Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Company
We were incorporated in Delaware
in March 2009 under the Delaware General Corporation Law. We are an exploration company holding majority joint venture interests in the
Desierto and Sarita Este concessions, adjoining gold-silver-copper exploration projects located in northwest Salta Province Argentina,
a 60% joint venture interest in Sand Canyon, an exploration-stage, gold-silver project in northwestern Nevada, and interests in other
mineral exploration properties located primarily in or near historical precious metals producing regions in Argentina and Mexico. We are
primarily focused on advancing exploration activities at the Sarita Este/Desierto project.
We restarted mining at
our Velardeña Properties in December 2023 and continued through the end of February 2024 when it was determined that the
initial performance of both the mine and the plant did not achieve expected results. We processed all the mineralized material that
had been mined, shut down the sulfide processing plant at the end of March 2024 and held the Velardeña Properties for
short-term sale as we evaluated options to realize value from the assets. We entered into the Velardeña Sales Agreements to
sell the Velardeña and Chicago mines, both sulfide and oxide processing plants, water wells, and related equipment of the
Velardeña Properties to the Velardeña Buyer in exchange for an aggregate purchase price of $5.5 million in cash, plus
VAT. The first three of the Velardeña Sales Agreements which include the combined sales of the Velardeña and Chicago
mines, the sulfide processing plant and various related equipment were completed on June 20, 2024, and the titles to the assets were
transferred to the Velardeña Buyer. The Velardeña Buyer agreed to pay $3.0 million plus VAT on July 1, 2024, to
complete the fourth and final of the Velardeña Sales Agreements which covered the oxide processing plant and water wells. The
Velardeña Buyer has made payments of approximately $2.97 million through August 13, 2025, and is currently in default. While
we retain title to the plant, the Velardeña Buyer has had operational control of the plant, and we have not had access to the
property, since mid-year 2024. During June 2025, we transferred all environmental permits to the Velardeña Buyer. We continue to
hold our remaining interests in the oxide plant at Velardeña as assets held for sale. The Velardeña Buyer has been
making periodic payments and the Company believes at this time that it will eventually collect the full amount, at which time the
Company will record the sale under the fourth and final Velardeña Sales Agreement.
In October 2024, we completed
the sale of Silex Argentina, which is the sole owner of El Quevar, our advanced exploration property in Argentina for $3.5 million. We
also completed the sale of our Yoquivo exploration property in Mexico in November 2024 for $570,000 plus VAT and the sale of a Mexican
subsidiary holding tax losses for $445,000. In April 2025 the Company completed the sale of an additional Mexican subsidiary holding tax
losses and 5 minor property concessions for $600,000. The Company continues to hold an interest in several remaining exploration properties,
including Sarita Este/Desierto, a gold-silver-copper exploration project located in northwest Salta Province Argentina and Sand Canyon,
an exploration stage, gold-silver project in northwestern Nevada.
Because we have ceased production
at the Velardeña Properties, our only near-term opportunity to generate cash flow is from the sale of assets or new sources of
debt or equity capital. The Company is evaluating and pursuing alternatives to obtain funds to continue as a going concern, including
the potential sale of the Company, finalizing the sale of its assets at the Velardeña Properties, seeking buyers or partners for
certain of the Company’s other assets or obtaining equity or other external financing. In the absence of additional cash inflows,
the Company anticipates that its cash resources will be exhausted in the first quarter of 2026. If we are unable to obtain additional
cash resources or sell the Company, we will be forced to cease operations and liquidate.
2025 Highlights
The Company has achieved a
significant reduction in liabilities and a significant decrease in its cost structure through its restructuring efforts in 2024 which
continued into the first half of 2025. These combined actions allowed us to strengthen our balance sheet and preserve capital, enabling
us to shift focus toward our most promising exploration assets as further described below. We expect the restructuring actions to be completed
once the remaining sales agreement for the Velardeña assets is completed, which we anticipate in the third quarter of 2025.
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Sarita Este / Desierto Project
The Desierto project, located
in the Puna geological region of Salta Province, Argentina, has been the subject of surface exploration that identified zones of alteration,
including clay and silica-rich areas typically associated with precious metal systems. The Company controls 67% of the Desierto Project.
The Company has completed joint venture agreements for the Sarita Este property with Cascadero Copper Corporation (“Cascadero”),
and remains in negotiation with Cascadero regarding joint venture arrangements for Desierto. The Company anticipates initiating a Phase
I drill program designed to test extensions of gold mineralization observed at the adjacent Sarita Este property. Data obtained from the
initial drilling program is expected to support refinement of the Desierto geological model and further evaluation of potential synergies
with the Sarita Este project.
Sand Canyon Project
In January 2025, the Company
exercised its option to earn a 60% interest in the Sand Canyon project, located in Humboldt County, Nevada, pursuant to its agreement
with Golden Gryphon Explorations, Inc. The parties are currently working to finalize joint venture documentation. While no drilling is
planned for 2025, the Company is continuing to review and integrate historical exploration data and technical studies to inform future
exploration plans.
Sale of Minera de Cordilleras
In April 2025, the Company
completed the sale of its wholly owned subsidiary, Minera de Cordilleras S. de R.L. de C.V., for total consideration of $600,000. The
subsidiary held five non-core mining concessions in Mexico and accumulated tax loss carryforwards and inflation-adjusted capital contributions.
Financial Results of Operations
For the results of operations
discussed below, we compare the results of operations during 2025 to the corresponding period from 2024.
Three months Ended June 2025
Exploration expense.
We recorded a nominal amount of exploration expense, including property holding costs and allocated administrative expenses, for the three
months ended June 30, 2025 and 2024.
Administrative expense.
Administrative expenses totaled $0.7 million for the three months ended June 30, 2025, compared to $1.1 million for the three months
ended June 30, 2024. Administrative expenses, including costs associated with being a public company, are incurred primarily by our corporate
activities in support of our exploration portfolio. The lower administrative expense we incurred during 2025 is primarily related to
our cost reduction efforts.
Stock-based compensation.
During the three months ended June 30, 2025 and 2024, we incurred approximately $0.1 million and $0.2 million, respectively, of expense
related to stock-based compensation. Stock-based compensation varies from period to period depending on the number and timing of shares
granted, the type of grant, the market value of the shares on the date of grant and other variables.
Interest and other income,
net. We recorded a nominal amount of interest and other income, net for the three months ended June 30, 2025 and 2024.
Loss on foreign currency
transactions. We recorded a nominal amount of loss on foreign currency transactions for the three months ended June 30, 2025 and 2024.
Foreign currency gains and losses are primarily related to the effect of currency fluctuations on monetary assets net of liabilities held
by our foreign subsidiaries that are denominated in currencies other than U.S. dollars.
Income Taxes. We recorded
zero income tax expense for the three months ended June 30, 2025 and 2024.
Loss from discontinued
operations, net of taxes. In 2024, certain businesses were classified as assets held for sale and discontinued operations, including
the Rodeo and Velardeña Properties in Mexico and the El Quevar property in Argentina. We recorded an income from discontinued operations,
net of taxes of $0.08 million for the three months ended June 30, 2025 and a loss from discontinued operations of $1.2 million for the
three months ended June 30, 2024.
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Income (loss) from discontinued
operations, net of taxes included the following major components:
● Sale of metals . Revenue from the sale of metals decreased
from $0.08 million for the three months ended June 30, 2024 to zero for the three months ended June 30, 2025 primarily due to ceasing
mining operations at the Rodeo and Velardeña Properties in 2023 and 2024, respectively.
● Cost of metals sold . For the three months ended June
30, 2025 and 2024, we recorded zero and $2.5 million of cost of metals sold, respectively. The decrease in costs was due to the discontinuation
of mining operations.
● Exploration . These costs pertain to the cost of minor
exploration as well as cost related to the care and maintenance of the projects held for sale. Exploration costs increased from $0.3
million for the three months ended June 30, 2024 to 0.6 million for the three months ended June 30, 2025 primarily due additional consulting
charges in Mexico as we continue to wind down the operations.
● Reclamation and accretion expense. During the three
months ended June 30, 2025 and 2024, we incurred a nominal amount of reclamation expense related to the accretion of an asset retirement
obligation at the Velardeña and Rodeo properties.
● Asset impairment expense. During the three months ended
June 30, 2024, in accordance with ASC 360, the Company recorded an asset impairment expense of $0.4 million in order to write down the
remaining book value of the oxide plant and water wells to the salvage value.
● Other operating income, net . We recorded $0.2 million of other operating income for the three months
ended June 30, 2025 related to the reimbursement of certain cost from the Velardeña Buyer. We recorded $2.1 million of other operating
income for the three months ended June 30, 2024 primarily related to the sale of the Velardeña mine, sulfide plant and related
equipment.
● Gain on sale of assets held for sale. We recorded $0.6 million from the sale of Minera de Cordilleras
for the three months ended June 30, 2025.
● Depreciation and amortization . For the three months ended June 30, 2025 and 2024, we recorded zero
and a nominal amount of depreciation and amortization, respectively.
Six months Ended June 2025
Exploration expense.
Our exploration expense, including property holding costs and allocated administrative expenses, totaled $0.2 million and $0.3 million
for the six months ended June 30, 2025 and 2024, respectively. The lower exploration expense for 2025 is primarily related to reduced
activity in 2025 on the Company’s Sand Canyon project, as described above.
Administrative expense.
Administrative expenses totaled $1.5 million for the six months ended June 30, 2025, compared to $2.1 million for the six months
ended June 30, 2024. Administrative expenses, including costs associated with being a public company, are incurred primarily by our corporate
activities in support of our exploration portfolio. The lower administrative expense we incurred during 2025 is primarily related to
our cost reduction efforts.
Stock-based compensation.
During the six months ended June 30, 2025 and 2024, we incurred approximately $0.2 million and $0.3 million, respectively, of expense
related to stock-based compensation. Stock-based compensation varies from period to period depending on the number and timing of shares
granted, the type of grant, the market value of the shares on the date of grant and other variables.
Interest and other income,
net. We recorded a nominal amount of interest and other income, net for the six months ended June 30, 2025 and 2024.
Loss on foreign currency
transactions. We recorded a nominal amount of loss on foreign currency transactions for the six months ended June 30, 2025 and 2024.
Foreign currency gains and losses are primarily related to the effect of currency fluctuations on monetary assets net of liabilities held
by our foreign subsidiaries that are denominated in currencies other than U.S. dollars.
Income Taxes. We recorded
zero income tax expense for the six months ended June 30, 2025 and 2024.
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Loss from discontinued
operations, net of taxes. In 2024, certain businesses were classified as assets held for sale and discontinued operations, including
the Rodeo and Velardeña Properties in Mexico and the El Quevar property in Argentina. Loss from discontinued operations, net of
taxes was $0.3 million and $4.6 million for the six months ended June 30, 2025 and 2024, respectively.
Loss from discontinued operations,
net of taxes included the following major components:
● Sale of metals . Revenue from the sale of metals decreased
from $1.3 million for the six months ended June 30, 2024 to zero for the six months ended June 30, 2025 primarily due to ceasing mining
operations at the Rodeo and Velardeña Properties in 2024 and 2025, respectively.
● Cost of metals sold . For the six months ended June
30, 2025 and 2024, we recorded zero and $5.4 million of cost of metals sold, respectively. The decrease in costs was due to the discontinuation
of mining operations.
● Exploration . These costs pertain to the cost of minor
exploration as well as cost related to the care and maintenance of the projects held for sale. Exploration costs were $0.8 million for
the six months ended June 30, 2025 and 2024 as we continue to wind down the operations.
● Reclamation and accretion expense. During the three
months ended June 30, 2025 and 2024, we incurred approximately $0.1 and $0.2 of reclamation expense, respectively, related to the accretion
of an asset retirement obligation at the Velardeña and Rodeo properties.
● Asset impairment expense. During the six months ended
June 30, 2024, in accordance with ASC 360, the Company recorded an asset impairment expense of $0.4 million in order to write down the
remaining book value of the oxide plant and water wells to the salvage value.
● Other
operating income, net . We recorded a nominal amount of other operating income for the
six months ended June 30, 2025. We recorded $1.2 million of other operating income for the
six months ended June 30, 2024 primarily related to the sale of certain Velardeña
assets offset by severance expenses paid to and accrued for employees who were terminated
during the six months ended June 30, 2024 in connection with the cessation of operations
at the Velardeña Properties.
● Gain on sale of assets held for sale. We recorded $0.6
million from the sale of Minera de Cordilleras for the six months ended June 30, 2025.
● Depreciation and amortization . For the six months ended
June 30, 2025 and 2024, we recorded zero and $0.2 million of depreciation and amortization, respectively.
For additional details on
the major components of the loss from discontinued operations, please refer to “ Item 1 Financial Statements—Note 3. Assets
Held for Sale and Discontinued Operations ” in this Form 10-Q.
Liquidity, Capital Resources and Going Concern
2025 Liquidity Forecast and Going Concern Qualification
We do not currently have sufficient
resources to meet our expected cash needs for a period of twelve months beyond the filing date of this 2025 Quarterly Report on Form 10-Q.
At June 30, 2025, we had current assets of approximately $2.7 million, including cash and cash equivalents of approximately $2.5 million.
On the same date, we had accounts payable and other current liabilities of approximately $4.3 million, which includes $2.97 million in
deferred revenue for the sale of the Velardeña oxide plant and water wells recorded within Current liabilities held for sale
on the interim Condensed Consolidated Balance Sheets. As previously disclosed, the Company ceased mining at the Velardeña mines
in Mexico in the 2024 and subsequently sold the mines and certain related assets. As of June 30, 2025, the Company was owed $32,000 plus
$5,000 VAT of the $3.0 million purchase price for the Velardeña oxide plant and water wells and other minor remaining Velardeña
assets ( see Item I Financial Statements - Note 15 ).
The Company’s only near-term
opportunity to generate cash flow to meet its expected cash requirements is from the sale of assets, equity or other external financing.
The Company is evaluating and pursuing alternatives, including the potential sale of the Company, finalizing the sale of its assets at
the Velardeña Properties, seeking buyers or partners for the Company’s other assets or obtaining equity or other external
financing. In the absence of additional cash inflows, the Company anticipates that its cash resources will be exhausted in approximately
the first quarter of 2026. If we are unable to obtain additional cash resources or sell the Company, we will be forced to cease operations
and liquidate.
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The Company’s interim
condensed consolidated financial statements have been prepared on a going concern basis under which an entity is considered to be able
to realize its assets and satisfy its liabilities in the normal course of business. However, as noted above, our continuing long-term
operations will be dependent upon our ability to secure sufficient funding to generate future profitable operations. The underlying value
and recoverability of the amounts shown as property, plant and equipment in our consolidated financial statements are dependent on our
ability to generate positive cash flows from operations and to fund general administrative, and exploration activities that would lead
to additional profitable mining and processing activities or to generate proceeds from the disposition of property, plant and equipment.
The ability of the Company
to maintain a positive cash balance for a period of twelve months beyond the filing date of this 2025 Quarterly Report on Form 10-Q is
dependent upon its ability to generate sufficient cash flow from selling assets, reducing expenses, and raising sufficient funds through
equity financings or other external sources. These material uncertainties cast significant doubt on the Company’s ability to continue
as a going concern. Therefore, the Company cannot conclude that substantial doubt does not exist as to the Company’s ability to
continue as a going concern for the twelve months following the filing date of this Quarterly Report on Form 10-Q. The financial statements
do not include any adjustments relating to the recoverability and classification of recorded assets or liabilities which might be necessary
should the Company not continue as a going concern.
2025 Liquidity Discussion
At June 30, 2025, our aggregate
cash and cash equivalents totaled $2.5 million, compared to the $3.2 million in similar assets held at December 31, 2024. This decrease
is the result of the following expenditures and cash inflows for the six months ended June 30, 2025.
● $0.2 million cash spent on discontinued operations, primarily related to care and maintenance cost of
the Velardeña properties;
● $2.2 million in general and administrative and exploration expenditures.
The above expenditures were
partially offset by cash inflows of $1.8 million from the following:
● $1.2 million of proceeds received from the sale of Velardeña Plant 2 and water wells; and
● $0.6 million from the sale of Minera de Cordilleras.
Recent Accounting Pronouncements
In March 2025, the FASB issued
ASU 2025-02, Liabilities (405): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 122 , which, in
light of SEC SAB 122, removes the SAB 121 interpretive guidance regarding crypto-asset safeguarding obligations. The guidance
is effective immediately and is applied retrospectively for periods after December 15, 2024. The ASU did not have any impact on the Company’s
condensed consolidated financial statements.
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Forward-Looking Statements
Some information contained
in or incorporated by reference into this Quarterly Report on Form 10-Q (this “Form 10-Q”) may contain forward-looking statements
and forward-looking information (collectively, “forward-looking statements”) within the meaning of the United States Private
Securities Litigation Reform Act of 1995 and other applicable securities laws. We use the words “anticipate,” “continue,”
“likely,” “estimate,” “expect,” “may,” “could,” “will,” “project,”
“should,” “believe” and similar expressions (including negative and grammatical variations) to identify forward-
looking statements. These statements include comments relating to (i) our anticipated near-term capital needs and potential sources of
capital; (ii) our plans regarding exploration activities at the Sarita Este/Desierto project and the completion of the related joint venture
documents and formation of the joint venture with Cascadero (iii) plans regarding our Sand Canyon exploration property in Nevada; (iv)
expectations pertaining to the collection of receivables from the sale of the Velardeña Properties; (iv) projected spending for
the twelve months from this Quarterly Report; and (v) statements concerning our financial condition, business strategies, business and
legal risks, and our financial outlook for 2025 and beyond, including anticipated expenditures and cash inflows. Although we believe the
expectations and assumptions reflected in those forward-looking statements are reasonable, we cannot assure you that these expectations
and assumptions will prove to be correct. Our actual results could differ materially from those expressed or implied in these forward-looking
statements as a result of various factors described in this Form 10-Q, including:
● The Company’s expected near-term cash needs, including the need to raise additional
cash in the near-term and whether we are able to raise the necessary capital required to continue our business on terms acceptable to
us or at all;
● Higher than anticipated exploration, maintenance, general and administrative costs;
● Whether we will receive the full amount of receivables from the sale of the Velardeña
Properties and whether the timing of such collections will be delayed;
● Plans regarding further advancement of the Sarita Este/Desierto project, including
completion of the joint venture documents with Cascadero;
● Plans regarding further advancement of the Sand Canyon project, including completion
of the joint venture with Golden Gryphon Explorations, Inc.;
● Decreases in silver and gold prices;
● Risks related to our exploration properties, including unfavorable results from
exploration and whether we will be able to advance our exploration properties;
● Variations in the nature, quality and quantity of any mineral deposits that are
or may be located at our exploration properties, changes in interpretations of geological information, and unfavorable results of drilling,
metallurgical and other tests;
● Potential delays in our exploration activities or other activities to advance properties
towards mining resulting from environmental consents or permitting delays or problems, accidents, problems with contractors, disputes
under agreements related to exploration properties, unanticipated costs and other unexpected events;
● Our ability to retain key management and exploration personnel necessary to successfully
operate and grow our business;
● Economic and political events negatively affecting the market prices for gold, silver,
zinc, lead and other minerals that may be found on our exploration properties;
● Political and economic instability in Argentina and other countries in which we
conduct our business, and future actions of any of these governments with respect to nationalization of natural resources or other changes
in mining or taxation policies;
● Adverse technological changes and cybersecurity threats;
● Volatility in the market price of our common stock; and
● The factors discussed under “ Risk Factors ” in our 2024 Annual
Report.
These factors are not intended
to represent a complete list of the general or specific factors that could affect us. Many of these factors are beyond our ability to
control or predict. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions,
such expectations may prove to be materially incorrect due to known and unknown risks and uncertainties. You should not unduly rely on
any of our forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q. We undertake
no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as
a result of new information, future developments or otherwise.
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