Attached files

file filename
EX-32 - EX-32 - McEwen Mining Inc.a10-22272_1ex32.htm
EX-31.2 - EX-31.2 - McEwen Mining Inc.a10-22272_1ex31d2.htm
EX-31.1 - EX-31.1 - McEwen Mining Inc.a10-22272_1ex31d1.htm

Table of Contents

 

 

 

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

 

FORM 10-Q/A

 

(Mark One)

 

 

 

 

 

x

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2010

 

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from                       to                      

 

Commission File Number: 001-33190

 

US GOLD CORPORATION

(Exact name of registrant as specified in its charter)

 

Colorado

 

84-0796160

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

99 George Street, 3rd Floor, Toronto, Ontario Canada M5A 2N4

(Address of principal executive offices)  (Zip code)

 

(866) 441-0690

(Registrant’s telephone number, including area code)

 

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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o    No o

 

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):

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 116,502,206 shares outstanding as of August 4, 2010.

 

 

 



Table of Contents

 

EXPLANATORY NOTE

 

We are filing this Amendment No. 1 on Form 10-Q/A (“Amendment”) to amend our report on Form 10-Q for the quarter ended June 30, 2010, as filed with the Securities and Exchange Commission (“SEC”) on August 6, 2010 (the “10-Q”).  The purpose of the amendment is to file amended certifications from the principal executive and principal financial officers, as required by Section 302 of the Sarbanes-Oxley Act of 2002, attached as Exhibits 31.1 and 31.2 to this Amendment.

 

Other than furnishing the information identified above, this Amendment does not reflect events occurring after the date of the 10-Q, nor does it modify or update the disclosure contained in the 10-Q in any way other than as required to reflect the amendments discussed above and reflected below.  Accordingly, this Amendment should be read in conjunction with the 10-Q and our other filings made with the SEC on or subsequent to August 6, 2010.

 



Table of Contents

 

US GOLD CORPORATION

 

Index

 

Part I   FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

Consolidated Statements of Operations and Other Comprehensive Loss for the three and six months ended June 30, 2010 and 2009 (unaudited)

3

 

 

 

 

Consolidated Balance Sheets at June 30, 2010 (unaudited) and December 31, 2009

4

 

 

 

 

Consolidated Statement of Changes in Shareholders’ Equity for the six months ended June 30, 2010 and 2009 (unaudited)

5

 

 

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009 (unaudited)

6

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

12

 

 

 

Item 3.

Quantitative and Qualitative Disclosure about Market Risk

15

 

 

 

Item 4.

Controls and Procedures

16

 

 

 

Part II    OTHER INFORMATION

 

 

 

Item 6.

Exhibits

17

 

 

 

SIGNATURES

 

18

 

2



Table of Contents

 

US GOLD CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS (UNAUDITED)

(in thousands, except per share data)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

General and administrative

 

1,245

 

1,671

 

2,614

 

2,731

 

Property holding costs

 

471

 

309

 

2,119

 

1,794

 

Exploration costs

 

4,189

 

1,900

 

8,398

 

3,624

 

Accretion of asset retirement obligation

 

116

 

133

 

187

 

266

 

Depreciation

 

109

 

162

 

239

 

323

 

(Gain) loss on disposal of assets

 

(3

)

8

 

(3

)

2

 

Write-off of mineral property interests

 

5,878

 

 

5,878

 

 

Total costs and expenses

 

12,005

 

4,183

 

19,432

 

8,740

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

(12,005

)

(4,183

)

(19,432

)

(8,740

)

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

Interest income

 

24

 

25

 

40

 

60

 

Interest expense

 

12

 

(80

)

(5

)

(83

)

Foreign currency (loss) gain

 

(733

)

330

 

(183

)

45

 

Total other (expense) income

 

(697

)

275

 

(148

)

22

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

(12,702

)

(3,908

)

(19,580

)

(8,718

)

Recovery of income taxes

 

1,999

 

 

1,999

 

 

Net loss

 

(10,703

)

(3,908

)

(17,581

)

(8,718

)

OTHER COMPREHENSIVE LOSS:

 

 

 

 

 

 

 

 

 

Unrealized loss on available-for-sale securities, net of taxes

 

(8

)

 

 

 

Comprehensive loss

 

$

(10,711

)

$

(3,908

)

$

(17,581

)

$

(8,718

)

Basic and diluted per share data:

 

 

 

 

 

 

 

 

 

Net loss - basic and diluted

 

$

(0.10

)

$

(0.04

)

$

(0.16

)

$

(0.09

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

- basic and diluted

 

121,918

 

108,050

 

121,938

 

102,395

 

 

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

 

3



Table of Contents

 

US GOLD CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

 

As At

 

As At

 

 

 

June 30,

 

December 31,

 

 

 

2010

 

2009

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

24,906

 

$

27,690

 

Short-term investments

 

939

 

12,946

 

Gold bullion - note 2

 

3,616

 

2,760

 

Other current assets

 

1,280

 

976

 

Total current assets

 

30,741

 

44,372

 

 

 

 

 

 

 

Mineral property interests - note 3

 

233,981

 

239,858

 

Restrictive time deposits for reclamation bonding - note 3

 

4,777

 

4,777

 

Property and equipment, net - note 4

 

4,142

 

2,888

 

Other assets

 

77

 

84

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

273,718

 

$

291,979

 

 

 

 

 

 

 

LIABILITIES & SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

1,570

 

$

1,163

 

Current portion of asset retirement obligation - note 3

 

204

 

200

 

Current deferred income tax liability

 

393

 

393

 

Other current liabilities

 

98

 

93

 

Total current liabilities

 

2,265

 

1,849

 

 

 

 

 

 

 

Asset retirement obligation, less current portion - note 3

 

6,031

 

5,863

 

Deferred income tax liability

 

78,573

 

80,572

 

Other liabilities

 

472

 

469

 

Total liabilities

 

$

87,341

 

$

88,753

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Common stock, no par value, 250,000 shares authorized; Common: 116,449 shares as of June 30, 2010 and 106,538 shares as of December 31, 2009 issued and outstanding Exchangeable: 5,516 shares as of June 30, 2010 and 15,355 shares as of December 31, 2009 issued and outstanding

 

502,518

 

501,786

 

Accumulated deficit

 

(315,856

)

(298,275

)

Accumulated other comprehensive loss

 

(285

)

(285

)

Total shareholders’ equity

 

186,377

 

203,226

 

 

 

 

 

 

 

TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY

 

$

273,718

 

$

291,979

 

 

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

 

4



Table of Contents

 

US GOLD CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands)

 

 

 

Common Stock

 

Accumulated
Other
Comprehensive

 

Accumulated

 

 

 

 

 

Shares

 

Amount

 

Loss

 

Deficit

 

Total

 

Balance, December 31, 2008

 

96,676

 

$

454,052

 

$

(281

)

$

(270,577

)

$

183,194

 

Sale of shares for cash, net of issuance costs

 

25,150

 

46,301

 

 

 

46,301

 

Exercise of stock options

 

67

 

141

 

 

 

141

 

Stock-based compensation

 

 

735

 

 

 

735

 

Net loss

 

 

 

 

(8,718

)

(8,718

)

Balance, June 30, 2009

 

121,893

 

$

501,229

 

$

(281

)

$

(279,295

)

$

221,653

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2009

 

121,893

 

$

501,786

 

$

(285

)

$

(298,275

)

$

203,226

 

Stock-based compensation

 

 

643

 

 

 

643

 

Exercise of stock options

 

72

 

89

 

 

 

89

 

Net loss

 

 

 

 

(17,581

)

(17,581

)

Balance, June 30, 2010

 

121,965

 

$

502,518

 

$

(285

)

$

(315,856

)

$

186,377

 

 

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

 

5



Table of Contents

 

US GOLD CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

 

 

For Six Months Ended
June 30,

 

 

 

2010

 

2009

 

Cash flows (used in) from operating activities:

 

 

 

 

 

Cash paid to suppliers and employees

 

$

(12,371

)

$

(5,573

)

Interest received

 

40

 

 

Cash used in operating activities

 

$

(12,331

)

$

(5,573

)

Cash flows provided by (used in) investing activities:

 

 

 

 

 

Cash proceeds from short-term investments (maturity greater than 3 months)

 

12,007

 

 

Additions to property and equipment

 

(1,514

)

(74

)

Investment in gold bullion

 

(856

)

 

Increase to restricted investments securing reclamation

 

 

(22

)

Cash provided by (used in) investing activities

 

9,637

 

(96

)

Cash flows from financing activities:

 

 

 

 

 

Sale of common stock for cash, net of issuance costs

 

 

46,301

 

Exercise of stock options

 

89

 

141

 

Cash provided by financing activities

 

89

 

46,442

 

Effect of exchange rate change on cash and cash equivalents

 

(179

)

(195

)

(Decrease) increase in cash and cash equivalents

 

(2,784

)

40,578

 

Cash and cash equivalents, beginning of period

 

27,690

 

10,300

 

Cash and cash equivalents, end of period

 

$

24,906

 

$

50,878

 

Reconciliation of net loss to cash used in operating activities:

 

 

 

 

 

Net loss

 

$

(17,581

)

$

(8,718

)

Adjustments to reconcile net loss from operating activities:

 

 

 

 

 

Write-off of mineral property interests

 

5,878

 

 

Deferred income taxes

 

(1,999

)

 

Change in interest receivable

 

 

(30

)

Stock-based compensation

 

643

 

735

 

Accretion of asset retirement obligation

 

187

 

266

 

Depreciation

 

239

 

323

 

Foreign exchange loss

 

179

 

195

 

(Gain) loss on disposal of asset

 

(3

)

2

 

Other operating adjustments and write-downs

 

 

(77

)

Changes in non-cash working capital items:

 

 

 

 

 

(Increase) decrease in other assets related to operations

 

(273

)

442

 

Increase in liabilities related to operations

 

399

 

1,289

 

Cash used in operating activities

 

$

(12,331

)

$

(5,573

)

 

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

 

6



Table of Contents

 

US GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2010

 

1.             Summary of Significant Accounting Policies

 

US Gold Corporation (the “Company”) was organized under the laws of the State of Colorado on July 24, 1979.  Since inception, the Company has been engaged in the exploration for, development of, production and sale of gold and silver. The interim condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) has been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures included are adequate to make the information presented not misleading.

 

In management’s opinion, the unaudited consolidated statements of operations and other comprehensive loss for the three and six months ended June 30, 2010 and 2009, the consolidated balance sheets as of June 30, 2010 (unaudited) and December 31, 2009, the unaudited consolidated statement of changes in shareholders’ equity for the six months ended June 30, 2010 and 2009, and the unaudited consolidated statements of cash flows for the six months ended June 30, 2010 and 2009, contained herein, reflect all adjustments, consisting solely of normal recurring items, which are necessary for the fair presentation of the Company’s financial position, results of operations and cash flows on a basis consistent with that of the Company’s prior audited consolidated financial statements.  However, the results of operations for the interim periods may not be indicative of results to be expected for the full fiscal year.  Therefore these financial statements should be read in conjunction with the audited financial statements and notes thereto and summary of significant accounting policies included in the Company’s Form 10-K for the year ended December 31, 2009.  Except as disclosed herein, there has been no material change to the information disclosed in the notes to the consolidated financial statements included in the Company’s annual report on Form 10-K.

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.  All inter-company accounts and transactions have been eliminated.

 

2.             Gold Bullion

 

The Company invested a portion of its cash in gold bullion.  Below is the balance of its holdings as at June 30, 2010 and December 31, 2009.

 

 

 

June 30,

 

December 31,

 

 

 

2010

 

2009

 

 

 

(dollars in thousands, except per ounce)

 

# of ounces

 

3,636

 

2,824

 

Average cost per ounce

 

$

989

 

$

975

 

Total cost

 

$

3,616

 

$

2,760

 

Fair market value per ounce

 

$

1,244

 

$

1,088

 

Total fair market value

 

$

4,523

 

$

3,073

 

 

The fair market value of gold was based on the daily London P.M. fix as at June 30, 2010 and December 31, 2009.  Since ASC Topic 815 does not consider gold to be readily convertible to cash, the Company carries this asset at the lower of cost or market.

 

7



Table of Contents

 

US GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
June 30, 2010

 

3.             Mineral Property Interests and Asset Retirement Obligations

 

At June 30, 2010, the Company holds mineral interests in Nevada and mineral concession rights in Mexico, including the Magistral Mine, a former producing mine.  The Magistral Mine is presently held on a care and maintenance basis with active exploration in the area of the mine and surrounding areas.

 

During the second quarter of 2010, the Company rationalized its mineral property interests in Nevada in order to focus its exploration program on more prospective areas.  As a result, the Company allowed certain claims from two of its Nevada properties, Valmy and Timber Creek, to lapse.  These mineral property interests in question were acquired in 2007 and had a carrying value of $5.9 million, which was written off during the quarter, along with a resulting reduction in deferred tax liability and recovery of future income taxes of $2.0 million.  This resulted in a net write-off for the Company of $3.9 million which is included in the net loss for the three and six month periods ended June 30, 2010.

 

The Company is responsible for reclamation of certain past and future disturbances at its properties.  The two most significant properties subject to these obligations are the historic Tonkin property in Nevada and the Magistral Mine in Mexico.  The current undiscounted estimate of the reclamation costs for existing disturbances on the Tonkin property to the degree required by the U.S. Bureau of Land Management (“BLM”) and the Nevada Department of Environmental Protection (“NDEP”) is $3.8 million.  The costs of undiscounted projected reclamation of the Magistral Mine are currently estimated at $2.5 million.

 

For mineral properties in the United States, the Company maintains required reclamation bonding with various governmental agencies, and at June 30, 2010 and December 31, 2009, had cash bonding in place of $4.8 million.  Under Mexican regulations, surety bonding of projected reclamation costs is not required.

 

Changes in the Company’s asset retirement obligations for the six months ended June 30, 2010 and year ended December 31, 2009 are as follows (in thousands):

 

 

 

 

 

Year ended

 

 

 

June 30,

 

December 31,

 

 

 

2010

 

2009

 

Asset retirement obligation liability - opening balance

 

$

6,063

 

$

5,863

 

Settlements

 

(15

)

(328

)

Non-cash settlement

 

 

(100

)

Accretion of liability

 

187

 

762

 

Adjustment reflecting updated estimates

 

 

(134

)

Asset retirement obligation liability - ending balance

 

$

6,235

 

$

6,063

 

 

It is anticipated that the capitalized asset retirement costs will be charged to expense based on the units of production method commencing with gold and silver production at the Company’s properties, if any.  There was no amortization adjustment recorded during the three and six months ended June 30, 2010 or the year ended December 31, 2009 related to the capitalized asset retirement cost since the properties were not in operation.  Actual asset retirement and reclamation, generally, will commence upon the completion of operations at one or more of the properties, which cannot be reasonably estimated at this time.  As at June 30, 2010, the current portion of the asset retirement obligation was $0.2 million (December 31, 2009 - $0.2 million).

 

8



Table of Contents

 

US GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
June 30, 2010

 

4.             Property and Equipment

 

At June 30, 2010 and December 31, 2009, respectively, property and equipment consisted of the following (in thousands):

 

 

 

June 30,

 

December 31,

 

 

 

2010

 

2009

 

Trucks and trailers

 

$

964

 

$

913

 

Office furniture and equipment

 

566

 

560

 

Drill rigs

 

311

 

180

 

Building

 

808

 

808

 

Land

 

1,392

 

86

 

Mining equipment

 

956

 

964

 

Inactive milling equipment

 

778

 

778

 

Subtotal

 

$

5,775

 

$

4,289

 

Less: accumulated depreciation

 

(1,633

)

(1,401

)

Total

 

$

4,142

 

$

2,888

 

 

5.             Shareholders’ Equity

 

During the three and six months ended June 30, 2010, 0.6 million and 9.8 million exchangeable shares were converted into common stock.  At June 30, 2010, total outstanding exchangeable shares not exchanged totaled 5.5 million.

 

During the three and six months ended June 30, 2010, the Company issued 56,666 and 71,666 shares of common stock upon exercise of stock options at exercise prices of $0.91 and $1.69 per share for total proceeds of $0.1 million.  During the six months ended June 30, 2009, the Company issued 66,667 shares of common stock upon exercise of stock options at an exercise price of $2.12 per share for proceeds of $0.1 million.

 

9



Table of Contents

 

US GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
June 30, 2010

 

6.             Stock Options

 

During the first quarter of 2010, the Company granted stock options to certain employees, directors and consultants to purchase an aggregate of 0.7 million shares of common stock (2009 — 1.3 million) at an exercise price of $2.51 (2009 - $0.91) per share.  The options vest equally over a three year period if the individual remains affiliated with the Company (subject to acceleration of vesting in certain events) and are exercisable for a period of 10 years from the date of grant.  There were no options granted during the second quarter of 2010 or 2009.

 

The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model.  During the three and six months ended June 30, 2010, the Company recorded stock option expense of $0.4 million and $0.6 million, respectively, related to the service period.  During the three and six months ended June 30, 2009, the Company recorded stock option expense of $0.4 million and $0.7 million, respectively, related to the service period.

 

The principal assumptions used in applying the Black-Scholes option pricing model for the awards for the three and six month periods ended June 30, 2010 and 2009 were as follows:

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Risk-free interest rate

 

 

 

1.95% to 2.97%

 

1.93% to 2.52%

 

Dividend yield

 

 

 

n/a

 

n/a

 

Volatility factor of the expected market price of common stock

 

 

 

92% to 94%

 

106% to 110%

 

Weighted-average expected life of option

 

 

 

6.4 years

 

6.7 years

 

Weighted-average grant date fair value

 

 

 

$2.36

 

$0.77

 

 

7.             Related Party Transactions

 

Effective January 1, 2010, the Company renewed its management services agreement (“Services Agreement”) with 2083089 Ontario Inc. (“208”) pursuant to which the Company agreed to reimburse 208 for rent, personnel, office expenses and other administrative services on a cost recovery basis.  A similar contract existed between the Company and 208 for calendar year 2009.  208 is owned by Robert McEwen, the Chairman and Chief Executive Officer of the Company and beneficial owner of more than 5% of its voting securities. Mr. McEwen is also the Chief Executive Officer and Director of 208.  During the three and six month periods ended June 30, 2010, the Company paid $19,326 and $29,370, respectively, under these agreements.  For the three and six month periods ended June 30, 2009, the Company paid $45,337 and $88,511, respectively, under these agreements.

 

Beginning in the second quarter of 2010, an aircraft owned and operated by Lexam L.P (of which Mr. McEwen is a limited partner and beneficiary) has been made available to the Company in order to expedite business travel. In his role as Chairman and CEO of US Gold as well as two other junior mining companies, Mr. McEwen must travel extensively and frequently on short notice.

 

Mr. McEwen is able to charter the aircraft from Lexam L.P. at a preferential rate. The Company’s independent board members have approved a policy whereby only the variable expenses of operating this aircraft for business related travel are eligible for reimbursement.  The hourly amount that the Company has agreed to reimburse Mr. McEwen is well under half the full cost per hour of operating the aircraft or equivalent hourly charter cost and in any event less than even Mr. McEwen’s preferential charter rate. Where possible, trips also include other company personnel, both executives and non-executives, to maximize efficiency.

 

10



Table of Contents

 

US GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
June 30, 2010

 

7.             Related Party Transactions (Continued)

 

During the second quarter of 2010, Mr. McEwen’s private aircraft was used for business for approximately 4 hours of flight time for which costs of $8,848 were approved for reimbursement.

 

8.             Operating Segment Reporting

 

US Gold is a gold and silver exploration company.  US Gold’s major operations include Nevada and Mexico.  The Company identifies its reportable segments as those consolidated operations that are currently engaged in the exploration for precious metals.  Operations not actively engaged in the exploration for precious metals are aggregated at the corporate level for segment reporting purposes.

 

 

 

Operating Segments

 

 

 

(in thousands)

 

 

 

 

 

 

 

Corporate &

 

 

 

 

 

USA

 

Mexico

 

Other

 

Total

 

For the three months ended June 30, 2010

 

 

 

 

 

 

 

 

 

Property holding costs

 

$

222

 

$

249

 

$

 

$

471

 

Exploration costs

 

1,095

 

2,934

 

160

 

4,189

 

Operating loss

 

(7,391

)

(3,437

)

(1,177

)

(12,005

)

For the six months ended June 30, 2010

 

 

 

 

 

 

 

 

 

Property holding costs

 

$

1,366

 

$

753

 

$

 

$

2,119

 

Exploration costs

 

2,455

 

5,651

 

292

 

8,398

 

Operating loss

 

(10,051

)

(6,936

)

(2,445

)

(19,432

)

As of June 30, 2010

 

 

 

 

 

 

 

 

 

Mineral property interests

 

226,080

 

7,901

 

 

233,981

 

Total assets

 

232,573

 

17,604

 

23,541

 

273,718

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate &

 

 

 

 

 

USA

 

Mexico

 

Other

 

Total

 

For the three months ended June 30, 2009

 

 

 

 

 

 

 

 

 

Property holding costs

 

$

96

 

$

213

 

$

 

$

309

 

Exploration costs

 

861

 

1,109

 

(70

)

1,900

 

Operating loss

 

(1,179

)

(1,514

)

(1,490

)

(4,183

)

For the six months ended June 30, 2009

 

 

 

 

 

 

 

 

 

Property holding costs

 

$

1,211

 

$

568

 

$

15

 

$

1,794

 

Exploration costs

 

1,257

 

2,088

 

279

 

3,624

 

Operating loss

 

(2,942

)

(2,987

)

(2,811

)

(8,740

)

 

9.             Comparative Figures

 

Certain prior year information was reclassified to conform with the current year’s presentation.

 

11



Table of Contents

 

Item 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

 

The following discussion updates our plan of operation as of August 5, 2010 for the foreseeable future. It also analyzes our financial condition at June 30, 2010 and compares it to our financial condition at December 31, 2009.  Finally, the discussion summarizes the results of our operations for the three and six months ended June 30, 2010 and compares those results to the three and six months ended June 30, 2009.  We suggest that you read this discussion in connection with the MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION contained in our annual report on Form 10-K for the year ended December 31, 2009.

 

Plan of Operation

 

Our plan of operation for 2010 is to continue to advance our two primary projects, the Gold Bar Project in Nevada and the El Gallo Project in Mexico.  In April 2010, we completed a Preliminary Economic Assessment on the Gold Bar Project which, subject to the assumptions and conditions set forth therein, estimates favorable economic returns at the current gold prices.  The complete text of the Assessment, including these assumptions, is available on SEDAR at www.sedar.com and our website at www.usgold.com/resources.  We continue to prepare information required for environmental permitting and preparation of a pre-feasibility study on this project.

 

In July 2010, we completed an initial resource estimate on the El Gallo Project, in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum referred to in Canadian National Instrument 43-101 (“NI 43-101”).  The resource estimate was based on 97,110 feet (29,600 m) of core drilling.  El Gallo contains mineralized material of 7.4 million tons with an average grade of 3.4 oz silver/ton.  There were two cut-off grades since two different process methods are being considered.  Mineralized material cutoff grades were 1.3 oz silver/ton for sulphide/oxide mineralization using a mill recovery process and 0.7 oz silver/ton for the near surface oxide mineralization using a heap leaching recovery process. 

 

As a company listed on the Toronto Stock Exchange, we are required to comply with NI 43-101, which requires the preparation of a technical report and includes estimates of potential mineral resources for further targeted exploration disclosed pursuant to the applicable provisions of NI 43-101.  However, U.S. reporting requirements for disclosure of mineral properties are governed by the SEC and included in the SEC’s Securities Act Industry Guide 7 entitled “Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations” (“Guide 7”).  NI 43-101 and Guide 7 standards are substantially different.  For example, the SEC only permits the disclosure of proven or probable reserves, which in turn, requires the preparation of a feasibility study demonstrating the economic and legal feasibility of mining and processing the mineralization.  We have not received a feasibility study with regard to our El Gallo property and therefore the El Gallo property has no “reserves” as defined by Guide 7.  We cannot be certain that any part of the mineralized material at the El Gallo property will ever be confirmed or converted into Guide 7 compliant “reserves”.  U.S. investors are cautioned not to assume that all or any part of the mineralized material will ever be confirmed or converted into reserves or that any of the mineralized material can be economically or legally extracted.  

 

For the second half of 2010, we plan to drill up to 230,000 additional feet (70,000 m), focusing on extending known mineralization and testing peripheral targets surrounding El Gallo as well as evaluating other projects in the region within our property package.  In addition, we intend to complete a Preliminary Economic Assessment and updated resource estimate for El Gallo prior to the end of 2010.

 

The company-wide exploration budget for 2010 is approximately $17.4 million.  The allocation between Nevada and Mexico for exploration spending is $4.0 million for Nevada and $13.4 million for Mexico which is subject to re-evaluation based on actual exploration results and permitting status.  These amounts also include expenditures for resource updates and Preliminary Economic Assessments for our projects.  As of June 30, 2010, we spent approximately $2.5 million and $5.7 million in exploration costs in Nevada and Mexico, respectively.  Corporate general and administrative overhead and property holding costs for 2010 are anticipated to be approximately $4.8 million and $4.1 million, respectively.  As of June 30, 2010, we spent approximately $2.6 million and $2.1 million on general and administrative and property holding costs, respectively.

 

Liquidity and Capital Resources

 

As of June 30, 2010, we had working capital of $28.5 million, comprised of current assets of $30.7 million, which includes $3.6 million of gold bullion, and current liabilities of $2.2 million.  This represents a decrease of approximately $14.0 million from the working capital of $42.5 million at fiscal year end December 31, 2009.

 

Our only sources of capital at present include cash on hand, short-term investments, gold bullion and the possible exercise of options and warrants since we are not generating revenue.  Based on current spending projections, our cash, short-investments and gold bullion balances are expected to be sufficient to fund ongoing operations until approximately the third quarter of 2011.  We expect to continue depleting our working capital as we spend cash on the exploration and other activities described above under “Plan of Operation”.

 

12



Table of Contents

 

Net cash used in operations for the six months ended June 30, 2010 decreased to $12.3 million from $5.6 million for the corresponding period in 2009, mainly due to increases in cash paid to suppliers and employees.  Cash paid to suppliers and employees increased to $12.4 million during the 2010 period from $5.6 million during the 2009 period, primarily reflecting increased exploration activities in Mexico and Nevada.  Cash provided by investing activities for the six months ended June 30, 2010 was $9.6 million, primarily due to the redemption of our short-term US Treasury Bills of $12 million that matured during the second quarter of 2010 and partially offset by additional purchases of gold bullion and land in Mexico, compared to cash used in investing activities of $0.1 million in the comparable period of 2009.

 

Cash provided by financing activities for the first six months of 2010 was $0.1 million from the exercise of stock options compared to $46.4 million from the public offering of 25 million shares and exercise of stock options in the comparable period of 2009.

 

Results of Operations

 

Six months ended June 30, 2010 compared to six months ended June 30, 2009

 

For the six months ended June 30, 2010, we recorded a net loss of $17.6 million, or $0.16 per share, compared to a net loss for the corresponding period of 2009 of $8.7 million or $0.09 per share.  The increase for the first half of 2010 compared to the first half of 2009 reflects our accelerated exploration efforts, especially in Mexico. Excluding the write-off of mineral property interests recorded during the second quarter of 2010 of $3.9 million (net of future income taxes recovery of $2.0 million), the net loss for the first half of 2010 would have been $13.7 million or $0.11 per share.

 

General and administrative expense for the six months ended June 30, 2010 decreased slightly by $0.1 million to $2.6 million compared to $2.7 million for the same period in 2009.

 

Property holding costs during the first half of 2010 increased by $0.3 million to $2.1 million compared to $1.8 million for the same period in 2009, mainly due to an increase in our annual royalty payment to our lessors of our Nevada properties as a result of the increase in gold prices in January 2010.  Exploration costs for the first half of 2010 increased by $4.8 million to $8.4 million as compared to $3.6 million for the same period of 2009, reflecting an increase in exploration activities at the Gold Bar and Limo projects in Nevada and at the El Gallo project in Mexico.

 

Total stock-based compensation expense in the first half of 2010 decreased by $0.1 million to $0.6 million compared to $0.7 million for the same period of 2009, reflecting a higher number of forfeitures in 2010.  Stock-based compensation expense is allocated to the general and administrative and exploration costs lines within the unaudited Consolidated Statements of Operations and Comprehensive Loss.

 

Accretion of the asset retirement obligation in Nevada and Mexico for the six months ended June 30, 2010 decreased to $0.2 million compared to $0.3 million in the same period of 2009.  During the first half of 2010, we recorded a foreign currency exchange loss of $0.2 million, reflecting a stronger US dollar against the Canadian dollar and its effect on the net monetary assets or cash that are denominated in Canadian dollars.

 

Three months ended June 30, 2010 compared to three months ended June 30, 2009

 

For the three months ended June 30, 2010, we recorded a net loss of $10.7 million, or $0.10 per share, compared to a net loss for the corresponding period of 2009 of $3.9 million or $0.04 per share.  The increase for the second quarter of 2010 compared to the second quarter of 2009 reflects our accelerated exploration efforts, especially in Mexico. Excluding the write-off of mineral property interests recorded during the second quarter of 2010 of $3.9 million (net of future income taxes recovery of $2.0 million), the net loss for the second quarter of 2010 would have been $6.8 million or $0.06 per share.

 

General and administrative expense for the three months ended June 30, 2010 decreased by $0.4 million to $1.3 million compared to $1.7 million for the same period in 2009, partially due to a correction in the classification of stock-based compensation expense between general and administrative and exploration expenses during the second quarter of 2009.

 

13



Table of Contents

 

Property holding costs for the second quarter of 2010 increased by $0.2 million to $0.5 million compared to $0.3 million for the same period in 2009.  Exploration costs for the second quarter of 2010 increased by $2.3 million to $4.2 million as compared to $1.9 million for the same period of 2009, reflecting an increase in exploration activities at the Gold Bar and Limo projects in Nevada and at the El Gallo project in Mexico.

 

Total stock-based compensation expense for the second quarter of 2010 was $0.4 million, which was consistent with the same period of 2009.

 

Accretion of the asset retirement obligation in Nevada and Mexico for the three months ended June 30, 2010 and 2009 remained constant at $0.1 million.

 

During the second quarter of 2010, we rationalized our mineral property interests in Nevada in order to focus our exploration program on more prospective areas.  As a result, we allowed certain claims from two of our Nevada properties, Valmy and Timber Creek, to lapse.  These mineral property interests in question were acquired in 2007 and had a carrying value of $5.9 million, which was written off during the quarter, along with a resulting reduction in deferred tax liability and recovery of future income taxes of $2.0 million.  This resulted in a net write-off of $3.9 million.

 

During the second quarter of 2010, we recorded a foreign currency exchange loss of $0.7 million, reflecting a stronger US dollar against the Canadian dollar and its effect on the net monetary assets or cash that are denominated in Canadian dollars.

 

Critical Accounting Policies

 

Critical accounting policies and estimates used to prepare the financial statements are discussed with our Audit Committee as they are implemented and on an annual basis.

 

There have been no significant changes in our critical accounting policies and estimates since December 31, 2009.

 

Forward-Looking Statements

 

This report contains or incorporates by reference “forward-looking statements,” as that term is used in federal securities laws, about our financial condition, results of operations and business.  These statements include, among others:

 

·              statements concerning the benefits that we expect will result from our business activities and certain transactions that we contemplate or have completed, such as receipt of proceeds, exploration activities, decreased expenses and avoided expenses and expenditures; and

 

·              statements of our expectations, beliefs, future plans and strategies, exploration activities, anticipated developments and other matters that are not historical facts.

 

These statements may be made expressly in this document or may be incorporated by reference to other documents that we will file with the SEC.  You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “estimates” or similar expressions used in this report or incorporated by reference in this report.

 

These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied in those statements.  Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied.  We caution you not to put undue reliance on these statements, which speak only as of the date of this report.  Further, the information contained in this document or incorporated herein by reference is a statement of our present intention and is based on present facts and assumptions, and may change at any time and without notice, based on changes in such facts or assumptions.

 

14



Table of Contents

 

Risk Factors Impacting Forward-Looking Statements

 

The important factors that could prevent us from achieving our stated goals and objectives include, but are not limited to, those set forth in other reports we have filed with the SEC and the following:

 

·      decisions of foreign countries and banks within those countries;

 

·                  unexpected changes in business and economic conditions;

 

·                  changes in interest rates and currency exchange rates;

 

·                  timing and amount of production, if any;

 

·      technological changes in the mining industry;

 

·      our costs;

 

·                  changes in exploration and overhead costs;

 

·                  access and availability of materials, equipment, supplies, labor and supervision, power and water;

 

·                  results of current and future exploration activities;

 

·                  our ability to secure permits needed to explore our mineral properties;

 

·                  results of pending and future feasibility studies;

 

·      changes in our business strategy;

 

·      interpretation of drill hole results and the geology, grade and continuity of mineralization;

 

·      the uncertainty of reserve estimates and timing of development expenditures;

 

·      commodity price fluctuations

 

·      local and community impacts and issues; and

 

·      accidents and labor disputes

 

We undertake no responsibility or obligation to update publicly these forward-looking statements, but may do so in the future in written or oral statements.  Investors should take note of any future statements made by or on our behalf.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

Our exposure to market risks includes, but is not limited to, the following risks: changes in foreign currency exchange rates, changes in interest rates, equity price risks, commodity price fluctuations and country risk. We do not use derivative financial instruments as part of an overall strategy to manage market risk.

 

Foreign Currency Risk

 

While we transact most of our business in US dollars, some expenses, labor, operating supplies and capital assets are denominated in Canadian dollars or Mexican pesos. As a result, currency exchange fluctuations may impact our operating costs. The appreciation of non-US dollar currencies against the US dollar increases costs and the cost of purchasing capital assets in US dollar terms in Canada and Mexico, which can adversely impact our operating results and cash flows. Conversely, a depreciation of non-US dollar currencies usually decreases operating costs and capital asset purchases in US dollar terms in foreign countries.

 

The value of cash and cash equivalents denominated in foreign currencies also fluctuates with changes in currency exchange rates. Appreciation of non-US dollar currencies results in a foreign currency gain on such investments and a decrease in non-US dollar currencies results in a loss. We have not utilized market risk sensitive instruments to manage our exposure to foreign currency exchange rates but may in the future actively manage our exposure to

 

15



Table of Contents

 

foreign currency exchange rate risk. We also hold portions of our cash reserves in non-US dollar currencies.  Based on our Canadian cash balance of $14.7 million at June 30, 2010, a 1% change in the Canadian dollar would have an impact (gain or loss) of approximately $0.1 million in the statement of operations.

 

Interest Rate Risk

 

We have no debt outstanding nor do we have any investment in debt instruments other than highly liquid short-term investments. Accordingly, we consider our interest rate risk exposure to be insignificant at this time.

 

Equity Price Risk

 

We have in the past sought and will likely in the future seek to acquire additional funding by sale of common stock.  Movements in the price of our common stock have been volatile in the past and may also be volatile in the future. As a result, there is a risk that we may not be able to sell common stock at an acceptable price to meet future funding requirements.

 

Commodity Price Risk

 

We currently do not have any production and expect to be engaged in exploration activities for the foreseeable future. However, if we commence production and sales, changes in the price of gold could significantly affect our results of operations and cash flows in the future.  We also hold a portion of our cash in gold bullion which is recorded at cost.  Gold prices may fluctuate widely from time to time.  Based on our gold holdings of $3.6 million at June 30, 2010, a 10% reduction in the price of gold would decrease our working capital by approximately $0.4 million.  At June 30, 2010, this gold bullion had a fair value of $4.5 million.

 

Foreign Country Risk

 

Our Magistral Mine and certain other concessions are located in Mexico, and are subject to Mexican federal and state laws and regulations.  As a result, our mining investments are subject to the risks normally associated with the conduct of business in foreign countries.  In the past, Mexico has been subject to political instability, changes and uncertainties which may cause changes to existing government regulations affecting mineral exploration and mining activities.  Civil or political unrest or violence could disrupt our operations at any time.  Our exploration and mining activities may be adversely affected in varying degrees by changing government regulations relating to the mining industry or shifts in political conditions that could increase the costs related to our activities or maintaining our properties.

 

Item 4. CONTROLS AND PROCEDURES

 

(a)           We maintain a system of controls and procedures designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.  As of June 30, 2010, under the supervision and with the participation of our Chief Executive Officer and Principal Financial Officer, management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

 

(b)           Changes in Internal Controls.  There were no changes in our internal control over financial reporting during the quarter ended June 30, 2010 that materially affected or are reasonably likely to materially affect, our internal controls over financial reporting.

 

16



Table of Contents

 

PART II

 

Item 6.  Exhibits

 

The following exhibits are filed with this report:

 

31.1

 

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Robert R. McEwen.

31.2

 

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Perry Y. Ing.

32

 

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Robert R. McEwen and Perry Y. Ing.

 

17



Table of Contents

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

US GOLD CORPORATION

 

 

 

/s/ Robert R. McEwen

Dated: February 3, 2011

By Robert R. McEwen, Chairman

 

and Chief Executive Officer

 

 

 

/s/ Perry Y. Ing

Dated: February 3, 2011

By Perry Y. Ing, Vice President and

 

Chief Financial Officer

 

18