Santa Fe Gold CORP - Quarter Report: 2013 March (Form 10-Q)

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

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2013

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

For the transition period from _____to _______

Commission File Number: 001-12974

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

6100 Uptown Blvd., NE, Suite 600, Albuquerque, NM 87110
(Address of principal executive offices)(Zip Code)

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

N/A
Former name, former address, and former fiscal year, if changed since last report

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 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 check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Check one:

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 117,599,598 shares outstanding as of May 10, 2013.

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PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The accompanying notes are an integral part of the unaudited consolidated financial statements.
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
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NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

     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 project in New Mexico, the leased Ortiz gold property in New Mexico, and the 100% owned Black Canyon mica project in Arizona.

     The unaudited interim consolidated financial statements of the Company included herein have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions for Form 10-Q under Article 8.03 of Regulation S-X. These statements do not include all of the information and notes to the financial statements required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine month period ended March 31, 2013, are not necessarily indicative of the results that may be expected for our fiscal year ending June 30, 2013. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2012, included in the Company’s Annual Report on Form 10-K/A, as filed with Securities and Exchange Commission (‘SEC”).

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Going Concern

     The consolidated 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 had a net loss of $7,816,993 for the nine months ended March 31, 2013, has a working capital deficit of $15,495,158 and has a total accumulated deficit of $71,783,217 at March 31, 2013. The Company generated revenues of $13,254,995 from the sales of precious metals in the nine months ended March 31, 2013. To continue as a going concern, the Company is dependent on continued fund raising for project development and payment of operating and financing expenses until production at the Summit mine site attains sufficient cash flow to cover the Company’s costs. The Company has no continuing commitment from any party to provide additional working capital and there is no assurance that such funding will be available if needed, or if available, that its terms will be favorable or acceptable to the Company.

     The Company’s consolidated financial statements do not include any adjustments 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; Minera Sandia, S.A. de C.V., a Mexican corporation and Santa Fe Gold Barbados Corporation, a Barbados corporation. All significant inter-company accounts and transactions have been eliminated in consolidation.

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Estimates

     The preparation of consolidated 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 consolidated 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 and amortization, accruals, derivative instrument liabilities, taxes and contingencies, asset retirement obligations, revenue recognition, and stock-based compensation which are discussed in the respective notes to the consolidated financial statements.

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. Restricted cash is excluded from cash and cash equivalents and is included in other assets.

Accounts Receivable

     Accounts receivable consist of trade receivables from precious metals sales of concentrate and flux, and refined precious metals related to gold and silver stream agreements. In evaluating the collectability of accounts receivable, the Company analyzes past results and identifies trends for each major payer source of revenue for the purpose of estimating an allowance for doubtful accounts. Data in each major payer source are regularly reviewed to evaluate the adequacy of the allowance, and actual write-offs are charged against the allowance. There was no allowance for doubtful accounts as of March 31, 2013, and June 30, 2012.

Inventory

     Major types of inventories include ore stockpile inventories, in-process inventories, siliceous flux material inventories and concentrate inventories, as described below. Inventories are carried at the lower of average cost or net realizable value. The net realizable value of ore stockpile inventories and in-process inventories represents the estimated future sales price of the product based on current and future metals prices, less the estimated costs to complete production and bring the product to sale. Concentrate inventories and siliceous flux material inventories are carried at the lower of full cost of production or net realizable value based on current and future metals prices. Write-downs of inventory are reported as a component of costs applicable to sales.

     Ore Stockpile Inventories: Ore stockpile inventories represent mineralized materials that have been mined and are available for further processing. Costs are allocated to ore stockpile inventories based on relative values of material stockpiled and processed using current mining costs incurred up to the point of stockpiling the ore, including applicable overhead, depreciation, and amortization. Material is removed from the stockpile at an average cost per ton. The current portion of ore stockpiles is determined based on the expected amounts to be processed within the next 12 months. Ore stockpile inventories not expected to be processed within the next 12 months, if any, are classified as long-term.

     In-process Inventories: In-process inventories represent materials that are currently in the process of being converted to a saleable product. In-process inventories are valued at the lower of average cost or net realizable value of the material fed into the process attributable to the source material plus the in-process conversion costs, including applicable depreciation relating to the process facilities incurred to that point in the process.

     Siliceous Flux Material Inventories: The siliceous flux material inventories represent ore stockpiles that have been crushed and screened to the customer’s specifications, and represent a saleable product.

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     Concentrate Inventories: Concentrates inventories include metal concentrates located either at the Company’s facilities or in transit to the customer’s port. Inventories consist of gold and silver metal concentrates and represent a saleable product.

Marketable Securities

     Marketable securities are classified as available for sale and classified as current assets as they are subject to use within one year. The marketable securities are carried at fair value with unrealized gains and losses, if any, included as a component of accumulated other comprehensive income (loss) in stockholders’ equity.

Mineral Properties

     Mineral properties are capitalized at their fair value at the acquisition date, either as an individual asset purchase or as part of a business combination. When it is determined that a mineral property can be economically developed as a result of establishing reserves, subsequent mine development are capitalized 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. The Company’s mineral rights generally are enforceable regardless of whether proven and probable reserves have been established.

Property, Equipment and Mine Development

Property and Equipment

     Property and equipment are carried at cost. Maintenance and repairs that do not improve or extend the life of the respective assets are expensed as incurred. Expenditures for new property or equipment and expenditures that extend the useful lives of existing property and equipment are capitalized and recorded at cost. Upon retirement, sale or other disposition, the cost and accumulated amortization are eliminated and the gain or loss is included in operations. Depreciation is taken over the estimated useful lives of the assets using the straight-line method. The estimated useful lives of property and equipment are shown below. Land is not depreciated.

Mine Development

     Mine development costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, and the building of access ways, shafts, lateral access, drifts, ramps and other infrastructure in an underground mine. Costs incurred before mineralization is classified as proven and probable reserves are expensed and classified as exploration expense. Capitalization of mine development project costs, that meet the definition of an asset, begins once mineralization is classified as proven and probable reserves.

     Drilling and related costs are capitalized for an ore body where proven and probable reserves exist and the activities are directed at obtaining additional information on the ore body or converting non-reserve mineralization to proven and probable reserves. All other drilling and related costs are expensed as incurred. Drilling costs incurred during the production phase for operational ore control are allocated to inventory costs and then included as a component of costs applicable to sales.

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     Mine development is amortized using the units-of-production method based upon estimated recoverable ounces in proven and probable reserves. To the extent that these costs benefit an entire ore body, they are amortized over the estimated life of the ore body. Costs incurred to access specific ore blocks or areas that only provide benefit over the life of that area are amortized over the estimated life of that specific ore body.

Idle Equipment

     The Company has certain idle equipment in storage related primarily to the Black Canyon project. The equipment’s carrying value totaled $1,223,528 as of March 31, 2013, and June 30, 2012. The Company evaluates the carrying value of the idle equipment when events or changes in circumstances indicate the related carrying amount may not be recoverable. The Company has not recorded any impairment during the nine months ended March 31, 2013.

Fair Value Measurements

     The carrying values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximated their related fair values as of March 31, 2013 and June 30, 2012, due to the relatively short-term nature of these instruments. The carrying value of the Company’s convertible notes payable approximates the fair value based on the terms at which the Company could obtain similar financing and the short term nature of these instruments.

Impairment of Long-Lived Assets

     The Company reviews and evaluates long-lived assets for impairment when events or changes in circumstances indicate the related carrying amounts may not be recoverable. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. When impairment is identified, the carrying amount of the asset is reduced to its estimated fair value which is generally derived from estimated discounted cash flows.

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 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 twelve months of the balance sheet date.

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Reclamation Costs

     The Company follows ASC 410, Asset Retirement and Environmental Obligations, which requires that an asset retirement obligation (“ARO”) associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which it is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated asset. The cost of the tangible asset, including the initially recognized ARO, is depleted, such that the cost of the ARO is recognized over the useful life of the asset. The ARO is recorded at fair value, and accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value. The fair value of the ARO is measured using expected future cash flow, discounted at the Company’s credit-adjusted risk-free interest rate. At March 31, 2013 and June 30, 2012, the Company had a reclamation obligation totaling $166,217 and $159,048, respectively.

Revenue Recognition

     Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred either physically or through an irrevocable transfer of metals to the buyer’s account, the price is fixed or determinable, no related obligations remain and collectability is probable.

     Sales of all metals products sold directly to the Company’s metals buyers, including by-product metals, are recorded as revenues upon a buyer either taking physical delivery of the metals product in the case of siliceous flux material or upon the buyer receiving all required documentation necessary to take physical delivery of the metals product in the case of concentrate (generally at the time the product is loaded onto a shipping vessel at the originating port and the bill of lading is generated).

     Revenues for metals products are recorded at current market prices at the time of delivery and are subsequently adjusted to the current market prices existing at the end of each reporting period. Due to the period of time existing between delivery and final settlement with the buyer, the Company estimates the prices at which sales will be settled. Changes in metals prices between delivery and final settlement will result in adjustments to revenues previously recorded.

     Sales of metals products are recorded net of charges from the buyer for treatment, refining, smelting losses, and other negotiated charges. Charges are estimated upon shipment of product based on contractual terms, and actual charges do not vary materially from estimates. Costs charged by smelters include a metals payable fee, fixed treatment and refining costs per ton of product.

Net Earnings (Loss) per Common Share

     Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During the periods when they are anti-dilutive, common stock equivalents, if any, are not considered in the computation. For the three and nine month periods ended March 31, 2013 and 2012, the impact of outstanding stock equivalents has not been included as they would be anti-dilutive.

Comprehensive Income (Loss)

     In addition to net income (loss), comprehensive income (loss) includes all changes in equity during a period, such as cumulative unrealized changes in the fair value of marketable securities available for sale or other investments.

Stock-Based Compensation

     In connection with terms of employment with the Company’s executives and employees, the Company occasionally issues options to acquire its common stock. 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.

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     The Company accounts for share based compensation on the grant date fair value of the award. The Company estimates the fair value of the award using the Black-Scholes option pricing model for valuation of the share-based payments. The Company believes this model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility and interest rates, and to allow for actual exercise behavior of option holders. The simplified method is used to determine compensation expense since historical option exercise experience is limited. The compensation cost is recognized over the expected vesting period.

Reclassifications

     Certain items in these consolidated financial statements have been reclassified to conform to the current period’s presentation. The reclassifications have no effect on net income (loss).

Recent Accounting Pronouncements

     In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income, which is included in ASC 220, Comprehensive Income. This update improves the reporting of reclassifications out of accumulated other comprehensive income. The guidance is effective for the Company's interim and annual reporting periods beginning January 1, 2013, and applied prospectively. The adoption of this pronouncement is not expected to have a material impact on the Company’s consolidated financial statements.

     Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC during the current reporting period 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 – CONTEMPLATED MERGER

     On October 11, 2012, the Company announced a Binding Heads of Agreement to pursue a business combination with International Goldfields Limited (ASX: IGS). Key terms of the transaction were approved by the boards of directors of both companies, subject to satisfactory completion of due diligence, definitive agreements, regulatory and required consents and approvals. The contemplated transaction structure would have been affected solely through an exchange of SFEG shares for IGS shares in connection with a merger transaction. In accordance with the Agreement, IGS advanced the Company $3.9 million AUD by way of convertible notes secured by the Company’s interest in its rights to the Mogollon property option.

     On February 15, 2013, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with IGS, and IGS Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of IGS ("Merger Sub"). Under the terms of the Merger Agreement, Merger Sub was to be merged with and into the Company, with the Company to be the surviving corporation (the "Surviving Corporation") and a wholly-owned subsidiary of IGS (the "Merger").

     Completion of the Merger was subject to IGS closing an equity financing before March 14, 2013, that would have resulted in IGS having at least $10,000,000 AUD in available cash, after deduction of major transaction related fees, and a maximum of $100,000 AUD in total indebtedness ("Qualified Equity Financing"). IGS has not consummated a Qualified Equity Financing, and the Company and IGS do not anticipate that the merger will proceed.

NOTE 4 – INVENTORY

     The following table provides the components of inventory as of:

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NOTE 5 – ACCRUED LIABILITIES & COMPLETION GUARANTEE PAYABLE

Accrued Liabilities

     The following table provides the components of accrued liabilities as of:

     Royalty payments are incurred on the Summit project which is subject to two underlying royalty agreements and a net proceeds interest (See NOTE 11 – COMMITMENTS: Summit Silver-Gold Project). The commodity supply agreement accruals are incurred as a result of a definitive gold stream agreement entered into in September 2009 with Sandstorm Resources, and a gold and silver stream agreement entered into in December 2011 with Waterton Global Value. The net costs for the agreements relating to the obligations are reported in financing costs – commodity supply agreements within other income (expense). (See also NOTE 11 – COMMITMENTS: Commodity Supply Agreements)

Completion Guarantee Payable

     In accordance with the completion guarantee provision under a definitive gold stream agreement with Sandstorm (the “Gold Stream Agreement”), the Company has recorded an obligation at March 31, 2013 and June 30, 2012 totaling $3,359,873, which is related to the percentage of underproduction for gold produced relative to the amount of gold planned to have been produced, as set out in the Agreement.

     Upon execution of the Gold Stream Agreement in September 2009, the Company received advances totaling $4,000,000. The Company recorded a liability for the advances and in accordance with the provisions of the Gold Stream Agreement reduced the liability by the difference between the market price and a fixed price per ounce of refined gold delivered. Based upon the provisions of the Gold Stream Agreement and the related completion guarantee test, incremental financing charges totaling $504,049 were recognized and accrued at June 30, 2012. These accrued charges, combined with the remaining uncredited liability totaled $3,359,873 at March 31, 2013 and June 30, 2012 and are reported as a completion guarantee payable. (See NOTE 11 – COMMITMENTS: Commodity Supply Agreements).

NOTE 6 - DERIVATIVE INSTRUMENT LIABILITIES

     On July 31, 2012, the Company entered into an agreement for investment banking services. In connection with the agreement the Company issued 4,500,000 warrants to purchase common stock at an exercise price of $0.40 per share. The warrants are exercisable immediately after issuance and will expire five years from the date of issuance. The warrants contain a ratchet provision to adjust the exercise price in certain circumstances. Using the Black-Scholes option pricing model, the fair market value of the warrants at the time of issuance was determined to be $927,450 with the following assumptions: risk-free rate of interest of 0.60%, expected life of 5.0 years, expected stock price volatility of 82.19%, and expected dividend yield of zero.

     On August 17, 2012, the warrant exercise price of $0.35 per share, previously reduced on June 29, 2012, on 6,750,000 warrants related to the 7% Senior Secured Convertible Debentures, was reduced to $0.30 under the terms and conditions of the warrant with the reduction resulting from the placement of the unit offering to stockholders. The warrants contain a re-pricing provision for anti-dilution.

     On August 17, 2012, the warrant exercise price of $0.98 per share, previously reduced on June 29, 2012, on 500,000 warrants related to the June 2, 2011 warrant issuance was reduced to $0.91 under the terms and conditions of the warrant with the reduction resulting from the placement of the unit offering to stockholders. The warrants contain a re-pricing provision for anti-dilution.

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     On August 17, 2012, the warrant exercise price of $0.35 per share, previously reduced on June 29, 2012, on 919,448 warrants related to the additional investment rights issues of January 9, April 30, and June 2, 2008, was reduced to $0.30 under the terms and conditions of the warrant with the reduction resulting from the placement of the unit offering to stockholders. The original warrant contained an anti-dilution provision and the warrants were increased by 153,242 to 1,072,690.

     On September 14, 2012, the Company entered into an agreement for financial advisory services. In connection with the agreement the Company issued 500,000 warrants to purchase common stock at an exercise price of $0.40 per share. The warrants are exercisable immediately after issuance and will expire five years from the date of issuance. The warrants contain a ratchet provision to adjust the exercise price in certain circumstances. Using the Black-Scholes option pricing model, the fair market value of the warrants at the time of issuance was determined to be $116,650 with the following assumptions: risk-free rate of interest of 0.72%, expected life of 5.0 years, expected stock price volatility of 77.99%, and expected dividend yield of zero.

     On January 15, 2013, the Company, in conjunction with the extension of convertible notes payable to three accredited investors, issued an aggregate of 562,500 warrants at an exercise price of $0.40. The warrants are vested on the issuance date and have lives from 1.77 years to 1.85 years. Using the Black-Scholes option pricing model, the fair market value of the warrants at the time of issuance was determined to be $66,543 with the following assumptions: risk-free rate of interest of 0.23 or 0.24%, expected life of 1.77 or 1.85 years, expected stock price volatility of 73.11 or 74.39%, and expected dividend yield of zero. The amount of $66,543 was allocated to the warrants at inception.

     The fair market value of the derivative instruments liabilities at March 31, 2013, was determined to be $1,309,342 with the following assumptions: (1) risk free interest rate of 0.04% to 0.66%, (2) remaining contractual life of 0.08 to 4.46 years, (3) expected stock price volatility of 69.89% to 83.10%, and (4) expected dividend yield of zero. Based upon the change in fair value, the Company has recorded a gain on derivative instruments for the three and nine months ended March 31, 2013, of $1,127,873 and 805,565, respectively.

NOTE 7 – CONVERTIBLE NOTES PAYABLE

Convertible Senior Subordinated Notes

     On October 30, 2007, the Company completed the placement of 10% Senior Subordinated Convertible 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 initially accrued for 18 months from the date of closing. Interest on the outstanding principal balance is then 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 be 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.

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     On October 31, 2012, the notes with the three accredited investors became due and payable. On January 15, 2013, the maturity dates for the convertible senior subordinated notes aggregating $450,000 were extended for a period of two years from the original maturity dates. Additionally, the convertible price of the notes was reduced to $0.40 and the automatic conversion price of $2.50 was reduced to $0.80. In connection with the extension of the notes, 562,500 warrants were issued with a strike price of $0.40 and term of two years from the original maturity dates, 375,000 warrants expiring on October 23, 2014 and the remaining 187,500 warrants with an expiration date of November 20, 2014.

     At March 31, 2013 and June 30, 2012, the outstanding principal balance on the Senior Subordinated Convertible Notes, was $450,000.

Convertible Secured Notes

     In October and November 2012, the Company received advances totaling $3,900,000 AUD, representing cash proceeds of $3,985,000 USD, from International Goldfields Limited (ASX: IGS) in fulfillment of an important condition of the Heads of Agreement dated October 8, 2012 between the Company and IGS. The funds were advanced by way of two secured convertible notes. The convertible notes bear interest at a rate of 6% per annum, have a three-year term, and are secured by the Company’s contractual rights to the Mogollon property. The Company has the right to prepay the notes at any time without any premium or penalty. Should the Company fail to repay the notes on the maturity date or should an event of default occur, then IGS may choose to have the outstanding amounts repaid in the Company’s shares at a conversion rate equal to the daily volume weighted average sales price for the twenty trading days immediately preceding the date of conversion. At March 31, 2013, the outstanding balance on the Secured Convertible Notes was $4,062,357 USD.

     The components of the convertible notes payable, including senior subordinated notes and secured notes, are as follows:

NOTE 8 – SENIOR SECURED GOLD STREAM CREDIT AGREEMENT

     On December 23, 2011, the Company and its subsidiaries entered into a Senior Secured Gold Stream Credit Agreement (the “Credit Agreement”) with Waterton Global Value, L.P. (“Waterton”). The Credit Agreement provided for two $10 million tranches and a $5 million revolving working capital facility. On December 23, 2011, the Company closed the first $10 million tranche of the Credit Agreement. The second $10 million tranche was earmarked to fund the strategic acquisition of Columbus Silver and was not drawn down due to the expiration of the Columbus Silver acquisition agreement.

     Proceeds from the initial $10 million tranche of the Credit Agreement were used to retire the Company’s $5 million, 15% Senior Secured Bridge loan with Victory Park Capital Advisors, LLC, in addition to the payment of transaction fees and expenses. The Company is utilizing the remaining net proceeds for operations, including but not limited to, working capital for the Summit silver-gold project.

     The Credit Agreement provides for a 9% coupon and the initial $10 million tranche amortizes over a 12-month term with the first payment due July 31, 2012. The outstanding amounts owed for the Senior Secured Gold Stream Credit Agreement are aggregated with Notes Payable for financial statement presentation. (See NOTE 9 – NOTES PAYABLE). In connection with the transaction, the Company entered into a gold and silver sale agreement (the “Gold and Silver Supply Agreement”) to sell gold and silver originating from the Summit property to Waterton (See NOTE 11 –COMMITMENTS: Commodity Supply Agreements).

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     Pursuant to a series of guarantees, security agreements, deeds of trust, a mortgage and a stock pledge agreement, the senior obligations are secured by a first priority lien on the stock of the Company’s subsidiaries and on liens covering substantially all of the Company’s assets, with the exception of the Ortiz gold project, including the Summit silver-gold project, the Black Canyon mica project and the Planet micaceous iron oxide project. Existing creditor, Sandstorm Gold (Barbados) Ltd., executed an intercreditor agreement that provides for subordination of its security interests in favor of Waterton.

     The Credit Agreement calls for a fee of 1.5% of the gross amount borrowed to each of Global Hunter Securities and Source Capital Group, Inc. who are registered broker dealers and members of FINRA and SIPC. The fees are to be paid half upon closing of the first tranche of $10,000,000 and half upon closing of the second tranche of $10,000,000. No fees are payable in connection with the revolving credit facility of $5,000,000. Fees aggregating $300,000 were paid in relation to the closing of the first tranche.

     On October 9, 2012, the Company entered into the First Amendment to the Senior Secured Gold Stream Credit Agreement which modifies the due dates of certain principal payments on the note. The amendment calls for principal payments of $1,082,955 in October 2012, $500,000 on November 30, 2012, $-0- in December 2012 and January 2013, and $3,852,275 on February 28, 2013. All other principal payments remain unchanged and interest payments continue to be due monthly. The February and March 2013 principal payments have not been made and are still outstanding. In addition to exploring third-party refinancing of the Waterton debt, the Company and Waterton are in discussions regarding an alternative repayment schedule. In this regard, the Company has received an interim waiver from Waterton with respect to any event of default that currently exists or may exist as a result of the aforementioned non-payments. No assurances can be given that the Company will be able to refinance the Waterton debt or obtain an acceptable repayment schedule from Waterton.

NOTE 9 – NOTES PAYABLE

     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 principal 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 also agreed to pay an additional $2,000 in legal and miscellaneous fees to document the amendment. On September 10, 2012, the Company executed an amendment to extend the final payment due on the New Planet Copper Mining promissory note. The due date for the final annual payment was extended until November 5, 2012 with the interest rate increased to 20% per annum during the extension period. The Company also agreed to pay an additional $2,000 in legal and miscellaneous fees to document the amendment. The final annual payment and related fees were paid-in-full at December 31, 2012. A provision for a 5% royalty to be paid on any future production from the property still remains in effect.

     On September 30, 2009, the Company entered into an installment sales contract for $16,825 to purchase certain equipment. The term of the agreement is for 36 months at an interest rate of 9.25%, with the equipment securing the loan.

     On September 30, 2011, the Company entered into an agreement to finance insurance premiums in the amount of $105,121 at an interest rate of 4.99% with equal payments due monthly beginning November 1, 2011 and continuing until September 1, 2012.

     On April 23, 2012, the Company entered into an installment sales contract for $150,000 to purchase certain equipment. The term of the agreement is for 12 months at an interest rate of 10.00%, with the equipment securing the loan.

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     On May 8, 2012, the Company entered into an installment sales contract for $46,379 to purchase certain equipment. The term of the agreement is for 48 months at an interest rate of 5.75%, with the equipment securing the loan.

     On June 1, 2012, the Company entered into an installment sales contract for $593,657 to purchase certain equipment. The term of the agreement is for 48 months at an interest rate of 5.75%, with the equipment securing the loan.

     On September 26, 2012, the Company entered into an agreement to finance insurance premiums in the amount of $122,212 at an interest rate of 4.7% with equal payments of $13,513 including interest, due monthly beginning November 1, 2012 and continuing through July 2013.

     The following summarizes notes payable, including the Senior Secured Gold Stream Credit Agreement, at March 31, 2013 and June 30, 2012:

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     The aggregate maturities of notes payable as of March 31, 2013, is as follows:

NOTE 10 – FAIR VALUE MEASUREMENTS

     Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

     Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

     Level 2 – Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

     Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

     The Company’s financial instruments consist of marketable securities and derivative instruments which are measured at fair value on a recurring basis. Marketable securities are comprised of 250,000 shares of common stock of Columbus Exploration Corporation, formerly Columbus Silver Corporation, which is traded on the TSX Venture Exchange (TSX-V: CLX). Previously the Company held 1,000,000 shares in Columbus Silver Corporation. These shares were consolidated at the rate of four old shares for one new share in connection with the name change to Columbus Exploration Corporation. The derivative instruments consist of certain warrant contracts. The derivatives are measured on their respective origination dates, at the end of each reporting period and at other points in time when necessary, such as modifications, using Level 3 inputs in accordance with GAAP. The Company does not report any financial assets or liabilities that it measures using Level 2 inputs. The fair value measurement of financial instruments and other assets are as follows:

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NOTE 11 – CONTINGENCIES AND COMMITMENTS

Commodity Supply Agreements

     In September 2009, the Company entered into a definitive gold stream agreement (the “Gold Stream Agreement”) with Sandstorm Gold Ltd. (TSX-V: SSL) (“Sandstorm”) to deliver a portion of the life-of-mine gold production (excluding all silver production) from our Summit silver-gold mine. Under the agreement we received advances of $4,000,000, plus continue to receive future ongoing payments equal to the lesser of: $400 per ounce or the prevailing market price, (the “Fixed Price”) for each ounce of gold delivered pursuant to the agreement for the life of the mine. The Company purchases and delivers refined gold in order to satisfy the requirements of the Gold Stream Agreement and receives the Fixed Price per ounce in cash from Sandstorm. The difference between the prevailing market price and the Fixed Price per ounce for gold delivered is credited against the liability of $4,000,000 until the obligation has been reduced to zero. Future ongoing payments for gold deliveries will continue at the Fixed Price per ounce with no additional credits or advances to be received from Sandstorm. 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, the Company may be required to return to Sandstorm any remaining uncredited balance of the $4,000,000. Gold production subject to the agreement includes 50% of the first 10,000 ounces of gold produced, and 22% of the gold thereafter. The net cost of delivering refined gold along with other related transactional costs corresponding to the Gold Stream Agreement are recorded in Other Expenses as financing costs related to the commodity supply agreement.

     On March 29, 2011, the Company entered into Amendment 1 for the Gold Stream Agreement. The amendment extended the original completion guarantee date from April 2011 to June 30, 2012. The completion guarantee test performs a calculation based upon that percentage of underproduction of gold produced relative to the amount of gold planned to have been produced at a certain point in time as set out in the agreement. In exchange for the amended completion guarantee date, the Company agreed to deliver an additional 700 ounces of gold at equivalent sales terms over and above what is currently due under the agreement. Under the terms of the amendment the delivery of the additional gold was to be made prior to June 30, 2011.

     On June 28, 2011, the Company entered into Amendment 2 for the Gold Stream Agreement. The amendment extended the delivery date for the additional 700 ounces of gold agreed upon in Amendment 1 from June 30, 2011 until October 15, 2011. In exchange for the deferred delivery date the Company agreed to pay a per diem of 3 ounces of gold for each day the additional 700 ounces of gold under Amendment 1 remain outstanding past June 30, 2011 until the actual date of delivery, no later than October 15, 2011. Based upon the sale terms of the agreement, the Company recorded an expense to financing costs and an accrued liability of $773,850 based upon the closing gold price on June 30, 2011. On August 9, 2011 the Company satisfied the requirements of Amendment 2 and delivered 817 ounces of gold. The net cost of delivering the gold after receiving payment from Sandstorm of $400 per ounce delivered was $1,075,785. In order to recognize the final cost of delivering the gold, the accrued liability of $773,850 at June 30, 2011 was adjusted by an additional $301,935 and recognized during the quarter ended September 30, 2011 as financing costs for commodity supply agreements.

     At June 30, 2012, the Company calculated the completion guarantee payable provided by Amendment 1. Based upon the provisions of the Agreement and the related completion guarantee test, incremental financing charges totaling $504,049 were recognized and accrued at June 30, 2012. These accrued charges, combined with the remaining uncredited liability totaled $3,359,873 at March 31, 2013 and June 30, 2012 and are reported as a completion guarantee payable.

     On December 23, 2011, the Company and its subsidiaries entered into a Senior Secured Gold Stream Credit Agreement (the “Credit Agreement”) with Waterton Global Value, L.P. (“Waterton”). The Credit Agreement provides for two $10 million tranches and a $5 million revolving working capital facility. On December 23, 2011, the Company closed the first $10 million tranche of the Credit Agreement. The second $10 million tranche, which is subject to several funding conditions, is earmarked to fund the strategic acquisition of Columbus Silver. The acquisition of Columbus Silver did not occur and consequently the second tranche was not drawn down. As part of the transaction, the Company has agreed pursuant to a gold and silver sale agreement (the “Gold and Silver Supply Agreement”) to sell refined gold and silver to Waterton for the life the Summit mine. Gold and silver subject to the agreement includes all gold and silver originating from the Summit property that is not otherwise committed to delivery to and purchased by Sandstorm Gold, Ltd, pursuant to the September 2011 definitive gold stream agreement. The delivery price for refined gold and silver is based upon a formulation which considers the London Bullion Market Association (“LBMA”) PM fix settlement price for each respective metal, less a discount of three percent for each metal, and a transaction cost of $1.75 per ounce for gold and $0.07 per ounce for silver. The discount on gold and silver is only applicable until and ceases after the later of either, three years after all outstanding amounts due under the Senior Secured Gold Stream Credit Agreement have been repaid, or the date on which the Company has sold 125,000 gold equivalent ounces under the Gold and Silver Supply Agreement.

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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 Summit silver-gold project is subject to a property identification agreement between the Company and President and Chief Executive Officer. The property identification agreement specifies that a 1% royalty be paid on the value of future production from the project.

Mogollon Option Agreement

     On October 22, 2012, the Company closed the Mogollon Option Agreement with Columbus Exploration Corporation, formerly Columbus Silver Corporation, following approval of the agreement by the TSX Venture Exchange. Under the agreement, the Company may acquire the Mogollon Project, Catron County, New Mexico, for payments aggregating $4,500,000 scheduled to be paid through the end of 2014. The Company paid an initial $100,000 upon the signing of the agreement and $150,000 upon approval of the agreement by the TSX Venture Exchange. The payment schedule calls for $500,000 to be paid on or before December 30, 2012, and four payments of $937,500 each on June 30, 2013, December 30, 2013, June 30, 2014, and December 30, 2014. Additionally, the Company must maintain the property in good standing by paying underlying claim and lease payments. At March 31, 2013, the Company has paid $750,000 under the Agreement.

Smelting Contract

     On January 10, 2013, the Company entered into a long-term contract with a smelter for the sale of approximately 360 metric tons of gold-silver concentrates during calendar year 2013. The Company will be paid for the gold and silver content less customary charges.

NOTE 12- STOCKHOLDERS’ EQUITY

Issuances of Common Stock

     On January 3, 2013, two investors exercised warrants to purchase 375,000 shares of common stock at price of $0.30 per share on a cashless basis. Under the cashless basis exercise, 61,628 shares were issued.

     On August 18, 2012, the Company issued 6,244,286 shares of common stock pursuant to a unit offering to existing shareholders under shelf registration statement on Form S-3 and received net proceeds of $1,873,261. On July 6, August 1 and August 15, 2012, in relation to the unit offering to stockholders, we filed Current Reports on Form 8-K with the SEC.

     On August 3, 2012, the Company issued to a consultant 150,000 shares of common stock for investor relations services valued at $39,000 based on the closing market price on the date of the transaction.

Issuances of Options

     During the nine months ended March 31, 2013, 190,000 options were cancelled and 100,000 options expired.

     On December 31, 2012, the Company granted five-year options to two directors and various employees to purchase 510,000 shares of common stock at an option exercise price of $0.36 per share, the closing price on the date of grant. The options will vest on June 30, 2013. The options were valued at $85,273 using the Black-Scholes option pricing model. The options were valued using the following significant assumptions: a risk free interest rate of 0.33%, expected life of 2.75 years, stock price volatility of 74.30% and expected dividend yield of zero. Stock-based compensation of $42,401 was expensed in the quarter ended March 31, 2013 and $42,872 will be reported over the remaining vesting period in 2013.

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     On December 31, 2012, the Company granted five-year options to officers and various employees to purchase 525,000 shares of common stock at an option exercise price of $0.36 per share, the closing price on the date of grant. The options will vest on January 1, 2014. The options were valued at $91,263 using the Black-Scholes option pricing model. The options were valued using the following significant assumptions: a risk free interest rate of 0.36%, expected life of 3.00 years, stock price volatility of 74.30% and expected dividend yield of zero. Stock-based compensation of $22,503 was expensed in the quarter ended March 31, 2013 and $68,760 will be reported over the remaining vesting period in 2013.

     On August 20, 2012, the Company granted 100,000 five-year options at an exercise price of $0.32 per share to a new outside director, the closing price on the date of grant. The options will vest on August 20, 2013. The options were valued at $16,189 using the Black-Scholes option pricing model. The options were valued using the following significant assumptions: a risk free interest rate of 0.38%, expected life of 2.75 years, stock price volatility of 82.01% and expected dividend yield of zero. Stock-based compensation of $16,189 was recorded during the nine months ended March 31, 2013.

     On August 20, 2012, the Company granted a five-year option to four key employees to purchase 400,000 shares of common stock at an option exercise price of $0.32 per share, the closing price on the date of grant. The options will vest on February 20, 2013. The options were valued at $64,755 using the Black-Scholes option pricing model. The options were valued using the following significant assumptions: a risk free interest rate of 0.38%, expected life of 2.75 years, stock price volatility of 82.01% and expected dividend yield of zero. Stock-based compensation of $64,755 was recorded during the nine months ended March 31, 2013.

Repriced Options

     On December 31, 2012, the Company re-priced 2,325,000 options to a director, officers and various employees of the Company, to purchase shares of common stock at an option exercise price of $0.36 per share the closing price on the date of the reprice. The original options were fully vested and had exercise prices ranging from $1.38 to $0.55. The repriced options have a five year life from the date of the reprice and fully vested on December 31, 2012. The repriced options were valued at $206,131 using the Black-Scholes option pricing model. The options were valued using the following significant assumptions: a risk free interest rate of 0.30%, expected life of 2.5 years, stock price volatility of 74.30% and expected dividend yield of zero. Stock-based compensation of $206,131 was recorded during the nine months ended March 31, 2013.

     On December 31, 2012, the Company repriced 675,000 options to three officers of the Company, to purchase shares common stock at an option exercise price of $0.36 per share the closing price on the date of the reprice. The original options were fully vested had exercise prices ranging from $1.01 to $0.60. The repriced options have a five year life from the date of the reprice and will vest on June 30, 2013. The repriced options were valued at $40,420 using the Black-Scholes option pricing model. The options were valued using the following significant assumptions: a risk free interest rate of 0.30%, expected life of 2.5 years, stock price volatility of 74.30% and expected dividend yield of zero. Stock-based compensation of $20,098 was recorded for the nine months ended March 31, 2013, and the remaining $20,322 will be reported over the remaining vesting period in 2013.

Issuances of Warrants

     During the nine months ended March 31, 2013, 214,858 warrants expired and 375,000 warrants were exercised.

     On January 15, 2013, the Company, in conjunction with the extension of convertible notes payable to three accredited investors, issued an aggregate of 562,500 warrants at an exercise price of $0.40. The warrants are vested on the issuance date and have lives from 1.77 years to 1.85 years. Using the Black-Scholes option pricing model, the fair market value of the warrants at the time of issuance was determined to be $66,543 with the following assumptions: risk-free rate of interest of 0.23 or 0.24%, expected life of 1.77 or 1.85 years, expected stock price volatility of 73.11 or 74.39%, and expected dividend yield of zero. The amount of $66,543 was allocated to the warrants at inception.

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     On September 14, 2012, the Company entered into an agreement for financial advisory services to be provided over a period of six months and requiring the issuance of 500,000 warrants exercisable at $0.40 per share with an exercise period of 5.0 years for investor relations services. The warrants are exercisable upon execution of the agreement and contain a ratchet provision to adjust the exercise price in certain circumstances. Using the Black-Scholes option pricing model, the initial fair market value for the warrants upon execution of the agreement was determined to be $116,650 with the following assumptions: risk-free rate of interest of 0.72%, expected life of 5 years, expected stock price volatility of 77.99%, and expected dividend yield of zero. This amount is being reported as stock compensation over the period of the agreement and $116,650 has been expensed for the nine months ended March 31, 2013.

     On August 17, 2012, the warrant exercise price of $0.35 per share on 919,448 warrants related to the additional investment rights issues of January 9, April 30, and June 2, 2008, was reduced to $0.30 under the terms and conditions of the warrant with the reduction resulting from the issuance of stock in connection under a unit offering to existing shareholders under a shelf registration. The original warrants contained an anti-dilution provision and the warrants were increased by 153,242 to 1,072,690.

     On August 17, 2012, the Company issued 6,244,286 three year warrants at an exercise price of $0.40 and exercisable immediately. The warrants are issued pursuant to terms of the unit offering to existing shareholders under shelf registration statement.

     On July 31, 2012, the Company entered into a one year agreement for investment banking services. In connection with the agreement the Company issued 4,500,000 five year warrants to purchase common stock at an exercise price of $0.40 per share. The warrants are exercisable immediately and contain a ratchet provision to adjust the exercise price in certain circumstances. Using the Black-Scholes option pricing model, the initial fair market value for the warrants upon execution of the agreement was determined to be $927,450 with the following assumptions: risk-free rate of interest of 0.60%, expected life of 5 years, expected stock price volatility of 82.19%, and expected dividend yield of zero. This amount is being reported as stock compensation over the period of the agreement and $617,453 was expensed for the nine months ended March 31, 2013, with $309,997 remaining as unreported stock compensation and will be reported over the remaining period of the agreement.

     Stock option and warrant activity, both within the 1989 stock Option Plan and the 2007 Equity incentive Plan and outside of these plans, for the nine months ended March 31, 2013, are as follows:

     Stock options and warrants exercisable at March 31, 2013, are as follows:

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     As of March 31, 2013, the aggregate intrinsic value of all stock options and warrants vested and expected to vest was approximately $600,000 and the aggregate intrinsic value of currently exercisable stock options and warrants was approximately $600,000. The intrinsic value of each option share is the difference between the fair market value of the common stock and the exercise price of such option or warrant share to the extent it is "in-the-money". Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the quarter and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation is based on the $0.26 closing stock price of the common stock on March 31, 2013. The total number of in-the-money options and warrants vested and exercisable as of March 31, 2013, was 4,000,000.

     The total intrinsic value of options and warrants exercised during the nine months ended March 31, 2013, was $22,125.

     The total fair value of options and warrants granted during the three and nine months ended March 31, 2013, was approximately $66,543 and $2,269,742, respectively. The total grant-date fair value of option and warrant shares vested during the three and nine months ended March 31, 2013, was approximately $131,298 and $2,209,343, respectively.

NOTE 13 - ACCUMULATED OTHER COMPREHENSIVE INCOME

     The following table summarizes the components of accumulated other comprehensive income for the nine months ended March, 31, 2013:

NOTE 14 – SUBSEQUENT EVENTS

     The Company has evaluated events and transactions that occurred subsequent to March 31, 2013 for possible disclosure or recognition in the consolidated financial statements. The Company has determined that there were no such events or transactions that warrant disclosure or recognition in the consolidated financial statements.

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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

     This Form 10-Q may contain certain “forward-looking” statements as such term is defined in the private securities litigation reform act of 1995 and by the securities and exchange commission in its rules, regulations and releases, which represent the Company’s expectations or beliefs, including but not limited to, statements concerning the Company’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. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company’s control, and actual results may differ materially depending on a variety of important factors, including uncertainty related to acquisitions, governmental regulation, managing and maintaining growth, the operations of the Company and its subsidiaries, volatility of stock price and any other factors discussed in this and other registrant filings with the securities and exchange commission. The Company does not intend to undertake to update the information in this Form 10-Q if any forward-looking statement later turns out to be inaccurate.

     The following discussion summarizes the results of our operations for the three month and nine month periods ended March 31, 2013, and compares those results to the three and nine month periods ended March 31, 2012. It also analyzes our financial condition at March 31, 2013. This discussion should be read in conjunction with the Management’s Discussion and Analysis, including the audited financial statements for the years ended June 30, 2012, 2011 and 2010 and Notes to the audited financial statements, in our Form 10-K/A for our fiscal year ended June 30, 2012.

     The discussion also presents certain Non-GAAP performance measures that are important to management in its evaluation of our operational results and which are used by management to compare our performance with that of comparable peer group mining companies. For a detailed description of each of the Non-GAAP financial measures, please see discussion under Non-GAAP Measures.

Overview

     Santa Fe Gold Corporation (“the Company”, “our” or “we”) is a U.S. mining company, incorporated in August 1991 in the state of Delaware, with a general business strategy to acquire and develop mining properties amenable to low cost production.

     The results of operations for the prior fiscal years ended reflect a continued under-capitalization of our Summit silver-gold project which requires additional funding to be able to achieve full project performance and sustained profitability. We expect results of operations in fiscal 2013 to reflect improved performance of the Summit mine. However, there is significant uncertainty in our Summit estimates of both future costs and future revenues, and we require additional capital resources to complete our plans.

     Our sales increased for the nine months ended March 31, 2013 to $13,254,995 as compared to $6,822,372 for the same prior year period, a result of achieving commercial production in the fourth quarter of the prior fiscal year. Sales for the quarter ended March 31, 2013 increased slightly to $3,313,077 over sales of $3,270,538 for the quarter ended March 31, 2012. Our sales for the current quarter were lower than forecasted and were directly affected by various equipment issues which decreased our production output for the period. The various equipment issues are being addressed and we anticipate returning to normal production levels during the fourth quarter. Our related accounts receivable increased by $1,760,532 at March 31, 2013 from June 30, 2012, a reflection primarily of increased payable metals outstanding which are current and considered collectible.

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     We are dependent on additional financing to continue our exploration efforts in the future and if warranted, to develop and commence mining operations on our current undeveloped mineral properties. While we have no current arrangements for this additional capital requirement, we are actively exploring various alternative financing sources.

     We anticipate a need for at least $24.0 million over the next 12 months, and $33.0 million over the next 36 months in order to satisfy past commitments, pay corporate overhead costs, complete Summit development, and fund acquisitions, feasibility studies and exploration programs as discussed under the Liquidity and Capital Resources section of this report. A portion of the required funding may be generated from cash flows from our Summit mine. 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.

Basis of Presentation and Going Concern

     The consolidated unaudited 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 $71,783,217 at March 31, 2013 and have a working capital deficit of $15,495,158. 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.

     The Company has increased revenue-generating operations during the current nine months. To continue as a going concern, the Company is dependent on continued fund raising for project development and payment of general and administration expenses until production at the Summit mine and related precious metal sales are sufficient to fund our consolidated operations. The Company, other than its current financing facilities, has no additional commitment from any party to provide additional working capital should it be required.

     The Company’s consolidated unaudited 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.

Liquidity and Capital Resources; Plan of Operation

     As of March 31, 2013, we had cash and cash equivalents of $396,479 as compared to $614,385 at June 30, 2012 and we had accounts receivable of $4,202,931 at March 31, 2013 as compared to $2,442,399 at June 30, 2012. As of March 31, 2013, we had a working capital deficit of $15,495,158.

     In August 2012, we raised $1,873,261 under a unit offering to existing stockholders, with each unit consisting of one share of common stock and one warrant to purchase an additional share of common stock. Each unit was sold at a price of $0.30. Each warrant has an exercise price of $0.40 per share of common stock and is exercisable for a period of three years. The Company issued 6,244,286 shares of common stock and 6,244,286 warrants pursuant to the unit offering. These securities have been registered on our registration statement on Form S-3.

     On October 22, 2012, the Company closed the Mogollon Option Agreement with Columbus Silver Corporation following approval of the agreement by the TSX Venture Exchange. Under the agreement, the Company may acquire the Mogollon Project, Catron County, New Mexico, for payments aggregating $4,500,000 scheduled to be paid through the end of 2014. The Company paid an initial $100,000 upon the signing of the agreement and $150,000 upon approval of the agreement by the TSX Venture Exchange. The payment schedule also calls for an additional $500,000 to be paid on or before December 30, 2012, and four payments of $937,500 each on June 30, 2013, December 30, 2013, June 30, 2014, and December 30, 2014. Additionally, the Company must maintain the property in good standing by paying underlying claim and lease payments. At March 31, 2013, we have paid $750,000 under the Agreement.

     The Mogollon Project encompasses most of the Mogollon district in southwest New Mexico, which has substantial recorded historical production of silver and gold. The acquisition is anticipated to assist in our strategic objective of developing new ore sources to augment ore currently processed through our flotation mill at Lordsburg.

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     On October 11, 2012, the Company signed a Binding Heads of Agreement to pursue a business combination with International Goldfields Limited (ASX: IGS). Key terms of the transaction have been approved by the boards of directors of both companies, subject to satisfactory completion of due diligence, definitive agreements, regulatory and required consents and approvals. The companies are targeting a second quarter 2013 closing date, subject to approval by shareholders and other customary closing conditions. The contemplated transaction structure would be affected solely through an exchange of SFEG shares for IGS shares in connection with a merger transaction.

     In accordance with the Agreement, IGS advanced the $3.9 million AUD by way of convertible notes secured by our interest in the rights to the Mogollon property option.

     On February 15, 2013, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with IGS, and IGS Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of IGS ("Merger Sub"). Under the terms of the Merger Agreement, Merger Sub will be merged with and into the Company, with the Company to be the surviving corporation (the "Surviving Corporation") and a wholly-owned subsidiary of IGS (the "Merger").

     Completion of the Merger was subject to IGS closing an equity financing before March 14, 2013, that would have resulted in IGS having at least $10,000,000 AUD in available cash, after deduction of major transaction related fees, and a maximum of $100,000 AUD in total indebtedness ("Qualified Equity Financing").

     IGS was unable to consummate a Qualified Equity Financing by March 14, 2013, and the Company and IGS do not anticipate that the merger will proceed. As an alternative to the Merger, the Company and IGS are exploring other transaction structures whereby IGS would have the right to make additional investments into the Company, although no assurances can be given that an acceptable transaction structure will be agreed upon.

     The Company is in-arrears for the February and March 2013 principal payments on the Senior Secured Gold Stream Credit Agreement totaling approximately $4.7 million and is currently in discussions with Waterton to amend the payment schedule or refinance the transaction, although no definitive agreement has been reached.

     The completion guarantee payment to Sandstorm of approximately $3.3 million due at June 30, 2012 has not been made and is still outstanding. Additionally, gold deliveries in arrears to Sandstorm total approximately $2.8 million, net of Sandstorm payments for the gold. The Company is currently in discussions with Sandstorm to amend the payment dates, although no definitive agreement has been reached.

     We are continuing to work towards achieving our goal of sustained production of 10,000 tons of ore per month from the Summit mine. In 2013 we will be working towards optimizing the performance of the mine, with the objective of meeting or exceeding our targets of production for both tons and grades. Cost control and other measures also are planned to attempt to increase efficiency and profitability.

     In January 2013 we began a drilling program to test several gold-copper targets near the Lordsburg Mill in the Lordsburg Mining District. The objective of the drilling program is the discovery of additional ore for processing though the Lordsburg Mill. The targets were identified using a combination of geologic mapping, surface geochemical sampling and analysis of historic underground maps and other data. During the quarter we completed 10 diamond core holes totaling 7,288 feet of drilling, which were aimed at initial testing of 9 targets. Reporting of assay results from the drilling is pending completion of logging, splitting and analysis of the drill cores.

     Our Lordsburg flotation mill constitutes a strategic asset with flexibility to handle various ore types and has significant extra processing capacity. In addition to the Summit mine, we will place a strong emphasis on developing new sources of ore for the mill with acceptable transportation costs to the mill and thereby build our production profile.

     We have engaged an independent engineering firm to prepare a Canadian standard NI 43-101 technical report on two deposits located at the Ortiz Gold Project site. The engineering firm completed a resource calculation in November 2012, which was released by International Goldfields Ltd as an Australian - standard JORC compliant resource statement. Upon completion of the NI 43-101 report, we plan to further commission a Preliminary Economic Assessment to be completed later in 2013. Currently the Company is conducting technical and baseline environmental studies in preparation for possible permitting and mining.

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Derivative Financial Instruments

     In connection with the issuance of debt or equity instruments, we may issue options or warrants to purchase our common stock. In certain circumstances, these options or warrants may be classified as derivative liabilities, rather than as equity. Additionally, the debt or equity instruments may contain embedded derivative instruments, such as conversion options, which in certain circumstances, may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability.

     The identification of, and accounting for, derivative instruments is complex. Our derivative instrument liabilities are revalued at the end of each reporting period, with changes in the fair value of the derivative liability recorded as charges or credits to income, in the period in which the changes occur. For warrants that are accounted for as a derivative instrument liability, we determined the fair value of these warrants using the Black-Scholes option pricing model. That model requires assumptions related to the remaining term of the instruments and risk-free rates of return, our current common stock price and expected dividend yield, and the expected volatility of our common stock price over the life of the warrants. The identification of, and accounting for, derivative instruments and the assumptions used to value them can significantly affect our consolidated financial statements.

RESULTS OF OPERATIONS

Operating Results for the Three and Nine Months Ended March 31, 2013 and 2012

     Sales, net

     During the three and nine months ended March 31, 2013, we generated $3,313,077 and $13,254,995 in concentrate and flux sales, respectively, net of treatment charges, compared to $3,270,538 and $6,822,372 for the three and nine months ended March 31, 2012, an increase of 1 % and 94%, respectively. Although revenues for the quarter ending March 31, 2013 increased slightly as compared to the quarter ending March 31, 2012, we encountered equipment issues during the current quarter which led to corresponding decreases in production output from the previous two quarters. Nonetheless, sales revenue for the nine months ended March 31, 2013 as compared to the same period in 2012 was still up significantly as the increase in the number of tons processed and a corresponding increase in payable metals sold for the current nine month period mitigated the decrease in production during the current quarter. We are currently working to resolve the equipment issues and anticipate reaching normal production levels during the fourth quarter.

     Costs applicable to sales

     During the three and nine months ended March 31, 2013, costs applicable to sales totaled $3,001,655 and $9,615,367, respectively, as compared to $1,676,148 and $3,854,829 for the same comparable periods in 2012. The increases for the periods correspond directly with the increases in production over the same periods. Additionally, the achievement of commercial production in the fourth quarter of the prior fiscal year resulted in mine development costs, previously capitalized for the three and nine months ended March 31, 2012, being recognized for the first time in costs applicable to sales for the three and nine months ended March 31, 2013. The inclusion of mining production costs are a significant contributing factor to the increases for the periods presented.

     Exploration

     Exploration costs were $786,045 and $1,458,431 for the three and nine months ended March 31, 2013, respectively, as compared to $125,874 and $298,402 over the same comparable periods in 2012. The increases in both periods of approximately $660,000 and $1,160,000, respectively, are a result of an increase in expenditures on the Ortiz project of approximately $233,000 and $737,000, respectively for the three and nine month comparable periods. Additionally, increases of approximately $368,000 at the Lordsburg Mining District and Summit mine, and another $50,000 for Mogollon, were expended during the three months ended March 31, 2013, and the nine months ended March 31, 2013, as compared to the same comparable periods in 2012.

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     General and Administrative

     General and administrative expenses increased to $1,149,088 and $2,941,075 for the three and nine months ended March 31, 2013, respectively, from $867,605 and $2,506,518 for the comparative three and nine month periods ended March 31, 2012, an increase of $281,483 and $434,557, respectively. General and administrative expenses include salaries and benefits, stock-based compensation, professional and consulting fees, marketing and investor relations, and travel costs. The increases are the result of stock-based compensation to employees and outside parties, in addition to professional and consulting fees. The increases were partially offset by decreases in marketing and investor relations, as well as director fees.

     Depreciation and Amortization

     Depreciation and amortization expense increased to $1,035,972 and $3,238,017 for the three and nine months ended March 31, 2013, respectively, as compared to $668,454 and $1,985,173 for the three and nine months ended March 31, 2012. The increase for both periods is attributable primarily to mine development costs which were not amortized until the achievement of commercial production in the fourth quarter of the prior fiscal year.

Other Income and Expenses

     Other income and (expenses) for the three and nine months ended March 31, 2013, were $127,862 and $(3,811,929), respectively, as compared to $603,620 and $553,280 for the same comparable periods in 2012.

     The decrease in income of approximately $476,000 for the three months ended March 31, 2013 compared to the three months ended March 31, 2012, is mainly comprised of the following components: decreased income recognized on derivative instrument liabilities of approximately $174,000; increases in financing costs related to the commodity supply agreements approximating $234,000; and an increase in interest expense of approximately $57,000.

     For the nine months ending March 31, 2013 and 2012, comparable periods, the increase in expenses of approximately $4,365,000 is comprised mainly of the following components: decreased income recognized on derivative instrument liabilities of approximately $3,294,000; reduced expense recognized on accretion of notes payable discounts of approximately $1,050,000; increases in financing costs related to the commodity supply agreements totaling approximately $2,075,000; a decrease in interest expense of approximately $31,000; and an increase in foreign currency translation loss of approximately $78,000. Further information regarding the changes in the various components of Other Income and Expenses is discussed in the categories below.

     Gain (Loss) on Derivative Financial Instruments

     For the three and nine months ended March 31, 2013, gain on derivative financial instruments totaled $1,127,873 and $805,565, respectively, as compared to 1,301,722 and $4,099,846 for the three and nine months ended March 31, 2012. The changes in derivative financial instruments are non-cash items and arise from adjustments to record the derivative financial instruments at fair values in accordance with pronounced accounting standards. These changes are attributable mainly to adjustments to record the change in fair value for the embedded conversion feature of derivative financial instruments, warrants previously issued under our registered direct offerings, changes in the market price of our common stock, which is a component of the calculation model, and the issuance of additional warrants resulting in derivative treatment. We use the Black-Scholes option pricing model to estimate the fair value of the derivative financial instruments. Because Black-Scholes uses our stock price, changes in the stock price will result in volatility to the earnings in future periods as we continue to reflect the derivative financial instruments at fair values.

     Accretion of Discounts on Notes Payable

     For the three and nine months ended March 31, 2013, accretion of discounts on notes payable totaled $7,108 and $12,672, respectively, as compared to $3,567 and $1,063,153 for the three and nine months ended March 31, 2012. The large decrease in accretion of discounts on notes payable for the nine month comparable period is the result of retiring the Sulane convertible notes via conversion to equity along with the retirement of the Victory Park bridge note, each the result of the completion of the Waterton financing transaction in December 2011.

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     Financing costs – commodity supply agreements

     For the three and nine months ended March 31, 2013, financing costs – commodity supply agreements totaled $561,282 and $2,830,007, respectively, as compared to $327,691 and $754,546 for the three and nine months ended March 31, 2012. The commodity supply agreements require the delivery of refined precious metals relating directly to production. The increases in costs are directly related to the increases in production which have accelerated resulting from the achievement of commercial production in the fourth quarter of the prior fiscal year.

     Non-GAAP Measures

     Throughout this report we have provided information prepared or calculated in accordance with U.S. GAAP, in addition to various non-U.S. GAAP (“Non-GAAP”) performance measures. Since our Non-GAAP performance measures do not have any standardized meaning prescribed by U.S. GAAP, they may not be comparable to similar measures presented by other companies. Accordingly these measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP.

     Production Statistics, Sales Statistics, and Cash Costs

     Presented below are selected key operating measures for our Summit underground mine and Banner mill processing facility for the three months ended September 30, 2012, December 31, 2012, and March 31, 2013, and the nine months ended March 31, 2013. In the presentation of our production statistics, we utilize the terms ‘contained metals’ and ‘payable metals’. Contained metals represent the number of ounces before metallurgical losses, primarily recoveries, and payable metals deductions levied by a smelter; whereas payable metals represents the number of ounces after metallurgical losses, primarily recoveries, and payable metals deductions levied by a smelter. Payable metals sold represent the final number of ounces which are used to record sales.

PRODUCTION STATISTICS

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SALES STATISTICS

     Total Cash Cost per Gold Equivalent Ounce Sold

     We utilize total cash cost (including royalties and resource taxes) per gold equivalent ounce sold, calculated in accordance with the Gold Institute’s Standard, as one indicator for comparative monitoring of our mining operations from period to period. Total cash costs are calculated using cost of sales, plus treatment and refining charges (which are netted against revenues). Total cash costs are divided by gold equivalent ounces sold (gold sold, plus gold equivalent ounces of silver sold converted to gold using our realized gold price to silver price ratio to arrive at total cash cost per gold equivalent ounce sold.

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     We also utilize operating cash costs per gold equivalent ounce to measure our performance. The principal difference between operating cash costs and total cash costs is that cash operating costs exclude royalty payments and resource taxes whereas total operating costs include royalty payments and resource taxes. Total cash cost per ounce figures for all periods presented in this Management’s Discussion and Analysis are presented on an ounces sold basis. There can be no assurance that our reporting of these Non-GAAP measures is similar to that reported by other mining companies.

     We have reconciled operating cash cost per gold equivalent ounce sold and total cash cost per gold equivalent ounce sold to reported U.S. GAAP measures in the table below. The most comparable financial measures to our operating cash cost and total cash cost is costs applicable to sales calculated in accordance with U.S. GAAP. Costs applicable to sales are obtained from the unaudited consolidated statements of operations.

     The increase in cash costs per gold equivalent ounce from quarter to quarter is the direct result of a decrease in gold equivalent ounces sold, especially as related to the three months ended March 31, 2013. This decrease is primarily the result of fewer tons produced for the quarter accompanied by a decrease in the grade for silver, while the grades for gold have continued to increase. Equipment issues encountered during the period are responsible for the decrease, and we are currently working to resolve the issues and anticipate returning to normal production levels in the fourth quarter. Operating costs have remained relatively stable from quarter to quarter and have slightly decreased to their lowest level for the current fiscal year.

CASH COST STATISTICS

Factors Affecting Future Operating Results

     We continue to deploy our plan to place the Company on an improved financial footing. We plan to procure capital with long term financing arrangements and/or equity placements as required, and finalize our current strategic business combinations and acquisitions. If we continue to secure required financing on acceptable terms, we believe we will be in a position to execute our business plan on our current property sites and continue to strengthen our overall financial position.

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     We closed the Mogollon Option Agreement with Columbus Silver Corporation on October 22, 2012. Under the agreement, we may acquire the Mogollon Project, Catron County, New Mexico, for payments aggregating $4,500,000 scheduled to be paid through the end of 2014. The Mogollon Project encompasses most of the Mogollon district in southwest New Mexico. The completion acquisition will assist in our strategic objective of developing new ore sources to augment ore currently processed through our flotation mill at Lordsburg.

     We entered into an Agreement and Plan of Merger (the "Merger Agreement") with IGS, and IGS Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of IGS ("Merger Sub") on February 15, 2013. Under the terms of the Merger Agreement, Merger Sub was to be merged with and into the Company, with the Company being the surviving corporation (the "Surviving Corporation") and a wholly-owned subsidiary of IGS (the "Merger"). Completion of the Merger required IGS to close an equity financing before March 14, 2013, and IGS to have at least $10,000,000 AUD in available cash, after deduction of major transaction related fees, and a maximum of $100,000 AUD in total indebtedness ("Qualified Equity Financing").

     IGS was unable to consummate a Qualified Equity Financing by March 14, 2013, and the Company and IGS do not anticipate that the merger will proceed. As an alternative to the Merger, the Company and IGS are exploring other transaction structures whereby IGS would have the right to make additional investments into the Company, although no assurances can be given that an acceptable transaction structure will be agreed upon.

Off-Balance Sheet Arrangements

     During the three months ended March 31, 2013, we did not engage in any off-balance sheet arrangements defined in Item 303(a) (4) of the SEC’s Regulation S-K.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     There has been no material change in the market risks discussed in Item 7A of Santa Fe Gold’s Form 10-K for the fiscal year ended June 30, 2012.

ITEM 4 – 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, and that our disclosure controls and procedures are effective in alerting management on a timely basis to material information required to be disclosed in our periodic reports. 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 March 31, 2013. 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 Chief Financial Officer has concluded that our disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by us in reports we file with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods required, and are effective in alerting management on a timely basis to material information required to be disclosed in our periodic reports.

     During the quarter ended March 31, 2013, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     None.

ITEM 1A. RISK FACTORS

     Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described in our annual report on Form 10-K for our year fiscal ended June 30, 2012, in addition to the other information included in this quarterly report. If any of the risks described actually occurs, our business, financial condition or results of operations would likely suffer. In that case, the trading price of our common stock could fall.

     As of March 31, 2013, there have not been any material changes to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012, although we may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

     On January 3, 2013, two investors exercised warrants to purchase 375,000 shares of common stock at price of $0.30 per share on a cashless basis. Under the cashless basis exercise, 61,628 shares were issued. The built-in equity value of the warrants was $22,501. No cash proceeds were received.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None.

ITEM 4. MINE SAFETY DISCLOSURES

     The Dodd-Frank Wall Street Reform and Consumer Protection Act (“The Act”) requires the operators of mines, including gold and silver mines, to include in each periodic report filed with the Securities and Exchange Commission certain specified disclosures regarding the company’s history of mine safety.

     In evaluating these disclosures, consideration should be given to factors such as: (i) the number of citations and orders may vary depending on the size of the mine, (ii) the number of citations issued will vary from inspector to inspector and mine to mine, and (iii) citations and orders can be contested and appealed, and in that process, are often reduced in severity and amount, and are sometimes dismissed.

     Specified disclosures relating to The Act and pertaining to the Summit Mine for the three months ended March 31, 2013 are as follows:

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Pending legal action before the Mine Safety and Health Review Commission: - We have multiple citation protests pending before the Commission.

ITEM 5. OTHER INFORMATION

     None

ITEM 6. EXHIBITS

     (a) The following exhibits are filed as part of this report:

SIGNATURES:

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

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