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Note 1.
Nature of Business and Significant Accounting Policies
Nature of business and principles of consolidation:
The accompanying Condensed Consolidated Financial Statements of Tara Minerals Corp. the "Company" should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2010. Significant accounting policies disclosed therein have not changed, except as noted below.
The Company was organized May 12, 2006 under the laws of the State of Nevada. The Company currently is engaged in the acquisition, exploration and development of mineral resource properties in the United States of America and Mexico. The Company owns 99.9% of the common stock of American Metal Mining, S.A. de C.V. "AMM", which was established in December 2006 and operates in México. The Company also owns 87% of the common stock of Adit Resources Corp., which in turns owns 99.9% of American Copper Mining, S.A. de C.V. "ACM", which was established in December 2006 and operates in México. Adit Resources Corp. "Adit" was organized in June 2009 and ACM was purchased in June 2009. The Company currently has limited operations and, in accordance with the Financial Accounting Standards Board Accounting Standards Codification "FASB ASC" Development Stage Entities Topic, is considered an Exploration Stage Company.
Tara Minerals Corp. is a subsidiary of Tara Gold Resources Corp. "Tara Gold" or the "Company's Parent, a publicly traded company which trades under the TRGD symbol.
Unless otherwise indicated, all references to the Company include the operations of its subsidiaries, and all references to Adit include the operation of its subsidiary.
The accompanying Condensed Consolidated Financial Statements and the related footnote information are unaudited. In the opinion of management, they include all normal recurring adjustments necessary for a fair presentation of the condensed consolidated balance sheets of the Company at March 31, 2011 and December 31, 2010, and the condensed consolidated statements of operations for the three months ended March 31, 2011 and 2010. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. The consolidated financial statements include the financial statements of the Company, AMM, Adit and ACM. All amounts are in U.S. dollars unless otherwise indicated. All significant intercompany balances and transactions have been eliminated in consolidation.
The reporting currency of the Company and Adit is the U.S. dollar. The functional currency of AMM and ACM is the Mexican peso. As a result, the financial statements of the subsidiaries have been re-measured from Mexican pesos into U.S. dollars using i current exchange rates for monetary asset and liability accounts, ii historical exchange rates for nonmonetary asset and liability accounts, iii historical exchange rates for revenues and expenses associated with nonmonetary assets and liabilities and iv the weighted average exchange rate of the reporting period for all other revenues and expenses. In addition, foreign currency transaction gains and losses resulting from U.S. dollar denominated transactions are eliminated. The resulting re-measurement gain or loss is recorded as other comprehensive loss.
The financial statements of the Mexican subsidiaries should not be construed as representations that Mexican pesos have been, could have been or may in the future be converted into U.S. dollars at such rates or any other rates.
Relevant exchange rates used in the preparation of the financial statements for the subsidiary are as follows for the three months ended March 31, 2011. Mexican pesos per one U.S. dollar.
|
March 31, 2011 |
|
Current exchange rate |
Ps. |
11.9219 |
Weighted average exchange rate for the nine months ended |
Ps. |
12.0782 |
The Company's significant accounting policies are:
Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recoverable Value-Added Taxes IVA and Allowance for Doubtful Accounts
Each period receivables are reviewed for collectability. When a receivable is determined to not be collectable we allow for the receivable until we are either assured of collection or assured that a write off is necessary. We have recorded an allowance of $1,252,689 and $1,366,533 as of March 31, 2011 and December 31, 2010, respectively, in association with our receivable from IVA from our Mexico subsidiaries as we have determined that the Mexican government may not allow the complete refund of these taxes.
Reclassifications
Certain reclassifications, which have no effect on net loss, have been made in the prior period financial statements to conform to the current presentation.
Purchase of Technical Data
Technical data, including engineering reports, maps, assessment reports, exploration samples certificates, surveys, environmental studies and other miscellaneous information, may be purchased for our mining concessions. When purchased for concessions without proven reserves the cost is considered research and development pertaining to a developing mine and in accordance with the Research and Development R&D Topic of the FASB ASC and is expensed when incurred.
Recently Adopted and Recently Issued Accounting Guidance
Adopted
In October 2009, the FASB issued changes to revenue recognition for multiple-deliverable arrangements. These changes require separation of consideration received in such arrangements by establishing a selling price hierarchy not the same as fair value for determining the selling price of a deliverable, which will be based on available information in the following order: vendor-specific objective evidence, third-party evidence, or estimated selling price; eliminate the residual method of allocation and require that the consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in the arrangement to each deliverable on the basis of each deliverable's selling price; require that a vendor determine its best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis; and expand the disclosures related to multiple-deliverable revenue arrangements. These changes become effective on January 1, 2011. The Company has determined that the adoption of these changes will not have an impact on its consolidated financial statements, as the Company does not currently have any such arrangements with its customers.
In January 2010, the FASB issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires a roll forward of activities on purchases, sales, issuances, and settlements of the assets and liabilities measured using significant unobservable inputs Level 3 fair value measurements. The guidance will become effective for the Company with the reporting period beginning July 1, 2011. The adoption of this guidance is not expected to have a material impact on the Company's condensed consolidated financial statements.
Other recent accounting pronouncements issued by the FASB including its Emerging Issues Task Force, the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future consolidated financial statements.
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Note 2.
Property, plant, equipment, mine development and land
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March 31, 2011 |
December 31, 2010 |
|
Unaudited |
Audited |
|
|
|
Land |
$ 19,590 |
$ 19,590 |
|
|
|
Mining concessions: |
|
|
Pilar a |
710,172 |
710,172 |
Don Roman |
521,739 |
521,739 |
Las Nuvias |
100,000 |
100,000 |
Centenario b |
635,571 |
1,946,545 |
Pirita |
246,455 |
246,455 |
Picacho |
1,250,000 |
1,250,000 |
La Palma c |
79,974 |
- |
Mining concessions |
3,543,911 |
4,774,911 |
|
|
|
Construction in Progress |
- |
- |
Property, plant and equipment |
3,444,749 |
3,603,210 |
|
7,008,250 |
8,397,711 |
Less - accumulated depreciation |
353,462 |
295,925 |
|
$ 6,654,788 |
$ 8,101,786 |
Pilar, Don Ramon, Las Nuvias and Centenario properties are geographically located in Mexico and are known as the Don Roman Groupings.
a.
In November 2008, the Company acquired eight mining concessions known as "Centenario" from an independent third party. The properties approximate 5,400 hectares and were purchased for $1,894,050, including $247,050 in value added taxes.
In June 2009, the Company and the note holder modified the agreement to 1 revalue the entire Centenario concession to $2,000,000, 2 apply $127,000 toward the purchase price which had already been paid and recorded as a mining deposit, and 3 apply $197,956 toward the new price of the concession which was originally paid by another subsidiary of the Company's Parent. These changes resulted in the following 1 additional debt of $28,044 plus related value added tax for these concessions, 2 the reduction of the amount of the mining deposit of $127,000, 3 the expense of $6,000 that AMM also paid but which was not included in the revaluation of the concession, and 4 the increase in Due to Related Party of $197,956 plus related value added tax. The effective amount financed in relation to this concession is $1,675,044 plus $251,257 of value added tax.
In March 2011, AMM and the note holder agreed to reduce the purchase of the Centenario concession to $635,571. These changes resulted in the following: 1 decrease debt by $1,310,974; and 2 decrease recoverable value added taxes by $218,309. At March 31, 2011 the amended purchase price was paid in full.
In March 2011, the Company purchased technical data pertaining to Centenario from the former owner in consideration for 416,100 shares of the Company's common stock and $100,000 cash. The parties agreed that the value of the stock for the technical data was $2.00 per share for the Company's common stock. The Company has accounted for the shares at their fair market value as follows: 416,100 shares of the Company's common stock were valued at $0.85. All fair market values were determined based on contemporaneous stock issuances for cash or if the stock was quoted on an exchange, it's closing stock price. All stock was issued April 2011.
b.
On March 2011, AMM executed an agreement to acquire six mining concessions known as La Palma from an independent third party. The properties approximate 2,104 hectares, and were purchased for a total of $92,800, including $12,800 in value added taxes. AMM paid $50,000 as a deposit for the concession mining deposit which was applied to the effective price of the property. The remaining balance of $42,800 is due thirty days after the execution date of the agreement.
In March 2011, the Company purchased technical data pertaining to the La Palma from the former owner for 460,000 shares of the Company's common stock. The parties agreed that the value of the stock for the technical data was $2.00 per share for the Company's common stock. The Company has accounted for the shares at their fair market value as follows: 460,000 shares of the Company's common stock were valued at $0.85. All fair market values were determined based on contemporaneous stock issuances for cash or if the stock was quoted on an exchange, it's closing stock price. All stock was issued April 2011.
Other Fixed Assets
For the three months ended March 31, 2011, Tara Minerals and its subsidiaries disposed of and sold equipment and other fixed assets, for a $4,260 loss on disposal and sale of assets.
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Note 3.
Other assets
In September 2010, Tara Minerals signed an agreement to purchase three real estate properties for a price of $1,000,000. In order to hold these properties Tara Minerals made a cash deposit of $60,000. Tara Minerals is obligated to pay all the expenses, fees and general expenditures relating to the sale, which expenses, up to a maximum of $500,000, which are deductible from the sales price. In March 2011, Tara Minerals received notification from Pacemaker Silver Mining S.A. de C.V. a wholly-owned Mexican subsidiary of El Tigre, indicating that they also had surface rights related to being able to work claims they held mining rights too. Although this is does not effect our specific right to the tailing piles, there could be an issue as to who would have specific areas and specific times. Until the difference can be determined, the deposit was expensed as of March 31, 2011.
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Note 4.
Related Party Transactions
Due to related parties, net of due from was $3,237,827 and $3,465,232 as of March 31, 2011 and December 31, 2010, respectively.
As of March 31, 2011, Tara Gold loaned the Company $1,588,257 which amount is included in Due to Related Parties. There are no terms to this related party payable and it is due on demand.
In September 2010, Tara Gold entered into a tentative agreement with Tara Minerals which provided that Tara Minerals will acquire all of the outstanding shares of Tara Gold by exchanging one Tara Mineral share for two Tara Gold shares. In 2011 this acquisition was cancelled. Tara Gold Resources Corp. will begin to distribute all of its shares in Tara Minerals to its shareholders at a rate of one Tara Minerals common share for every 20 outstanding shares of Tara Gold Resources Corp. The ex-dividend date is May 18, 2011, the record date is May 20, 2011 and the payment date is May 27, 2011. Additional distributions will be announced over the next 24 months until all Tara Minerals shares, held by Tara Gold, are distributed to Tara Gold shareholders.
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Note 5.
Notes Payable
The following table represents the outstanding balance of loans and capital leases for the Company as of March 31, 2011 and December 31, 2010.
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March 31, 2011 |
December 31, 2010 |
|
Unaudited |
Audited |
|
|
|
Mining concession |
$ 205,229 |
$ 1,699,737 |
Auto loans |
86,337 |
119,766 |
Equipment |
- |
72,848 |
|
291,566 |
1,892,351 |
Less - current portion |
231,161 |
824,001 |
Total - non-current portion |
$ 60,405 |
$ 1,068,350 |
During the three months ended March 31, 2011, one of the vehicles purchased in 2010 was stolen, the insurance claim was processed and the note payable and the fixed asset removed from the AMM's books.
During the three months ended March 31, 2011, AMM defaulted on an equipment capital lease entered into on July 21, 2010, the equipment was returned and removed from the books and treated as an operating lease.
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Note 6.
Stockholders' Equity
The authorized common stock of the Company consists of 200,000,000 shares with par value of $0.001.
March 2011, the Company issued 1,012,977 shares of common stock valued at $1,215,572 or $1.20 a share to convert loans from unrelated parties.
March 2011, the Company issued 105,722 shares of common stock valued at $126,866 or $1.20 a share to convert a loan from a related party.
March 2011, the Company issued 125,000 shares of common stock for warrants exercised, for $50,000 or $0.40 a share for cash.
Common Stock Subscribed
At March 31, 2011, common stock payable consists of:
·
100,000 shares payable to an Officer of the Company, valued at $100,000, for payment of services on behalf of Tara Gold.
·
416,100 shares payable, valued at $353,685 for the purchase of Centenario's technical data. See Note 2 above.
·
460,000 shares payable, valued at $391,000 for the purchase of La Palma's technical data. See Note 2 above.
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Note 7.
Stock Compensation
In January 2010, the Company granted two of its officer's options under its Incentive Stock Option Plan for the purchase of 750,000 shares of common stock. The options are exercisable at a price of $1.57 per share and vest at various dates until January 2017. The options expire at various dates beginning January 2015. As of March 31, 2011 options that vested in 2011 were valued at $182,735.
In September 2010, the Company granted options for 200,000 shares of common stock to an unrelated third party for investor relations services. The options have an exercise price of $1.00 per share, vest between September 2010 and March 2011 and expire two years from the date of vesting. As of March 31, 2011 options that vested in 2011 were valued at $36,353.
No options or warrants were issued in the first quarter 2011.
The fair value of each option award discussed above is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. Expected volatilities are based on volatilities from the Company's traded common stock. The expected term of options granted is estimated at half of the contractual term as noted in the individual option agreements and represents the period of time that management anticipates option granted are expected to be outstanding. The risk-free rate for the periods within the contractual life of the option is based on the U.S. Treasury bond rate in effect at the time of grant for bonds with maturity dates at the estimated term of the options.
|
2010 date of grant |
Expected volatility |
208.37% - 319.79% |
Weighted-average volatility |
159.17% |
Expected dividends |
0 |
Expected term in years |
0.75 - 4.50 |
Risk-free rate |
0.30% - 2.37% |
A summary of option activity under the Plan as of March 31, 2011 and changes during the period then ended is presented below:
Options |
Shares |
Weighted- Average Exercise Price |
Weighted- Average Remaining Contractual Term |
Aggregate Intrinsic Value |
Outstanding at December 31, 2010 |
4,630,000 |
$ 0.05 |
|
|
Granted |
- |
- |
|
|
Exercised |
- |
- |
|
|
Forfeited or expired |
- |
- |
|
|
Outstanding at March 31, 2011 |
4,630,000 |
$ 0.05 |
3.5 |
$2,025,000 |
Exercisable at March 31, 2011 |
3,330,000 |
$ 0.46 |
3.5 |
$ 2,025,000 |
Nonvested Options |
Options |
Weighted -Average Grant-Date Fair Value |
Nonvested at December 31, 2010 |
1,475,000 |
$ 1.37 |
Granted |
- |
- |
Vested |
175,000 |
1.22 |
Forfeited |
- |
- |
Nonvested at March 31, 2011 |
1,300,000 |
$ 0.86 |
A summary of warrant activity under the Plan as of March 31, 2011, and changes during the period then ended is presented below:
Warrants |
Shares |
Weighted- Average Exercise Price |
Weighted- Average Remaining Contractual Term |
Aggregate Intrinsic Value |
Outstanding at December 31, 2010 |
4,271,999 |
$ 0.65 |
|
|
Granted |
- |
- |
|
|
Exercised |
125,000 |
0.40 |
|
|
Forfeited, cancelled or expired |
- |
- |
|
|
Outstanding at March 31, 2011 |
4,146,999 |
$ 0.85 |
1.5 |
$ 580,590 |
Exercisable at March 31, 2011 |
4,146,999 |
$ 0.85 |
1.5 |
$ 580,590 |
All warrants at March 31, 2011 were vested.
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Note 8.
Non-controlling Interest
On January 28, 2011, Adit, sold 500,000 units at a price of $1.00 per unit to Yamana Gold Inc. Each unit consisted of one share of Adit's common stock and one half warrant. Each full warrant entitles Yamana to purchase one share of Adit's common stock at a price of $1.50 per share at any time on or before January 28, 2014.
In connection with the sale of the units, Adit also signed a letter of intent that grants Yamana an option to acquire up to a 70% interest in Adit's Picacho gold/silver project. A definitive agreement is expected to be completed May 15, 2011. Upon completion of the definitive agreement, Adit will sell an additional 2,500,000 units to Yamana at a price of $1.00 per unit. The units will be identical to the units sold on January 28, 2011. From the $3,000,000 received from Yamana, Adit will be required to spend $2,000,000 in exploration work on the Picacho project within 12 months of signing the definitive agreement.
Yamana can earn a 51% interest in the project by spending an additional $5,000,000 on the project within 30 months of the date of the definitive agreement and paying Adit an additional $1,000,000. Yamana can increase its interest to 70% by spending an additional $9,000,000 on the project and paying Adit an additional $2,000,000.
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Non-controlling interest at March 31, 2011 |
Non-controlling interest at December 31, 2010 |
Combined Adit / ACM: |
|
|
Private placement |
$ 1,499,501 |
$ 1,499,501 |
Common stock for cash |
500,000 |
- |
Finder's fees |
95,215 |
95,215 |
Technical data for Picacho |
240,000 |
240,000 |
Officer compensation |
487,500 |
487,500 |
Officer options |
134,978 |
134,978 |
Cumulative statement of operations pickup through December 31, 2010 |
400,368 |
400,368 |
Statement of operations pickup 2011 |
6,370 |
- |
AMM Non-controlling interest |
5 |
5 |
Total non-controlling interest |
$ 2,550,461 |
$ 2,056,831 |
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Note 9.
Fair Value
In accordance with authoritative guidance, the table below sets forth the Company's financial assets and liabilities measured at fair value by level within the fair value hierarchy. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
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Fair Value at March 31, 2011 |
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Total |
Level 1 |
Level 2 |
Level 3 |
Assets: |
|
|
|
|
None |
$ - |
$ - |
$ - |
$ - |
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|
|
|
|
Liabilities: |
|
|
|
|
Total notes payable |
$ 291,566 |
$ 291,566 |
$ - |
$ - |
Due to related parties, net of due from |
3,237,827 |
3,237,827 |
- |
- |
Total |
$ 3,529,393 |
$ 3,529,393 |
$ - |
$ - |
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Fair Value at December 31, 2010 |
|||
|
Total |
Level 1 |
Level 2 |
Level 3 |
Assets: |
|
|
|
|
None |
$ - |
$ - |
$ - |
$ - |
|
|
|
|
|
Liabilities: |
|
|
|
|
Total notes payable, including related party |
$ 1,992,351 |
$ 1,992,351 |
$ - |
$ - |
Due to related parties, net of due from |
3,465,232 |
3,465,232 |
- |
- |
Total |
$ 5,457,583 |
$ 5,457,583 |
$ - |
$ - |
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Note 10.
Subsequent Events
Management evaluated all activity of the Company through May 14, 2011 the issue date of the Financial Statements and concluded the following disclosures are pertinent:
a.
In April 2011, the Company and AMM signed a letter of intent with Springbok Development-Claridge-Hanlon Resource Engineering, "SD-CHRE" and/or Nominee or any of its subsidiaries to grant them an option to acquire up to an undivided forty-nine percent 49% interest in and to all of the mining concessions known as the Don Roman grouping located in the State of Sinaloa, Mexico. The Don Roman grouping now totals approximately 10,000 hectares in close proximity to the existing mill, which includes the Don Roman, Centenario, and the newly acquired La Verdes concessions. The grouping lies 15 km SW of the historically prolific La Reforma silver/zinc/lead district. Key personnel from SD-CHRE have worked on Mining, Commercial, Government and Infrastructure projects for over 20-years.
The Letter of Intent is non-binding and requires SD-CHRE, as the mine and mill operator, to make a $250,000 cash payment to The Company within 45 days of the signing. To earn its 49% interest, SD-CHRE will incur a minimum of $2 million to start-up the existing mill and achieve a production rate of 120 tonnes per day within 120 days; incur another $2 million to achieve a production rate of 360 tonnes per day within 6 months; and incur an additional minimum $4 million to achieve and maintain a minimum production rate, as the parties may agree upon within the Definitive Agreement, not to be less than 480 tonnes per day, within twelve months.
The net revenue generated from the project will be shared on a 50% SD-CHRE and 50% the Company basis. The LOI envisions an assessment and design period of 45-60 days and a Definitive Agreement within 90 days.
b.
In April 2011, the Company entered into an agreement to acquire 100% of the La Verdes gold, silver, zinc and lead project grouping. The 2,200 hectares property consists of eight concessions 13-18 km from the Don Roman mine and mill. The concessions were being mined as late as 2010, with the extracted material grading 0.5-1.5 g/t gold, 300-600 g/t silver, 14-15% zinc, 6-8% lead, and 2.1-2.6% copper. Recent channel samples across the workings assayed similar grades. A road from the groupings, to the Don Roman mill, has also been completed. The Company now controls over 10,000 hectares in close proximity to the mill.
The Company is acquiring the grouping for $1.8 million plus applicable taxes. $1.66 million of the acquisition cost will be paid by the issuance of The Company restricted shares valued at $2 per share, with the remainder being paid in cash.
The La Verdes grouping comprises of an extensive area of hydrothermal alteration that hosts numerous precious and base metal occurrences along the western part of the Northern Sierra Madre Gold Belt. The property lies 30 km SW of the historically prolific La Reforma Pb-Zn-Ag District that is now the focus of concerted exploration by Peñoles. The grouping has 50 m of tunnels and 14 known showings of old workings. Numerous gold/silver/zinc/lead vein structures have been identified with three being well defined. These veins are approximately 1.5-8 meters wide and are comprised of 80% sulfides. The strike length of some of these structures have already been traced to a combined total of over 5 kilometers.
c.
In May 2011, the Company reached an agreement for the right to mine the 3,233 hectare Tania Iron Ore property located in Manzanillo, State of Colima, Mexico. The Company has the right to remove 6 million tonnes of salable concentrate from the property, with perpetual renewal rights, extending through the life of the property. The Company will pay the vendor $6 per salable tonne for the first 500,000 tonnes removed from the property and $7 per tonne thereafter. A total of $100,000 will be advanced to the vendor against future royalty payments.
The Company is also pleased to announce that it has raised $750,000 through a royalty rights offering to advance the project. A portion of the funds will be used to secure appropriate environmental permits, export permits, and recovery process engineering.
The Tania property is located 33 km from the port of Manzanillo. The Iron is contained within decomposed granite with little overburden. On the surface, the mineralized zone is estimated to be 2 km wide and approximately 1 km in length. The zone is continuous and sampled 30-40% Iron. The property has not been subjected to modern exploration methods or concentrating processes.
d.
In May 2011, the Company increased its authorized shares to 200,000,000.
e.
In May 2011, the Company sold 1,643,333 Units at a price of $0.30 per Unit. Each Unit consisted of one share of the Company's common stock and one warrant. Each warrant entitles the holder to purchase one share of the Company's common stock at a price of $1.00 per share during the one year period following the sale of the Units. All warrants expire May 2012.