Silver Falcon Mining

Some of this has been covered before, but I had a few things to add...

“Inventories are valued at the lower of full cost of production or net realizable value based on current metals prices.” That means the concentrate is valued at the cost of producing it (hauling the ore, milling, etc.), not at the value of the contained gold and silver. They have stockpiled $559,993 worth of concentrate. Let’s assume that’s for the four months (June-Sept.). They say it is valued on the “cost of production”. So for 120 days, that’s $4666 per day. For a rate of 100 tpd, that’s $47 per ton, right about what a previous PR said ($50). That goes up or down depending in the tpd, so at 70 tpd that would be $67 per ton. Still very cheap. But more interesting, that means that if they get 1 oz Au eq from each ton, that 1 oz of gold is valued at the cost of processing that ton- only $50-70! So the value of the concentrate could very well be 20-25 times what it is listed as in the inventory, or $11-14 million.

The number of shares has gone from 226M to 252M- hardly the “massive dilution” the gloom and doomers are calling for. Of that, 8M shares were for services, the rest in the form of convertible notes (which may or may not be converted, since the conversion rates go up to as high as $.276 per share. I’ll take that dilution at that price.). I suspect that some of the convertible debt is the debt secured using the concentrate as collateral. One interesting note- the $200k debt that could have been converted into either shares or gold at a discount of $460 per ounce has been converted into shares. So that investor thought that shares of SFMI were worth more than gold- even getting gold at a discount! The following quote probably includes that loan: “During October 2010, we issued 9,448,173 shares of Class A Common Stock valued at $489,138 upon conversion of promissory notes.”

“Since September 30, 2010, we borrowed $133,000 from various investors pursuant to promissory notes that accrue interest at a rate of 7% annually.” That’s a full month or so. Not much borrowing at all, and that $133k might be converted into maybe 1 million shares. Hardly any ongoing dilution at all.

“In October 2010, we shipped our first load of 508 pounds of concentrate to a smelter, which represented our production for the first twenty days of operation. We plan to ship another load later this fiscal year that will contain concentrate from a greater period of operation, and ship additional loads on a regular basis thereafter. Now that our milling operations have improved, we have also begun to process tailings from other areas of the mine site that have greater concentrations of gold and silver.” Pretty much self-explanatory. That 508 lbs is probably worth around $750,000 or so. They will have ramped up mill rates and improved recovery rates since those first 20 days. Start processing 2-4 oz ore instead of 0.75 oz ore, and that $750k per 20 days becomes millions per month.

“We believe we would need to purchase an additional $450,000 of equipment to double our mill’s capacity.” Chicken feed.

“…The most significant change to the confirmation phase contemplates a more comprehensive set of core samples, both from the surface of the mountain and from the inside of the mountain using the Sinker Tunnel, and associated costs, including locating drilling equipment at the site, and logistical costs for the crew, such as vehicles, meals, shelter on the mountain, and accommodations for a geologist, field technician and drill crew. We decided to expand the scope of the confirmation phase in order to obtain a National Instrument 43-101, which is a report developed by the Canadian Securities Administrators for mining companies. A National Instrument 43-101 is necessary for listing our common stock on any exchange overseen by the Canadian Securities Authority, including the Toronto Stock Exchange.

We have retained a surveying firm, Engineering Northwest, Inc., to perform the confirmation phase. The surveyors will perform their services under the direction of William Earll, our general manager for our mining operations.”

Geological surveys and other costs associated with exploration are where a lot of the consulting costs have gone.

“We estimate that the confirmation phase will take about 18 months, and will cost approximately $4,500,000.” That’s about $4M more than in the last 10-Q. They are really ramping up exploration and drilling to prove up resources. That also implies they assume they can afford it.

“General and administrative expenses increased to $805,515 in 2010 as compared to $329,828 in 2009 as a result of property lease fees of $250,000 and operating expenses related to the new mill operations of approximately $225,000.” That’s three lease payments to GHDC. Also note that the $225k for the 4 and a half months the mill has been in operation WORKS OUT TO A BURN RATE FOR MILL OPERATIONS OF $50K PER MONTH. Exactly what was reported from the shareholder meeting, and the number that some non-attendees have been saying could not be true.