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16-Jul-2007
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
The information in this Quarterly Report on Form 10-QSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, including statements regarding Silverado's capital needs, business plans and expectations. Such forward-looking statements involve risks and uncertainties regarding the market price of gold, availability of funds, government regulations, common share prices, operating costs, capital costs, outcomes of gold recovery activities and other factors. Forward-looking statements are made, without limitation, in relation to operating plans, property exploration and gold recovery activities, availability of funds, environmental reclamation, operating costs and permit acquisition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may", "seek", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "target", the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including the risks outlined below, and, from time to time, in other reports Silverado files with the Securities Exchange Commission (the "SEC"). These factors may cause actual results to differ materially from any forward-looking statement. Management disclaims any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. The information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
OVERVIEW
I. MINING
Silverado Gold Mines Ltd. and its wholly-owned subsidiaries Silverado Gold Mines Inc. and Silverado Green Fuel Inc. (collectively referred to herein interchangeably as the "Company" and "Silverado") is engaged in the acquisition and exploration of mineral properties in the State of Alaska. Precious metals, primarily gold, is the main interest. Silverado has more than 35 years of experience in all aspects of the gold mining industry, from grass-roots exploration, to state of the art mining and processing technologies, for both lode and placer gold deposits. The primary focus is presently on the continued exploration of the Nolan Gold Project, located 175 air miles north of Fairbanks, Alaska. These plans include exploration for both lode gold deposits and placer gold deposits at the Nolan Gold Project. The exploration activities include lode diamond drilling and trenching, geochemical and geophysical surveys, placer rotary drilling, and placer test mining work carried out as part of Silverado's exploration programs.
Silverado holds interests in four groups of mineral properties in Alaska, as described below:
1. Nolan Gold Property; a Nolan Test Mining - Swede Channel & Mary's East
b. Nolan Lode and Placer Exploration
2. Hammond Property;
3. Eagle Creek Property; and
4. Ester Dome Property.
As an exploration stage company, all of the properties are presently in the exploration stage. Silverado does not have any commercially viable reserves on any of the properties, and there is no assurance that commercially viable mineral deposits exist on any of the mineral properties. Further exploration will be required before a final evaluation of the feasibility of commercial mining on any of the properties is determined. There is no assurance that further exploration will result in a final evaluation that determines a commercially viable mineral deposit exists on any of the mineral properties.
At the Nolan Placer Gold Mine, the nature of all deposits encountered to date are small (4,000 to 10,000 bank cubic yards) but high grade in nature. Silverado mines them, processes the gold bearing gravels and sells this gold even though the criteria for a proven reserve has not been met. There are many profitable mines in the U.S. and Canada today that have no proven "reserves".
II. LOW-RANK COAL WATER FUEL Silverado has been working for six years through its Low-Rank Coal-Water Fuel (Green Fuel) division on the development of "Green Fuel", a non-toxic liquid fuel product derived from sub-bituminous and lignite coal. In its finished form the fuel is a non-toxic, non-hazardous environmentally friendly strategic (liquid) fuel. The primary focus of the Company is presently to secure financing to proceed with the establishment of a demonstration facility in Mississippi designed to document the combustion characteristics of Green Fuel and to obtain "scale-up" parameters for the building of a full scale commercial production facility. A successful demonstration project could lead to the construction of a commercial production facility to manufacture the low-rank coal water fuel as a replacement for oil fired boilers and utility generators.
PLAN OF OPERATIONS
Management's plan of operation for the next three months through the remainder of the fiscal year is discussed below:
I. MINING
1. NOLAN GOLD PROPERTY
a. The Nolan Test Mining - Swede Channel and Mary's East
During the second quarter of this fiscal year, exploration and mining utilizing underground retreat mining methods concentrated on the removal and stockpiling of the remaining sections of the Swede Channel for summer processing. The Swede project, completed by the middle of January 2007, yielded a stockpile of 8,963 loose cubic yards (LCY) from the remaining Swede Channel. Furthermore, in early January 2007, crews installed a portal into Mary's East to begin an underground drift into the Mary's East deposit. By late March 2007, this horizontal opening utilizing the same equipment used for the Swede Channel, resulted in an additional stockpile of 9,357 LCY of gold-bearing gravel. The combined Swede and Mary's East stockpiles of 18,320 LCY will be processed at the existing sluice plant location, which was installed in 2006. Sluicing operations during 2007 will be turn key as the necessary equipment, pipelines and pond systems remain in place from 2006 operations.
While there is no assurance that either the Swede Channel or the Mary's East test mining projects will recover gold with a value greater than the costs associated with extraction and processing, Management expects this year's recovered gold value could be greater than the costs associated with extraction and processing. Gold recovered from the Swede stockpile in the summer of 2006 is still being sold, and it appears that it could have a value greater than the costs associated with its extraction and processing. As for the 2007 stockpile of 18,320 LCY, a stockpile that is more than double than that of 2006, and whose sampling results predicted good grades, the expected gold recovery value may exceed costs associated with extraction and processing because this year's costs will be relatively lower than those of 2006 levels, and waste muck is only 20% of 2006 levels.
b. Nolan Lode and Placer Exploration
The Company plans to continue with exploration at the Nolan Lode and Placer properties within the Nolan Gold Project. The objective of this geological exploration program is to further define both lode and placer gold occurrences in order to provide a basis for future exploration activities and test-mining activities at the Nolan Gold Project. Silverado's lode exploration work is intended to increase Silverado's geological knowledge on the Solomon Shear Trend and other lode gold occurrences on the properties.
Silverado plans to spend approximately $900,000 during the next three months on its exploration activities connected with the Nolan Gold Project. It is anticipated approximately $250,000 will be spent on gold recovery and related activities, and $650,000 will be spent on exploration activities, including a placer drilling program and continued exploration for lode gold occurrences. The placer drilling will be concentrated along the left limit of Nolan Creek to explore south of the Mary's East and Swede Channel deposits. In-fill drilling will take place within the area between the Mary's East and Swede Channel and the Topnotch Prospect. All of the targets are well above the elevation of Nolan Creek.
The actual amount that Silverado spends on exploration will depend on the actual amount of funds that it has available for exploration. While the costs of exploration and test mining may be offset by recoveries from gold sales, these recoveries may not exceed the costs of Silverado's exploration programs and test mining activities.
Silverado does not have any commercially viable reserves on any of its properties that comprise the Nolan Gold Project or any of its other properties. As Silverado has not established commercially viable reserves on the Nolan Gold Project, there
is no assurance that any recoveries of gold from test mining activities will be sufficient to pay for the full cost of exploration. There is no assurance that the Silverado's test mining activities will result in a final evaluation that a commercially viable mineral deposit exists on any of the Company's mineral properties that comprise the Nolan Gold Project.
2. HAMMOND PROPERTY
Annual rentals will be paid to keep the mining claims in good standing.
This Property will require additional funding from the Company. If funding is acquired, there is no guarantee that a commercial gold-bearing placer deposit will be developed. If a gold bearing deposit is developed, additional funding will be required to mine the deposit, and until a feasibility study is completed, there is no guarantee that the deposit will be profitable to mine.
3. EAGLE CREEK PROPERTY
The Number One Vein on this property was the lode quartz gold structure that was mined commercially for antimony in the past.
Annual assessment work will be completed on the property to keep the mining claims in good standing. Assessment work will be focused on the Northwest part of the claim block, where drilling and trenching has defined an intrusive host rock, thought to be a sill, containing low grade gold, silver and antimony mineralization. If funding permits, the Company will design a drilling program to further investigate the gold and by-product mineral distribution of the intrusive.
Completing the 2007 work plan will be contingent on available funding. Even if funding becomes available, there is no assurance that a commercial gold-silver-antimony deposit will be defined. A commercially viable economic mineral deposit has not been defined on the property, and there is no assurance that a commercially viable economic mineral deposit exists on the property.
4. ESTER DOME PROPERTY
Reclamation work to complete the closure of the Grant Mill Tailings Pond is expected to be done during the summer of 2007. This pond is filled to capacity, and will be capped and decommissioned after final approval of the tailings pond closure plan is received from State of Alaska regulatory agencies.
Furthermore with respect to other areas on this property, several large scale projects have been proposed over the past ten years, but deferred either as a result of poor market conditions or due to internal decisions that favored shifting financial and manpower resources to the Nolan Gold Project.
There is no assurance that a commercially viable mineral deposit exists on any of Silverado's mineral properties. If one or more commercially viable mineral deposits do exist, they are likely to be gold or antimony lode deposits. Geo-technical work has begun to find a source or sources of the nugget gold and discoveries have been made. Silverado's newly purchased diamond drill is expected to be ground drilling by late July. Further exploration will be required before a final evaluation as to the economic and legal feasibility of mining the Nolan or any of Silverado's properties is determined. There is no assurance that further exploration will result in a final evaluation that a commercially viable mineral deposit exists on any of Silverado's mineral properties.
II. LOW-RANK COAL WATER FUEL PROJECT
Management anticipates spending approximately $500,000 during the current fiscal year on continued work to seek funding from the United States federal and state governments in connection with the establishment of the $26,000,000 demonstration Green Fuel facility in Mississippi.
While there are no assurances that financing will be obtained, Silverado has begun the construction permitting process and will continue with other permit applications.
OFF-BALANCE SHEET ARRANGEMENTS
Silverado has not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that would be material to investors.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies (the policies Management believes are the most important to the presentation of Silverado's financial statements and require the most difficult, subjective and complex judgments) are outlined in the notes to the consolidated financial statements. |
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