access

          The Summit silver-gold property is located in a rugged and isolated setting in Grant County, southwestern New Mexico, near the Arizona state line. The property lies within the Steeple Rock Mining District, which has recorded notable historic production of gold, silver, base metals and fluorspar from several mines, currently inoperative, including Carlisle, East Camp and Norman King.

          The property is accessible by paved and gravel road approximately 15 miles northeast from Arizona State Highway 75 N and the town of Duncan, Arizona. Electric power is not available on or near the property and would need to be generated on-site in connection with any mining operation. Water for limited usage is available on and near the property.

          The terrain of the property is rugged, with steep canyons and ridges. Elevations range from 4,500 feet to 6,200 feet above sea level. The Summit siliceous mineralized structure forms a prominent northwesterly trending ridge.

          The Banner mill site lies 57 miles to the south of the Summit property near the town of Lordsburg, Hidalgo County, New Mexico. Lordsburg is connected to Duncan, Arizona via US Highway 70. The Banner mill site is accessible from Lordsburg by a 4-mile paved road. Utilities on site include water and electric power. The Lordsburg area is well supported by transportation services including trucking and rail services, and by a wide range of fabrication, construction and other support services. The labor force required for the plant operation can be sourced locally.

Figure X.1
Claim Boundary Map

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          Mineral Title

          Our holdings at the Summit silver-gold property in Grant County, New Mexico consist of 10 patented federal mining claims totaling approximately 117 acres and 62 unpatented federal mining claims totaling approximately 740 acres. Our holdings at and adjacent to the Banner mill site in Hidalgo County, New Mexico consist of 86 wholly-owned patented federal mining claims, 5 wholly-owned unpatented mining claims, 17 leased patented mining claims and 6 leased unpatented mining claims, aggregating approximately 1,500 acres. All wholly-owned claims are held in the name of Lordsburg Mining. The unpatented mining claims are located on public land and held pursuant to the General Mining Law of 1872. We fully own the mining rights and believe the claims are in good standing in accordance with the mining laws of the United States.

          In order to maintain our claims in good standing, for our patented mining claims we must pay annual property taxes to Grant and Hidalgo Counties, and for our unpatented mining claims we must pay annual assessment fees to the Bureau of Land Management and record the payment of rental fees with Grant and Hidalgo Counties. We are current on property taxes related to our patented claims. Annual assessment and recording costs for our unpatented claims total approximately $10,500. We have paid the required fees for the 2009 and 2010 assessment years (September 1, 2008 through August 31, 2010).

          The Summit property is subject to underlying net smelter return royalties capped at $4,000,000 and to a net-proceeds interest on sales of unbeneficiated mineralized rock with an end price of $2,400,000. The Summit acquisition is subject to a property identification agreement between us and our President and Chief Executive Officer. See Item 13. “Certain Relationships and Related Transactions”.

          History of Mining and Exploration

          The Summit silver-gold property lies within the Steeple Rock district, which is one of the historic mining areas in the southwest United States. The former mines produced gold, silver and base metals from underground mining of epithermal vein systems. Prospecting activity dates back to before 1860. The first recorded production was from the Carlisle property, which operated from 1880-1897. A number of other mines including the Norman King and Billali also opened up during the 1880’s but ceased operation by the turn of the century. Following this early production, the district was largely dormant until the 1930’s-mid 1940’s when several mines operated. Subsequently sporadic small-scale operations continued until the 1990’s on various deposits including the Summit, Center, Mount Royal and Carlisle deposits.

          The US Bureau of Mines estimated that between 1880 and 1986 the Steeple Rock district produced at least 148,000 ounces of gold, 3.3 million ounces of silver, 1.2 million pounds of copper, and 5 million pounds of lead and 4 million pounds of zinc. In addition, there was unrecorded precious and base metal production as part of silica flux shipments. Some 6,500 tons of fluorspar also were produced.

          In the late 1970’s, Summit Minerals Inc. is reported to have shipped about 30,000 tons of mineralized material from the Summit property to ASARCO’s El Paso smelter as direct shipping silica flux grading 0.102 ounces per ton gold and 4.95 ounces per ton silver.

          Exploration work estimated to have cost in excess of $8.0 million was carried out on the Summit silver-gold property from 1984-1992. This work included drilling totaling 104,700 feet on the Summit and adjacent structures, of which 78,000 feet was directed to the Summit structure. In 1984-85, Inspiration Mines Inc. reportedly spent about $1.5 million conducting underground development, shallow core drilling and sampling and mapping. In 1988-89, Novagold Resources Inc. reportedly expended approximately $2 million in surface and airborne geophysical surveys, underground mapping and

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sampling, and core drilling. Novagold’s drilling identified a significant block of mineralized material in the Summit vein. From 1989-1992, Biron Bay Resources Ltd., in joint venture with Novagold, conducted extensive exploration, drilled 88 core holes, and reportedly spent over $5.0 million extending and improving the level of confidence in the mineralized material at the Summit vein and in defining exploration potential in adjacent and outlying vein structures.

          Geology and Mineralization

          The Steeple Rock district contains numerous structurally controlled epithermal vein systems. The veins are controlled by conjugate fault systems that cut a thick pile of Tertiary volcanic rocks of intermediate composition. The deposits are localized along structurally controlled, hydrothermally altered zones cutting the volcanic host rocks. The dominant structures trend northwesterly and dip steeply. Secondary veins trend easterly and north-northwesterly. The veins can be traced for distances of up to several miles along strike and have widths that range up to 100 feet or more.

          The epithermal veins have formed as open-space filling by a mixture of quartz, carbonate minerals and wallrock fragments and show evidence of multiple episodes of brecciation and re-cementation. Gold occurs as fine free grains or as electrum. Silver is found as argentite or in sulfosalts. Base metal sulfides including chalcopyrite, sphalerite and galena are common in certain deposits but rare in others. Gangue minerals usually consist of quartz, pyrite, calcite, barite and fluorite. Alteration of the volcanic country rocks adjacent to the veins commonly consists of sericitization, argillization and silicification.

          The principal vein structure on the Summit silver-gold property is the Summit structure, which can be traced for 3,000 feet from southeast to northwest. The Billali structure forms a farther 2,000 foot continuation of the Summit structure in a northwesterly direction across an east-west fault. The Summit and Billali structures dip steeply to the northeast. These structures form segments of the East Camp Fault, which constitutes the main ore control in this part of the Steeple Rock district. The core drilling carried out from 1984-1992 tested both the Summit and Billali vein structures. Of the two, results from the Summit structure were the more promising with respect to vein continuity and economic potential.

          The Summit mineralized vein occurs within a wide, structurally controlled zone of hydrothermally altered volcanic rocks. Silver and gold mineralization is epithermal in style and consists of silver sulfides and electrum or native gold along with lesser pyrite, sphalerite and chalcopyrite. Precious metals contents, which are relatively low at the surface, increase significantly with depth for several hundred feet, apparently a reflection of vertical mineral zoning within the deposit. Below 1,000-1,500 feet, the precious metals contents appear to decrease although little deeper drilling was carried out. The main block of mineralized material, which occurs along the footwall of the structure, has been shown by extensive drilling to trend northwesterly about 1,500 feet in strike length and to extend 1,000 feet down dip. The true width of mineralization across the footwall mineralized zone ranges from 6 feet to over 50 feet and averages 10-15 feet.

          Ore Reserve

          In July 2008, Chapman, Wood and Griswold, Inc. (“CWG”), an independent geological engineering firm, reviewed the reserve/resource classification of Summit mineralization and concluded that a portion of the mineralized material can be elevated to the category of Probable Reserve under the SEC’s Industry Guide 7. At a cutoff grade of 0.175 ounces of gold-equivalent per ton, CWG estimated the in-place, diluted Probable Reserve, for the main footwall zone, to be 531,509 tons grading 0.129 ounces of gold per ton and 8.62 ounces of silver per ton.

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          Metallurgical Testing

          Conventional processing including crushing, grinding and milling of Summit mineralized material to produce a bulk sulfide flotation concentrate containing the recoverable precious metals has been evaluated and tested at bench scale. Based upon preliminary bench scale flotation tests, we believe that a precious metals recovery of approximately 80-86% with a concentration ratio of 70 to 1 is reasonably achievable. We believe that the concentrate could be treated to produce a dore product or alternatively, it could be marketed to a smelter or to a third-party precious metals processing operation for final extraction of gold and silver.

          Mineral Processing Equipment

          With the purchase of Lordsburg Mining in May 2006, we acquired an inactive 400 ton-per-day flotation plant, including ball mill and ancillary equipment. Subsequently, in June 2008, we purchased crushing, screening and conveying equipment. In order to utilize the flotation plant for mineral processing, we transported it from its previous location near Winston, Sierra County, New Mexico, refurbished it as necessary and erected it at the Banner mill site in Hidalgo County. In addition to the processing equipment acquired in 2006, we also acquired and installed other necessary equipment.

          Permits

          With the purchase of Lordsburg Mining in 2006, we acquired existing operating permits for the Summit property and the Banner mill site. The New Mexico Mining and Minerals Division issued these permits to Lordsburg Mining pursuant to the New Mexico Mining Act. When modified and revised as necessary, these and other permits for which we have applied or will apply could facilitate the commencement of mining at the Summit property and resumption of mineral processing operations at the Banner mill site.

          Permit No. GR001ME at the Summit mine allows operation of a “minimal impact mine”. As surface disturbance expands, it will be necessary to modify the permit and to post financial assurance for reclamation. Pursuant to the current permit, we have begun underground mining operations.

          Permit No. H1001RE at the Banner mill site is for an “existing mining operation” and authorizes us to conduct mining and reclamation operations according to the conditions stipulated in the permit. All proposed mining disturbances are required to be addressed under a closeout plan and to be secured by financial assurance. We have applied for modification and revision of the permit to allow resumption of flotation milling, construction of a tailings impoundment and discharge of tailings. We also have applied or will apply for other necessary permits, including air quality permits for the Banner mill and Summit mine. We anticipate approval for these permits will require a minimum of several months to obtain, however there can be no assurance that approval will be obtained in a timely manner, if at all.

          Preliminary Feasibility Study

          In April 2007, we received results of an engineering study carried out by the independent geological engineering firm of Chapman, Wood and Griswold, Inc., of Albuquerque, New Mexico. CWG concluded that the Summit deposit would form the basis of an economically viable underground mining operation.

          CWG used an estimation of minable mineralized material for their study of 758,000 tons grading 10.28 ounces of silver per ton and 0.143 ounces of gold per ton in the main footwall zone. This estimation was adopted from a previous estimation carried out by St. Cloud Mining Co., and represents in-place, diluted, minable mineralization with a minimum six-foot horizontal width, based on results of assays from core holes and samples of underground workings. All high assay values were cut to 45.0 ounces of silver and 0.45 ounces of gold per ton. The CWG report was prepared in accordance with standards different than those prescribed by rules of the SEC. The SEC only permits the disclosure of proven or probable reserves.

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          The Summit mining and processing operation is planned to involve underground mining of mineralized material from the Summit property at a rate of 400 tons per day (120,000 tons per year) and trucking of the mined material 57 miles to the Banner mill site where metallurgical processing will take place. At the Banner site processing will be accomplished through conventional crushing, grinding and selective flotation to yield a high-grade bulk sulfide concentrate containing the recoverable precious metals. The concentrate will be marketed to one of the area’s copper smelters or to a third-party precious metals processing plant.

          CWG prepared a mine design that employs rubber-tired equipment to gain access to the minable mineralization through two declines, one on each end of the deposit, which would be driven from existing headings to and along the mineralized structure to a connecting point in the central part of the deposit. Further development of the deposit would continue by extending a decline to the lower limits of mineralization. Sufficient longhole drilling and trial extraction methods would be done to further plan the operation.

          At gold and silver prices of $500 and $10 respectively, CWG estimated Summit revenues over an initial seven-year mine life would total approximately $96 million, and pre-tax net income would total approximately $34 million. At higher gold and silver prices of $650 and $13 per ounce respectively, CWG estimated revenues would increase to approximately $130 million, pre-tax net income would exceed $70 million, and payback of capital would be achieved in 18 months after the commencement of production. The Company has $47.1 million in tax loss carry-forwards to shelter federal income tax otherwise payable. Direct operating costs, assuming that mine development and ore production would employ contract mining, were estimated as $76.65 per ton of ore milled. The total capital cost to bring the mine into production was estimated as $13.5 million, inclusive of mine development, mill construction, bonding requirements, and project management and working capital. CWG estimated the project could be developed and brought into production in a twelve-month time frame.

          Potential Expansion of Proposed Initial Operation

          Establishment of the proposed mining operation at Summit potentially would allow the Company to further expand the current base of mineralized material at the Summit deposit and to develop other properties in the Steeple Rock mining district. The Banner flotation mill at Lordsburg also might generate mining and processing opportunities from our ground holdings adjacent to the Banner mill site in the Virginia mining district and/or from surrounding mining districts, several of which historically have yielded substantial production of base and precious metals.

          Development Activities

          In December 2007 we arranged for the $13.5 million in capital necessary for project development. We began construction activities in Q1 2008 and estimated a minimum of 12 months would be required for construction and execution of the major elements of the mining and processing plan described above.

          At the Summit mine, a seven hundred foot long 12’ x 12’ decline ramp intersected the predicted ore body in February 2009. Since then, we have proceeded to drive two development headings in the ore zone structure, one an incline to the southeast planned to intersect old workings and to serve as a

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secondary escape and a source of additional ventilation, and the other a decline to the northwest toward additional ore bodies identified in previous drilling. The southeastern heading is expected to achieve its objectives in October 2009. The northwestern heading encountered the southern extensions of the predicted ore bodies in August 2009. Assays of the ore bodies show variable silver and gold values, with occasional very high grades encountered. Assay results when averaged are consistent with the reserve grades previously calculated for the Summit deposit (10.28 oz/ton silver and 0.143 oz/ton gold). Ore grade material is segregated at the mine and trucked to the Lordsburg mill site. Mining operations are proceeding on the basis of two 10-hour shifts five days a week.

          At the Banner mill, construction was essentially completed in Q2 2009, except for the tailings disposal impoundment. We experienced a delay in obtaining a permit necessary for construction of the tailings disposal impoundment, which must be constructed before processing operations can begin. On October 2, 2009 we obtained a conditional permit allowing us to begin construction of the tailings disposal impoundment. We estimate construction will be completed in Q4 2009, following which we will be in a position to commence processing operations and shake down of the mill. Ramp-up of mill throughput is planned to occur over a period of several months in conjunction with increased output from the Summit mine. We expect that the Summit project will achieve commercial production in 2010.

Ortiz Gold Project

          Overview

          In August 2004, we acquired exclusive rights for exploration, development and mining of gold and other minerals on 57,267 acres (approximately 90 square miles) of the Ortiz Mine Grant in Santa Fe County, New Mexico. In November 2007, we relinquished 14,970 acres and retained under lease 42,297 acres (66 square miles). In December 2005, we received the results of an independent scoping study of the Carache and Lucas gold deposits. The study assessed various processing options for development and provided estimations of capital and operating costs for each option. It also included an economic analysis complete with sensitivities on gold price, capital and operating costs. The report concluded that the financial results indicate a favorable gold project employing high pressure grinding rolls with gravity recovery and contract mining. The financial model showed production would total 925,036 ounces of gold over 10 years at an average estimated operating cost of $230 per ounce of gold recovered. The capital cost, assuming contract mining, was estimated as $38.2 million. The report also stated that considerable upside exists in estimations of mineralized material in both contained ounces and grade.

          Based on these results, we are proceeding to further examine mining and processing options and plan to continue this work over the next 12 months. We also intend to conduct an assessment of permitting and environmental issues. We have budgeted $500,000 for the planned work. Although a preliminary scoping study carried out on the Ortiz gold property yielded promising results with respect to potential economic viability, substantial additional feasibility work and expenditures are required before development could begin. We currently have not established proven or probable reserves on the Ortiz gold property.

          Location and Access

          The Ortiz Mine Grant, over which we hold a lease on the mineral estate underlying 42,297 acres (66 square miles) of segregated surface estate, is located 30 miles by road northeast of Albuquerque, in Townships 12, 13 and 14 North, Ranges 7 and 8 East, N.M.P.M., Santa Fe County, New Mexico. The villages of Golden, Madrid and Cerrillos, with a combined population of less than 1,000 people, lie in and adjacent to the Grant. Paved New Mexico Highway 14 traverses the western portion of the Grant. The main line of the Santa Fe Railway crosses the northeastern corner of the Grant. A network of unimproved

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ranch roads provides access to the various land holdings. High-voltage electric power lines cross the southern part of the Grant.

          Terrain in the Grant is hilly to mountainous, with elevations ranging from 6,000 feet in the valleys to nearly 9,000 feet in the Ortiz Mountains. Annual participation averages 12 inches. Vegetation is sparse but varied as is typical of the high deserts of the Southwest.

          The Grant is largely undeveloped and population is sparse. The land is utilized mainly for cattle grazing. Other activities include limited subdivision development in the northern part of the Grant, and mine reclamation work at the former Gold Field Ortiz (Cunningham Hill) mine site.

Figure X.2
Claim Boundary Map

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          Mineral Title

          On August 1, 2004, we entered into an option and lease agreement with Ortiz Mines, Inc., a Missouri corporation, whereby we acquired exclusive rights for exploration, development and mining of gold, silver, copper and other minerals on 57,267 acres (approximately 90 square miles) of the Ortiz Mine Grant in Santa Fe County, New Mexico. In November 2007, we relinquished 14,970 acres and retained under lease 42,297 acres (66 square miles). We paid an initial sum of $20,000 for a six-month option, and on February 1, 2005, paid the additional sum of $30,000 in order to exercise the option and enter into the lease and also to satisfy the obligation of the first year’s lease payment. Since February 1, 2006, we have paid annual lease payments of $71,184, $100,218, $126,891 and $148,040, the last payment satisfying the lease payment through January 31, 2010. The lease provides for an initial term of seven years (12 years in certain circumstances), continuing year-to-year thereafter for so long as we are producing gold or other leased minerals in commercial quantities and otherwise are performing our obligations under the lease. Among other terms, the lease provides for annual lease payments that escalate per acre of ground we retain under lease; a sliding-scale production royalty varying from 3% to 5% depending on the price of gold; the requirement that we comply with governmental permitting and other regulations; and other terms common in mining leases of this type. The Ortiz gold project is subject to a property identification agreement between us and our President and Chief Executive Officer. See Item 13. “ Certain Relationships and Related Transactions”.

          History of Mining and Exploration

           Prospecting and mining of gold and silver in the Ortiz area dates to the arrival of the first European (Spanish) settlers in 1598. Significant gold production from Ortiz placers dates to 1821. By 1832 several veins and low-grade gold deposits had been discovered. In 1833 the Ortiz Land Grant, an area about 10.7 miles square centered on the Ortiz gold vein, was registered and possession given by the First Alcade of the City of Santa Fe. By the early 1840’s, mining at the small underground Ortiz Mine had ceased. In the late 1800’s and early 1900’s, sporadic attempts at commercial mining of lode and placer gold deposits were unsuccessful due to lack of water and/or low grades. Total pre-1980 mine production has been estimated as about 100,000 ounces of gold.

          The entire Grant was validated by the United States in 1860 under the terms of the Treaty of Guadalupe Hidalgo. The owners received fee simple title to the surface and minerals and the area became known as the Ortiz Mine Grant. Subsequently the Grant changed hands and the surface was sold subject to reservation of the mineral estate. In 1959 the mineral-interest owners and associates formed Ortiz Mines, Inc. for the purpose of promoting and marketing the mineral estate.

          In 1973, Consolidated Gold Fields leased the eastern portion of the Grant from Ortiz Mines, Inc. and developed and mined the Cunningham Hill deposit (Ortiz Mine). In the period 1980-1986, Gold Fields produced approximately 250,000 ounces of gold from an open-pit, heap-leach operation.

          From 1972 through the early 1990’s, several companies operating under lease with Ortiz Mines, Inc. carried out exploration and pre-development activities in the western portion of the Grant. These companies included Conoco, Inc., LAC Minerals (USA), Inc. and the LAC-Pegasus Joint Venture. Expenditures by these groups are estimated to have exceeded $40 million. Drilling resulted in the identification of several deposits estimated to contain in the aggregate approximately 2.0 million ounces of gold.

          The LAC-Pegasus Joint Venture carried out the majority of the work in the western portion of the Grant, from 1989-1992. The Joint Venture focused on two deposits in the southwestern part of the Grant, namely the Carache Canyon (“Carache”) and Lucas Canyon (“Lucas”) deposits. These two deposits were

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the subject of 386,000 feet of core and reverse-circulation drilling, metallurgical testing and pre-feasibility studies carried out by the LAC-Pegasus Joint Venture and by consulting firms and contractors engaged by the Joint Venture.

          Independent Mining Consultants, Inc. (“IMC”), an independent geological engineering firm, was engaged by the LAC-Pegasus Joint Venture to audit estimations of the quantities and grades of in-place mineralized material at the Carache and Lucas deposits and to prepare conceptual open pit mine plans based on a gold price of $385 per ounce. In 1992, IMC estimated the Carache gold deposit, within the boundaries of a conceptual open pit, to contain mineralized material of 11.8 million tons grading 0.060 ounces of gold per ton, for 706,700 ounces of contained gold. IMC estimated the Lucas gold-copper deposit, within the boundaries of a conceptual open pit, to contain mineralized material of 7.6 million tons grading 0.043 ounces of gold per ton and 0.22% copper, for 325,600 ounces of contained gold and 33,440,000 pounds of contained copper.

          A 1990 pre-feasibility study produced by the LAC-Pegasus Joint Venture concluded that at gold prices of $325 per ounce or higher, economics would be positive for open-pit, heap-leach mining of the approximately 1.0 million ounces of gold contained in the Carache and Lucas conceptual pits. The study also concluded that the project had upside potential to increase both the quantity and grade of contained gold mineralization. However, the study listed several areas that must be addressed before a production decision could be made, chief among them permitting to be carried out, water rights to be obtained and bulk sampling to be completed.

          In 1989, the LAC-Pegasus Joint Venture started a decline adit into the Carache deposit for the purpose of bulk sampling and to provide drilling access for shallow and deep exploration targets. However, after advancing 1719 feet the decline was halted due to a temporary water inflow coupled with regulatory issues. In the face of a declining gold price, mining development of the Carache or Lucas deposits did not proceed, and the project ultimately was cancelled and the lease returned to Ortiz Mines, Inc. Subsequently, no additional exploration was carried out and the property remained dormant until we leased it in August 2004.

Geology and Mineralization

          The 90 square-mile Ortiz Mine Grant is underlain by mid-Tertiary monzonite and latite porphyry stocks, plugs, dikes and sills that have intruded Paleozoic to early-Tertiary sedimentary rocks. The intrusive rocks are part of the Ortiz Porphyry Belt, which comprises from north to south, the Cerrillos Hills, the Ortiz Mountains, the San Pedro Mountains, and South Mountain. Structurally, the Grant straddles the Tijeras-Canoncito fault system, a northeast trending zone of fault-bounded horsts and grabens. This fault zone is a segment of a deep-seated crustal break that has been active intermittently since Precambrian time and has provided a zone of weakness for the emplacement of granitic magmas and associated mineralization. Late-stage volcanism resulted in the formation of breccia pipes and zones of intense fracturing that provided access for hydrothermal fluids carrying gold, silver, tungsten, molybdenum and base metals.

          The Ortiz Porphyry Belt exhibits a number of styles of mineralization that occur in a variety of geologic settings:

• Gold-tungsten mineralization in a breccia pipe at Cunningham Hill adjacent to a volcanic vent, the Ortiz diatreme.
• Gold mineralization associated with a collapse breccia at Carache Canyon.

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• Copper and gold disseminated in stockworks and fractures in monzonite at the Cunningham Gulch (gold) and Cerrillos (copper-gold) deposits (bulk tonnage low-grade “porphyry”-type deposits).
• Copper – gold skarns in calcareous rocks at Lucas Canyon and San Pedro.
• Lead – zinc – silver veins at the Cash Entry and other old mines north of Cerrillos.
• Lead – zinc – silver pipe-like mantos in limestone at the Carnahan mine, San Pedro area.
• Molybdenite in stockworks and fractures in the San Lazarus monzonite stock, San Pedro area.
• Placer gold deposits on Cunningham Mesa, on the northern pediment of the San Pedro Mountains, and in most of the arroyos draining the Ortiz and San Pedro Mountains.

          At the Carache gold deposit, relatively coarse-grained free gold is contained in open space fractures developed in four gently dipping andesite porphyry sills and a sandstone unit around the collapsed margins of a breccia pipe. At the Lucas gold-copper deposit, mineralization occurs in garnet skarn developed in a limestone unit, the outcropping portion of which forms a dip slope at the surface.

          We believe that the Ortiz Mine Grant holds significant potential for additional discoveries, and several partially tested prospects have been identified, three of which have been shown by drilling to contain respectively 60,000, 60,000 and 105,000 ounces of gold. About half the Ortiz Mine Grant is covered by Quaternary gravels derived from the outwash of adjacent mountains. Exploration targets may also exist beneath the gravel cover.

          Scoping Study of the Carache and Lucas Gold Deposits

          In October 2005, we commissioned Mineral Advisory Group, LLC (“MAG”) of Tucson, Arizona, an independent geological engineering firm, to carry out an engineering review and scoping study of the Carache and Lucas gold deposits, utilizing as a technical base the information generated by the LAC-Pegasus Joint Venture in 1989-1991. MAG’s study, which was completed in December 2005, assessed various processing options for development and provided estimations of capital and operating costs for each option. It also included an economic analysis complete with sensitivities on gold price, capital and operating costs. The MAG report was prepared in accordance with different standards than those prescribed by rules of the SEC. The SEC only permits the disclosure of proven or probable reserves, which in turn, require the preparation of a feasibility study demonstrating the economic feasibility of mining and processing the mineralized material. We have not received a feasibility study with regard to our Ortiz property. We currently have not established proven or probable reserves on the Ortiz property.

          The processing options MAG analyzed included heap leaching, ball milling/gravity concentration, and high pressure grinding rolls/gravity concentration (“HPGR option”). The optimum processing route was identified as the HPGR option. The HPGR option was estimated to be able to achieve a gold recovery of 90% employing simple gravity concentration while minimizing capital and operating costs. As compared to heap leaching (the processing route previously advanced by the LAC-Pegasus Joint Venture), the HPGR option also potentially would have advantages with respect to environmental disturbance and permitting in that the area of surface disturbance would be smaller, chemicals would not be required in processing and there would be less water usage.

          Based on pre-1990 drilling estimations by the LAC-Pegasus Joint Venture, mineralized material from the two deposits totals 29.1 million tons averaging 0.035 ounces of gold per ton at a cut-off grade of 0.01 ounces per ton, containing 1,027,818 ounces of gold, within the boundaries of two conceptual pits previously designed by the LAC-Pegasus Joint Venture using a gold price of $385 per ounce. MAG’s scoping study assumed this material would be mined at the rate of 3 million tons per year. The average stripping ratio (waste-to-mineralized material) was calculated as 2.6: 1.

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          MAG’s financial model estimated production would total 925,036 ounces of gold over 10 years at an average estimated operating cost of $230 per ounce of gold recovered. The capital cost, assuming contract mining, was estimated as $38.2 million.

          At a gold price of $450 per ounce, MAG’s financial model estimated net operating pre-tax cash flow (after deductions for refining charges, royalty payments and depreciation) would total $139.5 million over the assumed mine’s ten-year life, and estimated the IRR would be 33.8% . At a gold price of $500 per ounce, net operating pre-tax cash flow was estimated to increase to $180.9 million. At a gold price of $625 per ounce, net operating pre-tax cash flow would increase to $284 million. Sensitivity analyses showed that a variation in gold price is the dominant factor affecting the financial indicators, IRR and NPV.

          MAG’s report concluded, “The financial conclusions drawn from this study indicate a very favorable project employing High Pressure Grinding Rolls with gravity recovery and contract mining.” The report also stated that upside exists in estimations of mineralized material in both contained ounces of gold and grade, as had been concluded previously by the LAC-Pegasus Joint Venture.

          Permitting

          Mining and processing operations at the Ortiz gold property would require permits from the state and federal governments and also would be subject to county regulations. We have not applied for or obtained such permits. We may be unable to obtain such permits in a timely manner, on reasonable terms, or at all. If we cannot obtain or maintain the necessary permits, or if there is a delay in receiving such permits, any timetable and business plan for development and mining of the Ortiz gold property could be adversely affected.

          Work Program

          As the next step in our evaluation of the mining potential of the Carache and Lucas deposits, we plan to conduct additional studies in an attempt to further enhance the project’s economics. The work is anticipated to include redesign of the conceptual open pits employing higher (current) gold prices, and determination of the effect of using a higher cut-off grade in the mine plan. Improvements to be assessed, if any, would be in a greater total number of ounces of gold contained, in an increase of the average grade processed, and in a decrease in the operating cost per ounce of gold produced.

          Over the next 12 months, we plan to continue assessment of mining and processing options for the Carache and Lucas deposits with the objective of formulating an optimized development and operating plan. We also intend to begin an assessment of permitting and environmental issues, which will be important for successful mining development. We expect this work to form a sound position upon which to formulate plans and budgets for advancement of the Carache and Lucas gold deposits.

          We also plan to continue evaluation of the large 66 square mile area under lease for its exploration potential for new discoveries of gold and copper deposits. In this regard, we will continue to utilize the large quantity of existing geological, geochemical, geophysical and drilling data.

          We have budgeted $500,000 for the work to be carried out over the next 12 months.

Black Canyon Mica Project

          Overview

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          In 1999 we acquired the Black Canyon mica project from Arizona Mica Properties, Inc., a private Arizona corporation. In 2001 and 2002, we constructed a crushing and concentrating plant at the Black Canyon mine site north of Phoenix, Arizona, and a mica grinding and processing facility in Glendale, Arizona. The mine operated with limited throughput for several months in 2002. In November 2002, due to under-capitalization and economic constraints, we suspended crushing and concentrating activities at the Black Canyon mica mine. After the suspension of operations, limited production, marketing and sales continued through 2005 at the Glendale mica processing facility using inventoried mica. In November 2006, we sold all of our ownership interests in our Glendale, Arizona location. The sale included approximately five acres of land, a 5,000 sq. ft. office building and an 18,000 sq. ft. mill building. Under the terms of the sale, we retained ownership of the mica processing equipment installed in the mill building. In January 2007, we removed the mica processing equipment from the Glendale plant and placed it into storage. In the first half of 2008, we disassembled the crushing and concentrating plant at the Black Canyon mine and placed the major items of equipment into storage. We intend to seek a joint venture partner to contribute the approximately $8.0 million required to fund the re-establishment of the mining operation, relocation of the mica processing equipment and re-opening and enhancement of the Black Canyon mica project, or alternatively, intend to divest of the project.

          Location and Access

          The Black Canyon mine is located 30 miles north of Phoenix, Arizona, and 3.5 miles west-southwest of Black Canyon City. It can be reached via U.S. Interstate 17, which connects Phoenix with Flagstaff, and by a connecting dirt road for the last eight miles. The Glendale processing plant was located in an industrial area on the west side of Phoenix, Arizona, 47 miles to the south of the mine site.

Figure X.3
Claim Boundary Map

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          Mineral Title

          Our property holdings at and around the Black Canyon mine consist of 67 federal unpatented mining claims in Yavapai County, Arizona and 9 federal unpatented mill site claims in Maricopa County, Arizona, which in total cover approximately 1,385 acres. The claims are located on public land and held pursuant to the General Mining Law of 1872. We fully own the mining rights and believe the claims are in good standing in accordance with the mining laws of the United States.

          Additional details of our claims are as follows: In Yavapai County, the claims are Spencer Nos. 1-43, 77, 79, 122-127, 146-153, 155, 157, 184, and 186-190, located in Sections 12, 13, 14, 23 and 24, Township 8N Range 1E and Sections 6, 7 and 8, T8N R2E, and recorded by the Bureau of Land Management on 2/25/1999 and by Yavapai County on 2/26/1999. In Maricopa County, the claims are Mica Mill Site Nos. 12, 14, 16, and 19-24, located in Sections 27 and 28, T8N R2E, and recorded by the Bureau of Land Management on 9/17/1999 and by Maricopa County on 9/20/1999.

          In order to maintain our claims in good standing, we must pay annual assessment fees to the Bureau of Land Management and record the payment of rental fees with Yavapai and Maricopa Counties. Annual assessment and recording costs total approximately $11,000. We have paid the required fees for the 2009 and 2010 assessment years (September 1, 2008 through August 31, 2010).

          Mining and Processing Facilities

          The Black Canyon project formerly consisted of two integrated operating facilities. The mine site west-southwest of Black Canyon City contains the mineralized material. The crusher, the concentrator and the feldspathic sand plant were located at the mine site. These facilities depended on diesel generators for power. Our plans called for mining to be carried out by conventional open pit methods. The mineralized material would be trucked from the pit and delivered to a nearby stockpile located adjacent to the crusher and concentrator. Mica flakes would be separated from the pegmatite host rock in a process that involves multi-stage crushing and screening to -3/16” size. Mica would be concentrated from the crushed material utilizing air classifiers. The resulting concentrate, containing 95% mica, would be trucked to the processing plant for further processing.

          In the mica concentrating process at the mine site, the majority of the crushed host rock, which otherwise would be discarded as waste, would be converted into feldspathic sand for sale into the local Phoenix market. Processing of the feldspathic sand would involve screening and magnetic separation to yield sand fractions of various sizes. The sand products would be either bagged for shipment or trucked in bulk to customers.

          During 2002-2004, we processed mica concentrate at the 5-acre Glendale plant and office site on the west side of Phoenix. The processing was designed to achieve the desired product sizes and meet the quality requirements of the market place. The plant was housed in an 18,000 square foot steel framed building, where equipment was installed for wet grinding, dewatering, drying, and air classification and bagging. The final products were placed into 50-pound bags or into 1000-pound supersacks ready for shipment to customers.

          Operations at the mine site were suspended in November 2002. The mica processing equipment was removed from the Glendale plant in January 2007, and the crushing and concentrating equipment was removed from the Black Canyon mine in June 2008. We are seeking a joint venture partner to contribute new funding in the amount of $8.0 million to re-establish the crushing and concentrating facilities at the Black Canyon mine site, install the mica processing equipment at a new location and upgrade and expand the mining and processing facilities in order to reach planned capacity, and to provide working capital.

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These expansions are required in order to achieve the higher throughput necessary for sustained economic operation. Alternatively, we are seeking to sell the project.

          Permits

          In 1999, we obtained approval for the Black Canyon Plan of Operations from the Bureau of Land Management and the State of Arizona. An Environmental Assessment, Clean Water Act Permit and Air Quality Procedures were all approved. An Aquifer Protection Permit was not required because processing operations at the mine site did not propose the use of water. These permits are no longer in current standing and would have to be renewed or new permits obtained in order for the project to resume production.

          Geology and Mineralization

          The mica deposits occur as pegmatite dikes cutting Precambrian schist and granite. These dikes are steeply dipping tabular bodies, continuous along strike and with depth. The main pegmatite dikes are hosted by the schist and have a northeasterly trend parallel to the structural grain of the schist. Because the light colored pegmatite dikes are more resistant to weathering than is the enclosing schist, the dikes stand out at the surface as elongated light colored ridges relatively easy to discern and to map geologically.

          In the area of the drilled mineralization, a concentration of pegmatite occurs as a dike swarm and as massive irregular bodies of pegmatite. An associated major structure, the Central Pit fault, appears to have created a zone of dilation that provided open space for intrusion of the pegmatite. Drilling has identified seven individual dikes that range from approximately 4 feet to over 20 feet in thickness. At the surface, massive pegmatite crops out over a width exceeding 50 feet.

          The minerals of potential economic value are all found associated with the pegmatite dikes, and consist of muscovite mica, feldspar and silica. Muscovite mica, the principal commodity, constitutes a major accessory mineral of the pegmatite dikes and is ubiquitous in the pegmatite. Based on visual estimates of drill core, the content of muscovite in the pegmatite ranges from 5% to 35%. The muscovite is light to whitish green in color and occurs as discrete, coarse-grained inclusions as well as fine-grained disseminations in the pegmatite. Feldspar and silica, by-products of the proposed mining operation, make up most of the remaining component minerals of the pegmatite on about a 1:1 ratio.

          Estimation of Mineralized Material

          In 1998 and 1999, we drilled 41 inclined core holes and collected 59 samples of pegmatite exposed on the surface, at two central locations. The drill holes and surface samples were spaced approximately 50 feet apart. The holes ranged from 200 to 600 feet in length, and drilling totaled 13,070 feet. The drilling covered only a small portion of the zones of outcropping mica-bearing rocks mapped on our mining claims.

          Mintec Inc., an independent geological engineering firm, analyzed our drilling and sampling results, designed the mining plan and calculated an estimation of mineralized material. In-place mineralized material for the pit design was calculated as 2,399,500 tons of material grading 7.54% mica and 1,527,200 tons of additional material grading 7.37% mica, for total mineralized material of 3,926,680 tons grading 7.48% mica, at a cutoff grade of 2.47% mica. Approximately 60% of the mica contained in this mineralized material is expected to be recoverable after losses due to mining and beneficiation.

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          Mica

          Our mineralized material contains high quality muscovite or “white mica”. Mica is a mineral characterized by crystals that can be easily split into thin elastic sheets and is valued for its unique combination of chemical, physical, electrical, thermal and mechanical properties. Muscovite exhibits perfect cleavage, flexibility and elasticity, infusibility, low thermal and electrical conductivity, high dielectric strength, light weight, good insulating characteristics, and is stable when exposed to moisture, light and high temperatures. Because of these properties, muscovite has found widespread application in plastics, automotive coatings, cosmetics, paints, catalysis and composite formulations. We believe, once adequate financing is obtained, that the project has the potential to produce 10,000 tons (20 million pounds) annually of premium wet-ground mica. For the project to be successful, we would need to penetrate existing markets and to establish our own markets in plastics, cosmetics and ultra-micronized applications.

          We have had no mica sales since 2007, when sales totaled $7,201. Previously, we sold mica, on a limited basis, to customers in the plastics and cosmetics industries and for other specialized applications. In addition, other potential consumer conducted trial tests of our mica products. Our inventory was largely depleted in fiscal 2006.

          Feldspathic Sand

          Our feldspathic sand was produced as a by-product of mica concentration and was screened and sized for sale into the Phoenix construction and recreational markets. Products included golf course bunker sand and sand used in stucco, mortar and other specialized construction applications. Once joint venture financing is obtained, we believe the project could produce 180,000 tons of feldspathic sand products annually.

          Sand producers in California and Nevada supply sand to the Phoenix manufactured sand market. Because the material has to be trucked long distances in order to reach Phoenix, trucking costs are significant and constitute a substantial proportion of the final selling price. We believe that the location of our Black Canyon mine only 30 miles from Phoenix may provide us with a transportation cost advantage over competitors who import sand into Arizona.

          We have sold no feldspathic sand since 2003, when we sold our inventory to customers in the Phoenix area.

          Work Program

          Over the next 12 months, we plan to seek a joint venture partner to contribute $8.0 million in new funding necessary to advance the Black Canyon mica project to full production. The new funding would be used to re-establish crushing and concentrating facilities at the Black Canyon mine, install the mica processing equipment at a new location and upgrade and expand the mining and processing facilities in order to reach planned capacity and to provide working capital. These expansions are required in order to achieve the higher throughput necessary for sustained economic operation. As an alternative to arranging the $8.0 million of new funding required for production, we are seeking to divest of the project.

Planet Micaceous Iron Oxide (“MIO”) Project

          Overview

          The Planet property consists of thirty-one patented mining claims totaling 523 acres located in

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western Arizona. In September 2002, we leased the Planet property for its potential to produce micaceous iron oxide (“MIO”), and in June 2008 exercised our option to purchase the property. MIO is an uncommon flake-like form of crystalline hematite (Fe2O3) valued for the anti-corrosive properties it contributes to coatings formulated to protect structural steelwork.

          We believe the results of work to date indicate the Planet property contains a MIO deposit significant in grade and tonnage. The deposit appears to have characteristics favorable for the production of MIO from open pit mining. Preliminary metallurgical work suggests that with upgrading, a quality MIO product can be produced. For these reasons, we believe the project appears to exhibit potential for eventual production. As is characteristic of industrial mineral operations, marketing would play a critical role in the success of any new MIO operation. We plan to continue pre-feasibility assessment of the Planet project.

          Location and Access

          The Planet property is located in the northwest corner of La Paz County, west central Arizona. It lies just south of the Bill Williams River twelve miles above its junction with the Colorado River. The property is reached by road, either via the Swansea gravel road, twenty-eight miles north from the town of Bouse; or via the Osborne Well paved and gravel road, twenty-five miles east from the town of Parker.

          The topography of the property is rugged, with hills 100 to 500 feet high cut by numerous steep-sided canyons. Average elevation is 800 feet. The desert climate is typical of western Arizona, hot and dry in summer but mild in winter. Vegetation is sparse and confined mainly to the bottoms of the larger drainages.

          The project is well served by existing infrastructure for both construction and operation. All-weather roads connect the Planet property to the town of Parker, situated on the Colorado River with a population of about 4,000. Highways connect Parker to two east-west interstate trucking routes, I-10 and I-40, respectively 35 miles to the south and 60 miles to the north. Parker also is served by the Arizona & California Railroad, which is part of the national rail system.

          Electric power, water and other infrastructure are readily available at industrial sites in Parker. Fabrication and construction services, and a wide range of commercial and support services also are available in Parker and other nearby communities. We believe the labor force required for any plant operation could be sourced locally.

Figure X.4
Claim Boundary Map

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          Mineral Title

          The property consists of thirty-one patented mining claims totaling 523 acres, comprising an area 3,600 feet wide by 8,000 feet long. We leased the property in September 2000 from the underlying owner, New Planet Copper Mining Company, for its potential to produce MIO. The lease gave us exclusive rights for a period of 20 years to explore, develop and mine MIO, copper, gold and other minerals. Terms of the lease included monthly payments of $1,500; an option to purchase the property for $250,000; and a production royalty of 5%.

          In March 2007, we commenced an action in the Superior Court of the State of Arizona against New Planet Copper Mining Company, seeking to confirm that our lease remained in good standing. On June 5, 2008, we reached a settlement agreement and agreed to exercise our option to purchase the property. The purchase price of $250,000, as specified under the terms of the 2000 lease agreement, may be paid with interest over a term of four years. We paid an initial purchase payment of $50,000 in August 2008, and a payment of $69,650 in September 2009. There also is provision for a 5% royalty to be paid on any future production.

          History of Mining and Exploration

          The Planet deposit was worked for its copper value from 1863 until l884, and then intermittently through the early 1900’s. Several shafts were sunk and 8,000 feet of underground workings were developed. High-grade copper ore was extracted and shipped to Swansea, Wales, and to San Francisco. The last mining activity took place between 1915 and 1918 when all remaining high-grade ore was mined and shipped. In total, the property produced approximately 50,000 tons of ore grading 10% copper.

          Between 1942 and 1944, the U. S. Bureau of Mines investigated the quantity and quality of mineralized material containing iron oxide at the Planet deposit. This work was conducted as part of the wartime evaluation of potential domestic sources of strategic minerals, including sources of iron ore for the steel industry. The Bureau carried out geologic mapping and sampling, and conducted drilling programs utilizing both churn and diamond drilling methods. The information that resulted from this work was compiled and recorded in Report of Investigations 3982, “Exploration of the New Planet Iron Deposit”. We believe that the information is reliable and of good quality. In 1945, it was used by the Bureau to calculate the tonnage and grade of mineralized material containing iron oxide at the Planet deposit.

          Work Program

          Work we completed included recovery and surveying of the U. S. Bureau of Mines drill holes from 1942-1944; aerial photography and production of orthophotographs and topographic base maps; compilation of a comprehensive digital database and construction of a computerized block model incorporating all geological, geochemical and assay data; estimations of tonnage and grades of mineralized material containing iron oxide; design of conceptual open pits; preliminary metallurgical testing of MIO material; studies of MIO markets; and conduct of scoping studies to assess the project’s potential for production.

          We plan to continue pre-feasibility assessment of the Planet project.

          Geology and Mineralization

          At the Planet deposit, MIO deposits associated with a mid-Tertiary, flat-lying, regional detachment fault are found in the Triassic Buckskin Formation. Rocks in the upper plate above the fault

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are composed of schist, limestone, hydrothermal carbonate and quartzite. Lower-plate rocks are gneisses. The upper and lower plates are separated by fault breccias up to 60 feet thick. The main mineralized bodies at the Planet deposit are found in the lower part of the upper plate, adjacent to and above the detachment fault. They occur as tabular replacements of hydrothermal carbonate, limestone and schist. The overall trend of the mineralized bodies is north fifty-five degrees east, and the plunge is eight to nine degrees to the southwest. Individual bodies dip ten to twenty degrees to the northwest.

          The mineralized bodies form discontinuous lenses, irregular bodies and veins that individually are as much as 700 feet long, 250 feet wide, and 50 feet thick. Mineralized material consists dominantly of specularite and massive hematite with some limonite, malachite, azurite, chrysocolla, and minor pyrite, chalcopyrite, bornite, gold, and silver. Associated minerals include quartz and calcite. The mineralized material is silicified and very hard at the surface and to a depth of ten feet, but underground it is soft and powdery.

          The U. S. Bureau of Mines and the Company each has estimated the quantities and grades of mineralized material containing iron oxide at the Planet deposit. In 1945, the Bureau of Mines estimated the deposit contained 1.4 million tons averaging 60 percent iron (85.8% Fe2O3). The Bureau based this estimation on work it had carried out during 1942-1944, including drilling of twelve churn holes aggregating 3,742 feet, and ten diamond holes totaling 569 feet; and mapping, surveying, and sampling of surface outcrops and underground workings.

          Our new, more detailed estimations employed computerized analytical methods and construction of a block model. We estimated that a total of 1.4 million tons of mineralized material grading 44.4% iron would be contained in three conceptually designed open pits. In carrying out our study, we compiled a comprehensive digital database incorporating relevant information from all sources. The database relied heavily on the information available from the Bureau of Mines, including geologic and assay data from drill holes, and results of surface and underground channel sampling. The database contained new survey information that tied the locations of drill holes and underground workings to accurate topographic maps generated from aerial photographs.

          The SEC only permits the disclosure of proven or probable reserves, which in turn, require the preparation of a feasibility study demonstrating the economic feasibility of mining and processing the mineralized material. We have not received a feasibility study with regard to our Planet property. We currently have not established proven or probable reserves on the Planet property.

          Conceptual Mining and Processing Plan

          As presently conceived, the Planet mining and processing operation would involve open-pit mining of MIO mineralized material, primary crushing of the material at the mine site, and trucking of the crushed material twenty-five miles to a processing plant to be located at an industrial site near Parker. At the plant site, metallurgical processing would be straightforward, and based on results from preliminarily metallurgical testing, would include grinding, classification, selective flotation or other method of separating the MIO, and filtration and drying to yield recovery of MIO and red iron oxide, a secondary product. A stockpile of mineralized material sufficient for plant operation would be maintained at the plant site. Because only small tonnages of material would need to be mined during the early years of operation, we believe mining and related activities would be carried out most efficiently on a periodic, campaign basis utilizing outside contractors. The project is well situated with respect to development infrastructure and transportation networks. MIO mineralized material is non-toxic and we see no significant environmental issues that would hinder development.

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          Micaceous Iron Oxide

          MIO is an uncommon flake-like form of crystalline hematite (Fe2O3) valued for the anti-corrosive properties it contributes to coatings formulated to protect structural steelwork. MIO improves UV stability, adhesion, surface tolerance and abrasion resistance, and significantly increases coating life. It also has the advantage of being non-toxic to the environment. In Europe and Asia, MIO is the most important barrier pigment used to protect structural steelwork from corrosion. For many years it has been employed with outstanding success on bridges, oilrigs, transmission towers, pipelines, storage tanks, industrial plants and structural steelwork of all descriptions. The Eiffel Tower and Sydney Harbor Bridge are two examples.

          Based on limited available market data, world production of MIO is estimated to be 20,000-30,000 tons (40-60 million lbs) annually, of which Europe and Asia consume over eighty percent. Prices are quoted in the range $0.40 -$.60 per pound for top quality material. Commercial deposits of high quality MIO are geologically rare. One supplier from underground mines in Austria has dominated the world market for many years; however, production from that source has been declining. Elsewhere around the world, production comes from only a handful of suppliers, operating on a small scale and, we believe, at high production costs.

          The United States uses only a relatively small amount of MIO pigment as compared to other regions of the world. We believe that lack of a domestic source of MIO has forced U. S. paint manufacturers to depend on imports and has restricted market expansion. The Planet project, if developed, would establish a domestic source of MIO pigment.

          Pilar Gold Project

          Overview

          In June 2009, we entered into a purchase option contract on the Pilar gold property consisting of two mineral exploitation concessions located 165 kilometers east-southeast of Hermosillo, State of Sonora, Mexico. We believe this exploration property shows promising potential for discovery of an economic gold deposit, based on previous drilling that returned encouraging gold intersections.

          Location and Access

          The Pilar property is accessible by paved highway two hours drive east and south of Hermosillo, the capital of State of Sonora, through the town of Suaqui Grande, and then five miles north by gravel road.

          Terrain in the region is hilly to locally mountainous, with up to 2,000 feet of local relief. Annual participation averages around 12 inches. Vegetation is sparse but varied as is typical of the Sonoran desert. The area is largely undeveloped and the land is utilized mainly for cattle grazing.

          Pilar is within a mineral belt that includes the La Colorado gold mine (260,000 ounces) to the west and the Mulatos gold mine (2.7 million ounces) to the north and east, in or near the Sierra Madre mountain complex. The Sonoran Province also holds the La Heradura gold mine, the largest gold mine in Mexico (owned by Penoles and Newmont); the San Francisco gold mine; and the Chanate gold mine.

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          Mineral Title

          Minera Sandia S.A. de C.V., the Company’s wholly owned subsidiary, entered into the option purchase contract with Minera de Suaqui Grande, S. de R.L. de C.V. The Pilar property consists of the La Sonora and Guadalupana exploitation concessions, which cover 100 hectares (240 acres). The contract provides for option payments of $1,000 upon signing, $99,000 on March 13, 2010, and $125,000 on March 13, 2011. The last payment of $1,307,000 is due March 13, 2012, and would complete the purchase. In connection with the acquisition, we entered into a consulting agreement with Minera de Sauqui Grande, S. de R.L. de C.V. wherein we agreed to issue 117,000 restricted shares of common stock. We also entered into a finders agreement wherein we agreed to pay creditors $11,150 in cash and 17,400 in restricted common stock. We also agreed to pay finder’s fees of $15,000 in cash and 25,000 in restricted common stock, and to match option and purchase payments when they become due by payments either in cash or in restricted common stock. We are not required to pay a production royalty under the agreements.

          History of Mining and Exploration

           The Pilar property contains a few prospect pits and minor underground openings but has not produced any significant amount of gold or other metals.

          In 1996, some 6,000 meters of reverse circulation drilling is reported to have been carried out in two drilling programs by a junior Canadian exploration company, with the objective of testing geochemical gold anomalies. Summary results of the drilling programs were reported in press releases. Although the drilling results appear to have returned encouraging gold values, the property was relinquished.

          In 2008 the Pilar property was acquired by a private company controlled by an experienced geologist. A trenching, mapping and sampling program was carried out. The last 92 soil and rock samples collected by this group are reported to have averaged 1.2 grams/tonne gold.

          We visited the property in 2009 and carried out our own sampling program, with encouraging results.

          Geology and Mineralization

          Pilar is hosted in Cretaceous Tarahumara andesitic volcanics intruded by Tertiary granodiorite and cut by rhyolite dikes. The prime target for gold mineralization is associated with andesites and silicified rhyolites along a northwest trending ridge exhibiting 100-200 meters of local relief and extending 1,200 meters along strike and 625 meters in width. The ridge was trenched, sampled and drilled in 1996 by the junior Canadian company.

          The 1996 drilling was reported to show that gold is controlled by a number of steeply dipping structures. At least four structures were reported to carry potentially economic grades, with drill holes intersecting from 1 to 10 grams/tonne gold over widths ranging up to 20 meters. The best hole, an angle hole, was reported to have intersected 16.5 meters of high grade gold mineralization averaging 53.05 grams/tonne. Mineralization in that hole was described as beginning 45 meters below surface and was estimated to represent 15.5 meters true width across structure.

          The Pilar Gold Property appears to have potential for discovery of an economic near-surface gold deposit, with speculative unknown deeper potential. Processing might be by heap leaching or

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alternatively, if high enough grades are discovered, by milling of higher grade ores followed by CIL or CIP recovery.

          Work Program

          The next steps in our evaluation of the Pilar property will involve (1) cleaning out of existing trenches, followed by geological mapping and re-sampling, (2) compilation of existing information, including an attempt to recover geologic logs, assay data and other information from the 1996 drilling programs, (3) formulation of a geological model incorporating all data, with emphasis on structure and ore controls, (4) a geophysical survey to identify structural zones and distribution of sulfides, (5) delineation of drill targets, and (6) design and execution of a drilling program. A budget for the first year’s work is estimated to be on the order of $100,000.

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ITEM 3.      LEGAL PROCEEDINGS

          We are not currently subject to any legal proceedings, and to the best of our knowledge, no such proceedings are threatened, the results of which would have a material impact on our properties, results of operation, or financial condition. Nor, to the best of our knowledge, are any of our officers or directors involved in any legal proceedings in which we are an adverse party.

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          None.

PART II

ITEM 5.      MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASE OF EQUITY SECURITIES

Market Information

          Our common stock trades over-the-counter and is quoted on the OTC Bulletin Board under the symbol “SFEG.” The table below sets forth the high and low bid prices for our common stock as reflected on the OTC Bulletin Board for the last two fiscal years. Quotations represent prices between dealers, do not include retail markups, markdowns or commissions, and do not necessarily represent prices at which actual transactions were effected.

Holders of Common Equity

          As of October 7, 2009, there were 83,723,208 common shares outstanding, the high and low sales prices of our common stock on the OTC Bulletin Board were $1.30 and $1.25, respectively, and we had 779 holders of record of our common stock.

Penny Stock Rules

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          Due to the price of our common stock, as well as the fact that we are not listed on Nasdaq or a national securities exchange, our stock is characterized as a “penny stock” under applicable securities regulations. Our stock therefore is subject to rules adopted by the SEC regulating broker-dealer practices in connection with transactions in penny stocks. The broker or dealer proposing to effect a transaction in a penny stock must furnish his customer a document containing information prescribed by the SEC and obtain from the customer an executed acknowledgment of receipt of that document. The broker or dealer must also provide the customer with pricing information regarding the security prior to the transaction and with the written confirmation of the transaction. The broker or dealer must also disclose the aggregate amount of any compensation received or receivable by him in connection with such transaction prior to consummating the transaction and with the written confirmation of the trade. The broker or dealer must also send an account statement to each customer for which he has executed a transaction in a penny stock each month in which such security is held for the customer’s account. The existence of these rules may have an effect on the price of our stock, and the willingness of certain brokers to effect transactions in our stock.

Transfer Agent

           Colonial Stock Transfer Co. is the transfer agent for our common stock. The principal office of Colonial Stock Transfer Co. is located at 66 Exchange Place, Salt Lake City, Utah 84111 and its telephone number is (801) 355-5740.

Dividend Policy

          We have never declared or paid dividends on our common stock. Payment of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including the terms of any credit arrangements, our financial condition, operating results, current and anticipated cash needs and plans for expansion.

Recent Sales and Issuance of Common Stock

          On September 30, 2008, a director exercised an option to purchase 500,000 shares of common stock at $0.11 per share on a cashless basis. Under the cashless basis exercise, 431,250 shares were issued. On March 31, 2009, an officer exercised an option to purchase 4,000,000 shares of common stock at $0.10 per share on a cashless basis. Under the cashless basis exercise, 3,701,494 shares were issued. On April 17, 2009, a warrant holder exercised 25,000 warrants with an exercise price of $1.00 per share to purchase shares of the Company’s stock on a cashless basis. Under the cashless basis, 4,766 shares were issued. On June 9, 2009, an individual exercised an option to purchase 100,000 shares of common stock at $0.60 per share on a cashless basis. Under the cashless basis exercise, 43,396 shares were issued. The aggregate amount of shares issued on a cashless basis during the year ended June 30, 2009 was 4,180,906.

          During the quarter ended March 31, 2009, a convertible debenture holder converted $380,625 of note principal into 380,625 shares of the Company’s common stock. On April 6, 2009, a convertible debenture holder converted $237,143 of note principal into 189,714 shares of the Company’s common stock. The aggregate value of debentures converted to stock was $617,768 during the year ended June 30 2009.

          On May 19, 2009, the Company issued 480,000 shares of the Company’s stock for services related to investor relations, including 380,000 shares issued to a shareholder who paid for expenses on the Company's behalf in prior years totalling 204,000. The shares were valued at $1.165 per share, the closing price on the date of grant. On June 15, 2009, the Company issued 42,400 shares of the Company’s stock for consulting services. The shares were valued at $1.14 per share, the closing price on the date of grant. The aggregate value of these transactions expensed to general and administrative expense was $403,536 during the year ended June 30, 2009, which includes $238,700 related to the shareholder capital contribution.

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          On May 19, 2009, the Company issued 150,000 shares of the Company’s stock for services related to investor relations. The shares were valued at $1.165 per share, the closing price on the date of grant. On June 15, 2009, the Company issued 117,000 shares of the Company’s stock for consulting services. The shares were valued at $1.14 per share, the closing price on the date of grant. The aggregate value for both transactions of $308,130 was classified as deferred stock compensation on the date of issue. During the year ended June 30, 2009, general and administrative stock compensation expense of $26,986 was recognized relating to these transactions.

          On June 22, 2009, the Company issued 283,019 shares of the Company’s stock in a private placement. The shares were valued at $1.06 per share for total proceeds of $300,000. The Company also issued 141,510 warrants with a five year expiration date from the date of issue in connection with the private placement.

          On April 6, 2009, a convertible debenture holder converted $28,391 of accrued interest into 24,687 shares of the Company’s common stock. On April 30, 2009, a convertible debenture holder converted $22,875 of accrued interest into 19,891 shares of the Company’s stock. On June 30, 2009, a convertible debenture holder converted $974,360 of accrued interest into 974,360 shares of the Company’s stock. The aggregate amount of accrued interest converted totals $1,025,626, of which $890,400 was recorded as interest expense during the year ended June 30, 2009.

          On July 13, 2009, the Company granted a five (5) year option to purchase 200,000 shares of common stock to an employee under the 2007 Equity Incentive Plan. The option exercise price is $1.00 per share, the closing price on the date of grant, and the options have a vesting period of six months from the date of grant.

          On July 17, 2009, a director exercised options to purchase 1,150,000 shares of common stock as follows: 1,000,000 shares at $0.10 per share, 75,000 shares at $0.55 per share, and 75,000 shares at $0.60 per share. The total purchase price for the exercise of the options was $186,250. The director utilized proceeds from the Agreement to Sell Royalty dated May 19, 2009, discussed in NOTE 10 to the consolidated financial statements for the years ended June 30, 2009 and 2008. At that time the director also utilized the remaining $13,750 from the Agreement to Sell Royalty to purchase an additional 12,500 shares at $1.10 per share, the market closing price on July 17, 2009. Under the Agreement to Sell Royalty, the entire $200,000 has been utilized and no further amounts are due to the director under the agreement.

          On July 20, 2009, an individual exercised an option to purchase 20,000 shares of common stock at $0.60 per share on a cashless basis. Under the cashless basis exercise, 8,991 shares were issued.

          On July 27, 2009, the Company issued 94,339 shares of common stock at $1.06 per share in connection with a private placement. As part of the private placement the Company also issued 47,169 warrants with an exercise price of $1.06 per share and an expiration of 5 years.

          On August 6, 2009, the Company issued 100,000 shares of common stock at $1.06 per share in connection with a private placement. As part of the private placement the Company also issued 50,000 warrants with an exercise price of $1.06 and an expiration of 5 years.

          On August 13, 2009, an individual exercised an option to purchase 20,000 shares of common stock at $0.60 per share on a cashless basis. Under the cashless basis exercise, 8,679 shares were issued.

          On August 17, 2009, the Company issued 18,868 shares of common stock at $1.06 per share in connection with a private placement. As part of the private placement the Company also issued 9,434 warrants with an exercise price of $1.06 per share and an expiration of 5 years.

          On August 25, 2009, an individual exercised an option to purchase 10,000 shares of common stock at $0.60 per share on a cashless basis. Under the cashless basis exercise, 4,286 shares were issued.

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ITEM 6.      SELECTED FINANCIAL DATA

Not required.

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

          The following discussion should be read in conjunction with the Financial Statements of the Company and notes thereto included elsewhere in the Annual Report. See “Financial Statements”.

          Readers are cautioned that the following discussion contains certain forward-looking statements and should be read in conjunction with the “Cautionary Statement On Forward-Looking Statements” appearing at the beginning of this Annual Report.

Overview

          We have received no substantial revenue from the production of gold or other metals since our inception, and historically have relied on equity and debt financings to finance our ongoing operations. Our operations generated a net (loss) of $(5,535,596) for the year ended June 30, 2009, and a net (loss) of $(4,423,592) for the year ended June 30, 2008. In order to fund operations in the fiscal years ended June 30, 2009 and 2008, we relied on proceeds from the sale of equipment aggregating $68,184 for the two years, private placement sales of convertible notes in October 2007 and February 2008 aggregating $687,143, proceeds from the exercise of Additional Investment Rights in January, April and June 2008 aggregating $643,614, the private placement sale in December 2007 of senior secured convertible debentures of $13,500,000, and in June 2009 the private placement sale of common stock of $300,000.

          The net proceeds of the private placement of senior secured convertible debentures completed in December 2007 were used primarily to fund the development of the Summit mine and processing facilities. The remainder of the proceeds of the 2009 and 2008 financings was utilized as general working capital.

          In September 2009, we entered into a sale agreement for a portion of our gold production from the Summit mine. The agreement provides for an upfront cash payment of $4.0 million and ongoing production payments equal to the lesser of $400 per ounce and the prevailing market price, for each ounce of gold delivered pursuant to the agreement. Under the agreement, we have a nine month option to increase the upfront cash payment by $1.0 million, to a total of $5.0 million. Proceeds will be used for on-going development of the Summit mine, completion of construction of the Banner mill processing facilities and working capital.

          The results of operations for the fiscal years ended June 30, 2009 and 2008 reflect under-capitalization of our Summit silver-gold project, which project requires additional funding to be able to achieve production and profitability. We expect results of operations similar to those in 2009 and 2008 to continue in the foreseeable future, and do not expect them to change significantly until such time as production commences at our Summit mine and/or additional capital and/or debt facilities are secured. There is significant uncertainty in our Summit estimates of both future costs and future revenues, and we may require additional capital resources to complete our plans.

          We are dependent on additional financing to continue our exploration efforts in the future and if warranted, to develop and commence mining operations. While we have no current plans or arrangements for this additional capital requirement, we anticipate that we will be seeking additional equity financings in the future.

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          We anticipate a need for at least $6.0 million over the next 12 months, and $9.5 million over the next 36 months in order to satisfy past commitments, pay corporate overhead costs, complete Summit development, and fund feasibility studies and exploration programs as discussed under the Liquidity and Capital Resources section of this report. If we fail to procure adequate funding on acceptable terms, we may be required to reduce or eliminate substantially all business activities until such time as funding can be secured on a basis acceptable to us.

          The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. Should we be unable to continue as a going concern, we may be unable to realize the carrying value of our assets and to meet our obligations as they become due.

          We have a total accumulated deficit of $(52,977,460) at June 30, 2009. To continue as a going concern, we are dependent on continued fund raising. However, we have no commitment from any party to provide additional capital and there is no assurance that such funding will be available when needed, or if available, that its terms will be favorable or acceptable to us.

Results of Operations

Fiscal Year Ended June 30, 2009, Compared to Fiscal Year Ended June 30, 2008

          Sales

          Sales increased to $72,624 in fiscal 2009 from $-0- in fiscal 2008. Sales were generated from the limited sales of aggregate product which occurred in the third and fourth quarter of our current fiscal year.

          Exploration and Mining

          Exploration and mining costs increased in fiscal 2009 to $522,697 from $245,621 in fiscal 2008. This increase of $277,076 in fiscal 2009 is attributable to increased non-capitalized costs incurred on the Summit site and the Banner mill site. The increased costs resulted from increases on land leases of $9,371, leased equipment of $42,720, repairs and maintenance of $40,864, supplies and general operating costs of $92,023, insurance of $47,474, relocation costs of $80,027 and fuel of $16,370. These increases were offset by decreases consulting fees and related costs aggregating $50,659.

          In January 2008 upon completion of the engineering study for the Summit property, and placement of the financing of the projects, we deployed our plan for the development of the Summit mine and Banner mill near Lordsburg, New Mexico. Upon implementation of the projects, we started capitalizing all qualified costs into construction in process.

          General and Administrative

          General and administrative increased to $1,912,155 for the fiscal year 2009, from $1,504,380, for the fiscal year 2008, an increase of $407,775. The increase in the current fiscal year is mainly attributable to increases in rent expense of $7,472, compensation and payroll burden of $273,162, property taxes of $28,058, investor relations of $277,140, travel and entertainment of $15,413, financing costs of $139,454, vehicle operating costs of $39,377, and office operating costs of $31,002. These increases were mainly offset by decreases in the current fiscal year in non-recurring dismantling and relocation costs of the Black Canyon mica plant aggregating $282,335 and accounting and legal costs of $93,805.

          General and Administrative Stock Compensation

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          General and administrative stock compensation increased to $944,049 for the current fiscal year 2009 from $216,413 for the comparative fiscal year ended 2008, an increase of $727,636. The increase is attributable to amortized costs associated with deferred stock compensation for an officer and another key employee aggregating $448,000, and amortized incentive stock options costs associated with options issued to numerous employees.

          Depreciation and Amortization

          Depreciation and amortization during the current fiscal year 2009 increased to $279,012 as compared to $4,554 for the comparable fiscal year 2008, an increase of $274,458. The increase is directly attributable to the deployment of the Summit mine project and Banner mill project and related capitalized equipment costs put into service aggregating approximately $2,100,000.

          Other Income and Expense

          Other income and (expense) for fiscal year 2009 were $(1,914,870) as compared to $(2,447,624) for fiscal 2008, a decrease of $532,754. The decrease in other expenses incurred in the current fiscal year is mainly attributable to decreases in expenses relating to interest of $799,514, of which $777,682 represents capitalized interest on our projects, loss on disposal of assets of $123,522, and increases income items relating to interest and miscellaneous income aggregating $107,855, and relief of debt of $66,905. These decreases were offset by increased expenses relating to accretion of discounts on notes payable of $336,569 and an increase in loss on derivative instruments liability of $241,938.

          Gain (loss) on Derivative Financial Instruments

          We recognized a loss on derivative instruments liability of $514,356 for fiscal year 2009, as compared to a loss of $272,418 for the prior fiscal comparable year 2008. The non-cash loss arose from adjustments to record the derivative financial instruments at fair values in accordance with current accounting standards. The derivative financial instruments arose in connection with senior secured convertible notes. Otherwise, we generally do not use derivative financial instruments for other purposes, such as hedging cash flow or fair-value risks. The increase in the derivative loss in fiscal 2009 is mainly attributable to changes in the market price of our common stock, which is a component of the calculation model, and to the issuance of additional warrants resulting in derivative treatment. We use the Black-Scholes option pricing model to estimate the fair value of this derivative. Because Black-Scholes uses the Company’s stock price, changes in the stock price will result in volatility in the earnings in future periods as the Company continues to reflect the derivative financial instruments at fair values.

Liquidity and Capital Resources; Plan of Operation

          As of June 30, 2009, we had cash and cash equivalents of $509,846 as compared to $3,255,754 at June 30, 2008. As of June 30, 2009, we had a working capital deficit of 3,852,303, which is mainly attributable to the current portion of our derivative instrument liabilities of $2,643,500.

          On December 21, 2007, we entered into a definitive agreement for the placement with a single investor of senior secured convertible debentures in the amount of $13,500,000. Proceeds from the debentures were used primarily for the development of the Summit project. The debentures were issued in accordance with a pre-determined funding schedule and the term of the debentures is 60 months. In fiscal 2008, we received advances aggregating $5,350,000 under the agreement, and in fiscal 2009 received advances aggregating $8,150,000, bringing the total received to $13,500,000.

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          Effective June 30, 2009, we agreed with the investor to convert the aggregate accrued interest of $974,360 due June 30, 2009, under the convertible debentures, into 974,360 shares of the Company’s common stock. We also agreed that aggregate accrued interest on the outstanding principal amounts of the debentures for the quarters ending September 30, 2009 and December 31, 2009, shall be paid in shares of the Company’s common stock, to be valued at one dollar ($1.00) per share at the time of payment and issuance.

          In fiscal 2008, we completed the placement of Additional Investment Rights aggregating $643,614 with two institutional investors, and completed the sale of convertible notes totaling $687,143 to four accredited investors.

          In recent years we have not generated any significant revenues from operations and have incurred significant operating losses. At June 30, 2009, we have an accumulated (deficit) of $(52,977,460). Our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Our primary source of funds provided during our fiscal year 2009 was from the sale of convertible notes. We anticipate that our operations through fiscal 2010 will be funded from the balance of proceeds from these placements; sale of our securities; exercise of certain options and warrants; and/or through project related debt or equity financings or advanced sale of our products. While we believe we will be able to finance our continuing activities, there is no assurance of success in this regard or in our ability to obtain continued financing through capital markets, joint ventures, or other acceptable arrangements. If our plans are not successful, operations and liquidity may be adversely impacted. In the event that we are unable to obtain additional required capital, we may be forced to reduce our exploration and operating expenditures or to cease development operations altogether.

          We have developed a plan to place the Company on an improved financial footing. Important elements of the plan include continued raising of interim funding to provide for deployment of operations on our various property sites, and development of our Summit property and commencement of production. During the quarter ended December 31, 2007, we secured a substantial portion of the funding necessary to place our Summit property into production. If we are able to secure additional required financing on acceptable terms, we believe we will be in a position to deploy our business plan and to achieve commercial production in 2010.

          We are continuing to seek funding to advance our business plan and strategies. We require funds to meet our corporate commitments, to complete Summit development, to continue feasibility studies on our mineral properties, to initiate exploration programs, and to arrange a joint venture for restart of our Black Canyon mica mine. We project the need for a minimum of $6.0 million over the next 12 months, and a minimum of $9.5 million working capital during the next 36 months, estimated as follows:

          This projection assumes that we will be able to service our current debt and lease commitments whereby interest, principal and lease payments will be paid from future project revenues or with equity financial instruments.

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          With respect to the issuance of unregistered securities referenced above, all transactions were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 (the “1933 Act”), and Regulation D promulgated under the 1933 Act. In each instance, the purchaser had access to sufficient information regarding the Company so as to make an informed investment decision. More specifically, we had a reasonable basis to believe that each purchaser was an “accredited investor” as defined in Regulation D of the 1933 Act and otherwise had the requisite sophistication to make an investment in our securities.

Off-Balance Sheet Arrangements

          As of and subsequent to June 30, 2009, we have no off-balance sheet arrangements.

Critical Accounting Policies

          Our discussion and analysis of our consolidated financial condition and results of operations is based on the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses for each period. Critical accounting policies are defined, as policies that management believes are the most important to the portrayal of our consolidated financial condition and results of operations. These policies may require us to make difficult, subjective or complex judgments, commonly about the effects of matters that are inherently uncertain.

          Our significant accounting policies are described in the audited consolidated financial statements and notes thereto included in Note 2. We believe our most critical accounting policies relate to asset retirement obligations, impairment of assets, depreciation of plant and equipment, and derivative instrument liabilities.

          Reclamation Costs

          The Company accounts for reclamation costs under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 143, “Accounting for Asset Retirement Obligations” (SFAS No. 143). SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Specifically, the Statement requires that retirement obligations be recognized when they are incurred and displayed as liabilities with the initial measurement being at the present value of estimated third party costs. In addition, the asset retirement cost is capitalized as part of the assets’ carrying value and subsequently allocated to expense over the assets’ useful lives.

          The asset retirement costs associated with the Black Canyon mine consist of reclamation of disturbed property as well as the disposal and dismantling of related property and equipment.

          As of June 30, 2009, the Company, pursuant to regulatory requirements, maintained the following restricted assets associated with reclamation costs for the Black Canyon property: $50,000 held on deposit on behalf of the Arizona State Treasurer in a one-year automatically renewable short-term investment; and $128,658 held on deposit on behalf of the U.S. Bureau of Land Management. A roll forward of our asset retirement obligation through June 30, 2009, is as follows:

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          Additionally as of June 30, 2009, the Company maintained restricted assets of $230,716 held on deposit on behalf of the New Mexico Energy, Minerals and Natural Resources Department associated with reclamation costs for the Summit property.

          For each of these properties the amounts will be held until all conditions of the corresponding reclamation agreement have been fulfilled.

          Revenue Recognition

          We recognize the sale of product when an agreement of sale exists, product delivery has occurred, title has transferred to the customer and collection is reasonably assured. The price received is based upon terms of the contract.

          Depreciation

          Land, buildings, plant, equipment and vehicles are carried at cost. Replacements, maintenance and repairs that do not improve or extend the life of the respective assets are expensed as incurred. Major renewals and improvements are capitalized. Upon retirement, sale or other disposition, the cost and accumulated depreciation are eliminated and the gain or loss is included in other income or expense on the statement of operations.

          We expense exploration costs as incurred, but capitalize costs directly attributable to the acquisition of mineral properties, pending determination as to their commercial feasibility.

          Derivative Instruments

          We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

          We review the terms of convertible debt, equity instruments and other financing arrangements to determine whether there are embedded derivative instruments, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Also, in connection with the issuance of financing instruments, we may issue freestanding options or warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity. We may also issue options or warrants to non-employees in connection with consulting or other services.

          Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For warrant-based derivative financial instruments, we use the Black-Scholes option pricing model to value the derivative instruments. To the extent that the initial fair values of the freestanding and/or bifurcated derivative instrument liabilities exceed the total proceeds received, an immediate charge to income is recognized, in order to initially record the derivative instrument liabilities at their fair value.

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          The discount from the face value of the convertible debt or equity instruments resulting from allocating some or all of the proceeds to the derivative instruments, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to income, usually using the effective interest method.

          The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Recent Accounting Pronouncements

          In June 2009, the FASB issued SFAS 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB No. 162” (“SFAS 168”). This Statement replaces FASB No. 162 to identify the sources of authoritative accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. The provisions of SFAS 168 are effective for the Company’s interim and annual periods after September 15, 2009. The Company does not expect the adoption of SFAS 168 to have a material impact on its consolidated financial statements.

          In May 2009, the FASB issued SFAS 165, “Subsequent Events” (“SFAS 165”). SFAS 165 requires an entity to recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet. For non-recognized subsequent events that must be disclosed to keep the financial statements from being misleading, an entity will be required to disclose the nature of the event as well as an estimate of its financial effect, or a statement that such an estimate cannot be made. In addition, SFAS 165 requires an entity to disclose the date through which subsequent events have been evaluated. SFAS 165 is effective for the Company on June 1, 2009 and is required to be applied prospectively. The Company does not expect the adoption of SFAS 165 to have a material impact on its consolidated financial statements.

          In June 2008, the FASB issued FASB Staff Position FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-based Payment Transactions are Participating Securities.” FSP No. EITF 03-6-1 states that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two-class method. FSP No. EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008. All prior-period EPS data presented shall be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform to the provisions of FSP No. EITF 03-6-1. Early application is not permitted. The Company is evaluating the impact of FSP No. EITF 03-6-1.

          In May 2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1 "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" ("FSP APB 14-1"). FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. FSP APB 14-1 is effective for fiscal years beginning after December 15,

48

2008 on a retroactive basis. The Company currently is evaluating the potential impact, if any, of the adoption of FSP APB 14-1 on its consolidated financial position, results of operations or cash flows.

          In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 requires enhanced disclosures regarding derivatives and hedging activities, including: (a) the manner in which an entity uses derivative instruments; (b) the manner in which derivative instruments and related hedged items are accounted for under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” and (c) the effect of derivative instruments and related hedged items on an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. As SFAS 161 relates specifically to disclosures, it will have no impact on the Company’s consolidated results of operations, financial position or cash flows.

          In December 2007, the FASB issued SFAS 141(R), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, the goodwill acquired, and any non-controlling interest in the acquiree. This statement also establishes disclosure requirements to enable the evaluation of the nature and financial effect of the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008.

          Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future consolidated financial statements.

ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 Information not required to be provided.

ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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SANTA FE GOLD CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS

As of and for the Years Ended
June 30, 2009 and 2008

SANTE FE GOLD CORPORATION

TABLE OF CONTENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors
Santa Fe Gold Corporation

We have audited the accompanying consolidated balance sheets of Santa Fe Gold Corporation as of June 30, 2009 and 2008, and the related consolidated statements of operations, stockholders' (deficit) equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations, has no current source of operating revenues, has a working capital deficit and needs to secure financing to remain a going concern. These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Santa Fe Gold Corporation, as of June 30, 2009 and 2008, and the results of its operations, and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Stark Winter Schenkein & Co., LLP

Denver, Colorado
October 1, 2009

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

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

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

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

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

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SANTA FE GOLD CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008

NOTE 1 – NATURE OF OPERATIONS

     Santa Fe Gold Corporation (the Company) is a U.S. mining company incorporated in Delaware in August 1991. Its general business strategy is to acquire, explore and develop mineral properties. The Company’s principal assets are the 100% owned Summit silver-gold property located in New Mexico, the leased Ortiz gold project in New Mexico and the 100% owned Black Canyon mica project in Arizona.

     In November 2002, the Company ceased crushing and concentration activities at its Black Canyon project due to economic constraints. Limited marketing and sales continued during 2003-2005 at its Glendale mica processing facility. The Company is continuing to seek a joint-venture partner to help finance and operate the project or to sell the project in its entirety.

     In May 2006, for a cash price of $1.3 million, the Company acquired 100% of the shares of The Lordsburg Mining Company (Lordsburg Mining), a New Mexico corporation. With the acquisition of Lordsburg Mining, the Company acquired the Summit project, consisting of approximately 117.6 acres of patented and approximately 520 acres of unpatented mining claims in Grant County, New Mexico; approximately 257 acres of patented mining claims in Hidalgo County, New Mexico; and milling equipment including a ball mill and floatation plant in Sierra County, New Mexico.

     On June 30, 2008, Lordsburg Mining purchased from St. Cloud Mining Company, a New Mexico corporation, for a price of $841,500, mineral processing equipment and real property situated adjacent to the Banner mill site located south of Lordsburg, New Mexico. The equipment included in the purchase constitutes important components for the Banner mill processing facility, notably a portable crushing and screening plant and a feeding and conveying system. The real property included in the purchase consists of 70 patented and 5 unpatented mining claims, and assignments of mineral leases covering 17 patented and 6 unpatented mining claims. These mining claims and mineral leases, together with the patented mining claims Lordsburg Mining already owned in the area of the Banner mill site, cover approximately 1,500 acres (2.3 square miles) and comprise the core of the Virginia Mining District. Historical production of copper, gold and silver from the district has been substantial. Lordsburg Mining assumed certain potential environmental obligations in connection with the real property, including those related to reclamation of old workings, should such obligations arise in the future. The purchase price of $841,500 was allocated as to $631,500 for the equipment and $210,000 for the patented and unpatented mining claims and leases. The funds for the purchase were sourced from the $13.5 million financing completed in December 2007.

     The Company is currently developing the Summit mine in Grant County and constructing processing facilities at the Banner mill site in Hidalgo County, and anticipates entering into the production stage in 2010.

     In June 2009, the Company formed a wholly owned Mexican subsidiary, Minera Sandia S.A. de C.V, in order to conduct business and enter into contracts within the country of Mexico. On June 13, 2009, Minera Sandia S.A. de C.V, entered into an option purchase contract on the Pilar Gold Property consisting of two mineral exploitation concessions covering 240 acres located 165 kilometers east-southeast of Hermosillo, State of Sonora, Mexico. The option contract provides for option payments of $1,000 upon signing, $99,000 on March 13, 2010, and $125,000 on March 13, 2011. The final payment of $1,307,000 is due March 13, 2012, and would complete the purchase. In connection with the acquisition, the Company has also agreed to issue 117,000 restricted shares of its common stock and within 60 days to pay creditors $11,150 in cash and 17,400 in restricted common stock valued at $19,836. The Company has also agreed to pay finder’s fees of $15,000 in cash and 25,000 in restricted common stock valued at $28,500, and to match option and purchase payments when they become due by payments in either cash or in restricted common stock. The Company is not required to pay any residual royalty payments under the agreements.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Going Concern

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     The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.

     The Company has incurred a net loss of $(5,535,596) for the fiscal year ended June 30, 2009, and has a total accumulated deficit of $(52,977,460) and a working capital deficit of $(3,852,303) at June 30, 2009. In addition, the Company has no significant revenue-generating operations. To continue as a going concern, the Company is dependent on continued fund raising for project development and payment of general and administration expenses. However, the Company has no commitment from any party to provide additional working capital and there is no assurance that such funding will be available when needed, or if available, that its terms will be favorable or acceptable to the Company. The Company anticipates entering into the production stage during 2010 at the Summit Mine Project and deriving revenues from the sale of precious metals.

     The Company’s financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

Principles of Consolidation

     The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Azco Mica, Inc., a Delaware corporation, The Lordsburg Mining Company, a New Mexico corporation, and Minera Sandia, S.A. de C.V., a Mexican corporation. All significant inter-company accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

     The Company considers all liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash balances.

Property, Plant and Equipment

     Land, buildings, plant and vehicles are carried at cost. Replacements, maintenance and repairs that do not improve or extend the life of the respective assets are expensed as incurred. Major renewals and improvements are capitalized. Upon retirement, sale or other disposition, the cost and accumulated amortization are eliminated and the gain or loss is included in operations. Property and equipment consists of land, mining equipment and buildings, which are recorded at cost. Depreciation is taken over the estimated useful lives of the assets, which may be limited to correspond with the life of the mine. Buildings are depreciated using the straight-line method over a period not to extend beyond 2016, the current estimated useful life of the mine. Equipment is also depreciated using the straight-line method over estimated useful lives of 2 to 7 years. Autos are depreciated using the straight-line method over the estimated useful life of 5 years.

     As of June 30, 2007, the Company obtained an independent appraisal of certain equipment. The appraisal indicated a net realizable value of approximately $1,541,500. During the year ended June 30, 2008, the Company transferred idle equipment at an appraisal value of $105,000 to the Banner mill site and upon the dismantling of the Black Canyon mica site, wrote off idle equipment aggregating a net book value of $125,000. During the year ended June 30, 2009, the Company sold related equipment with an appraised value of $53,000 for $45,000 in cash, realizing a loss on disposition of $8,000. The remaining balance of this equipment has been classified as idle equipment.

Mineral Exploration Costs

     Mineral exploration costs are expensed as incurred. When it is determined that a mineral property can be economically developed as a result of establishing reserves, subsequent costs incurred prospectively to develop the property are capitalized as incurred and are amortized using the “Units of Production” method over the estimated life of the ore body based on estimated recoverable ounces in proven and probable reserves.

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Derivative Financial Instruments

     The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

     The Company reviews the terms of convertible debt, equity instruments and other financing arrangements to determine whether there are embedded derivative instruments, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Also, in connection with the issuance of financing instruments, the Company may issue freestanding options or warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity. The Company may also issue options or warrants to non-employees in connection with consulting or other services.

     Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For warrant-based derivative financial instruments, the Company uses the Black-Scholes option pricing model to value the derivative instruments. To the extent that the initial fair values of the freestanding and/or bifurcated derivative instrument liabilities exceed the total proceeds received, an immediate charge to income is recognized, in order to initially record the derivative instrument liabilities at their fair value.

     The discount from the face value of the convertible debt or equity instruments resulting from allocating some or all of the proceeds to the derivative instruments, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to income, usually using the effective interest method.

     The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Reclamation Costs

     The Company accounts for reclamation costs under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 143, “Accounting for Asset Retirement Obligations” (SFAS No. 143). SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Specifically, the Statement requires that retirement obligations be recognized when they are incurred and displayed as liabilities with the initial measurement being at the present value of estimated third party costs. In addition, the asset retirement cost is capitalized as part of the assets’ carrying value and subsequently allocated to expense over the assets’ useful lives. The Company reviews the amount of the asset retirement obligation on an annual basis. The asset retirement obligation is associated with the Mica project and consists of reclamation of disturbed property. The Company estimates the costs will not exceed the amounts accrued.

     The Company’s asset retirement obligation through June 30, 2009, is as follows:

Revenue Recognition

     The Company recognizes the sale of the product when an agreement of sale exists, product delivery has occurred, title has transferred to the customer and collectibility is reasonably assured. The price received is based upon terms of the contract.

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Income Taxes

     The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” and FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109” ("FIN 48"). SFAS No. 109 requires the Company to recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statements carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance is recognized against deferred tax assets when it is more likely than not that the assets will not be realized. As of June 30, 2009 and June 30, 2008, the Company has recorded a valuation allowance against the full amount of its net deferred tax assets. FIN 48 describes a recognition threshold and measurement attribute for the recognition and measurement of tax positions taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Net (Loss) Per Share

     SFAS No. 128, "Earnings per Share," requires dual presentation of basic and diluted earnings or loss per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic loss per common share is computed based on weighted average shares outstanding and excludes any potential dilution from stock options, warrants and other common stock equivalents and is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. During the years ended June 30, 2009 and 2008, common stock equivalents are not considered in the calculation of the weighted average number of common shares outstanding for diluted EPS because they would be anti-dilutive, thereby decreasing the net loss per common share.

Stock-Based Compensation

     In connection with terms of employment with the Company’s executives and employees, the Company issues options to acquire its common stock. Employee and non-employee awards are made at the discretion of the Board of Directors. Such options may be exercisable at varying exercise prices and generally vest over a period of six months to a year.

     The Company accounts for stock-based compensation in accordance with the provisions of SFAS No. 123R, “Share-based Payment“, whereby share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite vesting period. The Company determines the option value on the date of grant using the Black-Scholes option pricing model. Stock-based compensation costs recognized for the years ended June 30, 2009 and 2008 amounted to $944,049 and $216,413, respectively.

Estimates

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates under different assumptions or conditions.

     Significant estimates are used when accounting for the Company’s carrying value of mineral properties, fixed assets, depreciation, accruals, taxes and contingencies, which are discussed in the respective notes to the financial statements.

Fair Value of Financial Instruments

     The carrying values of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities approximated their related fair values as of June 30, 2009 and 2008, due to the relatively short-term nature of these instruments. The carrying value of the Company’s convertible debentures, notes payable, and capital leases approximates the fair value based on the terms at which the Company could obtain similar financing and the short term nature of these instruments.

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Restricted Cash

     Restricted cash of $410,374 is maintained in connection with requirements for reclamation of projects as well as weighmaster activities. As part of the reclamation deposits, the Company has restricted cash of $409,374, comprised of $50,000 held on deposit for the Arizona State Treasurer in a one-year automatically renewable short-term investment; $128,658 held as collateral against an irrevocable letter of credit of the same amount to the U.S. Bureau of Land Management (BLM); and $230,716 posted as a financial guarantee with the New Mexico Energy, Minerals and Natural Resources Department. The Company also maintains a certificate of deposit in the amount of $1,000 for the New Mexico Department of Agriculture in accordance with bonding requirements for a weighmaster.

Restatement and Reclassifications

     The June 30, 2008 financial statements have been restated to reflect the correction of an error for expenses paid by a shareholder on the Company’s behalf. The result of this correction was an increase in general and administrative expenses and net loss in the amount of $167,500 for the year ended June 30, 2008, and an increase in additional paid in capital and accumulated deficit of $204,000 at June 30, 2008. There was no effect on earnings per share. During the year ended June 30, 2009, the Company repaid the shareholder in full with the issuance of 380,000 shares of restricted common stock and a fair market value of $442,700. The difference between the value of stock issued and amounts expensed for the transactions in prior years totaling $238,700 was expensed to investor relations during the year ended June 30, 2009.

     Certain items in these consolidated financial statements have been reclassified to conform to the current year’s presentation.

Recent Accounting Pronouncements

      In June 2009, the FASB issued SFAS 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB No. 162” (“SFAS 168”). This Statement replaces FASB No. 162 to identify the sources of authoritative accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. The provisions of SFAS 168 are effective for the Company’s interim and annual periods after September 15, 2009. The Company does not expect the adoption of SFAS 168 to have a material impact on its financial statements.

     In May 2009, the FASB issued SFAS 165, “Subsequent Events” (“SFAS 165”). SFAS 165 requires an entity to recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet. For non-recognized subsequent events that must be disclosed to keep the financial statements from being misleading, an entity will be required to disclose the nature of the event as well as an estimate of its financial effect, or a statement that such an estimate cannot be made. In addition, SFAS 165 requires an entity to disclose the date through which subsequent events have been evaluated. The Company adopted the provisions of SFAS 165 effective June 30, 2009. The adoption of SFAS 165 did not have a material impact on the Company's financial statements.

     Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future consolidated financial statements.

NOTE 3 – MINERAL PROPERTIES

     Mineral properties were comprised of acquisition costs related to the properties in New Mexico and Arizona, as shown below as of June 30, 2009 and 2008:

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NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

     Property and equipment consist of the following at June 30, 2009 and 2008:

     Depreciation expense for the years ended June 30, 2009 and 2008 was $279,012 and $4,554, respectively.

     The Company is in the process of constructing the Banner mill operation near Lordsburg, New Mexico. The Company is also in the process of completing the site developments at the Summit mine in Grant County and in preparation of production in 2010. The estimated cost of the total project is $13,500,000.

     Construction in progress consists of the following at June 30, 2009 and 2008:

     The following table shows the carrying value of equipment, which was idle at June 30, 2009 and 2008. The carrying value is based upon a third party appraisal obtained as of the year ended June 30, 2007:

NOTE 5 - DERIVATIVE INSTRUMENT LIABILITIES

     On March 20, 2006, the Company completed a private placement of senior secured convertible notes, additional investment rights and warrants to institutional investors for an aggregate purchase price of $2,500,000. These notes were evaluated using Emerging Issues Task Force (“EITF”) issue No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock (“EITF 00-19”)” and it was determined that the warrants, embedded conversion and interest components and additional investment rights should be accounted for as derivative instrument liabilities. Accordingly, they are to be marked to market each reporting period, with the corresponding non-cash gain or loss reflected in the Company’s current period statement of operations.`

     On September 6, 2006, the Company amended the terms of the private placement of the senior secured convertible notes that were issued on March 20, 2006. The common stock warrants and additional investment rights held by the investors were also amended. In connection with the amendment, the investors agreed to purchase in the aggregate an additional $1,000,000 of notes under the amended terms, bringing the total outstanding principal, including interest and liquidated damages, due under the notes to $3,781,662. This principal amount plus interest was repaid in full in December 2007.

     On February 23, 2007, the Company agreed with the institutional investors to amend the terms of the private placement of senior secured convertible notes, additional investment rights and warrants issued March 20, 2006 and September 6, 2006. Under terms of this Amendment 2, the date by which the Company was required to file a registration statement with the Securities and Exchange Commission was extended from November 5, 2006, until April 30, 2007

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(filed March 23, 2007), and the date by which such registration statement was required to be declared effective, was extended from February 4, 2007, until July 31, 2007. The investors agreed to forgo all liquidated damages and penalties related to the previous deadlines. The Company agreed to seek stockholder approval for an increase in the Company’s authorized capital, from the authorized limit of 100 million shares, to 200 million shares, and, if necessary, to file additional registration statements. In connection with the amendment, the Company issued 1,750,000 warrants, giving note holders the right to purchase common stock at a price of $1.25 per share for a period of five years. The Company uses the Black-Scholes option pricing model to value options, warrants, imbedded conversion option components and additional investment rights that are recorded as derivative liabilities. The fair value of the derivative instruments liability for these warrants at the time of issuance was determined to be $1,773,013 with the following assumptions: (1) risk free interest rate of 4.67%, (2) remaining contractual life of 5 years, (3) expected stock price volatility of 116%, and (4) expected dividend yield of zero.

     On December 21, 2007, the warrant exercise price of $1.25 per share on the 1,750,000 warrants was reduced to $1.00 under the terms and conditions of the warrant with the reduction resulting from the placement of a 7% Senior Secured Convertible Debenture with attached warrants at an exercise price of $1.00 per share. The original warrant also contained an anti-dilution provision and the warrants were increased by 437,500 to 2,187,500. The fair value of the derivative instruments liability for these warrants was recalculated at the time of the price reduction and warrant increase which is further described below.

     On October 30, 2007, the Company completed the placement of 10% Convertible Senior Subordinated Notes in the amount of $450,000. The notes were placed with three accredited investors in the amount of $150,000 each. The notes have a term of 60 months and bear interest at 10% per annum. In connection with the transaction, the Company issued a five year warrant for each $2.50 invested, each warrant giving the note holder the right to purchase common stock at a price of $1.25 per share. An aggregate of 180,000 warrants were issued under the notes.

     On December 21, 2007, the Company entered into a definitive agreement for the placement with a single investor of a 7% Senior Secured Convertible Debenture in the amount of $13,500,000. Proceeds from the debenture are to be issued in accordance with a pre-determined funding schedule and the term of the debenture is 60 months. In connection with the transaction, for every $2.00 of the original principal amount of the debenture, the investor will receive a warrant to purchase one share of common stock at a price of $1.00. The warrants are exercisable from July 1, 2010, to December 31, 2014. On December 27, 2007, the Company received the initial advance under the agreement of $350,000 and issued 175,000 warrants relating to the advance.

     The fair value of the derivative instruments liability for these warrants issued under the placements at the time of issuance in the October 2007, and December 2007, transactions was determined to be $163,627 with the following assumptions: (1) risk free interest rate of 3.50% to 4.05%, (2) remaining contractual life of 5 and 7 years, (3) expected stock price volatility of 114% to 118%, and (4) expected dividend yield of zero. This derivative instruments liability was recorded as a discount to the convertible notes at the time of the transaction.

     On January 9, 2008 and January 10, 2008, the Company completed the placement of Additional Investment Rights aggregating $225,000 with two institutional investors. The notes have a term of 17 months and bear interest at 7% per annum. In connection with the transaction, the Company issued a five year warrant for each $2.00 invested, each warrant giving the note holder the right to purchase common stock at a price of $1.00 per share. An aggregate of 112,500 warrants were issued under the notes. The notes also have an embedded convertible option for principal and interest.

     On January 15, 2008, the Company received the second advance of $1,500,000 and issued 750,000 warrants relating to the advance as provided for under the terms and conditions of the $13,500,000 7% Senior Secured Convertible Debenture entered into on December 21, 2007.

     On February 1, 2008, the Company completed the private placement of a 10% Convertible Senior subordinated Note of $237,143 with an accredited investor and issued a note and related warrants under terms and conditions the same as for the private placements completed October 31, 2007. In connection with the transaction, the Company issued a five year warrant for each $2.50 invested, for a total of 94,858 warrants, each warrant giving the note holder the right to purchase one share of common stock at a price of $1.25 per share.

     The fair value of the derivative instruments liability for these warrants and embedded convertible options issued under the placements at the time of issuance in the January 2008, and February 2008, transactions was determined to be

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$771,323 with the following assumptions: (1) risk free interest rate of 2.46% to 3.3%, (2) remaining contractual life of 1.5 and 7 years, (3) expected stock price volatility of 112% to 113%, and (4) expected dividend yield of zero. This derivative instruments liability was recorded as a discount to the convertible notes at the time of the transaction.

     On April 15, 2008, the Company received the third advance of $3,500,000 and issued 1,750,000 warrants relating to the advance as provided for under the terms and conditions of the $13,500,000 7% Senior Secured Convertible Debenture entered into on December 21, 2007.

     On April 30, 2008, and June 2, 2008, the Company completed the placement of Additional Investment Rights aggregating $418,614 with an institutional investor. The notes have a term of 17 months and bear interest at 7% per annum. In connection with the transaction, the Company issued a five year warrant for each $2.00 invested, each warrant giving the note holder the right to purchase common stock at a price of $1.00 per share. An aggregate of 209,307 warrants were issued under the notes. The notes also have an embedded convertible option for principal and interest.

     The fair value of the derivative instruments liability for these warrants and embedded convertible options issued under the placements at the time of issuance in the April 2008 and June 2008 transactions was determined to be $1,447,716 with the following assumptions: (1) risk free interest rate of 2.29% to 3.28%, (2) remaining contractual life of 1.42 to 6.72 years, (3) expected stock price volatility of 106% to 107%, and (4) expected dividend yield of zero. This derivative instruments liability was recorded as a discount to the convertible notes at the time of the transaction.

     On July 15, 2008, under the terms of 7% Senior Secured Convertible Debenture dated December 21, 2007, the Company received the fourth advance under the agreement of $3,500,000 and issued 1,750,000 warrants relating to the advance. The fair value of the derivative instruments liability for these warrants issued under the placements at the time of issuance was determined to be $1,184,521 with the following assumptions: (1) risk free interest rate of 3.43%, (2) an expected life of 6.5 years, (3) expected stock price volatility of 104%, and (4) expected dividend yield of zero.

     The convertible debenture was determined to have a beneficial conversion feature of $589,521 based upon the effective computed conversion price, which was charged to the note discount and credited to Additional Paid in Capital. The beneficial conversion feature in conjunction with the derivative instruments liability for the warrants resulted in an aggregated note discount of $1,774,042.

     On October 15, 2008, under the terms of the 7% Senior Secured Convertible Debenture dated December 21, 2007; the Company received the fifth advance under the agreement for $3,500,000 and issued 1,750,000 warrants relating to the advance. The fair value of the derivative instruments liability for these warrants issued under the placements at the time of issuance was determined to be $811,917 with the following assumptions: (1) risk free interest rate of 2.98%, (2) an expected life of 6.2 years, (3) expected stock price volatility of 92%, and (4) expected dividend yield of zero.

     On December 22, 2008, under the terms of the 7% Senior Secured Convertible Debenture dated December 21, 2007; the Company received the sixth and final advance under the agreement for $1,150,000 and issued 575,000 warrants relating to the advance. The fair value of the derivative instruments liability for these warrants issued under the placements at the time of issuance was determined to be $236,828 with the following assumptions: (1) risk free interest rate of 1.55%, (2) an expected life of 6.0 years, (3) expected stock price volatility of 89%, and (4) expected dividend yield of zero.

     The fair market value of the derivative instruments liability at June 30, 2008, was determined to be $5,058,054 with the following assumptions: (1) risk free interest rate of 1.90% to 3.61%, (2) remaining contractual life between 0 .19 to 6.50 years, (3) expected stock price volatility of 104%, and (4) expected dividend yield of zero. The fair value of the derivative instruments liability at June 30, 2009, was determined to be $7,805,676 with the following assumptions: (1) risk free interest rate of 0.19% to 2.54%, (2) remaining contractual life between 0.42 to 5.51 years, (3) expected stock price volatility of 89%, and (4) expected dividend yield of zero. Based upon the change in fair value, the Company has recorded a non-cash loss on derivative instruments for the year ended June 30, 2009, of $(514,356) and a corresponding increase in the derivative instruments liability. The impact of EITF 00-19 on the financial statements as of and through June 30, 2009, was as follows:

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The derivative liability is comprised of the following as of June 30, 2009:

NOTE 6 – SENIOR SECURED CONVERTIBLE NOTES PAYABLE AND DEBENTURES

Senior Secured Convertible Notes

     On September 6, 2006, the Company amended the terms of the private placement of the senior secured convertible notes that were issued on March 20, 2006. Under the terms of the amendment, the maturity of the senior secured convertible notes was deferred from August 31, 2007, to January 1, 2008. The senior secured convertible notes amortized over 12 equal monthly installments and the date of the first installment was extended from September 1, 2006, to February 1, 2007. Interest on the principal amount outstanding remained at the rate of 7% per annum and began to accrue from February 1, 2007. Interest was payable on the last day of each calendar quarter, beginning on March 31, 2007. The price at which the holder of each senior secured convertible note could convert the principal and accrued interest amount outstanding under each note into shares of the Company’s common stock was reduced from $1.58 to $1.00 per share. The Company could pay principal and accrued interest in cash or, at the Company’s option, in shares of its common stock under the same terms and conditions as provided for in the March 20, 2006, agreement. In connection with the amendment, the investors agreed to purchase in the aggregate an additional $1,000,000 of notes under the amended terms, bringing the total outstanding principal, including interest and liquidated damages, due under the notes to $3,781,662. The amendment provided for a revised filing date by which the Company must file a registration statement with the Securities and Exchange Commission, to within 60 days after the date of the amendment, and a revised date by which the company must cause the registration to be declared effective, to within 150 days after the date of the amendment.

     In connection with the amendment and additional purchase of notes, the Company issued additional common stock warrants, increasing the number of warrants held by the investors to 1,890,300, extended the expiration date of the warrants to September 6, 2011, and reduced the exercise price of the warrants from $1.58 to $1.00.

     The Company also granted to the investors Additional Investment Rights, increasing the Additional Investment Rights held by the investors, so that they could purchase up to a total of $1,890,830 of senior secured convertible notes, under the same terms and conditions as the amended notes. The Additional Investment Rights were exercisable for a period of 12 months following the date of a registration statement. Upon exercise of the Additional Investment Rights, the holders also would receive 945,416 warrants to purchase common stock. The conversion price of the notes and the exercise price of the warrants issuable on exercise of the Additional Investment Rights were reduced from $1.58 to $1.00.

     Under the agreed terms, the convertible notes had a term of 17 months and amortized over 12 months in 12 equal monthly installments beginning on February 1, 2007. Interest on the $3,781,662 principal amount outstanding accrued at a rate of seven percent (7%) per annum. The Company could pay principal and accrued interest in cash or, at the Company’s option, in shares of common stock. If the Company elected to pay principal and interest in shares of common stock, the value of each share of common stock was equal to ninety percent (90%) of the average of the ten (10) lowest daily volume weighted average prices of the Company’s common stock during the twenty (20) trading days immediately preceding the date of payment. At the option of each holder of the convertible notes, the principal amount outstanding under the notes was convertible at any time after the closing of the private placement into shares of our common stock at a conversion price of $1.00 per share.

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     During the period July 1, 2007 to December 31, 2007, the Company paid on those senior secured convertible notes dated March 20, 2006 and subsequently amended on September 6, 2006, principal installments aggregating $1,890,831, with the issuance of 945,420 shares of the Company’s common stock at a value of $945,420 and cash payments of $945,406. Interest payments aggregating $988,507 were paid with the issuance of 2,745,804 shares of the Company’s common stock and cash aggregating $11,341. All principal and interest amounts due under the note and amendment were paid in full as of December 2007.

Convertible Senior Subordinated Notes

     On October 30, 2007, the Company completed the placement of 10% Convertible Senior Subordinated Notes of $450,000. The notes were placed with three accredited investors for $150,000 each. The notes have a term of 60 months, and at such time all remaining principal and interest shall be due. The notes bear interest at 10% per annum. Interest will accrue for 18 months from the date of closing. Interest on the outstanding principal balance will then be payable in quarterly installments commencing on the first day of the 19th month following closing. In connection with the transaction, the Company issued a five year warrant for each $2.50 invested, for a total of 180,000 warrants, each warrant giving the note holder the right to purchase one share of common stock at a price of $1.25 per share. At the option of the holders of the convertible notes, the outstanding principal and interest is convertible at any time into shares of the Company’s common stock at conversion price of $1.25 per share. The notes will be automatically converted into common stock if the weighted average closing sales price of the stock exceeds $2.50 per share for ten consecutive trading days. The shares underlying the notes and warrants will be registered on request of the note holders, provided the weighted average closing price of the stock exceeds $1.50 per share for ten consecutive trading days. On April 30, 2009, a convertible senior subordinated note holder converted accrued interest of $22,875 into 19,891 shares of the Company’s stock.

     In connection with the October 30, 2007, placement, on February 1, 2008, the Company received an additional $237,143 from an accredited investor and issued a note and related warrants under the same terms and conditions. In connection with the transaction, the Company issued a five year warrant for each $2.50 invested, for a total of 94,858 warrants, each warrant giving the note holder the right to purchase one share of common stock at a price of $1.25 per share. On April 6, 2009, the investor converted $237,143 of principle and $28,391 of accrued interest into 214,401 shares of the Company’s stock. All principle and accrued interest amounts due under the note are paid in full.

Senior Secured Convertible Debenture

     On December 21, 2007, the Company entered into definitive agreements for the placement with a single investor of a 7% Senior Secured Convertible Debenture in the amount of $13,500,000. Proceeds from the debenture will be issued in accordance with a pre-determined funding schedule related to the Summit project’s anticipated construction requirements during 2008. The term of the debenture is 60 months, at the end of which time all remaining principal and interest shall be due. The debenture bears interest at the rate of 7% per annum. Interest will be accrued until June 30, 2009. Interest on the outstanding principal balance will then be payable in quarterly installments commencing on July 1, 2009. Interest may be paid in cash or stock at the investor’s election. If paid in stock, the number of shares will be calculated using the average of the daily volume weighted average sales prices of the common stock for the twenty (20) trading days immediately preceding the payment date. The entire amount of principal and any unpaid interest will be due December 31, 2012, subject to the investor’s right to require the Company after 36 and 48 months to apply up to 30% of the Summit project’s positive cash flow toward retirement of the debenture. The debenture is secured by a mortgage on the Summit real property and a security interest in Summit personal property. The investor may at any time convert unpaid principal and interest into shares of our common stock at the rate of $1.00 per share. The debenture will be automatically converted into common stock if the weighted average closing sales price of the stock exceeds $2.50 per share for 10 consecutive trading days. Beginning January 1, 2011, the Company may redeem the entire outstanding amount of the debenture, including principal and outstanding interest, subject to the investor’s right to convert the debenture into shares of common stock. In connection with the transaction, for every $2.00 of the original principal amount of the debenture, the investor will receive a warrant to purchase one share of common stock at a price of $1.00. The warrants are exercisable from July 1, 2010 to December 31, 2014. The Company paid an account

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management fee of 2% ($270,000) in connection with the transaction in January 2008, after the second advance under the agreement was received. As of June 30, 2009, the Company has received total advances under the agreement of $13,500,000, and the Company has issued an aggregate of 6,750,000 warrants under the debenture advances.

     On June 30, 2009, the Company entered into Amendment 2 on the Senior Secured Convertible Debenture dated December 21, 2007. Pursuant to the amendment, all the accrued interest on the debentures due June 30, 2009, in the collective aggregate amount of $974,360, is automatically converted into 974,360 shares of the Company’s common stock to be effective as of June 30, 2009. Additionally, the aggregate accrued interest on the outstanding principal amounts of the debentures for the quarters ending September 30, 2009 and December 31, 2009, shall be paid in shares of the Company’s common stock, to be valued at $1.00 per share at the time of payment and issuance. The amendment also provides that on March 31, 2010, the note holder shall have the option to make a six-month election, by providing written notice of its election thirty days prior to March 31, 2010, to have the March 31, 2010 and June 30, 2010 quarterly interest payments paid in shares of the Company’s common stock. Commencing September 30, 2010, the note holder shall have the option to make an annual election, by providing 30 days prior written notice of its election, to have the subsequent four quarterly interest payments paid in shares of the Company’s common stock. Valuation of the common stock shall be based upon the Market Price of the stock for the 30 trading days immediately preceding the payment due date.

     On January 9, 2008, January 10, 2008, April 30, 2008 and June 2, 2008 the Company completed the placement of Additional Investment Rights aggregating $643,614 with two institutional investors. The notes have a term of 17 months and bear interest at 7% per annum. In connection with the transaction, the Company issued a five year warrant for each $2.00 invested, each warrant giving the note holder the right to purchase common stock at a price of $1.00 per share. An aggregate of 321,807 warrants were issued under the notes. The Company can pay principal and accrued interest in cash or, at the Company’s option, in shares of common stock. If the Company elects to pay principal and interest in shares of common stock, the value of each share of common stock will be equal to ninety percent (90%) of the average of the ten (10) lowest daily volume weighted average prices of the Company’s common stock during the twenty (20) trading days immediately preceding the date of payment. At the option of each holder of the convertible notes, the principal amount outstanding under the notes is convertible at any time after the closing of the private placement into shares of our common stock at a conversion price of $1.00 per share. All principle and interest amounts due under the note dated January 10, 2008 have been paid in full as of the year ended June 30, 2009. Additionally during February and March 2009, a convertible debenture holder converted $380,625 of note principal into 380,625 shares of the Company’s common stock, resulting in all principle amounts due under the notes dated January 9, 2008 and April 30, 2009 being paid in full.

     The components of the senior secured convertible notes payable are as follows as of June 30, 2009:

     Aggregate yearly maturities of long term debt based upon payment terms at June 30, 2009, are as follows:

     As of June 30, 2009, accrued interest payable on the senior secured convertible notes aggregated $6,734.

NOTE 7 – NOTES PAYABLE

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     On June 5, 2008, the Company agreed to exercise the option to purchase the Planet MIO property, consisting of thirty-one patented mining claims totaling 523 acres in La Paz County, Arizona. The Company originally leased the property in 2000 from New Planet Copper Mining Company under the terms of a Lease with Option to Purchase. The Company agreed to exercise the purchase option in connection with settlement of an action the Company commenced in March 2007 seeking to confirm that the lease remained in good standing. The purchase price was $250,000. The Company signed a promissory note for $200,000 with interest payable at 10% per annum from the date of closing of the transaction. The original provisions of the note called for a $50,000 payment at the signing of the note, which occurred in August 2008, and four subsequent principal payments of $50,000 plus interest due each anniversary date of the agreement. In August 2009, the amortization schedule of the note was amended to reflect four equal annual payments of principle and interest of $63,094. The due date for the first annual payment was extended with the interest rate increased to 20% per annum during the extension period. The Company has also agreed to pay an additional $2,000 in legal and miscellaneous fees to document the amendment. Under the new amortization schedule, $43,094 is recorded as current and $156,906 is recorded as non-current. All other provisions of the original agreement remain unchanged including the provision for a 5% royalty to be paid on any future production from the property.

     On July 25, 2008, the Company entered into an installment sales contract for $94,613 to purchase certain equipment. The term of the agreement is for 36 months at an interest rate of 6.75%, with the equipment securing the loan. The carrying amount of the equipment at June 30, 2009 was $59,900.

     The following summarizes notes payable for the years ended June 30, 2009 and 2008:

     The aggregate maturities of notes payable for subsequent years is as follows:

NOTE 8 – CAPITAL LEASES

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     During the year ended June 30, 2009, the Company utilized capital leases for the purchase of equipment. Lease terms and interest rates for the equipment are 60 months at 6.25%, 36 months at 5.34%, and 36 months at 5.78% . The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. The assets are amortized or depreciated over the lower of their related lease terms or their estimated productive lives.

     Minimum future lease payments under capital leases, as of June 30, 2009, for each of the following years and in aggregate, are as follows:

     At June 30, 2009, the total amount of equipment and related accumulated depreciation purchased with capital leases is as follows:

NOTE 9 - LINE OF CREDIT

     In January 2003, the Company obtained an Equity Line of Credit (“ELOC”). The ELOC accrued interest at 24% per year and was due March 17, 2003. In April 2007, the Company settled the amount owed. As of the date of settlement, a balance of $73,145 plus accrued interest of $70,881 was owed and the Company recognized a relief of debt on the settlement aggregating $69,026.

     In April 2007, the Company negotiated a non-interest bearing settlement of $75,000 in connection with liabilities related to the ELOC, payable in an initial installment of $35,000 and monthly payments of $2,200 commencing in May 2007 until paid in full. The unpaid balance at June 30, 2008, was $11,400. The balance was paid in full at June 30, 2009.

NOTE 10 - CONTINGENCIES AND COMMITMENTS

Office and Real Property Leases

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     On March 1, 2007, the Company entered into a lease for office space located in Albuquerque, New Mexico, for a period of three years.

     In September 2009, the Company retroactively renewed its lease for real property located in Glendale, Arizona for a period of one year.

     Future minimum lease payments under operating leases are $40,770 through June 30, 2010. Total rental expense was $51,492 and $44,020 for the years ended June 30, 2009 and 2008, respectively.

Employment Agreements

     On October 7, 2003, the Company entered into employment and change of control agreements with its President and Chief Executive Officer. The employment agreement describes, among other things, the officer’s duties, compensation levels and benefits. The agreement provided for annual salary of $180,000 adjusted by the CPI. The term of the agreement is from October 16, 2003, through and including October 15, 2006, and then automatically extends through October 15, 2008, and thereafter on a yearly basis unless terminated on 90 days prior notice. The change of control agreement provides that if there is a change of control of the Company and the officer leaves the employment of the Company, for reason other than discharge for cause, death, or disability, within six months after such change of control, the officer shall receive a lump sum cash payment of 299% of the base amount as defined in IRC Section 280G (b) (3), subject to certain limitations of the Internal Revenue Code. In addition, the officer will continue to be covered by the Company’s medical, health, life and dental plans for 24 months after such cessation of employment.

     On May 19, 2009, the Company entered into change of control agreements with two of its employees, the manager of legal affairs, who is also the son of the current president, and the Company controller. The change of control agreements provide that if there is a change of control of the Company and the individual leaves the employment of the Company, for reason other than discharge for cause, death, or disability, within six months after such change of control, the employee shall receive a lump sum cash payment of 100% of the base salary in effect at the time of change of control. In addition, the employee will continue to be covered by the Company’s medical, health, life and dental plans for 24 months after such cessation of employment.

Property Identification Agreement

     On October 6, 2003, the Company entered into a confidential property identification agreement with its current President and Chief Executive Officer, prior to his becoming an officer and director of the Company. Under terms of the agreement, the current officer, on the basis of his prior knowledge, provided a list of 24 specific mineral properties with potential for exploration and development that might represent attractive acquisition opportunities for the Company. The Company agreed to pay compensation to the current officer in the form of a royalty of 1.0% of the value of future production, if any, derived from identified properties that the Company acquires. In the event an identified property is acquired and subsequently sold, the Company agreed to pay the current officer an amount equal to 10.0% of the value of the sale. The Ortiz gold property that was acquired in August 2004 and the Summit silver-gold project are two of the 24 properties identified and are subject to the property identification agreement.

Royalty Agreement

     The Company, in connection with a director’s contribution of capital in November 2006, granted the director a 25% net proceeds royalty interest in 67 unpatented mining claims located in Yavapai County, Arizona, toward an end settlement of $600,000.

     On May 19, 2009, the Company entered into an agreement with the director to purchase the royalty for $200,000. At the director’s discretion, the amount may be satisfied by the issuance of the Company’s common stock or as payment of the purchase price for the exercise of the director’s options. As of June 30, 2009, the entire $200,000 is recorded as a current liability.

New Planet Project Royalty Agreement

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     Under the June 5, 2008, exercise of the option to purchase the Planet MIO property, as part of the agreement, the Company is obligated to pay a 5% royalty on any future production from the property.

Ortiz Gold Project

     On August 1, 2004, the Company entered into an option and lease agreement with Ortiz Mines, Inc., a New Mexico corporation, whereby the Company acquired exclusive rights for exploration, development and mining of gold and other minerals on 57,267 acres (approximately 90 square miles) of the Ortiz Mine Grant in Santa Fe County, New Mexico. On November 1, 2007, the Company relinquished 14,970 acres and retained under lease 42,297 acres (66 square miles). The Company paid an initial sum of $20,000 for a six-month option, and on February 1, 2005, paid the additional sum of $30,000 in order to exercise the option and enter into the lease and also to satisfy the obligation of the first year’s lease payment. On February 1, 2006, the Company paid $71,184 for the second year’s lease payment (through January 31, 2007). On February 1, 2007, the Company paid the amount due of $100,218 through January 31, 2008. On January 25, 2008, the Company paid the amount due of $126,891 through January 2009. In February of 2009 the company paid the amount due of $148,040 through January 31, 2010. The lease provides for an initial term of seven years (12 years in certain circumstances), continuing year-to-year thereafter for so long as the Company is producing gold or other leased minerals in commercial quantities and otherwise is performing its obligations under the lease. Among other terms, the lease provides for annual lease payments that escalate per acre of ground the Company retains under lease; a sliding-scale production royalty varying from 3% to 5% depending on the price of gold; the requirement that the Company comply with governmental permitting and other regulations; and other terms common in mining leases of this type. The Ortiz gold project is subject to the property identification agreement between the Company and its President and Chief Executive Officer.

     The minimum and maximum future payments due on this lease are as follows for the next five years and thereafter:

Summit Silver-Gold Project

     The Summit project is subject to two underlying royalties and a net proceeds interest as follows: (1) a 7.5% royalty on net smelter returns toward an end price of $1,250,000; (2) a 5% royalty on net smelter returns toward an end price of $4,000,000 less any amount paid under the royalty described in (1); and (3) a net proceeds interest of 5% of net proceeds from sales of unbeneficiated mineralized rock until such time as the royalties described in (1) and (2) have been satisfied, and 10% of such net proceeds thereafter toward an end price of $2,400,000. The Company is obligated to pay quarterly minimum royalty payments aggregating $1,808 under the aforementioned (1) underlying royalty agreement.

Title to Mineral Properties

     Although the Company has taken steps, consistent with industry standards, to verify title to mineral properties in which it has an interest, these procedures do not guarantee the Company’s title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects.

NOTE 11 - STOCKHOLDERS’ EQUITY (DEFICIT)

Issuances of Common Stock

     During the period July 1, 2007, to December 31, 2007, the Company paid on the senior secured convertible notes, principal installments aggregating $945,420 with the issuance of 945,420 shares of the Company’s common stock, and interest payments aggregating $977,166 with the issuance of 2,745,804 shares of the Company’s common stock.

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     On June 25, 2008, the board of directors granted stock awards of 500,000 shares of restricted stock to an officer and 200,000 shares of restricted stock to an employee. The shares were subject to forfeiture contingent on attainment of certain performance objectives related to construction of the Summit project. The shares were valued at $0.64 per share, the closing price on the date of the grants, and the aggregate value of $448,000 was capitalized as deferred stock compensation during the year ended June 30 2008. The shares vested on December 31, 2008, and the aggregate value of $448,000 was recognized as general and administrative compensation expense during the year ended June 30, 2009.

     On September 30, 2008, a director exercised an option to purchase 500,000 shares of common stock at $0.11 per share on a cashless basis. Under the cashless basis exercise, 431,250 shares were issued. On March 31, 2009, an officer exercised an option to purchase 4,000,000 shares of common stock at $0.10 per share on a cashless basis. Under the cashless basis exercise, 3,701,494 shares were issued. On April 17, 2009, a warrant holder exercised 25,000 warrants with an exercise price of $1.00 per share to purchase shares of the Company’s stock on a cashless basis. Under the cashless basis, 4,766 shares were issued. On June 9, 2009, an individual exercised an option to purchase 100,000 shares of common stock at $0.60 per share on a cashless basis. Under the cashless basis exercise, 43,396 shares were issued. The aggregate amount of shares issued on a cashless basis during the year ended June 30, 2009 was 4,180,906.

     During the quarter ended March 31, 2009, a convertible debenture holder converted $380,625 of note principal into 380,625 shares of the Company’s common stock. On April 6, 2009, a convertible debenture holder converted $237,143 of note principal into 189,714 shares of the Company’s common stock. The aggregate value of debentures converted to stock was $617,768 during the year ended June 30 2009.

     On May 19, 2009, the Company issued 480,000 shares of the Company’s stock for services related to investor relations, including 380,000 shares issued to a shareholder who paid for expenses on the Company's behalf in prior years totalling 204,000. The shares were valued at $1.165 per share, the closing price on the date of grant. On June 15, 2009, the Company issued 42,400 shares of the Company’s stock for consulting services. The shares were valued at $1.14 per share, the closing price on the date of grant. The aggregate value of these transactions expensed to general and administrative expense was $403,536 during the year ended June 30, 2009, which includes $238,700 related to the shareholder capital contribution.

     On May 19, 2009, the Company issued 150,000 shares of the Company’s stock for services related to investor relations. The shares were valued at $1.165 per share, the closing price on the date of grant. On June 15, 2009, the Company issued 117,000 shares of the Company’s stock for consulting services. The shares were valued at $1.14 per share, the closing price on the date of grant. The aggregate value for both transactions of $308,130 was classified as deferred stock compensation on the date of issue. During the year ended June 30, 2009, general and administrative stock compensation expense of $26,986 was recognized relating to these transactions.

     On June 22, 2009, the Company issued 283,019 shares of the Company’s stock in a private placement. The shares were valued at $1.06 per share for total proceeds of $300,000.

     On April 6, 2009, a convertible debenture holder converted $28,391 of accrued interest into 24,687 shares of the Company’s common stock. On April 30, 2009, a convertible debenture holder converted $22,875 of accrued interest into 19,891 shares of the Company’s stock. On June 30, 2009, a convertible debenture holder converted $974,360 of accrued interest into 974,360 shares of the Company’s stock. The aggregate amount of accrued interest converted totals $1,025,626, of which $890,400 was recorded as interest expense during the year ended June 30, 2009.

Issuance of Warrants

     On October 31, 2007, in connection with the issuance of 10% Convertible Senior Subordinated Notes aggregating $450,000, the Company issued a five year warrant for each $2.50 invested, for a total of 180,000 warrants, each warrant giving the note holder the right to purchase one share of common stock at a price of $1.25 per share.

     On December 21, 2007, the warrant exercise price of $1.25 per share on 1,750,000 warrants was reduced to $1.00 under the terms and conditions of the warrant with the reduction resulting from the placement of a 7% Senior Secured Convertible Debenture with attached warrants at an exercise price of $1.00 per share. The original warrant contained an anti-dilution provision and the warrants were increased by 437,500 to 2,187,500.

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     On December 21, 2007, in connection with a scheduled advance of $350,000 on the 7% Senior Secured Convertible Debenture, the Company issued 175,000 warrants, each warrant giving the note holder the right to purchase one share of common stock at a price of $1.00 per share. The warrants are exercisable from July 1, 2010 to December 31, 2014.

     On January 9, 2008, and January 10, 2008, in connection with the exercise of Additional Investment Rights, the Company issued 112,500 five year warrants giving the right to purchase common stock at a price of $1.00 per share.

     On January 15, 2008, in connection with a scheduled advance of $1,500,000 on the 7% Senior Secured Convertible Debenture, the Company issued 750,000 warrants, each warrant giving the note holder the right to purchase one share of common stock at a price of $1.00 per share. The warrants are exercisable from July 1, 2010 to December 31, 2014.

     On February 1, 2008, in connection with the issuance of a 10% Convertible Senior Subordinated Note for $237,143, the Company issued a five year warrant for each $2.50 invested, for a total of 94,858 warrants, each warrant giving the note holder the right to purchase one share of common stock at a price of $1.25 per share.

     On April 15, 2008, in connection with a scheduled advance of $3,500,000 on the 7% Senior Secured Convertible Debenture, the Company issued 1,750,000 warrants, each warrant giving the note holder the right to purchase one share of common stock at a price of $1.00 per share. The warrants are exercisable from July 1, 2010 to December 31, 2014.

     On April 30, 2008, and June 2, 2008, in connection with the exercise of Additional Investment Rights, the Company issued 209,307 five year warrants giving the right to purchase common stock at a price of $1.00 per share.

     On July 15, 2008, in connection with a scheduled advance of $3,500,000 under the 7% Senior Secured Convertible Debenture, the Company issued 1,750,000 warrants, each warrant giving the note holder the right to purchase one share of common stock at a price of $1.00 per share. The warrants are exercisable from July 1, 2010 to December 31, 2014.

     On October 15, 2008, in connection with a scheduled advance of $3,500,000 under the 7% Senior Secured Convertible Debenture, the Company issued 1,750,000 warrants, each warrant giving the note holder the right to purchase one share of common stock at a price of $1.00 per share. The warrants are exercisable from July 1, 2010 to December 31, 2014.

     On December 22, 2008, in connection with a scheduled advance of $1,150,000 under the 7% Senior Secured Convertible Debenture, the Company issued 575,000 warrants, each warrant giving the note holder the right to purchase one share of common stock at a price of $1.00 per share. The warrants are exercisable from July 1, 2010 to December 31, 2014.

     On June 22, 2009, in connection with a private placement for 283,019 shares of the Company’s common stock, the Company issued 141,510 five year warrants giving the holder the right to purchase common stock at $1.06 per share.

Stock Options and the 2007 Equity Incentive Plan

     At the Company’s Annual Meeting on July 24, 2007, the stockholders approved the 2007 Equity Incentive Plan ("2007 EIP"). The 2007 EIP became effective on July 25, 2007, and will terminate on July 24, 2017. A maximum of 8,000,000 shares of common stock are reserved for the grant of non-qualified stock options, incentive stock options, restricted stock awards and other stock awards under the 2007 EIP. The 2007 EIP replaces the Company’s 1989 Stock Option Plan, which terminated on April 30, 2007.

     The purpose of the 2007 EIP is to provide the employees, non-employee directors, and consultants who are selected for participation in the 2007 EIP with added incentives to continue in the long-term service of the Company and to create in such persons a more direct interest in the future success of the Company’s operations by relating increases in compensation to increases in stockholder value, so that the income of the participants in the 2007 EIP is more closely aligned with the financial interests of the Company’s stockholders. The 2007 EIP is also

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intended to provide a financial incentive that will enable the Company to attract, retain and motivate the most qualified directors, employees, and consultants.

     On July 25, 2007, the Company granted a five (5) year option to purchase 100,000 shares of common stock to a director. The option exercise price is $0.46 per share, the closing price on the date of grant and the options have a vesting period of one year from the date of grant. The options were valued at $38,003 using the Black-Scholes option pricing model and will be expensed over the vesting period. The options were valued using a volatility of 115%, a risk free interest rate of 4.8%, an expected life of 5.0 years and zero quarterly dividends. During the year ended June 30, 2008, the $37,849 was recognized as general and administrative stock compensation expense.

     On December 13, 2007, the Board of Directors granted pursuant to the Company’s compensation policy pertaining to outside directors, five year options to purchase 75,000 shares of common stock to each of two directors, and also granted 100,000 five year options to an employee who is the son the President and Chief Executive Officer. The options are exercisable at $0.55, the closing price on the date of the grant and vest on June 30, 2008. The options were valued at $111,619 using the Black-Scholes option pricing model. The options were valued using a volatility of 113%, a risk free interest rate of 3.45%, an expected life of 5.0 years and zero. General and administrative stock compensation expense was recorded for the year ended June 30, 2008, amounting to $111,619.

     On June 25, 2008, the Board of Directors granted awards of 500,000 shares of restricted stock to an officer and 200,000 shares of restricted stock to an employee. The shares will vest on December 31, 2008, and are subject to forfeiture contingent on attainment of certain performance objectives related to construction of the Summit project. The stock grants were valued at $448,000 using the closing price on the date of the grant of $0.64 per share. The grant amount was recorded as deferred stock compensation at June, 30, 2008. General and administrative stock compensation expense of $448,000 was recognized for the year ended June 30, 2009.

     On December 3, 2008, the Company cancelled and re-issued several outstanding options to four employees. The new options grant each employee a five (5) year option to purchase 100,000 shares of common stock at an option exercise price of $0.60 per share, the closing price on the date of grant, and the options will vest on June 30, 2009. Each option was valued at $30,101 using the Black-Scholes option pricing model. The options were valued using a volatility of 80%, a risk free interest rate of 0.76%, an expected life of 2.8 years and zero quarterly dividends. General and administrative stock compensation aggregating $107,358 for the four employees was recorded during the year ended June 30, 2009. The following describes the options that were cancelled:

• On May 2, 2006, the Company granted a non-plan five (5) year option to purchase 50,000 shares of common stock to an employee, who is the son of the Company’s President and Chief Executive Officer, in connection with an employment agreement. The option exercise price is $1.24 per share, the closing price on the date of grant and the options vested on the date of grant. The options were valued at $50,971 using the Black-Scholes option pricing model. On December 3, 2008, the options were cancelled and re-issued. The options were fully vested and amortized at the time of cancellation.

• On April 25, 2007, the Company granted non-plan a five (5) year option to purchase 50,000 shares of common stock to an employee, who is the son of the Company’s President and Chief Executive Officer. The option exercise price is $0.74 per share, the closing price on the date of grant and the options vested on the date of grant. The options were valued at $30,505 using the Black-Scholes option pricing model and are expensed in the period granted. On December 3, 2008, the options were cancelled and re-issued. The options were fully vested and amortized at the time of cancellation.

• On March 24, 2008, the Company granted a five (5) year option to purchase 100,000 shares of common stock to an employee. The option exercise price is $0.73 per share, the closing price on the date of grant, and the options have a vesting period of six months from the date of grant. The options were valued at $57,048 using the Black-Scholes option pricing model. On December 3, 2008 the options were cancelled and re- issued. The options were fully vested and amortized at the time of the cancellation. General and administrative stock compensation expense of $28,524 was recorded during the year ended June 30, 2009.

• On May 1, 2008, the Company granted a five (5) year option to purchase 100,000 shares of common stock to an employee. The option exercise price is $0.79 per share, the closing price on the date of grant. The options were valued at $61,724 using the Black-Scholes option pricing model. On December 3, 2008, the options were cancelled and re-issued. The options were fully vested and amortized at the time of the cancellation. General and administrative stock compensation expense of $41,149 was recorded during the year ended June 30, 2009.

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• On July 22, 2008, the Company granted a five (5) year option to purchase 100,000 shares of common stock to an employee. The option exercise price is $0.83 per share, the closing price on the date of grant and the options have a vesting period of six months from the date of grant. The options were valued at $64,247 using the Black-Scholes option pricing model. The options were valued using a volatility of 104%, a risk free interest rate of 3.48%, an expected life of 5.0 years and zero quarterly dividends. On December 3, 2008, the options were cancelled and re- issued, with any further amortization of the options ceasing on that date. General and administrative stock compensation of $42,832 was recorded during the year ended June 30, 2009.

     On December 3, 2008, the Company granted a five (5) year option to twenty-three employees and two board members to purchase 830,000 shares of common stock at an option exercise price of $0.60 per share, the closing price on the date of grant, and the options will vest on June 30, 2009. The options were valued at $249,838 using the Black-Scholes option pricing model. The options were valued using a volatility of 80%, a risk free interest rate of 0.76%, an expected life of 2.8 years and zero quarterly dividends. General and administrative stock compensation of $238,688 was recorded during the year ended June 30, 2009.

     On May 19, 2009, the Company granted a five (5) year option to eight employees to purchase 120,000 shares of common stock at an option exercise price of $1.165 per share, the closing price on the date of grant, and the options will vest on December 31, 2009. The options were valued at $73,581 using the Black-Scholes option pricing model. The options were valued using a volatility of 84%, a risk free interest rate of 0.91%, an expected life of 2.8 years and zero quarterly dividends. General and administrative stock compensation of $10,512 was recorded during the year ended June 30, 2009.

     In addition to options under the 1989 Stock Option Plan and 2007 EIP, the Company previously issued non-plan options outside of these plans, exercisable over various terms up to a maximum of ten years.

     Stock option and warrant activity, both within the 1989 Stock Option Plan and 2007 EIP and outside of these plans, for the years ended June 30, 2009 and 2008 are as follows:

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     Stock options and warrants outstanding and exercisable at June 30, 2009, are as follows:

NOTE 12 – PENSION PLAN

     During the year ended June 30, 2009, the Company adopted a 401(K) plan, which covers substantially all employees. Under the terms of the plan, the Company matches employee salary deferrals dollar for dollar up to a maximum of 5% of compensation. For the year ended June 30, 2009, the Company recorded $44,021 in expenses related to the plan.

NOTE 13 - INCOME TAXES

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     The income tax benefit differs from the amount computed by applying the U.S. federal income tax rate of 34% to net (loss) before taxes for the fiscal years ended June 30:

     The components of the deferred tax asset and deferred tax liability at June 30, 2009 are as follows:

     At June 30, 2009, the Company had net operating loss carry forwards for Arizona income tax purposes of approximately $6.6 million (2008- $14.4 million). These losses expire in varying amounts through June 30, 2012. At June 30, 2009, the Company had net operating loss carry forwards for New Mexico income tax purposes of approximately $10.0 million (2008- $4.3 million). These losses expire in varying amounts through June 30, 2014.

     At June 30, 2009, the Company had net operating loss carry forwards for federal income tax purposes of approximately $47.1 million (2008 - $41.4 million). These losses expire between June 30, 2019 and June 30, 2029.

NOTE 14 - RELIEF OF DEBT

     The Company recognized relief of debt totaling $90,967 from two separate events during the year ended June 30, 2009. In September of 2008, the Company negotiated a settlement with a government agency on outstanding amounts owed for property taxes and made a payment in cash to settle the account in full and recognized $48,872 as relief of debt. Separately, the Company wrote off $19,940 of notes payable and related accrued interest of $22,155 that extended beyond the Statute of Limitations for collectability. During the year ended June 30, 2008, the Company wrote off accounts payable resulting in relief of debt of $24,062.

NOTE 15 – SUBSEQUENT EVENTS

     On July 17, 2009, a director exercised options to purchase 1,150,000 shares of common stock as follows: 1,000,000 shares at $0.10 per share, 75,000 shares at $0.55 per share, and 75,000 shares at $0.60 per share. The total purchase price for the exercise of the options was $186,250. The director utilized proceeds from the Agreement to Sell Royalty dated May 19, 2009, discussed previously in NOTE 10. At that time the director also utilized the remaining $13,750 from the Agreement to Sell Royalty to purchase an additional 12,500 shares at $1.10 per share, the market closing price on July 17, 2009. Under the Agreement to Sell Royalty, the entire $200,000 has been utilized and no further amounts are due to the director under the agreement.

     On July 13, 2009, the Company granted a five (5) year option to purchase 200,000 shares of common stock to an employee under the 2007 Equity Incentive Plan. The option exercise price is $1.00 per share, the closing price on the date of grant, and the options have a vesting period of six months from the date of grant.

     On July 20, 2009, an individual exercised an option to purchase 20,000 shares of common stock at $0.60 per share on a cashless basis. Under the cashless basis exercise, 8,991 shares were issued.

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     On July 27, 2009, the Company issued 94,339 shares of common stock at $1.06 per share in connection with a private placement. As part of the private placement the Company also issued 47,169 warrants with an exercise price of $1.06 per share and an expiration of 5 years. The private placement was subject to a sales commission, and an additional 9,433 shares of common stock were issued as a commission on the transaction.

     On August 6, 2009, the Company issued 100,000 shares of common stock at $1.06 per share in connection with a private placement. As part of the private placement the Company also issued 50,000 warrants with an exercise price of $1.06 and an expiration of 5 years.

     On August 13, 2009, an individual exercised an option to purchase 20,000 shares of common stock at $0.60 per share on a cashless basis. Under the cashless basis exercise, 8,679 shares were issued.

     On August 17, 2009, the Company issued 18,868 shares of common stock at $1.06 per share in connection with a private placement. As part of the private placement the Company also issued 9,434 warrants with an exercise price of $1.06 per share and an expiration of 5 years.

     On August 25, 2009, an individual exercised an option to purchase 10,000 shares of common stock at $0.60 per share on a cashless basis. Under the cashless basis exercise, 4,286 shares were issued.

     On September 11, 2009, the Company entered into a definitive gold sale agreement to sell a portion of the life-of-mine gold production, excluding silver produced, from the Summit silver-gold mine. Under the agreement, the Company will receive an upfront cash deposit of $4.0 million and ongoing production payments equal to the lesser of $400 per ounce and the prevailing market price, for each ounce of gold delivered pursuant to the agreement. Gold production subject to the agreement includes 50% of the first 10,000 ounces of gold produced, and 22% of the gold thereafter. The amount of payable gold can be reduced from 22% to 15% provided that within 36 months the Summit mine reaches certain performance levels in any consecutive 12 month period, in compliance with prefeasibility estimates, including 1) the rate of ore mined and processed must average 400 tons per day or more, and 2) payable gold production must exceed 11,500 ounces during such consecutive 12 month period. The Company received an initial payment of $500,000 and on October 7, 2009 received the remaining $3,500,000 balance of the upfront cash deposit. The Company has the option, for the next nine months, to increase the size of the transaction by $1,000,000, to $5,000,000. If the Company exercises this option, the percentage of payable gold that the financing counter-party will be entitled to purchase will increase by 25%. In certain circumstances, including failure to meet minimum production rates, interruption in production due to permitting issues and customary events of default, the agreement may be terminated. In such event, we may be required to return the upfront cash deposit of $4.0 million less a credit for gold delivered up to the date of that event, which is determined using the difference between the market price and $400 per ounce for gold deliveries where the prevailing market price exceeded $400 per ounce.

     On September 23, 2009, the Company entered into a capital lease for the purchase of equipment. The lease amount is for $16,825 over a term of 36 months at an interest rate of 9.25% .

     On September 30, 2009, the Company entered into an agreement to finance insurance premiums in the amount of $72,906 at an interest rate of 6.99% with equal payments due monthly beginning on November 1, 2009 and continuing until September 1, 2010.

     All subsequent events as of October 1, 2009, the date the financial statements were available to be issued, have been evaluated by the Company and disclosed above.

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

          None.

ITEM 9A(T).   CONTROLS AND PROCEDURES

          We maintain “disclosure controls and procedures” (as defined in Rules 13a-15(d) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Under the supervision of, and the participation of our management, our Chief Executive Officer and Principal Financial Officer, or persons performing similar functions, has conducted an evaluation of our disclosure controls and procedures as of June 30, 2009. This evaluation included certain areas in which we have made, and are continuing to make, changes to improve and enhance controls. Based on this evaluation, our Chief Executive Officer and Principal Financial Officer has concluded that our disclosure controls and procedures are effective in alerting him on a timely basis to material information required to be disclosed in our periodic reports.

          During the fiscal year ended June 30, 2009, there were no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

ITEM 9B.      OTHER INFORMATION

          None.

PART III

ITEM 10.      DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

          The Company’s present directors and officers as well as those who served during fiscal 2008 are as follows:

          The directors and officers have held their principal occupations as set out above during at least the last five years, except as described below:

          Lawrence G. Olson, age 71, Chairman, became a director in March 1999 in connection with the acquisition of Arizona Mica. He has held the position of Chairman since October 2000, and also formerly held the positions of President and Chief Executive Officer from October 2000 until October 2003. Mr.

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Olson has owned and operated his own business, Olson Precast of Arizona Inc., since 1973. Mr. Olson received a B.S. Degree in Civil Engineering from the University of Southern California.

          W. Pierce Carson, age 66, was named President and Chief Executive Officer and a director in October 2003, following a consulting assignment with us. Dr. Carson has 35 years of international mining experience and has managed the discovery, financing, development and operation of precious metals, base metals and industrial mineral properties in the United States, Australia and other countries. From 1981 to 2000, he worked for Nord Pacific Limited and Nord Resources Corporation in senior management capacities, including president and chief executive officer. Prior to 1981, he managed exploration programs for Exxon Minerals Company and Kennecott Copper Company. Dr. Carson holds a Bachelors Degree in Geology from Princeton University and MS and PhD Degrees in Economic Geology from Stanford University.

          John E. (Jack) Frost, age 85, joined our board of directors in May 2007. Dr. Frost has over 50 years of international mining experience in a wide range of metallic and non-metallic minerals and has been closely involved in the discovery and/or acquisition of more than 40 mineral deposits. Since 1986, Dr. Frost has served as principal of Frost Minerals International, Inc., a provider of management and consulting services to the mining industry. From 1967 until 1986, he worked for Exxon Minerals Company and its affiliates in a number of senior management capacities, including president of Exxon Minerals International. His responsibilities at Exxon Minerals included establishing and managing Exxon Minerals’ domestic and international minerals exploration programs. Prior to 1967, he managed exploration and mining activities for Duval Corporation and Philippine Iron Mines. Dr. Frost holds a B.S. Degree in Mining Engineering, an M.S. Degree in Geology and a Ph.D. in Geology, all from Stanford University.

Board Meetings and Committees

          During fiscal 2009, our board met two times and took action by unanimous consent one time. All of our directors attended at least 75% of the meetings of our board and its assigned committees during 2009. We strongly encourage our directors to attend annual meetings, but we do not have a formal policy regarding attendance.

          Our entire board considers all major decisions concerning our business. Our board has also established committees so that certain matters can be addressed in more depth than may be possible at a full board meeting. Our board’s current standing committees are as follows, with the “X” denoting the members of the committee:

___________________
(1) Chairman

          Our board has adopted a charter for each committee. The charters are available on our website at www.santafegoldcorp.com. The information contained on our website is not, and should not be

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considered, a part of this financial statement. The information below sets out the current members of each of our board committees and summarizes the functions of each of the committees.

Nominating and Corporate Governance Committee

          The primary purposes of the committee are:

• identifying individuals qualified to become directors;

• monitoring the implementation of our corporate governance guidelines; and

• overseeing the evaluation of our management and our board.

          The committee currently consists of Messrs. Carson, Olson and Frost, with Mr. Carson serving as chairman. We do not anticipate any significant change in the composition of the committee prior to our next annual meeting of stockholders.

          The committee was constituted in May 2007, and did not meet during fiscal 2009.

          The committee is responsible for identifying individuals qualified to become directors and for evaluating potential or suggested director nominees.

          The committee plans to perform a preliminary evaluation of potential candidates primarily based on the need to fill any vacancies on our board, the need to expand the size of our board and the need to obtain representation in key market areas. Once a potential candidate is identified that fills a specific need, the committee plans to perform a full evaluation of the potential candidate. This evaluation will include reviewing the potential candidate’s background information, relevant experience, willingness to serve, independence and integrity. In connection with this evaluation, the committee may interview the candidate in person or by telephone. After completing its evaluation, the committee will make a recommendation to the full board as to the persons who should be nominated by our board. Our board determines the nominees after considering the recommendations and a report of the committee.

          To date, the committee has not paid a fee to any third party to assist in the process of identifying or evaluating director candidates.

Audit Committee

          The primary purposes of the committee are:

• assisting our board in fulfilling its oversight responsibilities by reviewing the financial information to be provided to stockholders and others;

• overseeing and evaluating our system of internal controls established by management; and

• supervising the audit and financial reporting process (including direct responsibility for the appointment, compensation and oversight of the independent auditors engaged to perform the annual audit and quarterly reviews with respect to our financial statements).

          The committee will also prepare a report each year in conformity with the rules of the SEC for inclusion in our annual proxy statement.

          The committee currently consists of Messrs. Olson and Frost, with Mr. Olson serving as chairman. We do not anticipate any significant change in the composition of the committee prior to our next annual meeting of stockholders. Mr. Frost is “independent” under the NASDAQ listing standards

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and applicable SEC rules. Mr. Frost may not be an “audit committee financial expert” as defined by the rules promulgated by the SEC. Mr. Olson may not meet prescribed independence standards nor satisfy the criteria for an audit committee financial expert under the rules of the Securities and Exchange Commission. Each Audit Committee member is able to read and understand fundamental financial statements, including our consolidated balance sheet, consolidated statement of operations and consolidated statement of cash flows.

          Until the appointment of Mr. Frost to the Audit Committee in May 2007, the Audit Committee was comprised solely of Mr. Olson. The Audit Committee met once during fiscal 2009.

Compensation Committee

          The primary purposes of the committee are:

• reviewing and approving annually the corporate goals and objectives relevant to our chief executive officer, other executive officers and our board;

• evaluating the performance of our chief executive officer, other executive officers and our board in light of these goals and objectives; and

• recommending the compensation levels for our chief executive officer, other executive officers and our board.

          The committee also prepares a report each year in conformity with the rules of the SEC for inclusion in our annual proxy statement.

          The committee currently consists of Messrs. Olson and Frost, with Mr. Frost serving as chairman. We do not anticipate any significant change in the composition of the committee prior to our next annual meeting of stockholders. Mr. Frost is “independent” under the NASDAQ listing standards and applicable SEC rules. Mr. Olson may not meet prescribed independence standards

          The committee was constituted in May 2007, and met twice during fiscal 2009.

          The committee has the sole authority to oversee the administration of compensation programs applicable to our executive officers and directors. Executive compensation will be reviewed at least annually by the committee. Director compensation is reviewed periodically by the committee as its members deem appropriate. The committee may delegate some or all of its authority to subcommittees when it deems appropriate.

Compensation Committee Interlocks and Insider Participation

          None of the members of our Compensation Committee is an officer or employee of the Company. None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or Compensation Committee.

Compliance with Section 16(a) of The Securities Exchange Act of 1934

          Based solely on our review of the copies of such forms we received, or written representations from certain reporting persons, we believe that, during the fiscal year ended June 30, 2009, our officers, directors and greater than ten percent beneficial owners complied with all applicable filing requirements.

Code of Business Conduct

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           Our board has adopted a code of business conduct that is applicable to all members of our board, our executive officers and our employees. We have posted our code of business conduct on our website at www.santafegoldcorp.com.

Code of Ethics for CEO and Senior Financial Officers

          Effective June 15, 2006, we adopted a Code of Ethics for CEO and Senior Financial Officers that applies to our CEO and all officers. This code was filed as an exhibit to our Annual Report on Form 10-KSB for the year ended June 30, 2006. The code summarizes the legal, ethical and regulatory standards that we must follow and is a reminder to our directors and officers of the seriousness of that commitment. Compliance with this code and high standards of business conduct is mandatory for each of our officers. As adopted, our Code of Ethics sets forth written standards that are designed to deter wrongdoing and to promote:

          We will provide a copy of the Code of Ethics to any person without charge, upon request. Requests can be sent to: Santa Fe Gold Corporation, 1128 Pennsylvania NE, Suite 200, Albuquerque, NM 87110.

ITEM 11.      EXECUTIVE AND DIRECTOR COMPENSATION

Summary Compensation Table

          The following table summarizes the compensation awarded to, earned by or paid during the last two fiscal years to Named Executive Officers, including (a) our principal executive officer; (b) each of our Company’s two most highly compensated executive officers, other than the principal executive officer, who were serving as executive officers at the end of the financial year ended June 30, 2009, and whose total compensation exceeded $100,000 per year; and (c) up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as an executive officer of our Company at the end of the year ended June 30, 2009:

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Summary Compensation Table

Outstanding Equity Awards as of June 30, 2009

          The following table summarizes the outstanding equity awards as of June 30, 2009, for each of our named executive officers:

Outstanding Equity Awards as of June 30, 2009

Compensation of Directors

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          The following table summarizes the compensation of our Company’s directors for the fiscal year ended June 30, 2009:

Compensation of Directors

(1)      W. Pierce Carson, a member of our board of directors, is a Named Executive Officer and did not receive any compensation as a director that has not been disclosed in the summary compensation table above.
(2)      This column represents the fair value of the options awarded in fiscal 2009 in accordance with SFAS 123R.

          Effective May 2007, we adopted a new policy for compensation of non-employee independent directors. Each of our non-employee independent directors receives a $2,000 quarterly retainer, plus $1,000 for each full-day board meeting, and $500 for each telephonic meeting, committee meeting or less than full day meeting attended. In addition, upon first being appointed or elected to the board, each independent director receives a grant of options to purchase 100,000 shares of common stock which vest twelve months after the date of grant, and on January 1st of each year, each independent director receives a grant of options to purchase 75,000 shares of common stock which vest six months after the date of grant. All options are granted at an exercise price equal to the fair market value of the stock on the date of grant. All options granted to non-employee independent directors, unless earlier terminated, or exercised, expire five years after the grant date. All directors are reimbursed for out-of-pocket expenses incurred in connection with attendance at board meetings and committee meetings.

           During fiscal years 2009 and 2008, non-officer directors received no consulting fees separate and distinct from directors’ fees as a result of actual services rendered above and beyond those typical of a non-officer director. Total director fees were $19,000 for the year ended June 30, 2009.

Employment Agreements

          In October 2003, we entered into employment and change of control agreements with our President and Chief Executive Officer. The employment agreement describes among other things the officer’s duties, compensation levels and benefits. The agreement provides for annual salary of $180,000 adjusted by the CPI. The term of the agreement is from October 16, 2003, through and including October 15, 2006, and then automatically extends through October 15, 2008, and thereafter year to year unless terminated on 90 days prior notice. The change of control agreement provides that if there is a change of control of the Company and the officer leaves the employment of the Company, for whatever reason (other than discharge for cause, death, or disability) within six months after such change of control, the officer shall receive a lump sum cash payment of 299% of the base amount as defined in IRC Section 280G (b) (3), subject to certain limitations of the Internal Revenue Code. In addition, the officer will continue to be covered by our medical, health, life and dental plans for 24 months after such

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cessation of employment. In connection with the employment agreement, we granted 4,000,000 options at an exercise price of $0.11 per share, the closing price on the date of grant. The options vested as to 1,000,000 shares on October 16, 2003, and as to additional 1,000,000 share increments over successive six-monthly periods.

           In December 1999, we entered into a change of control agreement with our Chairman. The agreement provides for a lump sum cash payment in the amount not to exceed $100,000 in the event of change in control and resignation from the Board.

          On May 19, 2009, we entered into change of control agreements with two key employees, our manager of legal affairs, who also is the son of our current president, and our controller. The change of control agreements provide that if there is a change of control of the Company and the individual leaves the employment of the Company, for reason other than discharge for cause, death, or disability, within six months after such change of control, the employee shall receive a lump sum cash payment of 100% of the base salary in effect at the time of change of control. In addition, the employee will continue to be covered by our medical, health, life and dental plans for 24 months after such cessation of employment.

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

          The following table sets forth, as of October 7, 2009, certain information regarding beneficial ownership of our common stock by: (i) each person known by us to be the beneficial owner of more than 5% of our outstanding common stock; (ii) each director and director-nominee; (iii) each named executive officer; and (iv) all executive officers and directors as a group.

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Equity Compensation Plans

          The following table contains information regarding our Equity Compensation Plans as of June 30, 2009:

(1)      Includes certain options granted to an executive officer pursuant to an employment agreement described in more detail under the caption “Employment Agreements”, and to a director, prior to the adoption of the 2007 EIP.

          2007 Equity Incentive Plan

          At our Annual Meeting on July 24, 2007, the stockholders approved the 2007 Equity Incentive Plan ("2007 EIP"). The 2007 EIP became effective on July 25, 2007, and will terminate on July 24, 2017. A maximum of 8,000,000 shares of common stock are reserved for the grant of non-qualified stock options, incentive stock options, restricted stock awards and other stock awards under the 2007 EIP. The 2007 EIP replaces our 1989 Stock Option Plan, which terminated on April 30, 2007. The full text of the 2007 EIP is included in our definitive proxy statement DEF14A filed with the SEC on May 23, 2007.

          The purpose of the 2007 EIP is to provide the employees, non-employee directors, and consultants who are selected for participation in the 2007 EIP with added incentives to continue in the long-term service of the Company and to create in such persons a more direct interest in the future success of our operations by relating increases in compensation to increases in stockholder value, so that the income of the participants in the 2007 EIP is more closely aligned with the financial interests of our

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stockholders. The 2007 EIP is also intended to provide a financial incentive that will enable us to attract, retain and motivate the most qualified directors, employees, and consultants. As of October 7, 2009, one executive officer, two non-employee independent board members and approximately thirty-three other employees and consultants are eligible to receive grants under the 2007 EIP.

          The Compensation Committee of the board administers the 2007 EIP with respect to grants to employees, consultants, and non-employee directors. The Committee has sole discretion to establish rules and procedures for the administration of the 2007 EIP, select the participants from among the eligible employees, non-employee directors, and consultants, determine the types of awards to be granted and the number of shares of common stock subject to each award, and set the terms and conditions of the awards.

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          In October 2003, prior to his becoming an officer and director of the Company, we entered into a confidential property identification agreement with W. Pierce Carson, our current President and Chief Executive Officer. Under terms of the agreement, Mr. Carson, on the basis of his prior knowledge, provided a list of 24 specific mineral properties with potential for exploration and development that might represent attractive acquisition opportunities for us. We agreed to pay compensation to Mr. Carson in the form of a royalty of 1.0% of the value of future production, if any, derived from identified properties that we acquire. In the event an identified property is acquired and subsequently sold, we agreed to pay Mr. Carson an amount equal to 10.0% of the value of the sale. The Ortiz gold property acquired in August 2004 and the Summit silver-gold property acquired in May 2006 are two of the 24 properties identified and are subject to the property identification agreement (See Note 9 to the Consolidated Financial Statements).

          On August 12, 2003, we assigned, for the sum of $5,000, our right, title and interest in and to our lease with New Planet Copper Mining Company to Metallica Ventures, LLC, a corporation controlled by Mr. Carson, who at the time of the assignment was a consultant to us. We retained an option to purchase 25% of the New Planet lease for an amount equal to 25% of the expenditures on the property from the date of assignment through the date of the exercise of the option. On September 22, 2005, Metallica Ventures LLC reassigned to us, for consideration of $10,000 and the issue of 2,000,000 unregistered shares of our common stock, its right, title and interest in and to the lease with New Planet Copper Mining Company.

          On September 15, 2005, we entered into a consulting agreement with an attorney who is the son of our President and Chief Executive Officer. Terms of the contract provided for compensation of $4,000 per month and payment of certain expenses for an initial three-month period. On November 28, 2005, the contract was extended for a six-month period, after which the contract extended on a month-to-month basis until terminated by either party. We issued a bonus of 50,000 unregistered shares of common stock in consideration for the contract extension. On May 2, 2006, the individual was offered and accepted employment at a salary of $5,000 per month. In connection with employment, we granted 50,000 stock options at an exercise price of $1.24 per share, which was the closing price on May 2, 2006. On April 25, 2007, we granted the individual 50,000 stock options at an exercise price of $0.74 per share, and on December 13, 2007, we granted him 100,000 options at an exercise price of $0.55 per share, which were the closing prices on the dates granted.

          In March 2001, Lawrence G. Olson, our current Chairman and former President and CEO, jointly with his wife, made an unsecured loan to us in the amount of $800,000 at an interest rate equal to the prime rate of interest plus one percentage point. In connection with the loan, Mr. Olson received 5-year warrants to purchase 300,000 shares of common stock at an exercise price of $0.70 per share. In October 2001, we restructured the $800,000 loan agreement with Mr. Olson and the interest rate payable on the

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loan was adjusted to 12% annually. In June 2002, the loan was extended an additional year and we entered into a security agreement with Mr. Olson, whereby our assets secured the loan. The note became payable in March 2004 after which time it was in default. On March 15, 2006, Mr. Olson exercised warrants to purchase 300,000 shares of common stock at $0.70 per share in exchange for a reduction of accrued interest and principal on the note payable to him, aggregating $210,000. Mr. Olson agreed to reduce the principal by $50,000 and to extend the $750,000 note payable for a period of 18 months, until September 15, 2007.

          On November 15, 2006, Mr. Olson exercised stock options to purchase 1,000,000 shares of common stock at $0.10 per share and 1,000,000 shares of common stock at $0.11 per share, in exchange for payment of accrued interest owed and reduction of principal on the note payable, aggregating $210,000. In addition, Mr. Olson agreed to contribute to capital the remaining unpaid principal on the note of $600,000. In connection with the contribution to capital, we granted a 25% net proceeds royalty in the Black Canyon mica claims, toward an end settlement of $600,000. On May 19, 2009, we entered into an agreement with Mr. Olson to purchase the royalty for $200,000. At Mr. Olson’s discretion the amount may be satisfied by the issuance of our common stock or as payment of the exercise price of Mr. Olson ’s stock options.

ITEM 14.      PRINCIPAL ACCOUNTING FEES AND SERVICE

          The following table discloses the fees for professional services provided by Stark Winter Schenkein & Co., LLP for the 2009 and 2008 fiscal years respectively:

PART IV

ITEM 15.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES

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