LODE-STAR MINING INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes appearing elsewhere in this Quarterly Report. In addition to historical financial information, the following discussion includes forward-looking statements that reflect our plans, estimates and our current views with respect to future events and financial performance. Forward-looking statements are often identified by words such as: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. Except as required by applicable law, including the securities laws ofthe United States , we do not intend to update any of the forward-looking statements to conform these statements to actual results Mineral Property Interest Further to a Mineral Option Agreement (the "Option Agreement") datedOctober 4, 2014 , onDecember 5, 2014 , we entered into a subscription agreement (the "Subscription Agreement") withLode-Star Gold INC. , a privateNevada corporation ("LSG") in which we agreed to issue 35,000,000 shares of our common stock, valued at$230,180 , to LSG in exchange for an initial 20% undivided beneficial interest in and to LSG'sGoldfield property (the "Acquisition"), which made LSG our largest and controlling shareholder.
LSG's Goldfield Bonanza property is comprised of 31 patented mineral claims
owned 100% by LSG, located on approximately 460 acres in the district of
LSG was incorporated in theState of Nevada onMarch 13, 1998 for the purpose of acquiring exploration stage mineral properties. It currently has one shareholder,Lonnie Humphries , who is the spouse ofMark Walmesley , our President and Chief Financial Officer.Mr. Walmesley is also the Director of Operations and a director of LSG. The execution of the Subscription Agreement was one of the closing conditions of the Option Agreement, pursuant to which we acquired the sole and exclusive option to earn up to an 80% undivided interest in and to the Property. To earn the additional 60% interest in the Property, we are required to fund all expenditures on the Property and pay LSG an aggregate of$5 million in cash from the Property's mineral production proceeds in the form of an NSR. Until we have earned the additional 60% interest, the NSR will be split 79.2% to LSG, 19.8% to us and 1% to the former Property owner. The Option Agreement can be found as Exhibit 10.1 to our report filed on Form 8-K onOctober 9, 2014 and is incorporated herein by reference. The Subscription Agreement can be found as Exhibit 10.7 to our report filed on Form 10-K/A onJanuary 11, 2017 and is incorporated by reference. If we fail to make any cash payments to LSG within one year ofOctober 4, 2014 , we are required to pay LSG an additional$100,000 , and in any subsequent years in which we fail to complete the payment of the entire$5 million described above, we must make quarterly cash payments to LSG of$25,000 until we have earned the additional 60% interest in the Property. LSG granted us a series of deferrals of the payments, with the most recent being granted onJanuary 11, 2017 . LSG agreed on that date to defer payment of all amounts due in accordance with the Option Agreement until further notice. OnJanuary 17, 2017 , the Company and LSG agreed that as ofJanuary 1, 2017 , all outstanding balances shall carry a compound interest rate of 5% per annum. It was further agreed that the ongoing payment deferral shall apply to interest and principal. LSG acquired the leases to the Property in 1997 and became the registered and beneficial owner of the Property onSeptember 19, 2009 . Since the earlier of those dates, it has conducted contract exploration work on the Property but has not determined whether it contains mineral reserves that are economically recoverable. LSG is an exploration stage company and has not generated any revenues since its inception. The Property represents its only material asset. The Property is located in west-centralNevada , in theGoldfield Mining District at Latitude 37° 42', and Longitude 117° 14'. The claims comprising the Property are located in surveyed sections 35 and 36, Township 2 South, Range 42 East, and in sections 1, 2, 11, and 12, Township 3 South, Range 42 East, inEsmeralda County, Nevada . The Property is accessible by traveling approximately one-half mile northeast of the community ofGoldfield , along a county-maintained road that originates atU.S. Highway 95 , which runs through "downtown"Goldfield . The town ofGoldfield , which is theEsmeralda county seat (population 300), is approximately 200 air miles south ofReno and 180 air miles north ofLas Vegas . Surface access on the Property is excellent and the relief is low, at an elevation of approximately 6,000 feet. Vegetation is sparse, consisting largely of sagebrush, rabbitbrush, Joshua trees and grasses. Water, electricity and other sundry needs such as restaurants, lodging, minor medical needs, fire station, and police are within 1 mile of the property. 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
All properties, claims, buildings, equipment, and supplies are owned by LSG and we have free access to utilize and manage all those items. Operations are managed from a 6,000 sq. ft. office and warehouse facility complete with showers and laundry amenities. Two residential trailer sites are immediately adjacent to this building for crew needs.
The Property has one working shaft, the February Premier, which has access to the 300 ft level, with approximately 1/2 mile of ventilated drift. Underground work has identified 2 high-grade gold-bearing zones which the company plans to further explore. The program that we envision undertaking includes the mining of approximately 10,000 tons of non-NI 43-101 compliant gold mineralization at an approximate grade of 0.9 ounces per ton. The estimated grade is based on historic drilling work done by LSG, for which the 1.5-inch core samples were consumed by assay requirements. In order to provide adequate sample weights to the assaying lab, the entire core was processed for individual samples. While we have encountered several additional high-grade drill anomalies throughout the property, it is important to note that we have no proven and/or probable reserves at the present time and therefore the program is exploratory in nature. Much of the property remains under-explored and it is our belief that the district's high-grade, million-ounce ore zones repeat themselves. Further surface and underground exploration work need to be executed. The Property has two operating water monitoring wells that were mandatory for us to receive a water pollution control permit. Part of the permitting application is for the allowance of the company to store its waste rock underground. The property has no milling onsite and we must rely on a third party to receive our mineralized material and tombstone our tailings. Amendment to Option Agreement
On
Under the Amendment, the exercise of the 60% option was restructured into two separate 30% options, such that we may now earn a 30% interest in the Property (for a total of 50%) (the "Second Option") by completing the following actions:
? paying LSG
in the form of an NSR royalty (the "Initial Payment");
? paying LSG all accrued and unpaid penalty payments under the Option Agreement;
? repaying to LSG (i) all loans, advances or other payments made by LSG to the
Company and (ii) all expenditures on the Property funded by or on behalf of LSG
until the date on which the Initial Payment has been completed; and
? funding all expenditures on the Property until the date on which the Initial
Payment has been completed.
Following the exercise of the Second Option, we may earn an additional 30% interest in the Property (for a total of 80%) (the "Third Option") by completing the following actions:
? paying LSG a further
proceeds in the form of a NSR royalty (the "Final Payment"); and
? funding all expenditures on the Property from the date on which the Second
Option is exercised until the date on which the Final Payment has been completed. The primary effect of the Amendment is therefore to increase to the purchase price for the additional 60% interest in the Property from$5 million to$10 million , while at the same time separating it into tranches.
The foregoing description of the Amendment includes a summary of all the
material provisions but is qualified in its entirety by reference to the
complete text of the Amendment included as Exhibit 10.8 to our report filed on
Form 8-K on
We agreed with LSG that upon the successful completion of a toll milling
agreement after permitting is achieved, there will be a basis to form a joint
management committee to outline work programs and budgets, as contemplated in
the Option Agreement and for us to act as the operator of the Property. To the
date of this report LSG has borne all costs in connection with operations on the
Property.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Property - Previous Exploration Work, Mineralization and State of Exploration
The Property is wholly owned by LSG, our largest shareholder, and is clear titled. A 1% net smelter royalty exists in the favor of the original property owner. The property consists of 31 patented claims on approximately 460 acres. LSG, over the past 15 years and continuing, has spent close to$8 million on underground rehab of approximately 1/2 mile of drift at the 300ft sub-surface level. LSG also executed 22 surface core drill holes for a total of 10,400ft and 152 underground core drill holes for a total of 23,000ft.
It is important to note the following sample preparation and quality controls used by LSG and by ICN, a previous operator of the Property:
All drill core samples were prepared and delivered to ALS Minerals inReno byTom Temkin , our COO. Individual sampled intervals varied from one to five-foot lengths, based on geologic parameters, and included 100% of core intervals. No core splitting was conducted. No duplicate samples or standards were introduced other than those inserted and utilized by ALS for their internal quality control. Lab preparation of individual samples included crushing and grinding to minus 200 mesh, followed by a 1-ton assay for gold. All samples that initially assayed over 1.0 opt Au were systematically re-assayed.
ICN drill hole core and Rotary RC sampling and analytical protocol
All drill core samples were prepared by ICN personnel and either delivered to the assay lab or were picked up on-site by lab personnel. Rotary RC chip drilling samples were collected on-site and transported toReno by the respective labs. The labs used includedALS Minerals and American Assay Lab . Core was sawn by ALS Minerals and/or ICN personnel. Individual core sampled intervals varied from one to five-foot lengths, based on geologic parameters, and included one-half of the original core material. Rotary RC samples were taken at five-foot intervals entirely. Quality control for all samples included a protocol of inserting duplicate samples, blanks, and known standards, at repeating intervals to maintain .08% check sampling. Lab preparation of Individual samples included crushing and grinding to minus 200 mesh, followed by a 1-ton assay for gold. All samples that initially assayed over 1.0 opt Au
were systematically re-assayed. Third Party Assay Data AuditMine Development Associates (MDA Reno), a highly regarded third party NI 43-101 service provider, has audited our drill hole database and performed a comparative QA/QC check assay analysis on selected drilling and determined no inconsistencies to exist and assays were repeatable. NI 43-101 Update Status We filed an independent Technical Report written in accordance with National Instrument 43-101 - Standards of Disclosure for Mineral Projects (NI 43-101) on our property located inGoldfield, Nevada . Although not required for OTC listing, we had this report prepared under NI 43-101 guidelines to provide a summary of theGoldfield Bonanza Project . This NI 43-101 is required documentation for future possible business transactions and listings on Canadian exchanges. The Technical Report titled "Technical Report on theGoldfield Bonanza Project Esmeralda County Nevada U.S.A. " datedJanuary 15, 2020 has been prepared by Mr.Robert M. Hatch , SME Registered Geologist.
The report is available for review on EDGAR
(https://www.sec.gov/edgar/searchedgar/companysearch.html) and SEDAR
(https://www.sedar.com/) under
Metallurgy Reports To date the Company has had three metallurgy reports prepared. In order they are:Kappes Cassady & Associates located inReno, NV datedJuly 10, 2006 , Newmont Mining located inCarlin, NV datedMay 27, 2010 , andMcClelland Laboratories, Inc. located inReno, NV datedJanuary 26, 2016 . Indications are that we can expect at a minimum, an 85% AU recovery from floatation milling. Better recovery is achieved by Agitated Leach processing, which show results closer to +90%. The best recovery results, +95%, due to the high sulphide content of the ore, is achieved through roasting. An additional lab report has been generated byKappes Cassady & Associates to determine ore compatibility for processing at Scorpio Gold's milling circuit. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Key Developments OnNovember 20, 2018 we were issued Water Pollution Control Permit NEV2017109 from theNevada Department of Environmental Protection (NDEP) regarding production at the property. This Permit authorizes the construction, operation, and closure of approved mining facilities inEsmeralda County, Nevada . The Permit is effective for 5 years untilNovember 20, 2023 and authorizes the processing of 10,000 tons of ore per year fromLode-Star's underground operations. 100% of the permitting cost has been borne by our largest shareholder,Lode Star Gold INC. Unique to our production permit, theNevada Department of Environmental Protection has endorsed the Company's intentions to temporarily store waste rock underground. Once stockpiled, waste rock is brought to the surface to backfill and remediate our historic abandoned mine shafts. This will save us the significant time and expense of having to permit and build a surface waste
containment facility. Recent Events
The Covid-19 pandemic has had minimal effect on the execution of our milestones.
Permitting: The Company received notice from NDEP that a major modification to our Water Pollution Control Permit NEV2017109 is necessary to expand the limitation of waste material produced and backfilled into our historic, abandoned mine shafts. The timeline for this modification may take as long as one year. Operations:
In September the Company experienced a hoist motor failure that required underground activity to be suspended until the motor is repaired.
Mine Development :
Mine development has been suspended until such time as the hoist is put back into service and the Company receives notice regarding its water pollution control permit. Work will then resume on our Secondary Escape-way (an MSHA requirement).
The target area, as described in our most recent NI 43-101, is the high-grade area referred to as theChurch Vein Zone . This zone measures up to 40 feet in width and trends at least 600 feet north-northeasterly, immediately west of the Church shaft. Drilling by ICN in 2011 included 19 core holes with varying results. Some holes did not hit the intended target and will be re-drilled to better test the target. As drilling progressed into the vein area, marginal gold was identified. Three holes, ICN-003, ICN-013 and ICN-014 (results below) hit solid high- grade intercepts which need further drilling to define. (Grams
per Metric Tonne = 34.2857). Hole ICN-003: included 9.5 ft (2.90 m) weighted averaged assays of 40.79 oz/ton (1398.6 g/t) gold. Hole ICN-013: included 4.5 ft (1.37 m) with 51.46 oz/ton (1764.2 g/t) gold. Hole ICN-014: included 3.5 ft (1.00 m) with 68.02 oz/ton (2332.0 g/t) gold. Hole ICN-001 included 3.0 ft (0.90 m) with averaged assays of 6.29 oz/ton (215.7 g/t) gold and ICN-023 included 4.0 ft (1.22 m) with averaged assays of 1.44 oz/ton (49.35 g/t) gold.
For technical details, see our report filed on Form 10-K for the year endedDecember 31, 2020 . The Property'sRed Hills and Church zones can support mine development utilizing the Company's current infrastructure. Underground mining in theRed Hills area will extract ore on the 300 ft-level. We plan to initially mine 10,000 tons of material per year at a rate of approximately 50 tons per day. We have a$5.0 million exploration and mine development program that is focused on defining the Property's existing and mineable gold mineralization; to advance the geologic modeling in preparation for mining; and bulk sampling of the Project's current underground workings as well as for working capital purposes. 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Funding
Details of the development program are as follows:
Item Major Categories Cost 1. Equipment & Mining Materials$275,000 2. Secondary Escape & Second Production Shaft$1 million 3.Red Hills /Stope & Decline Vein Zones Mining$860,000 4. Drilling the Northeast Corridor$2 million 5. Corporate & General Admin.$865,000 Total$5 million
Line items 1, 2, 3 and 5 above, totaling
Line item 4 accounts for the Development Drilling totaling
The estimates above are for planning purposes only. No information contained herein should be considered an official corporate offering. The application of funds shown above is an estimate and may not exactly match the actual future costs. Funding All of our ongoing operations, since the inception of our Mineral Option Agreement onOctober 4, 2014 , have been funded by monies advanced to us byLode-Star Gold INC. (LSG) our largest shareholder. We do not currently have enough funds to carry out our entire plan of operations, so we intend to meet the balance of our cash requirements for the next 12 months through a combination of debt financing and equity financing through private placements. There is no assurance that we will be successful in completing any such financings If we are unsuccessful in obtaining sufficient funds through our capital raising efforts, we may review other financing options, although we cannot provide any assurance that any such options will be available to us or on terms reasonably acceptable to us. Further, if we are unable to secure any additional financing then we plan to reduce the amount that we spend on our operations, including our management-related consulting fees and other general expenses, so as not to exceed the capital resources available to us. Regardless, our current cash reserves and working capital will not be sufficient for us to sustain our business for the next 12 months, even if we decide to scale back our operations. Personnel We have no employees. SinceJanuary 1, 2020 , we have incurred consulting fees of$25,000 per quarter to a company controlled by our president and CEO,Mark Walmesley , for services provided to us byMr. Walmesley . We expect to continue to use outside consultants, advisors, attorneys and accountants as necessary. Our Chief Operating Officer,Thomas Temkin , who is also a director, is a Certified Professional Geologist and a Qualified Person under National Instrument (NI) 43101, with more than 40 years of experience in the mining industry, primarily in exploration in theWestern United States . He is currently a consulting geologist working with LSG.Mr. Temkin has been associated with LSG and the Property for over 20 years and has been instrumental through its entire exploration program to date.
Our Corporate Secretary,
Going Concern In the audit report accompanying our financial statements for the year endedDecember 31, 2020 , our auditors issued a going concern opinion. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our expenses. We have not generated any revenues to-date and we cannot currently estimate the timing of any possible future revenues. Currently, our only source of cash is from loans or investments by others in our common stock. 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Results of Operations
The following summary of our results of operations for the three months and nine
months ended September 30, 2021 and 2020 should be read in conjunction with our
financial statements for the period ended September 30, 2021 , included above in
Part I, Item 1.
Three Months Ended
September 30 Change
2021 2020 Amount Percentage
$ $ $
Revenue - - - -
Operating Expenses 76,548 71,407 5,141 7 %
Operating Loss (76,548 ) (71,407 ) (5,141 ) 7 %
Other Expenses 25,341 21,769 3,572 16 %
Net Loss (101,889 ) (93,176 ) (8,713 ) 9 %
EPS 0.00 0.00 - -
Nine Months Ended
September 30 Change
2021 2020 Amount Percentage
$ $ $
Revenue - - - -
Operating Expenses 263,466 276,493 (13,027 ) (5 %)
Operating Loss (263,466 ) (276,493 ) 13,027 5 %
Other Expenses 72,348 61,064 11,284 18 %
Net Loss (355,814 ) (337,557 ) 1,743 (1 %)
EPS (0.01 ) (0.01 ) - -
Revenues
We had no operating revenues during the three-month and nine-month periods endedSeptember 30, 2021 and 2020. We recorded a net loss of$101,889 for the current quarter (2020:$93,176 ) and$355,814 for the nine months endedSeptember 30, 2021 (2020:$337,557 ) and have an accumulated deficit of$3,830,715 . The possibility and timing of revenue being generated from our mineral property
interest remains uncertain.
Expenses
Notable changes in expenses for the third quarter in 2021 compared to 2020 were
as follows:
Three Months Ended September 30 Increase/(Decrease)
2021 2020 Amount PercentageExploration and evaluation 7,754 3,652 4,102 12 % Interest, bank and finance charges 25,341 21,769
3,572 16 %
Exploration and evaluation expense in Q3 of both years was for assay costs. More assays were required in the current year as evaluation work increased.
Interest, bank and finance charges were higher in Q3 of 2021 as a result of higher balances in interest-bearing amounts due to related parties, i.e. loans, plus accrued mineral option fees and related interest.
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