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Item 7. Management’s Discussion and Analysis

2023-04-17 compared with 2022-03-24 · 53 added, 72 removed, 102 unchanged (55% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to in this annual report as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to in this annual report as the Exchange Act.

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The Company can give no assurances that such forward-looking statements will prove to be correct.

CAUTIONARY NOTE TO UNITED STATES INVESTORS—INFORMATION CONCERNING PREPARATION OF RESOURCE AND RESERVE ESTIMATES

The Company is an “OTC Reporting Issuer” as that term is defined in BC Multilateral Instrument 51-105, Issuers Quoted in the U.S.

Over-the-Counter Markets promulgated by the British Columbia Securities Commission.

In Canada, an issuer is required to provide technical information with respect to mineralization, including reserves and resources, if any, on its mineral exploration properties in accordance with Canadian requirements, which differ significantly from the requirements of the United States Securities and Exchange Commission (the “SEC”) applicable to registration statements and reports filed by United States companies pursuant to the Securities Act or the Exchange Act.

As such, certain disclosures of mineralization under Canadian standards may not be comparable to similar information made public by United States companies subject to the reporting and disclosure requirements of the SEC and not subject to Canadian securities legislation.

While these terms are recognized and required by Canadian securities legislation (under National Instrument 43-101 (“NI 43-101”), entitled Standards of Disclosure for Mineral Projects ), the SEC does not recognize these terms.

Investors in the United States are cautioned not to assume that any part or all, of the mineral deposits in these categories, will ever be converted to reserves.

In addition, inferred mineral resources have a great amount of uncertainty as to their existence and economic and legal feasibility.

It cannot be assumed that all or any part of a measured mineral resource, indicated mineral resource or inferred mineral resource will ever be upgraded to a higher category.

Under Canadian securities legislation, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, although they may form, in certain circumstances, the basis of a “preliminary economic assessment” as that term is defined in NI 43-101.

investors are cautioned not to assume that any part or all, of any reported measured, indicated, or inferred mineral resource estimates referred to in the DynaMéxico NI 43-101 Technical Report and DynaMéxico 43-101 Mineral Resource Estimate (compiled for DynaResource de México SA de CV), are economically or legally mineable.

standards, as set forth in SEC Industry Guide 7, mineralization may not be classified as a “reserve” unless a determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made.

The SJG Property as described in this Annual Report on Form 10-K is without known reserves.

Mineral resources which are not classified as mineral reserves do not have “demonstrated economic viability.” The quantity of resources and the quality (grade) of resources reported as “Indicated” and “Inferred” mineral resources in the DynaMéxico 43-101 Mineral Resource Estimate compiled for DynaResource de México SA de CV, under Canadian National Instrument 43-101 and filed by the Company with SEDAR, are not disclosed in this Form 10-K .

There has been insufficient exploration to define any mineral reserves on the SJG Property, and it is not certain if further exploration will result in the definition of mineral reserves.

The Company is a minerals investment, management, and exploration company, and currently conducting test mining and pilot milling operations through an operating subsidiary in México, with specific focus on precious and base metals in México.

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We currently own 80% of the outstanding shares of DynaResource de México, S.A.

(“DynaMéxico”), and DynaMéxico currently holds 20% of its outstanding shares recovered from Goldgroup Resources Inc.

(“DynaMéxico”), of which 79% are held directly and 1% are held by the current CEO on behalf of DynaResoure, Inc., in compliance with Mexican law, and DynaMéxico currently holds 20% of its shares recovered from Goldgroup Resources Inc.

as treasury shares.

DynaMéxico owns 100% of mining concessions, equipment, camp and related facilities which comprise the San Jose de Gracía Property, in northern Sinaloa State, México.

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The Company continues its business plan of operations at San Jose de Gracía, which is to improve, increase and expand test mining and pilot milling operations and generally, to increase production of gold ounces.

Since January 2015 startup of the test mining and milling activities, the Company has increased daily output from an initial 75 tons per 24-hour operating day, to a current 300 tons per 24-hour operating day, and during first quarter 2021 the Company expects to achieve production output of 500 tons per 24-hour operating day.

Since January 2015 startup of the test mining and milling activities, the Company has increased daily output from an initial 75 tons per 24-hour operating day, to a current 700 tons per 24-hour operating day.

(Note the Summary of Test Mining and Pilot Mill Operations for 2018 to 2022 below).

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Results for the Years Ended December 31, 2022 and 2021

Summary of Test Mining and Pilot Mill Operations for 2021, 2020, 2019 and 2018:

Mined & Processed

Summary of Test Mining and Pilot Mill Operations for 2018 to 2022:

Total Tonnes Processed

Reported Mill Feed Grade

Reported Recovery

Gross Gold Concentrates Produced

Net Gold Concentrates Sold

DynaMineras continued to increase its test underground mining activity and pilot milling operations in 2021 and increased output from 200 to 300 tons per 24-hour operating /day from the mine and mill during.

With the opening of an additional ball mill in the first quarter of 2022 the Company projects an increase in capacity to 500 tons per day.

Test pilot operations in 2021 yielded 97,088 Tons mined and processed from underground test mining activity and pilot milling operations;

and the production of approximately 26,728 gross Oz Au, and net of dry weight adjustments at the buyer’s facilities, the production of approximately 22,566 Oz Au.

Gross Gold Concentrates Produced (Au oz.)

Net Gold Concentrates Sold(Au oz.)

DynaMexico continued to increase its test underground mining activity and pilot milling operations in 2022 and increased output from 300 to 700 tons per 24-hour operating /day during the 4 th quarter.

Test pilot operations in 2022 yielded 137,740 Tons mined and processed from underground test mining activity and pilot milling operations; and the production of approximately 31,905 gross Oz Au, and net of dry weight adjustments at the buyer’s facilities, the production of approximately 25,554 Oz Au.

The Company reports net revenue of $39,757,460 net of buyer’s price discount and refining and treatment costs.

Test pilot operations in 2020 yielded 44,218 Tons mined and processed from underground test mining activity and pilot milling operations;

and the production of approximately 7,001 gross Oz Au, and net of dry weight adjustments at the buyer’s facilities, the production of approximately 5,828 Oz Au.

Test pilot operations in 2021 yielded 97,088 Tons mined and processed from underground test mining activity and pilot milling operations; and the production of approximately 26,728 gross Oz Au, and net of dry weight adjustments at the buyer’s facilities, the production of approximately 22,566 Oz Au.

The Company reports net revenue of $35,886,046 net of buyer’s price discount and refining and treatment costs.

DynaMineras expects to continue its test underground mining activity and pilot milling operations in 2022;

and projects the output of 500 tons per 24-hour operating day from the mine and mill in 2022.

DynaMexico expects to continue its test underground mining activity and pilot milling operations in 2023; and projects the output of 700 tons per 24-hour operating day from the mine and mill in 2023.

Revenues for the years ended December 31, 2022, and 2021 were $39,767,460 and $35,886,046, respectively.

The increase was the result of the opening of the Tres Amigos mine in 2020 which yielded a higher grade of ore and the increase in plant processing capacity to 300 tons a day.

The ore feed grade increase from 5.65 g/t in 2020 to 9.67 g/t in 2021.

This combined with higher gold prices resulted in a 297% increase in revenue on a 120% increase in tonnage processed.

The increase was the result of the increase in tonnage mined and processed as a result of expansion of the Tres Amigos mine in 2022 and the increase in milling capacity to 700 tons per day in the fourth quarter of 2022.

The increase in tonnage resulted in a slight drop in yield from 9.67 g/t Au in 2021 to 8.18 g/t Au in 2022.

Volume processed however increased from 266 tons per 24hr day in 2021 to 377 tons per day in 2022.

During 2022 Volume increased from 308 tons per day in the 1 st quarter to 493 tons per day in the 4 th quarter.

The Company anticipates running an average of 600 to 700 tons per day in 2023.

PRODUCTION COSTS RELATED TO SALES:

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These are expenses directly related to the milling, packaging and shipping of gold and other precious metals product.

This represents a decrease in the cost per ounce recovered of milling from $167 per OZ to $109 per OZ.

This represents an increase in the cost per ounce recovered of milling from

$109 per OZ to $138 per OZ.

The increase was largely due to cost of bringing the new ball mills online and is expected to drop in 2023.

MINE PRODUCTION COSTS:

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These costs were directly related to the extraction of mine tonnage to be processed at the mill.

The increase was a result in the increase in tonnage mine.

However, the cost per ton dropped from $66.84 per ton in 2020 to $45.57 as result of the increased volume in tonnage.

The increase was a result of the increase in tonnage mined.

Cost per ton rose from $45.57 per ton in 2021 to $47.98 per ton in 2022.

MINE EXPLORATION COSTS:

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These were the costs of extracting waste material to reach the materials to be extracted for processing.

The increase was a result of the increase in activity as well as the increase in waste tonnage.

MINE EXPANSION COSTS:

Mine expansion costs for the years ended December 31, 2021, and 2020 were $1,478,725 and $909,190, respectively.

These were the costs associated with the expansion of the mining facilities and the cost associated with preparing the Tres Amigos for production.

The 2021 largely consisted of the new ball mill.

The increase was a result of the increase in volume.

However, the percentage of waste tonnage dropped from 49.2% of total tonnage mined in 2021 to 45.6% in 2022.

FACILITIES EXPANSION COSTS:

Facilities expansion costs for the years ended December 31, 2022, and 2021 were $6,058,588 and $1,478,725, respectively.

These were the costs associated with the expansion of the mining facilities.

Primary costs in 2022 were the purchase and installation of the two new ball mills and the construction of a new tailings pond.

These are cost which would normally have been treated as capital expenditures under U.S.

GAAP but the Company is required to expense because of the lack of proven and probable reserves.

EXPLORATION DRILLING:

Exploration drilling expenses for the years ended December 31, 2022 and 2021 were $2,484,072 and $0, respectively.

The Company began a new drilling program in 2022 to update its National Instrument 43-101 reserve report.

TRANSPORTATION:

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These were the costs of transporting the product to the customer for treatment and sale.

The increase is consistent with the overall increase in production and sales.

CAMP, WAREHOUSE AND SUPPORT FACILITIES.

Camp, warehouse and support facility cost for the years ended December 31, 2021, and 2020 were $2,913,832 and $2,036,610, respectively.

The increase was a result with the overall increase in production and sales and the general increase in fuel and trucking costs.

CAMP, WAREHOUSE AND FACILITIES:

Camp, warehouse and facility cost for the years ended December 31, 2022, and 2021 were $4,403,660 and $2,913,832, respectively.

These were the support costs of the mining facilities including housing, food, security and warehouse operations.

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These were the costs of operating the Company not directly associated with the mine operations including management, accounting, and legal expenses.

The increase is reflective of an overall increase in activity, an increase in compensation expense including $1,005,223 value of stock issued for services and a $381,871 bad debt write off.

STOCK COMPENSATION EXPENSE:

Stock compensation expense for the years ended December 31, 2022 and 2021 was $881,250 and $1,005,223, respectively.

OTHER INCOME (EXPENSE):

Other income for the years ended December 31, 2021, and 2020 was $(4,622,364) and $(2,685,878), respectively.

Included in this category in 2021 was interest expense of $(1,573,125), change in derivative liability of $(2,186,912), currency transaction gain of $247,712, and an arbitration award payment of $(1,111,111).

Included in this category in 2020 was interest expense of $(1,133,360), change in derivative of $(1,186,964), currency transaction loss of $(361,127), and other expense of $(4,427).

The increase in derivative liability is the result of the increase in the Company’s stock price on the Company’s black scholes calculation of the liability for stock warrants and convertible debt.

See Item Three Legal Proceedings for discussion of the arbitration award.

NON-CONTROLLING INTEREST.

The non-controlling interest portion of the net loss for the years ended December 31, 2021, and 2020 was $0 and $61,589, respectively.

This represented the non-controlling interest share of Dyna México’s loss.

The 2020 allocation included only the non-controlling interest’s share of the net loss for January and February as the non-controlling interest was eliminated at the end of February 2020.

Other income (expense) for the years ended December 31, 2022, and 2021 was $1,336,841 and $(4,622,364), respectively.

Included in this category in 2022 was interest expense of $(450,324), change in derivative liability of $1,726,497, currency transaction gain of $58,426, and other income of $2,242.

Included in this category in 2021 was interest expense of $(1,573,125), change in derivative liability of $(2,186,912), currency transaction gain of $247,712, an arbitration award payment of $(1,111,111) and other income of $1,072.

The decrease in derivative liability is the result of two of the derivatives expiring due to the maturity of the underlying securities.

See Item See Legal Proceedings for discussion of the arbitration award payment.

OTHER COMPREHENSIVE INCOME (LOSS):

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The Company’s other comprehensive loss for the years ended December 31, 2022, and 2021 consisted of unrealized currency gains (losses) of $359,743 and $(685,757), respectively.

The YTD change is due to the variances in the peso exchange rates throughout the two years.

The current year change is due to the variances in the peso exchange rates throughout the two years.

Liquidity and Capital Resources

As of December 31, 2022, the Company had working capital of $11,789,578, comprised of current assets of $33,123,955 and current liabilities of $21,334,377.

This represented a increase of $7,126,703 from the working capital maintained by the Company of $(5,778,992) as of December 31, 2020.

The primary reason for the increase is the increase in cash balance generated from the Company’s operations.

This represented an increase of$10,661,867 from the working capital maintained by the Company of $1,347,711 as of December 31, 2021.

The primary reason for the increase is the cash, inventory and receivables from the Company’s operating profit and from funds raised by the issuance of common stock.

Net cash provided by (used in) operations for the year ended December 31, 2022 was $(1,781,225) compared to $17,516,205 in the year ended December 31, 2021.

The increase is the result of the Company’s increased operating profits and proceeds from its customer advance.

The decrease is largely due to the drop in net income and the increase in exploration activities and an increase in working capital.

Net cash provided by (used) in investing activities for the years ended December 31, 2022, and 2021 was $0 and $0, respectively.

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Net cash provided by (used in) financing activities for the year ended December 31, 2022, was $4,778,958 compared to $(2,557,721) for the year ended December 31, 2021.

The 2020 funds represent the net proceeds from the Series D financing.

The 2021 expenditure is the partial repayment of that financing.

The 2022 funds are the result of the issuance of common stock due to the exercise of stock warrants.

The 2021 usage was for the retirement of Series D debt.

Off-Balance Sheet Arrangements

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The Company commenced its testing activities in fall 2015 at the rate of approximately 100 tons per 24-hour operating day from the mine and approximately the same output from the processing plant.

Over the past five years, the Company has gradually increased its output to approximately 300 tons per 24-hour operating day from the mines and processing plant.

Over the past seven years, the Company has gradually increased its output to approximately 300 tons per 24-hour operating day from the mines and processing plant.

In 2023, the Company projects to complete its next phase of expansion to reach the output of approximately 700 tons per 24-hour operating day from the mine and the processing plant.

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The Company’s primary activities relate to the test mining and pilot milling operations of the SJG property through its Mexican subsidiaries.

No Known Reserves

The SJG property is without known reserves.

standards, mineralization may not be classified as a “reserve” unless a determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made.

Exploration Stage

The Company is an exploration stage issuer has started extraction without determining mineral reserves.

Exploitation Amendment Agreement (“EAA”)

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The EAA grants to DynaMineras the right to finance, explore, develop and exploit the SJG Property, in exchange for:

and, (B) After Item (A) above, the receipt by DynaMineras of 75% of gross receipts received by DynaMéxico from the sale of all minerals produced from SJG, to the point that DynaMineras has received 200% of its advanced funds;

and, (C) after items (A) and (B) above;

the receipt by DynaMineras of 50% of all gross receipts received by DynaMéxico from the sale of all minerals produced from SJG, and throughout the term of the EAA;

and, (D) in addition to Items (A), (B), and (C) above, DynaMineras shall receive a 2.5% NSR (“Net Smelter Royalty”) on all minerals sold from SJG over the term of the EAA.

(A) Reimbursement of all costs associated with financing, maintenance, exploration, development and exploitation of the SJG Property, which costs are to be charged and billed by DynaMineras to DynaMéxico; and, (B) After Item (A) above, the receipt by DynaMineras of 75% of gross receipts received by DynaMéxico from the sale of all minerals produced from SJG, to the point that DynaMineras has received 200% of its advanced funds; and, (C) after items (A) and (B) above; the receipt by DynaMineras of 50% of all gross receipts received by DynaMéxico from the sale of all minerals produced from SJG, and throughout the term of the EAA; and, (D) in addition to Items (A), (B), and (C) above, DynaMineras shall receive a 2.5% NSR (“Net Smelter Royalty”) on all minerals sold from SJG over the term of the EAA.

The total Advances made by DynaMineras to DynaMéxico as of December 31, 2014 is $4,025,000.

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The Term of the Second Amendment is 20 years, and the EAA (Third Amendment) provides for the continuation of the 20 Year Term from the date of the Second Amendment (July 15, 2011).

The agreement was terminated in October 2021 and all operations consolidated in Dyna Mexico.

The agreement was terminated in October 2021 and all operations consolidated into Dyna Mexico.

DynaMéxico General Powers of Attorney

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QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not applicable.

Not required for smaller reporting companies.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis