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 a number of
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 like: 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 of
Mineral Property Interest
Further to a Mineral Option Agreement (the "Option Agreement") dated
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 the
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
The Option Agreement can be found as Exhibit 10.1 to our report filed on Form
8-K on
If we fail to make any cash payments to LSG within one year of
LSG granted us a series of deferrals of the payments, with the most recent being
granted on
LSG acquired the leases to the Property in 1997 and became the registered and
beneficial owner of the Property on
The Property is located in west-central
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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
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
The Amendment also corrects a number of inconsistences in the Option Agreement,
updates the defined terms to accommodate the creation of the Second Option and
Third Option, and includes our acknowledgements regarding accrued and unpaid
penalty payments and amounts owing by us to LSG as of
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. We expect the first work program, entailing Property-related costs for which we will be responsible, to be approved in 2020.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Milling
On
On
Based on previous metallurgical testing, our ore requires gravity combined with flotation for optimal recoveries of contained precious metals. The Goldwedge milling circuit is currently configured with a gravity recovery circuit. Under the terms of the Agreement, we will advance funds required for the design, engineering, permitting and modifications to the Goldwedge facility to include the addition of a flotation circuit, supporting reagent tanks/silos, secondary lining of process containment ponds, leak detection and monitoring wells associated with fluid containments.
The Agreement provides for us to recoup the advanced funds through a reduction in toll milling rates until all advanced funds have been repaid. Following repayment, the toll charges will revert to standard rates.
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
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 in
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 to
Underground work has identified 2 high-grade gold-bearing zones that can support mine development utilizing our current infrastructure. The property is now permitted for production and is mine ready.
Third Party Assay Data Audit
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
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 in
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:
Key Developments
On
Unique to our production permit, the
We have received our
Recent Events
The Covid-19 pandemic has had minimal effect on the execution of our milestones.
Manpower:
We now have a crew of 4 miners and 1 grade-control geologist working underground. The manpower component allows for mine development to advance in multiple headings.
Milling:
We signed a Toll Milling Agreement with Scorpio Gold Corporation's affiliate,
The filing of the mill modification application on
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Mine Development :
Since the beginning of the year
We expect to soon file our mine plan with MSHA and commence creating our Secondary Escape-way (an MSHA requirement). The development plan for the Escape-way is to repurpose either the property's existing historical Church shaft or January Whiterock shaft and ultimately incorporate additional hoisting capability for ore. This should double our daily extraction capability. The outcome of our drilling campaign, as outlined below, will allow us to decide which shaft to use.
Step Out Drilling and Exploration:
We are now focusing on both surface and, if proven necessary, underground
drilling. The Company has engaged Titan Drilling out of
The immediate target area, as described in our most recent NI 43-101, is the
high-grade area referred to as the
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.
The figure below indicates the relationship between the overall ICN core drilling, high-grade gold intercepts, underground workings, the Church shaft, January/Whiterock shaft and our planned first two holes (approximately). Geologic modeling to date has identified what may prove to be a robust production area. Our drilling phase will determine the accuracy of that modeling.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
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Mine Design and Utilization of Equipment
The mine will be designed through the interpretation of detailed drilling data
in cross sections and the use of conventional software. Currently there are two
areas, the
ProductionMining Method
We intend to maximize profitability through a disciplined approach involving the separation of high-grade gold ore from waste rock during the mining stage, thus avoiding the additional cost of pre-shipment concentration. In order to maintain the highest grade of ore production the blast holes will be sampled during drilling, then assayed to determine ore boundaries prior to blasting. The current plan is to ship ore directly from the mine to an offsite mill employing a toll-milling arrangement.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
For technical details, see our report filed on Form 10-K for the year ended
We have a
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 on
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. Apart from periodic consulting fees, our president and
CEO,
Our Chief Operating Officer,
Our Corporate Secretary,
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Going Concern
Our auditors have 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. This is because 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.
Results of Operations The following summary of our results of operations for the three months and six months endedJune 30, 2020 and 2019 should be read in conjunction with our financial statements for the period endedJune 30, 2020 which are included above in Part I, Item 1. Three Months Ended June 30 Change 2020 2019 Amount Percentage $ $ $ Revenue - - - - Operating Expenses 90,507 50,222 40,285 80 % Operating Loss (90,507 ) (50,222 ) (40,285 ) 80 % Other Expenses (20,366 ) (14,358 ) (6,008 ) 42 % Net Loss (110,873 ) (64,580 ) (46,293 ) 72 % Six Months Ended June 30 Change 2020 2019 Amount Percentage $ $ $ Revenue - - - - Operating Expenses 205,086 126,903 78,183 62 % Operating Loss (205,086 ) (126,903 ) (78,183 ) 62 % Other Expenses (39,295 ) (29,636 ) (9,659 ) 33 % Net Loss (244,381 ) (156,539 ) (87,842 ) 56 % Revenues
We had no operating revenues during the three-month and six-month periods ended
Expenses
Notable year over year differences in expenses for the second quarter were as
follows:
Three Months Ended June 30 Increase/(Decrease)
2020 2019 Amount Percentage
$ $ $
Consulting services 31,632 8,834 22,528 255 %
Exploration and
evaluation 6,410 - 6,410 -
Office, foreign exchange
and sundry 3,722 1,882 1,840 98 %
Professional fees 20,934 12,102 8,832 73 %
Interest, bank and
finance charges 20,366 14,358 6,008 42 %
Consulting services expense in the second quarter of 2020 included
Exploration and evaluation expense in Q2 of 2020 was for assay costs. No such costs were incurred in 2019.
Office, foreign exchange and sundry expenses were higher in Q2 of 2019 primarily due to permitting fees which had no equivalent in Q2 of 2019 when the relevant permits were not yet in place.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Professional fees were higher in Q2 of 2020 primarily due to the audit fee for
the previous year end (approximately
Interest, bank and finance charges were higher in Q2 of 2020 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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