Lack of Additional Funding Arrangement Weighs Down Santa Fe Gold (SFEG)

Precious metal exploration and mining company Santa Fe Gold (OTC: SFEG), in its annual report, announced a funding requirement to the tune of at least $24 million over the next 12 months and $33 million over the next 36 months. The company also warned investors that a failure to procure this funding would result in the reduction or outright termination of all its business activities. Following the news, the shares of Santa Fe Gold fell by over 18% on heightened volatility.

The New Mexico-based company reported an increase in fiscal year 2012 sales to $11.5 million from $6.4 million in the fiscal year 2011. Santa Fe Gold stated that the increase in sales was primarily due to the ramp-up of the Summit Project and the achievement of commercial production in April 2012.

The company’s net loss for fiscal year 2012 decreased to $4.2 million from $4.6 million in the previous fiscal year. The company’s operations in the past three fiscal years were funded mainly from the sale of gold and silver products aggregating nearly $18.3 million. The company also arranged $5 million in funding through a senior secured bridge loan. Santa Fe paid off the bridge loan by arranging another $10 million loan through a senior secured note. After retiring the loan, Santa Fe Gold realized net proceeds of $4.1 million, which will be used to fund the Summit mine operations.

The gold and silver produced from the Summit mine will be sold to Waterton. An agreement in this regard is in place between the two companies. As of June 2012, the failed strategic acquisition of Columbus Silver resulted in a write down of $827,716 in advances and $200,000 in the form of a note receivable. On September 19, 2012, the company entered into an option agreement with Columbus Silver to acquire the Mogollon project for a consideration of $4.5 million.

The company noted that due to continued under-capitalization of the Summit silver-gold project, full project performance and sustained profitability was not achieved. Santa Fe Gold requires funding to satisfy past commitments, pay corporate overhead costs, complete Summit development and fund acquisitions. Santa Fe Gold also underlined that the company’s financial statements were prepared on an ongoing concern basis, and the inability to continue to do so in the future will result in payment defaults. To continue as an ongoing concern, Santa Fe Gold requires more funding. As of June 30, 2012, the total accumulated deficit of the company stands at just under $64 million. The company hopes to generate a portion of the required funds from the Summit mine cash flows and cautioned that a failure to procure adequate funding on acceptable terms will result in the reduction or substantial elimination of all business activities.

The company has no commitment to date from any entity willing to provide the additional capital. The share price, accompanied by zigzag movements, touched a low of $0.32 and ended the day at $0.3699 per share, down $0.0331 or 8.2% on a volume of 250,811 shares.

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Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.