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EX-32 - EXHIBIT 32 - RED METAL RESOURCES, LTD.ex32.htm
EX-31.1 - EXHIBIT 31.1 - RED METAL RESOURCES, LTD.ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - RED METAL RESOURCES, LTD.ex31-2.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 10-K

(Mark One)
x
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended January 31, 2011

o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to ________________  

Commission File Number 000-52055

RED METAL RESOURCES LTD.
(Exact name of registrant as specified in its charter)

Nevada
 
20-2138504
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

195 Park Avenue Thunder Bay, Ontario P7B 1B9
(Address of principal executive offices)

Registrant’s telephone number, including area code: (807) 345-7384

Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Name of each exchange on
which each is registered
N/A
 
N/A

Securities registered pursuant to Section 12(g) of the Act:  Common Stock, $0.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes [   ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes [   ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes [ x ] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceeding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [   ] No [   ]  The registrant is not yet subject to this requirement.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
 
Large accelerated filer [   ]  
 
Accelerated filer                   [   ]
Non-accelerated filer   [   ]
 
Smaller reporting company [X]
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.  As of July 30, 2010, the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of the common equity was $1,439,473.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of April 25, 2011 was 16,939,634.
 
 

 
 
TABLE OF CONTENTS

NOTE ABOUT FORWARD-LOOKING STATEMENTS
1
ITEM 1: BUSINESS
1
GENERAL
1
UNPROVED MINERAL PROPERTIES
3
COMPETITION
15
RAW MATERIALS
15
DEPENDENCE ON MAJOR CUSTOMERS
15
PATENTS/TRADEMARKS/LICENSES/FRANCHISES/CONCESSIONS/ROYALTY AGREEMENTS/LABOR CONTRACTS
15
COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
16
EXPENDITURES ON RESEARCH AND DEVELOPMENT
16
NUMBER OF TOTAL EMPLOYEES AND NUMBER OF FULL-TIME EMPLOYEES
16
ITEM 1A: RISK FACTORS
16
ITEM 1B: UNRESOLVED STAFF COMMENTS
21
ITEM 2: PROPERTIES
21
ITEM 3:  LEGAL PROCEEDINGS
21
ITEM 4:  REMOVED AND RESERVED
21
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
21
ITEM 6:  SELECTED FINANCIAL DATA.
22
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
23
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
31
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
31
INDEX TO FINANCIAL STATEMENTS
31
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
34
NOT APPLICABLE.
34
ITEM 9A(T):  CONTROLS AND PROCEDURES
34
ITEM 9B:  OTHER INFORMATION
35
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
35
ITEM 11: EXECUTIVE COMPENSATION
37
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
37
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
38
DIRECTOR INDEPENDENCE
38
TRANSACTIONS WITH RELATED PERSONS
38
ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
41
ITEM 15: EXHIBITS
42
 
 
 

 
 
NOTE ABOUT FORWARD-LOOKING STATEMENTS
 
This annual report on Form 10-K contains “forward-looking statements”.  These forward-looking statements are based on our current expectations, assumptions, estimates and projections about our business and our industry.  Words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “may,” and other similar expressions identify forward-looking statements.  In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements.  These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.  Factors that might cause such a difference include, but are not limited to, those discussed in the sections of this annual report titled “Risk Factors”, “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as well as the following:

 
general economic conditions, because they may affect our ability to raise money
 
our ability to raise enough money to continue our operations
 
changes in regulatory requirements that adversely affect our business
 
changes in the prices for minerals that adversely affect our business
 
political changes in Chile, which could affect our interests there
 
other uncertainties, all of which are difficult to predict and many of which are beyond our control
 
You are cautioned not to place undue reliance on these forward-looking statements, which relate only to events as of the date on which the statements are made.  We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date of this annual report.  You should refer to and carefully review the information in future documents we file with the Securities and Exchange Commission.
 
ITEM 1: BUSINESS
 
General

Red Metal Resources Ltd. was incorporated in Nevada on January 10, 2005 as Red Lake Exploration, Inc.  We changed our name to Red Metal Resources Ltd. on August 27, 2008.

On August 21, 2007, we formed Minera Polymet Limitada, a limited liability company, under the laws of the Republic of Chile.  We own 99% of Polymet, which holds our Chilean mineral property interests.  Under Chilean law, a resident of Chile must be a shareholder in a limitada.  To meet this requirement, 1% of Polymet is owned by a Chilean resident, an experienced manager who has organized an office and other resources for us to use and is Polymet’s legal representative in Chile. Polymet’s office is located in Vallenar, III Region of Atacama, Chile.
 
Our resident agent’s office is at 711 S. Carson Street, Suite 4, Carson City, Nevada, 89701.  Our business office is at 195 Park Avenue, Thunder Bay, Ontario, Canada, P7B 1B9.  Our telephone number is (807) 345-7384; our email address is info@redmetalresources.com; and our web address is www.redmetalresources.com.  Information on our web site is not a part of this annual report.
 
We are a start-up exploration stage company without operations.  We are in the business of acquiring and exploring mineral claims. All of our claims are located in the III Region of Atacama, Chile. We have not determined whether our claims contain mineral reserves that are economically recoverable.   We have not produced revenues from our principal business and are considered an exploration stage company as defined by “Accounting and Reporting by Development Stage Enterprises.”
 
Our ability to realize a return on our investment in mineral claims depends upon whether we maintain the legal ownership of the claims. Title to mineral claims involves risks inherent in the process of determining the validity of claims and the ambiguous transfer history characteristic of many mineral claims.  To the best of our knowledge, and after consultation with an attorney knowledgeable in the practice of mining, we believe that we have taken the steps necessary to ensure that we have good title to our mineral claims.  We have had our contracts and deeds notarized, recorded in the registry of mines and published in the mining bulletin and we review the mining bulletin regularly to determine whether other parties have staked claims over our ground.  We have discovered no such claims.

 
1

 
Chile’s mining and land tenure policies were established to secure the property rights of both domestic and foreign investors to stimulate development of mining in Chile. The government of Chile owns all mineral resources, but exploration and exploitation of these resources are permitted through exploration and mining concessions. A mineral concession must pass through three stages to become a permanent mining concession, namely, pedimento, manifestacion and mensura.
 
A pedimento is an initial exploration claim. It can be placed on any area, whereas the survey to establish a permanent mensura claim can only be completed on free areas where no other mensuras exist. A pedimento is valid for a maximum of two years. At the end of this period it may either be reduced in size by at least 50% and renewed for an additional two years or entered into the manifestacion process to establish a permanent mensura claim. New pedimentos can overlap existing pedimentos, but the pedimento with the earliest filing date takes precedence providing the claim holder maintains the pedimento in accordance with the mining code and the applicable regulations.
 
Manifestacion is the process by which a pedimento is converted to a permanent mining claim. At any stage during its two-year life, the holder of a pedimento can submit a manifestacion application, which is valid for 220 days. To begin the manifestacion process, the owner must request a survey (mensura) within 220 days. After the survey request is accepted, the owner has approximately 12 months to have the claim surveyed by a government-licensed surveyor, inspected and approved by the national mining service, and affirmed as a mensura (equivalent to a patented claim) by a judge. Thereafter, an abstract describing the claim is published in Chile’s official mining bulletin (published weekly) and 30 days later the claim is inscribed in the appropriate mining registry.
 
A mensura is a permanent property right that does not expire so long as the annual fees (patentes) are paid in a timely manner. Failure to pay the patentes for an extended period can result in the claim being listed for sale at auction, where a third party can acquire a claim for the payment of the back taxes owed and a penalty.
 
In Chile, we have both pedimento and mensura claims.  We cannot guarantee that any of our pedimento claims will convert to mensura claims. Some of our pedimentos are still in the registration process and some are in the manifestacion stage. We may decide, for geologic, economic or other reasons, not to complete a registration or manifestacion or to abandon a claim after it is registered.  Some of our pedimentos may have been staked over other owners’ claims as permitted by the Chilean mining code.  Our pedimento rights in these claims will not crystallize unless the owners of the underlying claims fail to pay their taxes or otherwise forfeit their interests in their claims.  Our purpose in over-staking is to claim free ground around others’ claims and to have the first right to forfeited claims if we want them.  Over-staking is easier and less costly than staking available ground around claims and ensures that all available ground is covered that might otherwise be missed.
 
We have a close working relationship with Minera Farellon Limitada, a Chilean company owned equally by Kevin Mitchell, Polymet’s legal representative in Chile, and Richard Jeffs, the father of our president, who holds more than 5% of our shares of common stock (see Table 16 below).  Minera Farellon investigates potential claims and often ties them up, by staking new claims, optioning or buying others’ claims, all at its own cost.  This gives us an opportunity to review the claims to decide whether they are of interest to us.  If we are interested, then we either proceed to acquire an interest in the property directly from the owner, or, if Minera Farellon has already obtained an interest, we take an option to acquire its interest. Minera Farellon, which is located in the city of Vallenar, also provides all of our logistical support in Vallenar under a month-to-month contract, which enables us to limit our operating expenses to those needed from time to time.
 
 
2

 
 
Unproved mineral properties
 
We have three active properties—the Farellon, Mateo, and Perth—consisting of both mining claims and exploration claims that we have assembled since the beginning of 2007.  

Active properties
 
Our active properties as of the date of this filing are set out in Table 1. These properties are accessible by road from Vallenar as illustrated in Figure 1.
 
Table 1: Active properties
 
Table 1: Active properties
     
Property
Percentage, type of claim
Hectares
Gross area
Net areaa
Farellon
         
    Farellon 1 – 8 claim
100%, mensura
66
     
    Farellon 3 claim
100%, pedimento
300
     
    Cecil 1 – 49 claim
100%, mensura
230
     
    Cecil 1 – 40 and Burghley 1 – 60 claims
100%, manifestacion
500
     
   
1,096
 
1,096
 
           
Mateo
         
    Margarita claim
100%, mensura
56
     
    Che 1 & 2 claims
100%, mensura
76
     
    Irene & Irene II claims
100%b, mensura
60
     
    Mateo 1, 2, 3, 12, 13, 14 claims
100%, manifestacion
1,500
     
    Mateo 4 and 5 claims
100%, pedimento
600
     
   
2,292
     
  Overlapped claims (see Figure 3)
 
(170)
 
2,122
 
           
Perth
         
Perth 1 al 36 claim
100%, mensura
109
     
Lancelot I 1 al 30 claim
100%, mensura in process
300
     
Lancelot II 1 al 20 claim
100%, mensura in process
200
     
Rey Arturo 1 al 30 claim
100%, mensura in process
300
     
Merlin I 1 al 10 claim
100%, mensura in process
60
     
Merlin I 1 al 24 claim
100%, mensura in process
240
     
Galahad I 1 al 10 claim
100%, manifestacion
50
     
Galahad I 1 al 46 claim
100%, manifestacion
230
     
Percival III 1 al 30 claim
100%, manifestacion
300
     
Tristan II 1 al 30 claim
100%, manifestacion
300
     
Tristan IIA 1 al 5 claim
100%, manifestacion
15
     
Camelot claim
100%, pedimento
300
     
   
2,404
     
   Overlapped claims (see Figure 4)
 
(124)
 
2,280
 
       
5,498
 
a Some pedimentos and manifestacions overlap other claims. The net area is the total of the hectares we have in each property (i.e. net of our overlapped claims).
b We have agreed to complete the purchase of this property in May, 2011.
 
 
 
3

 
Figure 1: Location and access to active properties

Farellon property

The Farellon property consists of two groups of claims—the Farellon claim and the Cecil and Burghley claims—which are not contiguous but lie within the historical Carrizal Alto mining district southwest of the Carrizal Alto mine. Table 2 describes the claims and Figure 2 illustrates them.
 
Table 2: Farellon property
Claim
Type
Mensura
(ha)
Manifestacion
(ha)
Pedimento
(ha)
Farellon 1 – 8
66
   
Cecil 1 – 49
230
   
Cecil 1 – 40
 
200
 
Burghley 1 – 60
 
300
 
Farellon 3
   
300
 
296
500
300
 
 
 
4

 
Figure 2: Farellon property

The Farellon 1 – 8 is the first mineral claim that we acquired in Chile. It covers 66 hectares and is centered about 309,150 east and 6,888,800 south UTM PSAD56 Zone 19 in Province of Huasco, Commune of Huasco, III Region of Atacama, Chile.
 
We acquired the claim on April 25, 2008 for $550,000. We owe a royalty equal to 1.5% of the net proceeds that we receive from the processor to a maximum of $600,000, payable monthly and subject to a monthly minimum of $1,000 when we start exploiting the minerals we extract from the claim.  We can pay any unpaid balance of the royalty at any time. We have not yet exploited the claim.
 
On September 17, 2008, we bought the Cecil 1 – 49, Cecil 1 – 40 and Burghley 1 – 60 claims for $27,676. The Cecil and Burghley claims cover 730 hectares and are centered at 311,500 east and 6,890,000 south UTM PSAD56 Zone 19 and lie approximately 1.7 kilometers north of the Farellon 1 – 8 border. The claims cover a 1.8-kilometre strike length of a mineralized vein interpreted to be part of the same mineralizing system as the Farellon 1 – 8 vein. An investigation completed during the Farellon 1 – 8 acquisition uncovered a broad regional reconnaissance sampling program completed in 1996 showing results from the areas covered by the Cecil and Burghley claims. Results from the 1996 sampling show copper and gold grades similar to grades returned from the Farellon vein, indicating that the Cecil and Burghley claims could have similar mineralized bodies.  On December 1, 2009, we initiated the manifestacion process when we applied to convert the Cecil 1 – 40 and Burghley 1 – 60 exploration (pedimento) claims to mining (mensura) claims.
 
On July 1, 2010 we registered a pedimento, Farellon 3, at a cost of $305 to cover 300 hectares of ground directly south of our Farellon 1 – 8 claim.  The Farellon 3 claim covers a further 1,000 metres of potential strike extent of the known mineralized zone on the Farellon 1 – 8 claim.
 
 
5

 
Location and means of access. The Farellon property is approximately 40 kilometers west of the Pan-American Highway, about 1 hour and 15 minutes by vehicle from the town of Vallenar which has a population of 40,000 and modern facilities.  High-tension power lines and a fiber-optic communications line run along the highway and both power and rail are connected to the Cerro Colorado iron ore mine only 20 kilometers from the Farellon property. The area is serviced from Copiapó, a city of 70,000 with daily air and bus services to Santiago and other centers.
 
The Farellon property can be accessed by driving approximately 20 kilometers north on the Pan-American Highway from Vallenar then turning northwest towards Canto del Agua.  From Canto del Agua, the Farellon property is approximately 10 kilometers along a well-maintained gravel road.  There are numerous gravel roads in the area, so a guide is necessary to access the property the first time.  All of the roads are well maintained and can support large machinery necessary to transport drills, backhoes and bulldozers.  Water is readily available in Canto del Agua and could probably be found on the Farellon property where all of the historic drill holes intersected water.
 
Exploration history .The Farellon property is in the Carrizal Alto mining district and lies 5 kilometers along strike south of the center of the historic Carrizal Alto copper-gold mine. Veins of the Farellon property were exploited as part of the Carrizal Alto mines. We have located no hard data summarizing all of the past mining activity, but tailings, slag dumps and the size of the shafts and some of the shallow surface workings are evidence of extensive historical mining.

Mine workings of various sizes are all along the Farellon property, but only one modern exploration program has been completed.  In 1996, the Farellon and two other veins, the Fortuna and the Theresa, were explored by an Australian junior mining company under the name Minera Stamford S.A.  Their exploration included a large mapping and surface sampling program followed by a 34-hole RC drilling program.  Of these 34 drill holes, 23 were drilled on the Farellon 1 – 8 claim.  The RC drilling program on the Farellon claim consistently intersected oxide and sulphide facies mineralization along a 2 kilometer-long zone covering the Farellon claim and strike extents to the south.  Mineralization is 2 to 35 meters wide with an average width of 5 meters.  The mineralized zone consists of one or more discrete veins and, in places, stockwork veining and mineralization.  While drilling covered the length of the property, gaps up to 350 meters are untested and infill drilling is required to confirm an economic ore body. Table 3 presents the significant intersections from the 23 holes drilled on the Farellon claim in the 1996 drilling.

 
6

 
Table 3: Farellon historic significant intersections (1996)
Drill hole
 
Significant intervals (m)
 
Assay results
FAR–96
 
From
To
Length
 
Gold (g/t)
Copper (%)
Cobalt (%)
06
 
49
54
5
 
0.15
0.73
0.01
07
 
25
34
9
 
0.38
1.05
0.02
09
 
57
84
27
 
0.51
0.91
0.03
010
 
31
36
5
 
1.00
0.68
0.04
011
 
20
26
6
 
0.67
0.46
0.02
013
 
86
93
7
 
0.87
1.68
0.04
014
 
77
83
6
 
0.66
0.85
0.06
015
 
59
79
20
 
0.99
0.98
0.06
 
99
109
10
 
0.18
1.02
0.03
016
 
24
26
2
 
0.95
1.57
0.02
 
64
70
6
 
0.73
0.81
0.07
020
 
14
16
2
 
0.46
1.85
0.05
 
39
43
4
 
0.75
0.90
0.03
021
 
22
25
3
 
4.17
5.29
0.11
022
 
29
39
10
 
1.53
1.31
0.04
 
100
108
8
 
3.72
2.49
0.06
023
 
50
53
3
 
0.48
1.10
0.06
 
59
64
5
 
0.28
0.78
0.03
 
132
147
15
 
0.60
1.42
0.03
024
 
33
36
3
 
0.94
2.89
0.06
025
 
65
85
20
 
0.97
1.22
0.02
028
 
55
58
3
 
0.12
0.52
0.06
029
 
30
34
4
 
0.18
1.15
0.07
 
82
87
5
 
0.09
0.96
0.01

Geology .The Farellon area has two major lithological units: Palaeozoic metamorphic sediments consisting of schists, phyllites and quartzites; and the Franja Central diorites.  The metamorphosed sediments outcrop in the western part of the property and have been metamorphosed to lower greenschist facies and then extensively overprinted by hydrothermal alteration.  Hydrothermal alteration is directly associated with the shear zone.  The diorite underlies the eastern part of the project area and has been extensively intruded by northeasterly trending intermediate mafic dykes.  At the Farellon property, a small stock-like felsic body named Pan de Azucar intrudes the diorite.  The intrusive relationship between the diorite and metamorphic sediments always appear to be tectonic.  Within the property and at the main Carrizal Alto workings to the north, the major mineralization is intimately related to the south-southwest trending mylonitic sheared contact between the metamorphic sediments and the diorite.  The shear is considered a splay of the main Atacama Fault Zone and dips 30º to 65º west. This contact parallels the regional geological trend and coincides with a major lineament which extends for hundreds of kilometers.  The sheared contact is 50 meters to 200 meters wide over the 1.7-kilometre strike length of the Farellon property.  Veins are typically 3 to 15 meters wide, striking south-southwest and dipping approximately 65 degrees to the northwest.

Mineralization . The Farellon property lies within the Candelaria iron oxide-copper-gold (IOCG) belt of Chile. Ore bodies in the belt occur in veins, breccias, stringer bodies and layer parallel replacement bodies and are typically associated with north-south trending faults related to the Atacama Fault Zone.  All IOCG deposits have a strong association with iron oxides in the form of hematite or magnetite.  In the Candelaria region, larger ore bodies are located where the fault zones intersect a lithological contact with significant rheological contrast such as a sedimentary and volcanic intrusive contact.

Economic IOCG deposits are generally polymetallic and can include iron, copper, gold, zinc, lead, uranium and cobalt among others.  The Farellon property historically has been exploited for copper and to a  lesser extent, gold.  Cobalt mineralization was observed during the 1996–97 exploration work, but we have found no records of cobalt extraction.

 
7

 
Drilling. In September 2009, we completed a 725-metre RC drilling program on the Farellon property. Table 4 summarizes the results of our drilling.
 
The drilling program was designed to confirm historic drilling results and test mineralization down dip of previous drilling. Of the five holes drilled, three holes—FAR–09–A, B and E—tested historic intersections FAR–96–09, 021 and 022 summarized in Table 3; and two—FAR–09–C and D—tested depth extents of the previously known mineralization. Results of the drilling show grades and widths of mineralization consistent with historic exploration results and have given us valuable geological information showing the possibility of a shallow, 30-degree dip of the mineralization.

Table 4: Farellon drilling results (2009)
Drill hole
FAR – 09
Assay interval (m)
 
Assay grade
 
From
To
Core length
 
Gold (ppm)
Copper (%)
A
 
31
34
3.0
 
0.81
1.99
 
79
109
30.0
 
0.18
0.62
including
97
106
9.0
 
0.44
1.63
B
 
56
96
40.0
 
0.27
0.55
including
56
63
7.0
 
0.22
0.66
 
74
96
22.0
 
0.42
0.79
including
75
86
11.0
 
0.67
1.35
C
 
73
103
30.0
 
0.79
0.55
including
77
82
5.0
 
4.16
2.57
D
 
95
134
39.0
 
0.11
0.58
including
95
103
8.0
 
0.33
2.02
E
 
25
30
5.0
 
0.54
1.35
65
68
3.0
 
0.58
1.46

We commissioned Micon International Limited to prepare a technical report that complies with Canadian National Instrument 43-101 summarizing the information obtained from this drilling program. Micon concluded that our drilling confirmed the general location and tenure of the mineralization identified during the 1996 drilling program and noted some minor disparities between historical 1996 gold and copper assays and the recent 2009 gold and copper assays in two of the drill holes—FAR–09–A and E. In FAR–09–E. Micon recommended that we investigate these disparities during the next phase of drilling.
 
The drilling identified that the copper and gold mineralization exhibited a direct correlation in both location and relative intensity and provided useful information for outlining the relative location and spacing of drill holes in our next exploration programs.
 
All of our 2009 drill holes intersected oxide facies mineralization with only minor amounts of sulphides observed in drill hole FAR–09–D. When we have established the general trend of the mineralization we can conduct some drilling to identify the oxide-sulphide interface.
 
Micon recommended that we conduct a two-phase drilling program. The first phase would consist of approximately 1,200 meters of diamond drilling to assist in defining the structural controls on the mineralization, which could have been misinterpreted in the past due to the limited geological information obtained from the historic RC drilling, and the depth and nature of the sulphide mineralization.  The estimated cost of this phase is $220,000.
 
If this phase is successful, Micon recommended that we conduct a much larger phase of exploration consisting of 5,000 meters of diamond drilling and 10,000 meters of RC drilling, and geophysical surveys and geological mapping. A geophysics survey using both magnetics and induced polarization will help to identify further mineralized structures on the property that may not have been noticed in the historic mapping. A phase two drill program would be at defined spacing to outline the continuity of mineralization leading to a 3D model and initial resource estimation.  The depth of the drilling would be dependent on the results of the phase one drilling program. The estimated cost of this phase is $1.9 million.

 
8

 
QA/QC, sampling procedures and analytical methods. We conducted sampling on one-meter intervals, which is generally the industry-standard sampling practice for RC drilling. Sampling started at the collar of the hole and proceeded to the toe or bottom of the drill hole on one-meter increments. Generally, the sample recovery was good to excellent for the 2009 drilling program. Table 4 summarizes significant assay results.  They are reported as drill lengths as we have not established the width of the mineralized zone.
 
Our quality assurance, quality control (QA/QC) protocol consists of the addition of standards, blanks and laboratory duplicates to the sample stream.  We inserted these into the sample series using the same number sequence as the samples themselves.  One of the QA/QC check samples is inserted every 25 samples and it alternates between standards, blanks and laboratory duplicates.  

mateo property

We have assembled a group of claims: the Che Uno and Che Dos, the Margarita, and the Irene Uno and Irene Dos mining claims, and the Mateo exploration claims as described in Table 5 and illustrated in Figure 3.  The Mateo exploration claims overlap the Che, Margarita and Irene claims to secure the areas around the claims. Some of them may overlap others’ prior claims. We will acquire rights to these overlapped prior claims only if the owners forfeit their rights, and we will exercise our rights only if we want the property. We acquired all of these claims for the same geological reasons and consider them one property, which we call the Mateo property.

Table 5: Mateo property
Claim
Type
Mensura
(ha)
Manifestaciona
(ha)
Pedimentoa
(ha)
Che Uno 1 – 8
32
   
Che Dos 1 – 10
44
   
Margarita 1 – 14
56
   
Irene Uno 1 – 2
10
   
Irene Dos 1 – 10
50
   
Mateo 1
 
300
 
Mateo 2
 
300
 
Mateo 3
 
200
 
Mateo 4
   
300
Mateo 5
   
300
Mateo 12
 
200
 
Mateo 13
 
200
 
Mateo 14
 
300
 
 
192
1,500
600
aSome of the claims are staked over the mensuras to claim the ground surrounding them. See Figure 3.
 
 
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Figure 3: Mateo property
 
che uno and che dos claims
 
On October 10, 2008 Minera Farellon granted us the option to purchase the Che Uno and Dos claims. The Che claims cover 76 hectares centered about 339,002 east and 6,838,450 south UTM PSAD56 Zone 19. They are in the northwest corner of the Mateo property.  On April 12, 2011 we completed the acquisition of the Che claims by paying approximately $20,000 to Minera Farellon. 

We continue to owe a royalty equal to 1% of the net proceeds that we receive from the processor to a maximum of $100,000 with no monthly minimum when we start exploiting the minerals we extract from the claim.   We have not yet exploited the claim.

margarita claim
 
We bought the Margarita mining claim on November 27, 2008 through a public auction and at January 31, 2011 had spent a total of $17,078 (including legal and registration costs) for this claim and owe the outstanding property taxes of approximately $667.  The Margarita claim covers 56 hectares centered around 340,353 east and 6,838,347 south UTM PSAD56 Zone 19 located within the northeast corner of the Mateo claim.
 
irene 1-2 and irene II 1-10 claims
 
On September 7, 2010, we entered into a purchase agreement with Minera Farellon to buy the Irene 1-2 and Irene II 1-10 mining claims. Under the terms of the agreement, as amended, we agreed to pay 21 million Chilean pesos (approximately $43,500 US), the owner’s legal, transfer, holding and other costs by May 15, 2011 to exercise the option and purchase the Irene claims. We do not anticipate that the legal transfer and other costs will exceed $5,000.The Irene claims cover 60 hectares centered about 341,002 east and 6,838,101 south UTM PSAD56 Zone 19, are located within the northeast corner of the Mateo property, and share their western border with the Margarita claim.

 
10

 
mateo claims
 
The Mateo claims consist of six manifestaciones — Mateo 1 –3 and 12 – 14, and two pedimentos  —Mateo 4 and 5, covering 2,100 hectares, which we staked between November, 2008 and March 2011. The claims are centered about 337,675 east and 6,837,600 south UTM PSAD56 Zone 19 and cover a five-kilometer strike length of intensely altered volcanics with significant massive sulphide mineralization. 

Location and means of access. The Mateo property is centered about 337,675 east and 6,837,600 south UTM PSAD56 Zone 19 approximately 10 kilometers east of Vallenar with the highest point at approximately 1,050 meters above sea level.  A well-used road leads from the city of Vallenar and crosses through the middle of the west half of the properties and along the southern border of the east half of the properties.  Many unmarked dirt roads in the area provide reliable access to most areas of Mateo.

Description. The Mateo property is a copper-gold-silver project that lies in the Candelaria IOCG belt in the Chilean Coastal Cordillera.  The Mateo property has undergone limited modern exploration including surface and underground RC drilling and artisanal mining on three separate mine sites, the Irene, Margarita and Santa Theresa mines.  We have reviewed all available records of work completed to date, including some records of the mining activity. Our interpretation of the work completed to date indicates the potential for an economic ore body in mineralized mantos and skarn-style mineralization associated with IOCG deposits.  
 
Exploration history. Historical work includes several drill programs completed by different Chilean private and public companies.  Records exist from eight drillholes completed in 1994 on the Irene mine and include two full reports written by ENAMI (the Chilean national mining company) with interpretation of mineralization and recommendations for further exploration and mining work.
 
The Irene mine was investigated by ENAMI in 1994.  Work completed during this time included surface RC drilling, including 490 meters in four RC drillholes, and underground diamond drilling, including 220 meters in four drillholes.  We obtained ENAMI’s reports of mining activities from 1994 through 1997.  Approximately 11,875 tonnes of rock were mined in that time averaging 4.3% copper, 61.9 grams per tonne silver, and 1.01 grams per tonne gold.    During the period June 2009 to December 2010 the vendor of the Irene, Minera Farellon, conducted small scale mining activities on a different area of the Irene claims and mined 1705 tonnes grading 1.39% Cu, 1.39g/t Ag, 0.29g.t Au in sulphides and 1477 tonnes grading 1.98% Cu in oxides.  The difference in grade between the historic work and the recent work is not an indication that further high grade material will not be found on the Mateo property and further modeling and exploration work needs to be completed to determine the best place to drill.

A private Chilean company, Minera Taurus, drilled 16 RC holes on the east end of the Irene claim, but we have no record from this drilling. An unknown company built a portal 250 meters long and approximately three meters wide by three meters high. The portal leads to three mined-out chimneys connected to the surface providing ventilation channels.  On a recent property visit with ENAMI’s geologists, we found an extension of the mineralized zone at the base of the tunnel below showing the potential for mineral resources.
 
Geology. Geologically, the Mateo property is located within the brittle-ductile north-south-trending Atacama Fault System that is known to host many of the major deposits in the Candelaria IOCG belt.  Known mineralization is hosted in an andesitic volcaniclastic sequence assigned to the Bandurrias Formation. Widespread iron oxide and potassic alteration indicates an IOCG mineralizing system further supported by significant amounts of economic grade mineralization.

 
11

 
perth property

On March 10, 2011, we purchased for $35,000 a group of 12 claims (the Perth) as described in table 6 and illustrated in Figure 4.
 
Table 6: Perth property
Claim
Type
Mensura
(ha)
Manifestacion
(ha)
Pedimento
(ha)
Perth 1 al 36
109
         
Lancelot I 1 al 30 (in process)
300
         
Lancelot II 1 al 20 (in process)
200
         
Rey Arturo 1 al 30 (in process)
300
         
Galahad I 1 al 10
   
50
     
Merlin I 1 al 10 (in process)
60
         
Galahad I 1 al 46
   
230
     
Merlin I 1 al 24 (in process)
240
         
Percival III 1 al 30
   
300
     
Tristan II 1 al 30
   
300
     
Tristan IIA 1 al 5
   
15
     
Camelot
       
300
 
 
1,209a
 
895a
 
300a
 
aSome claims overlap others, reducing our net area to 2,280 hectares. See Figure 4.
 

 
 
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Figure 4. The Perth property

The Perth property is adjacent to the west side of the historic Carrizal Alto mine and lies approximately 3.5 kilometers north of our Farellon project. It is a 45 minute drive from Vallenar city, with major road access, power and water supply close by. The project lies on a similar geologic contact as the Farellon and Carrizal Alto properties.

Location and means of access. The Perth property is centered about 308,750 east and 6,895,000 south UTM PSAD56 Zone 19 approximately 75 km northwest of the city of Vallenar with the highest point at approximately 925 meters above sea level.  The property is accessible by road from Vallenar. The Perth Property is accessed by taking the Pan American Highway north from Vallenar for 20 kilometres, then turning west onto the road to Canto del Agua a distance of 35 kilometres. Then take the Cardones Canyon road for 15 kilometres, turn southwest towards Cerro Cachina Grande along a secondary gravel road for 14 kilometres to the property.
 
Exploration history.  Exploration programs on the Perth property have historically been limited to surface sampling and mapping programs completed in 2007 and 2008. Mapping identified 12 individual veins on surface, significant results from channel samples across the veins are show in Table 7 Numerous artisanal mine workings on the property have previously been exploited for both copper and gold however, no records of grade or tonnage can be located.
 
 
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Table 7: Perth historic significant intersections
SAMPLE
Au g/t
Cu %
Co%
Length of Sample (m)
521617
2.5
0.39
0.03
1.0
521796
2.5
0.21
0.00
1.0
521629
2.8
0.76
0.19
3.5
56905
3.1
1.00
0.19
1.0
521610
3.5
0.30
0.02
0.5
521622
4.5
1.72
0.02
1.0
521788
4.5
0.19
0.00
2.0
56858
5.0
0.42
0.16
1.0
521789
5.5
0.29
0.00
2.0
521628
6.2
0.59
0.14
1.3
521609
10.7
0.35
0.07
1.0
 
Geology The Perth property overlies the contact between Paleozoic metamorphic sediments and a Cretaceous tonalitic batholith. A swarm of north northeast trending fault related copper gold bearing quartz veins crosscuts the property. Surface mapping and sampling records show twelve veins identified so far on the south end of the property. The veins average two metres wide but have been measured up to six metres wide.
 
Perth property joint venture earn-in agreement

On March 14, 2011, we entered into an agreement on the Perth property with Revonergy Inc.  Revonergy Inc. paid $35,000 on signing the agreement and can earn a 35% interest in the Perth property if it spends a minimum $1,450,000 on the three phase exploration program, as follows:

 
·
Successful completion of a Phase I exploration program costing at least $115,000 one year from signing
 
·
Successful completion of a Phase II exploration program costing at least $300,000 two years from signing
 
·
Successful completion of a Phase III exploration program costing at least $1,000,000 and that can justify completing a preliminary feasibility study three years from signing

Phase I, II and III exploration programs will be 100% paid for by Revonergy and will be managed by Polymet Limitada. Revonergy will also pay us a 10% management fee on all work programs.

Revonergy Inc. can earn a further 15% interest in the Perth property if it completes a preliminary feasibility study within four years from the signing of the agreement.

Generative claims

As an exploration company, from time to time we will stake, purchase or option claims to allow ourselves the time and access to fully consider the geological potential of the claims. This allows us to generate new properties in areas that have not been explored. We have conducted groundwork on numerous generative claims of interest to us in the areas of our active properties. We have acquired several of these claims, have options to acquire others, and have staked claims in the same areas. We continue to compile data on and review other claims and discuss terms with various owners.
 
 
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Abandoned claims
 
We wrote off $187,000 in acquisition costs on abandoned generative claims during the year ended January 31, 2009, and $29,685 during the year ended January 31, 2010 either because payments due exceeded our assessment of their fair market value, we hadn’t the capital to continue to maintain them or they didn’t have sufficient geological potential.  We did not write off any acquisition costs during the year ended January 31, 2011.
 
Competition
 
The mineral exploration business is an extremely competitive industry.  We are competing with many other exploration companies looking for minerals.  We are one of the smallest exploration companies and a very small participant in the mineral exploration business.  Being a junior mineral exploration company, we compete with other similar companies for financing and joint venture partners, and for resources such as professional geologists, camp staff, helicopters and mineral exploration contractors and supplies.
 
Raw materials
 
The raw materials for our exploration programs include camp equipment, hand exploration tools, sample bags, first aid supplies, groceries and propane.  All of these types of materials are readily available from a variety of local suppliers.
 
Dependence on major customers
 
We have no customers.  Our first customer likely will be ENAMI, which refines and smelts copper from the ore that it buys from Chile’s small- and medium-scale miners.  ENAMI is located in Vallenar.  We could also deliver our ore to the Dos Amigos heap leach facility located approximately fifty kilometers south of Vallenar in Domeyko. 
 
Patents/Trademarks/Licenses/Franchises/Concessions/Royalty agreements/Labor Contracts
 
We have no intellectual property such as patents or trademarks, and, other than the royalties that we must pay if we begin to exploit our Chilean properties, no royalty agreements or labor contracts.  

Government controls and regulations

We are not required to obtain permits or submit operational plans in order to conduct exploration on our properties.  The mining business, however, is subject to various levels of government controls and regulations, which are supplemented and revised from time to time.  We cannot predict what additional legislation or revisions might be proposed that could affect our business or when any proposals, if enacted, might become effective.  Such changes, however, could require more operating capital and expenditures and could prevent or delay some of our operations.

The various levels of government controls and regulations address, among other things, the environmental impact of mining and mineral processing operations.  For mining and processing, legislation and regulations in various jurisdictions establish performance standards, air and water quality emission standards and other design or operational requirements for various components of operations, including health and safety standards.  Legislation and regulations also establish requirements for decommissioning, reclaiming and rehabilitating mining properties following the cessation of operations, and may require that some former mining properties be managed for long periods of time. As we are not mining or processing, and are unlikely to for some years, we have not investigated these regulations.

 
15

 
None of the exploration work that we have completed to date requires an environmental permit. We must repair any damage done to the land during exploration. Some of our claims are within the boundaries of a national park. According to the Mining Code of Chile, we will have to get written authorization from the government to mine or complete any exploration work within the park boundaries. We have requested advice on this issue from our Chilean mining lawyer, but have no plans to explore within the boundaries of the park.
 
If our operations in Chile become profitable, any earnings that we remit abroad will be subject to Chilean withholding tax.
 
We believe that we are in substantial compliance with all material government controls and regulations at each of our mineral claims.

Costs and effects of compliance with environmental laws

We have incurred no costs to date for compliance with environmental laws for our exploration programs on any of our claims.

Expenditures on research and development

We have incurred no research or development costs since our inception on January 10, 2005.

Number of total employees and number of full-time employees

Red Metal does not have any employees. Caitlin Jeffs and Michael Thompson, both of whom are directors and officers, John daCosta, who is an officer, and Kevin Mitchell, who is Polymet’s legal representative and manager in Chile, all provide their services to the company as independent consultants.  Polymet retains one full-time employee who provides administration work to our office in Chile and contracts geo-technical services as needed.  We intend to contract for the services of geologists, prospectors and other consultants as we require them to conduct our exploration programs.

ITEM 1A: RISK FACTORS
 
In addition to the factors discussed elsewhere in this annual report, the following risks and uncertainties could materially adversely affect our business, financial condition and results of operations.  Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations and financial condition.
 
During the fiscal years ended January 31, 2010 and 2011 we earned no royalty revenue while our operating expenses totalled $710,745 and $672,618, respectively. If we do not find sources of financing as and when we need them, we may be required to cease our operations.
 
Mineral exploration and development are very expensive.  During the fiscal year that ended on January 31, 2010, we earned no royalty revenue while our operating expenses totalled $710,745. During the fiscal year that ended on January 31, 2011 we earned no royalty revenue while our operating expenses totalled $672,618. This resulted in a total accumulated loss of $3,056,819 since inception. As of January 31, 2011 we had cash of $8,655.  Since our inception we have sold our securities and borrowed money to fund our operations.  Our ability to continue our operations, including exploring and developing our properties, will depend on our ability to generate operating revenue, obtain additional financing, or enter into joint venture agreements. We raised $2,017,000 in gross proceeds through a PIPE financing in April 2011.  We anticipate that these funds will allow us to continue the current development of our Farellon and Mateo projects for the next 12 months.  We have signed a joint venture earn-in agreement with Revonergy Inc. on our Perth property that requires Revonergy Inc. to pay for exploration programs on the Perth property for the next three years.  We are continually reviewing potential properties to add to our portfolio. Suitable acquisitions and project development will require additional financing.  Until we earn enough revenue to support our operations, which may never happen, we will continue to be dependent on loans and sales of our equity or debt securities to continue our development and exploration activities.  If we do not find sources of financing as and when we need them, we may be required to severely curtail, or even to cease, our operations.

 
16

 
Our auditors have expressed substantial doubt about our ability to continue as a going concern; as a result we could have difficulty finding additional financing.

Our financial statements have been prepared assuming that we will continue as a going concern.   Except for approximately $16,000 of royalty income that we received during the 2009 fiscal year from Minera Farellón, we have not generated any revenue since inception and have accumulated losses.  As a result, our auditors have expressed substantial doubt about our ability to continue as a going concern.  Our ability to continue our operations depends on our ability to complete equity or debt financings as we need capital or generate profitable operations.  Such financings may not be available or may not be available on reasonable terms.  Our financial statements do not include any adjustments that could result from the outcome of this uncertainty.

Unfavorable economic conditions may have a material adverse effect on us since raising capital to continue our operations could be more difficult.

The recent credit crisis and related turmoil in the global financial system had an impact on our business and financial position, and a similar financial crisis in the future may also impact us.  Depending upon the ultimate severity and duration of any economic downturn, the resulting effects on Red Metal could be materially adverse if it is unable to raise the working capital required to carry out its business plan.  While we were able to complete a financing in April 2011, we anticipate that we will continue to need to raise funds in the future in order to develop our properties in accordance with our business plan.

Our business was formed in January 2005 and our operations, to date, have earned only minimal revenues.  Due to the high costs of acquiring and exploring claims, we may never be profitable.  We expect to continue to incur operating losses during the next 12 months.

We were incorporated on January 10, 2005 and to date have been involved primarily in organizational activities, acquiring and exploring mineral claims and obtaining financing.  We have earned minimal revenues and we are not profitable.  Whether we will be successful as a mining company must be considered in light of the costs, difficulties, complications and delays associated with our proposed exploration programs.  These potential problems include, but are not limited to, finding claims with mineral deposits that can be cost-effectively mined, the costs associated with acquiring the properties and the unavailability of human or equipment resources.  We have a very short history and had no more than minimal operations until April 25, 2008 when we acquired the mining claims known as Farellon Alto 1 – 8 in Chile.  We cannot assure you that we will ever generate significant revenue from our operations or realize a profit.  We expect to continue to incur operating losses during the next 12 months.
 
Our joint development and operating arrangements may not be successful.
 
We have in the past, and may in the future, enter into joint venture arrangements in order to share the risks and costs of developing and operating properties. In a typical joint venture arrangement, the partners own a proportionate share of the assets, are entitled to indemnification from each other and are only responsible for any future liabilities in proportion to their interest in the joint venture. If a party fails to perform its obligations under a joint venture agreement, we could incur liabilities and losses in excess of our pro-rata share of the joint venture.  We make investments in exploration and development projects that may have to be written off in the event we do not proceed to a commercially viable mining operation.
 
 
17

 
On March  14, 2011, our subsidiary, Minera Polymet, granted the right to earn a 50% joint venture interest in the Perth Property to Revonergy Inc.  For more information on the terms of the agreement, see Perth property joint venture earn-in agreement in the discussion above titled “Business”.

In some instances members of the board of directors or an officer may be liable for losses incurred by holders of our common stock.  If a shareholder were to prevail in such an action in the U.S., it may be difficult for the shareholder to enforce the judgment against any of our directors or officers, who are not U.S. residents.

In certain instances, such as trading securities based on material non-public information, a director may incur liability to shareholders for losses sustained by the shareholders as a result of the director’s or officer’s illegal or negligent activity.  However, all of our directors and officers live and maintain a substantial portion of their assets outside the U.S.  As a result it may be difficult or impossible to effect service of process within the U.S. upon these directors and officers or to enforce in the courts any judgment obtained here against them predicated upon any civil liability provisions of the U.S. federal securities laws.

Foreign courts may not entertain original actions predicated solely upon U.S. federal securities laws against these directors; and judgments predicated upon any civil liability provisions of the U.S. federal securities laws may not be directly enforceable in foreign countries.

As a result of the foregoing, it may be difficult or impossible for a shareholder to recover from any of these directors or officers if, in fact, the shareholder is damaged as a result of the negligent or illegal activity of an officer or director.

Mineral exploration is highly speculative and risky: we might not find mineral deposits that can be extracted cost effectively on our claims.

Exploration for mineral deposits is a speculative venture involving substantial risk.  Problems such as unusual and unexpected rock formations often result in unsuccessful exploration efforts.  We cannot assure you that our claims contain mineral deposits that can be extracted cost effectively.

Mineral exploration is hazardous.  We could incur liability or damages as we conduct our business due to the dangers inherent in mineral exploration.

The search for minerals is hazardous.  We could become liable for hazards such as pollution, cave-ins and other hazards against which we cannot insure or against which we may elect not to insure.  We have no insurance for these kinds of hazards, nor do we expect to get such insurance for the foreseeable future.  If we were to suffer from such a hazard, the costs of rectifying it could exceed our asset value and require that we liquidate our assets.

In the future we may be required to comply with government regulations affecting mineral exploration and exploitation, which could adversely affect our business, the results of our operations and our financial condition.
 
The mining business is subject to various levels of government control and regulation, which are supplemented and revised from time to time.  We cannot predict what legislation or revisions might be proposed that could affect our business or when any such proposals, if enacted, might become effective.  Our exploration activities are subject to laws and regulations governing worker safety, and, if we explore within the national park that is part of our Farellon property, protection of endangered and other special status species will likely require compliance with additional laws and regulations.   The cost of complying with these regulations has not been burdensome to date, but if we mine our properties and process more than 5,000 tonnes of ore monthly, we will be required to submit an environmental impact study for review and approval by the federal environmental agency.  We anticipate that the cost of such a study will be significant.  If the study were to show too great an adverse impact on the environment, we might be unable to develop the property or we might have to engage in expensive remedial measures during or after developing the property, which could make production unprofitable.  This requirement could materially adversely affect our business, the results of our operations and our financial condition if we were to proceed to mine a property or process ore on the property.  We have no immediate or intermediate plans to process ore on any of our properties.
 
 
18

 
If we do not comply with applicable environmental and health and safety laws and regulations, we could be fined, enjoined from continuing our operations, and suffer other penalties.  Although we make every attempt to comply with these laws and regulations, we cannot assure you that we have fully complied or will always fully comply with them.
 
We might not be able to market any minerals that we find on our mineral claims due to market factors that are beyond our control.

Even if we discover minerals that can be extracted cost-effectively, we may not be able to find a ready market for our minerals.  Many factors beyond our control affect the marketability of minerals.  These factors include market fluctuations, the proximity and capacity of natural resource markets and processing equipment, government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting minerals and environmental protection.  We cannot accurately predict the effect of these factors, but any combination of these factors could result in an inadequate return on invested capital.

We are not certain that we can successfully compete in the mineral exploration business.  We do not represent a significant presence in this industry.

The mineral exploration business is an extremely competitive industry.  We are competing with many other exploration companies looking for minerals.  We are one of the smallest exploration companies and we do not represent a significant presence in the mineral exploration business.  Being a junior mineral exploration company, we compete with other similar companies for financing and joint venture partners, and for resources such as professional geologists, camp staff, helicopters and mineral exploration contractors and supplies.  We may not have the means to compete successfully for these resources.

We conduct operations in a foreign jurisdiction, and are subject to certain risks that may limit or disrupt our business operations.

Our head office is in Canada; and our mining operations are in Chile.  Mining investments are subject to the risks normally associated with the conduct of any business in foreign countries including uncertain political and economic environments; wars, terrorism and civil disturbances; changes in laws or policies, including those relating to imports, exports, duties and currency; cancellation or renegotiation of contracts; royalty and tax increases or other claims by government entities, including retroactive claims; risk of expropriation and nationalization; delays in obtaining or the inability to obtain or maintain necessary governmental permits; currency fluctuations; restrictions on the ability of local operating companies to sell gold, copper or other minerals offshore for U.S. dollars, and on the ability of such companies to hold U.S. dollars or other foreign currencies in offshore bank accounts; import and export regulations, including restrictions on the export of gold, copper or other minerals; limitations on the repatriation of earnings; and increased financing costs.
 
These risks could limit or disrupt our exploration programs, cause us to lose our interests in our mineral claims, restrict the movement of funds, cause us to spend more than we expected, deprive us of contract rights or result in our operations being nationalized or expropriated without fair compensation, and could materially adversely affect our financial position or the results of our operations.  If a dispute arises from our activities in Chile, we could be subject to the exclusive jurisdiction of courts outside North America, which could adversely affect the outcome of the dispute.
 
 
19

 
While we take the steps we believe are necessary to maintain legal ownership of our claims, title to mineral claims may be invalidated for a number of reasons, including errors in the transfer history or our acquisition of a claim we believed, after appropriate due diligence investigation, to be valid, but in fact, wasn’t.  If ownership of our claims was ultimately determined to be invalid, our business and prospects would likely be materially and adversely affected.
 
Our ability to realize a return on our investment in mineral claims depends upon whether we maintain the legal ownership of the claims.  Title to mineral claims involves risks inherent in the process of determining the validity of claims and the ambiguous transfer history characteristic of many mineral claims.  We take a number of steps to protect the legal ownership of our claims, including having our contracts and deeds notarized, recording these documents with the registry of mines and publishing them in the mining bulletin.  We also review the mining bulletin regularly to determine whether other parties have staked claims over our ground.  However, none of these steps guarantees that another party could not challenge our right to a claim.  Any such challenge could be costly to defend and, if we lost our claim, our business and prospects would likely be materially and adversely affected.
 
We cannot guarantee that any of our pedimento claims will convert to mensura claims.
 
Some of our exploration claims (pedimentos) are still in the registration process.  We cannot guarantee that any of our pedimento claims will convert to mining claims (mensuras).  Some of our pedimentos may have been staked over other owners’ claims, as permitted by the Chilean mining code.  The pedimento with the earliest filing date takes precedence providing the claim holder maintains its claim in accordance with the mining code and the applicable regulations.  Our pedimento rights in these claims will not crystallize unless the owners of the underlying claims fail to pay their taxes or otherwise forfeit their interests in their claims.  We will exercise any right that we acquire through forfeiture only if the ground remains of interest to us.
 
We sometimes hold a significant portion of our cash in United States dollars, which could weaken our purchasing power in other currencies and limit our ability to conduct our exploration programs.

Currency fluctuations could affect the costs of our operations and affect our operating results and cash flows.  Gold and copper are sold throughout the world based principally on the U.S. dollar price, but most of our operating expenses are incurred in local currencies, such as the Canadian dollar and the Chilean peso.  The appreciation of other currencies against the U.S. dollar can increase the costs of our operations.

We sometimes hold a significant portion of our cash in U.S. dollars.  Currency exchange rate fluctuations can result in conversion gains and losses and diminish the value of our U.S. dollars.  If the U.S. dollar declined significantly against the Canadian dollar or the Chilean peso, our U.S.-dollar purchasing power in Canadian dollars and Chilean pesos would also significantly decline and we would not be able to afford to conduct our mineral exploration programs.  We have not entered into derivative instruments to offset the impact of foreign exchange fluctuations.
 
Because our directors are not independent they can make and control corporate decisions that may be disadvantageous to other common shareholders.
 
Our securities are not listed on a national securities exchange or quoted on an inter-dealer quotation system that requires that directors be independent.  Using the definition of “independent” in Section 803 of the Rules of the NYSE Amex, we have determined that none of our directors are independent. Our directors have a significant influence in determining the outcome of all corporate transactions or other matters, including mergers, consolidations, and the sale of all or substantially all of our assets.  They also have the power to prevent or cause a change in control. The interests of our directors may differ from the interests of the other stockholders and thus result in corporate decisions that are disadvantageous to other shareholders.
 
 
20

 
We do not expect to declare or pay dividends in the foreseeable future.

We have never paid cash dividends on our common stock and have no plans to do so in the foreseeable future. We intend to retain any earnings to develop, carry on, and expand our business.

“Penny stock” rules may make buying or selling our common stock difficult, and severely limit its marketability and liquidity.

Trading in shares of our common stock is subject to regulations adopted by the SEC commonly known as the “penny stock” rules.   The additional burdens imposed upon broker-dealers by the penny stock rules could discourage broker-dealers from participating in transactions involving shares of our common stock, which could severely limit its marketability and liquidity.  Under the penny stock rules, broker-dealers participating in penny-stock transactions must first deliver to their customer a risk disclosure document describing the risks associated with penny stocks, the broker-dealer’s duties in selling the stock, the customer’s rights and remedies, and certain market and other information.  The broker-dealer must determine the customer’s suitability for penny- stock transactions based on the customer’s financial situation, investment experience and objectives.  Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer, and provide monthly account statements to the customer.  The effect of these restrictions can decrease broker-dealers’ willingness to make a market in our shares of common stock, decrease the liquidity of our common stock, and increase transaction costs for sales and purchases of our common stock as compared to other securities.
 
ITEM 1B: UNRESOLVED STAFF COMMENTS
 
As a smaller reporting company we are not required to provide this information.
 
ITEM 2: PROPERTIES
 
Our executive offices are located at 195 Park Avenue, Thunder Bay, Ontario, Canada, P7B 1B9.  Our president, Caitlin Jeffs, provides this space free of charge although she is under no obligation to do so.  We also have a field and administrative office in Vallenar, Chile, which we rent from month to month at the rate of 550,000 Chilean pesos (approximately $1,000) per month.   We believe that these properties are suitable and adequate for our business operations.

We have assembled interests in three mineral properties in Chile—the Farellon, Mateo, and Perth—which we have described above in Item 1.
 
ITEM 3:  LEGAL PROCEEDINGS
 
We are not a party to any pending legal proceedings and, to the best of our knowledge, none of our property or assets are the subject of any pending legal proceedings.
 
ITEM 4:  REMOVED AND RESERVED
 
 
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
On November 19, 2009 we completed a 1-for-14 reverse split, reducing the number of shares of our common stock outstanding to 5,584,574. All references to the number of issued shares in this report are references to the post–reverse-split numbers of shares; and all references to the prices of our outstanding shares reflect the reverse split.
 
 
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Our common stock was quoted under the symbol RMES on the Pink Sheets from November 19, 2009 to November 21, 2010, and on the OTC Bulletin Board since September 21, 2010.  From September 16, 2008 to November 19, 2009 our common stock was quoted on the OTC Bulletin Board under the symbol RMET.  From January 16, 2007 to September 16, 2008, our symbol was RLKX. Table 9 presents the range of high and low bid quotes of our common stock for each quarter for the last two fiscal years as reported by the Pink OTC Markets.  The bid prices represent inter-dealer quotations, without adjustments for retail mark-ups, markdowns or commissions and may not necessarily represent actual transactions.  As indicated above, the information below reflects the 1-for-14 reverse stock split that was effective on November 19, 2009.
 
 Table 8: High and low bids
Fiscal year ended January 31, 2011
High
Low
   
First quarter
$0.50
$0.20
Second quarter
$0.50
$0.40
Third quarter
$0.50
$0.20
Fourth quarter
$0.40
$0.25
Fiscal year ended January 31, 2010
   
First quarter
$2.52
$0.84
Second quarter
$0.98
$0.14
Third quarter
$0.98
$0.14
Fourth quarter
$0.10
$0.02
 
As of April 25, 2011, we had approximately 74 shareholders of record which includes the number of shareholders provided to us by our transfer agent as well as the holders included on the securities position report provided to us by Depositary Trust & Clearing Corporation.  This number does not include an indeterminate number of shareholders whose shares are held by brokers in street name. Our transfer agent is Empire Stock Transfer, 1859 Whitney Mesa Dr. Henderson, Nevada, 89014 and their phone number is 702-818-5898.
 
Dividends
 
We have not paid any cash dividends on our common stock since our inception and do not anticipate paying any cash dividends in the foreseeable future.  We plan to retain our earnings, if any, to provide funds for the expansion of our business.
 
Securities Authorized for Issuance under Equity Compensation Plans
 
We have no securities authorized for issuance under equity compensation plans.
 
Recent Issuances of Unregistered Securities
 
We did not issue any unregistered securities during the last quarter of our fiscal year, nor did we or any affiliate purchaser purchase any of our securities during the last quarter of our fiscal year.
 
ITEM 6:  SELECTED FINANCIAL DATA.
 
As a smaller reporting company we are not required to provide this information.
 
 
22

 
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Overview
 
Red Metal is a mineral exploration company engaged in locating, and eventually developing, mineral resources in Chile. Our business strategy is to identify, acquire and explore prospective mineral claims with a view to either developing them ourselves or, more likely, finding a joint venture partner with the mining experience and financial means to undertake the development. All of our claims are in the Candelaria IOCG belt in the Chilean Coastal Cordillera.
 
We have only marginal revenue-generating operations and are dependent upon the equity markets for our working capital. The collapse of the equity markets late in 2008, and the economic uncertainty and market instability that followed, affected our ability to raise equity capital.  Market prices of copper and gold overall are presently moving in a positive direction and we are more optimistic that we can raise equity capital under these new market conditions.
 
In response to the economic environment of 2008, and the fact that we had only nominal revenues, in 2009 we terminated our duty to file reports with the Securities and Exchange Commission to save the legal and  auditing costs. We resumed filing reports by filing a registration statement on Form 10 on April 14, 2010.

Consistent with our historical practices, we continue to monitor our costs in Chile by reviewing our mineral claims to determine whether they possess the geological indicators to economically justify the capital to maintain or explore them. We own nothing in Chile except our claims and have no long term commitments except the obligation to pay royalties if we exploit our properties. All of our support there—vehicles, office and equipment, and administrative personnel—is supplied under short-term contracts. 
 
We conducted a drilling program on our Farellon property in September of 2009. We have analyzed the results and believe that further drilling of the property is warranted. Micon International Limited, from whom we commissioned a Canadian National Instrument 43-101 technical report summarizing the drilling results, has recommended that we conduct a two-phase drilling program. The first phase would consist of 1,200 meters of diamond drilling to define the structural controls on the mineralization, which may have been misinterpreted in the past due to the limited geological information available from the historic RC drilling, and assist in defining the depth and nature of the sulphide mineralization. The estimated cost of this phase is $220,000.
 
If the first phase is successful, we propose to conduct a larger exploration program consisting of 10,000 meters of RC drilling, 5,000 meters of diamond drilling, geophysical surveys and geological mapping to ascertain the extent of the structural controls and the potential size of the mineralization. The estimated cost of this phase is $1.9 million.

We are planning an initial exploration program on the Mateo property including geophysics, surface mapping, sampling and 1000 metre RC drill program for a total cost of approximately $300,000.

The cost and timing of all planned exploration programs are subject to the availability of qualified mining personnel, such as consulting geologists and geo-technicians, and drillers and drilling equipment. When we first started exploring in Chile in late 2007 and early 2008, geologists, geo-technicians, drillers and drilling rigs were in short supply, those that were available were often unreliable and very expensive, and we had to work to their schedules rather than to ours. This changed following the market collapse in 2008, but the increasing prices of copper and gold—the price of copper increased steadily from a low of $1.26 per pound in December 2008 to a high of $4.60 per pound in February, 2011; and the price of gold has increased from a low of $750 per ounce in December 2008 to a high of $1,519 per ounce in April 2011—have caused mining companies to ramp up their operations, reducing the availability of personnel and equipment.

 
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Although Chile has a well-trained and qualified mining workforce from which to draw and few early-stage companies such as Red Metal are competing for the available resources, if we are unable to find the personnel and equipment that we need when we need them and at the prices that we have estimated today, we might have to revise or postpone our plans.
 
At January 31, 2011, we had a working capital deficit of $866,179 and $8,655 cash. On April 7, 2011, we completed a private equity financing for net proceeds after commissions, legal and closing fees of $1,862,462. We intend to use $700,000 on the exploration programs for the Farellon to expand known mineralization along strike and at depth to investigate sulphide mineralization; $300,000 on the phase 1 Mateo mapping and geophysics to identify Candelaria-type targets, and drilling to test the targets; and $700,000 to pay off prior debt and to cover our estimated expenditures for legal, audit and other professional fees, administration, consulting, advertising and promotion, office and vehicle rental that we will incur over the next 12 months. 

Results of operations

summary of financial condition

Table 9 summarizes and compares our financial condition at January 31, 2011 to the year-ended January 31, 2010.

Table 9: Comparison of financial condition
 
January 31, 2011
January 31, 2010
Working capital deficit
$(866,179)
$(296,575)
Current assets
$46,227
$25,126
Unproved mineral properties
$662,029
$643,481
Total liabilities
$912,406
$321,701
Common stock and additional paid in capital
$2,923,517
$2,788,517
Deficit
$(3,056,819)
$(2,384,201)

comparison of prior quarterly results

Tables 10.1 and 10.2 present selected financial information for each of the past eight quarters.
 
Table 10.1: Summary of quarterly results (2011)
 
April 30,
2010
July 31,
2010
October 31,
2010
January 31,
2011
Revenue
Net loss
$(196,851)
$(118,279)
$(154,436)
$(203,052)
Basic and diluted loss per share
$(0.02)
$(0.01)
$(0.02)
$(0.02)
 
Table 10.2: Summary of quarterly results (2010)
 
April 30,
2009
July 31,
2009
October 31,
2009
January 31,
2010
Revenue
Net loss
$(290,188)
$(111,162)
$(105,334)
$(204,061)
Basic and diluted loss per share
$(0.07)
$(0.03)
$(0.02)
$(0.03)
 
Due to the downturn in the economy, we substantially decreased our operations during the quarters ended April 30, 2009 and July 31, 2009. Excluding the written down unproved mineral claims, our net losses for these quarters were $179,425 and $95,037 respectively. During the quarter ended October 31, 2009 we conducted a drilling program on our Farellon property, which increased our mineral exploration costs. Excluding the recovery of written down unproved mineral property costs, our net loss for the third quarter of fiscal 2010 was $202,537. During the quarter ended January 31, 2010, we began preparation of the registration statement that was filed on April 10, 2010, which resulted in a substantial increase in our professional fees. During the quarter ended July 31, 2010, we maintained our investor-related activities on a moderate level and decreased our travel costs and professional fees, which resulted in a decrease in our net loss for the quarter. During the quarters ended October 31, 2010 and January 31, 2011, we invested more into the advertising activities and experienced higher professional fees associated with the year-end audit preparation and capital raising efforts.

 
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Selected Financial Results
 
years ended january 31, 2011 and january 31, 2010
 
Our operating results for the years ended January 31, 2011 and 2010 and the changes in our operating results between those periods are summarized in Table 11.
 
Table 11: Changes in operating results
 
Year
ended January 31,
Changes between the
years ended January 31,
2011 and 2010
 
2011
2010
Operating Expenses:
     
Administration
$  87,382
$ 85,312
$       2,070
Advertising and promotion
111,835
54,400
57,435
Automobile
24,124
22,361
1,763
Bank charges
5,554
5,420
134
Consulting fees
173,738
111,067
62,671
Interest on current debt
37,466
50,464
(12,998)
Mineral exploration costs
22,193
174,556
(152,363)
Office
8,084
4,496
3,588
Professional development
5,116
5,116
Professional fees
111,878
101,403
10,475
Rent
12,980
12,403
577
Regulatory
15,000
12,397
2,603
Travel and entertainment
50,455
29,444
21,011
Salaries, wages and benefits
6,487
17,392
(10,905)
Foreign exchange loss (gain)
326
(55)
381
Write-down of unproved mineral properties
29,685
(29,685)
Net loss
$672,618
$710,745
$ (38,127)

Operating expenses. Our operating expenses decreased by $38,127, or 5%, from $710,745 for the year ended January 31, 2010 to $672,618 for the year ended January 31, 2011. 

The most significant year-to-date changes were:

 
During the year ended January 31, 2010, we wrote down $29,685 in mineral property acquisition costs after we wrote down several generative claims. During the year ended January 31, 2011, we did not write down any of our properties.
 
During the year ended January 31, 2010, we contracted services of a full-time geologist and prepared NI 43-101 report on our Farellon property and exploration work associated with it which resulted in mineral exploration expenditures of $174,556 as opposed to $22,193 during the past fiscal year as we maintained only minimal exploration activities.
 
Our advertising and promotion and travel and entertainment expenses increased by $57,435 and $21,011, respectively, as a result of increased investor relations activities.
 
Due to higher accounting and financial advisory requirements we incurred $173,738 in consulting fees during the year ended January 31, 2011, an increase of $62,671 compared to $111,067 for the year ended January 31, 2010.
 
During the year ended January 31, 2011, we expensed $37,466 in interest on current debt, a decrease of $12,998 compared to interest expensed during the year ended January 31, 2010. This decrease was mainly associated with the debt-to-equity conversion that occurred on January 7, 2010.

 
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Net loss. We had a net loss of $672,618 for the year ended January 31, 2011, compared to a net loss of $710,745 for the year ended January 31, 2010.  The $38,127 decrease in net loss was due mainly to reduced mineral exploration activities in Chile, decrease in loan interest expense, as well as salaries, wages and benefits; these decreases were offset by increases in advertising and travel expenses, as well as consulting fees.
 
Liquidity
 
going concern
 
The consolidated financial statements included in this annual report have been prepared on a going concern basis, which implies that we will continue to realize our assets and discharge our liabilities in the normal course of business. We have not generated any significant revenues from mineral sales since inception, have never paid any dividends and are unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. Our continuation as a going concern depends upon the continued financial support of our shareholders, our ability to obtain necessary debt or equity financing to continue operations, and the attainment of profitable operations. Our ability to achieve and maintain profitability and positive cash flow depends upon our ability to locate profitable mineral claims, generate revenue from mineral production and control our production costs. Based upon our current plans, we expect to incur operating losses in future periods, which we plan to mitigate by controlling our operating costs and sharing mineral exploration expenses through joint venture agreements.  In April 2011 we completed a financing of units consisting of our common stock and warrants to purchase shares of our common stock.  We raised gross proceeds of $2,017,000.  We expect these funds to be adequate to support the current stage of our operations for the next 12 months.  At January 31, 2011, we had a working capital deficit of $866,179 and accumulated losses of $3,056,819 since inception. These factors raise substantial doubt about our ability to continue as a going concern. We cannot assure you that we will be able to generate significant revenues in the future. Our consolidated financial statements do not give effect to any adjustments that would be necessary should we be unable to continue as a going concern and therefore be required to realize our assets and discharge our liabilities in other than the normal course of business and at amounts different from those reflected in our financial statements.

internal and external sources of liquidity
 
To date we have funded our operations by selling our securities and borrowing funds, and, to a minor extent, from mining royalties.

Sources and uses of cash
 
years ended january 31, 2011 and 2010
 
Table 12 summarizes our sources and uses of cash for the years ended January 31, 2011 and 2010.
 
Table 12:  Summary of sources and uses of cash  
 
January 31,
 
2011
2010
Net cash provided by financing activities
$  244,890
$327,000
Net cash used in operating activities
(212,200)
(250,646)
Net cash used in investing activities
(18,548)
(58,702)
Effect of foreign currency exchange
(13,438)
(35,816)
Net increase (decrease) in cash
$    704
$ (18,164)

 
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Net cash provided by financing activities. During the year ended January 31, 2011, we issued 540,000 shares of our common stock to three subscribers for $135,000, borrowed $50,000 from a company owned by the father of our president; and borrowed $10,000 US and $50,000 Cdn (approximately $49,890 US) from our director. During the year ended January 31, 2010, we borrowed $164,500 from the father of our president, and issued 1,678,572 shares of our common stock to five subscribers for $162,500.
 
Net cash used in operating activities. During the year ended January 31, 2011, we used net cash of $212,200 in operating activities. We used $672,618 to cover operating costs, increased prepaids and other receivables by $20,397, and decreased our accrued liabilities by $495. These uses of cash were offset by net increases in accounts payable of $67,123, associated with of legal fees incurred in preparing and filing our form 10 and the amendments to it; accounts payable to related parties of $410,429 for administration, consulting, advertising and promotion, mineral exploration, and travel expenses; and accrued interest on our notes payable to a related parties of $3,758.
  
During the year ended January 31, 2010, we used net cash of $250,646 in operating activities. We used $710,745 to cover our operating costs for the period and increase prepaids and other receivables by $575. We increased our accounts payable by $55,117, mainly associated with the reclassification of accrued mineral property costs; accrued liabilities by $40,495 to record costs of preparing and filing our form 10; amounts due to related parties by $286,249; and interest accrued on our notes payable by $49,128. We wrote down our unproved mineral properties and wrote off acquisition costs for the unproved mineral properties that we decided not to maintain for a total of $29,685.
 
Net cash used in investing activities. During the year ended January 31, 2011, we spent $18,548 on acquisition of mineral claims and on property taxes associated with our mineral claims. We also capitalized Chilean value-added (VAT) tax as part of the unproved mineral claims. This VAT is recoverable from future VAT payable.
 
During the year ended January 31, 2010, we spent $58,702 acquiring mineral claims and options to acquire mineral claims.
 
Since inception through January 31, 2011, we have invested $1,026,769 acquiring our mineral claims.

Non-cash financing transactions. During the year ended January 31, 2011, we did not have any non-cash financing transactions.

During the year ended January 31, 2010, we converted $338,026 payable to related parties into 1,126,754 shares of our common stock at $0.30 per share; and $744,500 of principal and $69,992 of accrued interest on notes payable to a related party into 2,714,973 shares of our common stock at $0.30 per share.

Capital resources

Our ability to acquire and explore our Chilean claims is subject to our ability to obtain the necessary funding. To assist us with our funding efforts, during the past two fiscal years through the date of this report, we have retained the services of a number of consultants.
 
On December 1, 2009, we retained the services of an independent investor relations specialist to handle our corporate communications. We agreed to pay him a monthly compensation in the amount of $5,000 Cdn (approximately $5,250 US) on a month-to-month contract that can be cancelled any time with 30 days written notice.
 
On April 7, 2011, we completed a private equity financing for net proceeds after commissions, legal and closing fees of $1,862,462. The placement agent received a cash commission of $58,900 and a warrant to purchase 196,333 shares of common stock.  The securities offered were not registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

 
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The Company relied upon an exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 of Regulation D promulgated under the Securities Act or Rule 903 of Regulation S promulgated under the Securities Act.
 
Contingencies and commitments
 
We had no contingencies at January 31, 2011.  
 
We have the following long-term contractual obligations and commitments:
 
 
Farellon royalty. We are committed to paying the vendor a royalty equal to 1.5% on the net sales of minerals extracted from the Farellon claims up to a total of $600,000. The royalty payments are due monthly once exploitation begins and are subject to minimum payments of $1,000 per month. We have no obligation to pay the royalty if we do not commence exploitation. As of the date of this report we have not commenced exploitation.
 
Che option. We are committed to paying a royalty equal to 1% of the net sales of minerals extracted from the claims to a maximum of $100,000 to the former owner. The royalty payments are due monthly once exploitation begins, and are not subject to minimum payments.
 
Irene option. Under the terms of our option agreement with Minera Farellon, we must pay 21 million Chilean pesos (approximately $43,500 US) by May 15, 2011 to exercise the option and purchase the Irene claims.
 
Equity financing

To generate working capital, between January 31, 2009 and April 25, 2011 we issued 12,783,632 shares of our common stock and warrants for the purchase of 7,513,333 shares to raise $3,467,018 under Regulations S and D promulgated under the Securities Act of 1933.
 
Based on our operating plan, we anticipate incurring operating losses in the foreseeable future and will require additional equity capital to support our operations and develop our business plan.  If we succeed in completing future equity financing, the issuance of additional shares will result in dilution to our existing shareholders.

Debt financing
 
historical debt arrangements

As of January 6, 2010, we had borrowed US $744,500 from Richard Jeffs, the father of our president, to whom we issued demand promissory notes for the principal sum together with interest of 8%.  We accrued US $76,785 in interest payable on these notes. On January 7, 2010, we agreed to convert US $814,492 in principal and interest on these loans into 2,714,973 shares of our common stock. In return, Mr. Jeffs agreed to forgive US $6,792 in interest accumulated from December 1, 2009 to January 7, 2010.  

Between February 1, 2010 and through the period covered by this report, we borrowed CDN $50,000 and US $10,000 from Caitlin Jeffs, to whom we issued demand promissory notes for the principle sum together with interest of 8%.  We agreed to convert the equivalent of US $50,000 in principle into the units sold in the private placement offering completed on April 7, 2011. The remaining principal and accrued interest, totaling US $14,106, was paid in cash. See Related-party transactions below.

Between February 1, 2011 and through the period covered by this report, we borrowed US $70,000 and CDN $10,000 from John da Costa, to whom we issued demand promissory notes for the principle sum together with interest of 8%. We agreed to convert the equivalent of US $80,000 in principle into the units sold in the private placement offering completed on April 7, 2011. Accumulated interest equivalent to US $851 was paid in cash. See Related-party transactions below.

 
28

 
The shares issued on conversion of these loans are included into the Equity financing described above.
 
current debt arrangements
 
On February 22, 2010, we borrowed US $50,000 and issued a demand promissory note payable to the lender for the principal sum together with interest at 6% per annum.  See Related-party transactions below.
 
On March 2, 2011, we borrowed US $11,000 and issued a demand promissory note payable to the lender for the principal sum together with interest at 8% per annum.  See Related-party transactions below.
 
Challenges and risks
 
We do not anticipate generating any revenue over the next twelve months. We plan to fund our operations through any combination of equity or debt financing from the sale of our securities, private loans, joint ventures or through the sale of part interest in our mineral properties.   Since January 31, 2009, we have raised over $3.4 million that we believe will satisfy our current working capital needs for the next twelve months.  Although we have succeeded in raising funds as we have needed them, we cannot assure you that this will continue in the future.  Many things, such as the continued general downturn, worldwide, of the economy or a significant decrease in the price of minerals, could affect the willingness of potential investors to invest in risky ventures such as ours. In addition to the Perth joint venture earn-in agreement, we may consider entering into a joint venture partnership with a more senior resource company to complete a mineral exploration program on other properties in Chile. If we enter into a joint venture arrangement, we would likely have to assign a percentage of our interest in our mineral claims to our joint venture partner in exchange for the funding.

Investments in and expenditures on mineral interests
 
Realization of our investments in mineral properties depends upon our maintaining legal ownership, producing from the properties or gainfully disposing of them.

Title to mineral claims involves risks inherent in the difficulties of determining the validity of claims as well as the potential for problems arising from the ambiguous conveyancing history characteristic of many mineral claims. Our contracts and deeds have been notarized, recorded in the registry of mines and published in the mining bulletin. We review the mining bulletin regularly to discover whether other parties have staked claims over our ground. We have discovered no such claims. To the best of our knowledge, we have taken the steps necessary to ensure that we have good title to our mineral claims.

Foreign exchange
 
We are subject to foreign exchange risk for transactions denominated in foreign currencies.  Foreign currency risk arises from the fluctuation of foreign exchange rates and the degree of volatility of these rates relative to the United States dollar.  We do not believe that we have any material risk due to foreign currency exchange.
 
Trends, events or uncertainties that may impact results of operations or liquidity
 
The economic crisis in the United States and the resulting economic uncertainty and market instability may make it harder for us to raise capital as and when we need it and have made it difficult for us to assess the impact of the crisis on our operations or liquidity and to determine if the prices we will receive on the sale of minerals will exceed the cost of mineral exploitation.  If we are unable to raise cash, we may be required to cease our operations.  As noted above, we expect our legal and accounting fees to increase since we have resumed the obligation to file reports with the SEC.  Other than as discussed in this annual report, we know of no other trends, events or uncertainties that have or are reasonably likely to have a material impact on our short-term or long-term liquidity.

 
29

 
Off-balance sheet arrangements
 
We have no off-balance sheet arrangements and no non-consolidated, special-purpose entities.
 
Related-party transactions

Related-party transactions are disclosed in Item 13 on page39 of this annual report.

Critical Accounting Estimates
 
The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect certain of the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The most significant estimates with regard to these financial statements relate to carrying values of unproven mineral properties, determination of fair values of stock-based transactions, and deferred income tax rates.

Reclassifications
 
Certain comparative amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year’s presentation. These reclassifications had no effect on the consolidated results of operations or financial position for any year presented.
  
Unproved mineral property costs

We have been in the exploration stage since our inception on January 10, 2005 and have not yet generated significant revenue from our operations. We are primarily engaged in acquiring and exploring mining claims. We expense our mineral exploration costs as we incur them. We initially capitalize them at each fiscal quarter end. When we have determined that a mineral claim can be economically developed as a result of establishing proven and probable reserves, we capitalize the costs then incurred to develop the claim and will amortize them using the units-of-production method over the estimated life of the probable reserve. If mineral claims are subsequently abandoned or impaired, we will charge capitalized costs to operations.
 
During the year ended January 31, 2011, we did not take any write-downs on our mineral properties. During the year ended January 31, 2010, we wrote down $29,685 in capitalized costs of abandoned generative claims.

Financial instruments
 
Our financial instruments include cash, accounts receivable, accounts payable, accrued liabilities, accrued professional fees and accrued mineral property costs. The fair value of these financial instruments approximates their carrying values due to their short maturities.

 
30

 
Recently Adopted Accounting Guidance
 
The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. We do not expect the adoption of these pronouncements to have a material impact on our financial position, results of operations or cash flows.
 
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
As a smaller reporting company we are not required to provide this information.
 
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Index to Financial Statements
   
 
Page No.
Financial Statements
 
Report of Independent Registered Public Accounting Firm  
F-1
Consolidated Balance Sheets as of January 31, 2011 and January 31, 2010
F-2
Consolidated Statements of Operations  for the years ended January 31, 2011 and 2010, and the period from inception (January 10, 2005)
F-3
Consolidated Statement of Stockholders’ Deficit for the period from January 10, 2005 (inception) to January 31, 2011
F-4
Consolidated  Statements of Cash Flows for the years  ended January 31, 2011 and 2010, and the period from inception (January 10, 2005)
F-5
Notes to Consolidated  Financial Statements
F-6
   
   
 
 
31

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Stockholders and Board of Directors of Red Metal Resources, Ltd:

We have audited the accompanying consolidated balance sheets of Red Metal Resources, Ltd. (the “Company”) (an exploration stage company) as at January 31, 2011 and January 31, 2010 and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended and the cumulative period from January 10, 2005 (inception) to January 31, 2011.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provides a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, these financial statements present fairly, in all material respects, the financial position of the Company as at January 31, 2011 and January 31, 2010 and the results of its operations and its cash flows for the years then ended and for the period from January 10, 2005 (inception) to January 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, the Company has not generated revenues since inception, has incurred losses in developing its business, and further losses are anticipated.  The Company requires additional funds to meet its obligations and the costs of its operations.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans in this regard are described in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/S/ DALE MATHESON CARR-HILTON LABONTE LLP
DALE MATHESON CARR-HILTON LABONTE LLP
CHARTERED ACCOUNTANTS
Vancouver, Canada
April 20, 2011
 
 
F-1

 
 
RED METAL RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
 
   
January 31, 2011
   
January 31, 2010
 
             
ASSETS
Current assets
           
             
Cash
  $ 8,655     $ 7,951  
Prepaids and other receivables
    37,572       17,175  
Total current assets
    46,227       25,126  
                 
Unproved mineral properties
    662,029       643,481  
Total assets
  $ 708,256     $ 668,607  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
               
                 
Accounts payable
  $ 196,657     $ 129,534  
Accrued liabilities
    91,990       92,485  
Due to related parties
    510,111       99,682  
Notes payable to related party
    113,648       -  
Total liabilities
    912,406       321,701  
                 
Stockholders' equity (deficit)
               
                 
Common stock, $0.001 par value, authorized 500,000,000,
               
10,216,301 and 9,676,301 issued and outstanding at January 31, 2011
               
and January 31, 2010
    10,217       9,677  
Additional paid in capital
    2,913,300       2,778,840  
Deficit accumulated during the exploration stage
    (3,056,819 )     (2,384,201 )
Accumulated other comprehensive loss
    (70,848 )     (57,410 )
Total stockholders' equity (deficit)
    (204,150 )     346,906  
Total liabilities and stockholders' equity (deficit)
  $ 708,256     $ 668,607  
 
The accompanying notes are an integral part of these consolidated financial statements
 
F-2

 
RED METAL RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
Year ended
   
From January 10,
 
   
January 31,
   
2005 (Inception)
 
   
2011
   
2010
   
to January 31, 2011
 
Revenue
                 
                   
Royalties
  $ -     $ -     $ 15,658  
                         
Operating Expenses
                       
                         
Administration
    87,382       85,312       275,140  
Advertising and promotion
    111,835       54,400       325,110  
Automobile
    24,124       22,361       65,719  
Bank charges
    5,554       5,420       16,612  
Consulting fees
    173,738       111,067       466,348  
Interest on current debt
    37,466       50,464       108,794  
Mineral exploration costs
    22,193       174,556       748,386  
Office
    8,084       4,496       27,306  
Professional development
    5,116       -       5,116  
Professional fees
    111,878       101,403       468,279  
Rent
    12,980       12,403       41,689  
Regulatory
    15,000       12,397       48,646  
Travel and entertainment
    50,455       29,444       196,666  
Salaries, wages and benefits
    6,487       17,392       52,682  
Foreign exchange (gain) loss
    326       (55 )     299  
Write-down of unproved mineral properties
    -       29,685       225,685  
Total operating expenses
    672,618       710,745       3,072,477  
                         
Net loss
  $ (672,618 )   $ (710,745 )   $ (3,056,819 )
                         
                         
Net loss per share - basic and diluted
  $ (0.07 )   $ (0.15 )        
                         
Weighted average number of shares
                       
outstanding - basic and diluted
    10,128,959       4,830,642          
 
The accompanying notes are an integral part of these consolidated financial statements
 
F-3

 
 RED METAL RESOURCES LTD.
 (AN EXPLORATION STAGE COMPANY)
 CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
 FOR THE PERIOD FROM JANUARY 10, 2005 (INCEPTION) TO JANUARY 31, 2011
 
  
 
Common Stock Issued
         
 
 
  
             
 
   
Accumulated
       
               
Additional
         
Other
       
   
Number of
         
Paid-in
   
Accumulated
   
Comprehensive
       
  
 
Shares
   
Amount
   
Capital
   
Deficit
   
Loss
   
Total
 
 Balance at January 10,  2005 (Inception)
    -     $ -     $ -     $ -     $ -     $ -  
  
                                               
 Net loss
    -       -       -       (825 )     -       (825 )
  
                                               
 Balance at January 31, 2005
    -       -       -       (825 )     -       (825 )
  
                                               
 Common stock issued for cash
    5,525,000       5,525       53,725       -       -       59,250  
 Common stock adjustment
    45       -       -       -       -       -  
 Donated services
    -       -       3,000       -       -       3,000  
 Net loss
    -       -       -       (12,363 )     -       (12,363 )
  
                                               
 Balance at January 31, 2006
    5,525,045       5,525       56,725       (13,188 )     -       49,062  
  
                                               
 Donated services
    -       -       9,000       -       -       9,000  
 Net loss
    -       -       -       (43,885 )     -       (43,885 )
  
                                               
 Balance at January 31, 2007
    5,525,045       5,525       65,725       (57,073 )     -       14,177  
  
                                               
 Donated services
    -       -       2,250       -       -       2,250  
 Return of common stock to treasury
    (1,750,000 )     (1,750 )     1,749       -       -       (1 )
 Common stock issued for cash
    23,810       24       99,976       -       -       100,000  
 Net loss
    -       -       -       (232,499 )     -       (232,499 )
  
                                               
 Balance at January 31, 2008
    3,798,855       3,799       169,700       (289,572 )     -       (116,073 )
  
                                               
 Common stock issued for cash
    357,147       357       1,299,643       -       -       1,300,000  
 Net loss
    -       -       -       (1,383,884 )     -       (1,383,884 )
 Foreign currency exchange loss
    -       -       -       -       (21,594 )     (21,594 )
                                                 
 Balance at January 31, 2009
    4,156,002       4,156       1,469,343       (1,673,456 )     (21,594 )     (221,551 )
                                                 
 Common stock issued for cash
    1,678,572       1,678       160,822       -       -       162,500  
 Common stock issued for debt
    3,841,727       3,843       1,148,675       -       -       1,152,518  
 Net loss for the year ended January 31, 2010
    -       -       -       (710,745 )     -       (710,745 )
 Foreign currency exchange loss
    -       -       -       -       (35,816 )     (35,816 )
  
                                               
 Balance at January 31, 2010
    9,676,301       9,677       2,778,840       (2,384,201 )     (57,410 )     346,906  
                                                 
 Common stock issued for cash
    540,000       540       134,460       -       -       135,000  
 Net loss for the year ended January 31, 2011
    -       -       -       (672,618 )     -       (672,618 )
 Foreign currency exchange loss
    -       -       -       -       (13,438 )     (13,438 )
                                                 
 Balance at January 31, 2011
    10,216,301     $ 10,217     $ 2,913,300     $ (3,056,819 )   $ (70,848 )   $ (204,150 )
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
F-4

 
RED METAL RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
For the year
   
From January 10,
 
   
Ended January 31,
   
2005 (Inception)
 
   
2011
   
2010
   
to January 31, 2011
 
Cash flows used in operating activities:
                 
Net loss
  $ (672,618 )   $ (710,745 )   $ (3,056,819 )
Adjustments to reconcile net loss to net cash used in operating activities:
                 
Donated services and rent
    -       -       14,250  
Write-down of unproved mineral properties
    -       29,685       225,685  
Changes in operating assets and liabilities:
                       
Prepaids  and other receivables
    (20,397 )     (575 )     (37,572 )
Accounts payable
    67,123       55,117       196,657  
Accrued liabilities
    (495 )     40,495       231,045  
Due to related parties
    410,429       286,249       848,136  
Accrued interest on notes payable to related party
    3,758       49,128       73,750  
                         
Net cash used in operating activities
    (212,200 )     (250,646 )     (1,504,868 )
                         
Cash flows used in investing activities:
                       
Acquisition of unproved mineral properties
    (18,548 )     (58,702 )     (1,026,769 )
                         
Net cash used in investing activities
    (18,548 )     (58,702 )     (1,026,769 )
                         
Cash flows provided by financing activities:
                       
Cash received on issuance of notes payable to related party
    109,890       164,500       854,390  
Proceeds from issuance of common stock
    135,000       162,500       1,756,750  
                         
Net cash provided by financing activities
    244,890       327,000       2,611,140  
                         
Effects of foreign currency exchange
    (13,438 )     (35,816 )     (70,848 )
                         
Increase (decrease) in cash
    704       (18,164 )     8,655  
                         
Cash, beginning
    7,951       26,115       -  
                         
Cash, ending
  $ 8,655     $ 7,951     $ 8,655  
                         
Supplemental disclosures:
                       
     Cash paid for:
                       
Income tax
  $ -     $ -     $ -  
Interest
  $ -     $ -     $ -  
                         
Non-cash financing transactions:
                       
Conversion of debt to related parties to shares of common stock
  $ -     $ (338,026 )   $ (338,026 )
Conversion of notes payable to shares of common stock
  $ -     $ (744,500 )   $ (744,500 )
Conversion of accrued interest to shares of common stock
  $ -     $ (69,992 )   $ (69,992 )

The accompanying notes are an integral part of these consolidated financial statements
 
 
F-5

 
RED METAL RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2011


NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
 
Nature of Operations
Red Metal Resources Ltd. (the “Company”) was incorporated on January 10, 2005 under the laws of the State of Nevada as Red Lake Exploration, Inc. and changed its name to Red Metal Resources Ltd. on August 27, 2008.  On August 21, 2007, the Company acquired a 99% interest in Minera Polymet Limitada (“Polymet”), a limited liability company formed on August 21, 2007 under the laws of the Republic of Chile. The Company is involved in acquiring and exploring mineral properties in Chile.  The Company has not determined whether its properties contain mineral reserves that are economically recoverable.  

The Company’s consolidated financial statements are prepared on a going concern basis in accordance with US generally accepted accounting principles (“GAAP”) which contemplates the realization of assets and discharge liabilities and commitments in the normal course of business.  The Company is in the exploration stage.  It has not generated operating revenues to date, and has accumulated losses of $3,056,819 since inception.  The Company has funded its operations through the issuance of capital stock and debt.  Management plans to raise additional funds through equity and/or debt financings.  There is no certainty that further funding will be available as needed.  These factors raise substantial doubt about the ability of the Company to continue operation as a going concern.  The Company’s ability to continue its operations as a going concern, realize the carrying value of its assets, and discharge its liabilities in the normal course of business is dependent upon its ability to raise new capital sufficient to fund its commitments and ongoing losses, and ultimately on generating profitable operations.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
These consolidated financial statements and related notes are presented in accordance with US GAAP, and are expressed in United States dollars. The Company has not produced revenues from its principal business and is an exploration stage company as defined by “Accounting and Reporting by Development Stage Enterprises.” These financial statements include the accounts of the Company and its wholly owned subsidiary, Polymet. All intercompany transactions and balances have been eliminated.

Reclassifications
Certain comparative amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year’s presentation. These reclassifications had no effect on the consolidated results of operations or financial position for any year presented.
 
Accounting Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect certain of the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The most significant estimates with regard to these financial statements relate to carrying values of unproven mineral properties, determination of fair values of stock based transactions, and deferred income tax rates.
 
 
F-6

 
Asset Retirement Obligations
The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs an obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The estimated fair value of the asset retirement obligation is based on the current cost escalated at an inflation rate and discounted at a credit adjusted risk-free rate. This liability is capitalized as part of the cost of the related asset and amortized over its useful life.  The liability accretes until the Company settles the obligation.  To date the Company has not incurred any measurable asset retirement obligations.

Long Lived Assets
The carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.

Fair Value of Financial Instruments
The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, other receivables, amounts due to related parties and accounts payable approximates their carrying value due to their short-term nature.

Foreign Currency Translation and Transaction
The functional currency for the Company’s foreign subsidiary is the Chilean peso.  The Company translates assets and liabilities to US dollars using year-end exchange rates, translates unproved mineral properties using historical exchange rates, and translates revenues and expenses using average exchange rates during the period. Exchange gains and losses arising from the translation of foreign entity financial statements are included as a component of other comprehensive loss.  

Transactions denominated in currencies other than the functional currency of the legal entity are re-measured to the functional currency of the legal entity at the year-end exchange rates.  Any associated transactional currency re-measurement gains and losses are recognized in current operations.

Revenue Recognition
The Company records revenues and royalties from the sale of minerals when persuasive evidence of an arrangement exists, the minerals have been delivered to the customer and the risk of ownership or title has been transferred, and collectability is reasonably assured.  

Income Taxes
Income taxes are determined using the liability method.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes that date of enactment.  In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized.
 
The Company accounts for uncertainty in income taxes by applying a two-step method. First, it evaluates whether a tax position has met a more likely than not recognition threshold, and second, it measures that tax position to determine the amount of benefit, if any, to be recognized in the financial statements. The application of this method did not have a material effect on the Company's financial statements.
 
 
F-7

 
 
Loss per Share
The Company presents both basic and diluted loss per share (“LPS”) on the face of the statements of operations. Basic LPS is computed by dividing net loss available to common shareholders by the weighted average number of shares outstanding during the year. Diluted LPS gives effect to all dilutive potential common shares outstanding during the period including convertible debt, stock options, and warrants, using the treasury stock method. Diluted LPS excludes all dilutive potential shares if their effect is anti-dilutive.

Mineral Properties
Realization of the Company's investment in and expenditures on mineral properties is dependent upon the establishment of legal ownership, the attainment of successful production from the properties or from the proceeds of their disposal.

Title to mineral properties involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristics of many mineral properties. To the best of its knowledge the Company believes all of its unproved mineral interests are in good standing and that it has title to all of these mineral interests.

The Company classifies its mineral rights as tangible assets and accordingly acquisition costs are capitalized as mineral property costs. Long-lived assets are to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the Company is to estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the undiscounted expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized. Mineral exploration costs are expensed as incurred until commercially mineable deposits are determined to exist within a particular property.
 
Recently Adopted Accounting Guidance
The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. It does not expect the adoption of these pronouncements to have a material impact on its financial position, results of operations or cash flows.
 
NOTE 3 – RELATED-PARTY TRANSACTIONS
 
The following amounts were due to related parties at January 31, 2011 and January 31, 2010:
 
   
January 31, 2011
   
January 31, 2010
 
             
Due to a company owned by an officer
  $ 228,330     $ 26,324  
Due to a company controlled by directors
    207,742       48,920  
Due to a company controlled by a relative of the president
    63,692       18,719  
Due to a major shareholder
    10,347       5,719  
Total due to related parties (a)
  $ 510,111     $ 99,682  
                 
Note payable to a related party (b)
  $ 52,902     $ -  
Note payable to a director (c)
    60,746       -  
Total notes payable to related parties
  $ 113,648     $ -  

(a) Amounts due to related parties are unsecured and are due on demand.

(b) The principal amount of the note payable to a related party is $50,000, is due on demand, unsecured and bears interest at 6% per annum.  Interest of $2,902 had accrued as at January 31, 2011.

(c) The principal amounts of the notes payable to a director is $10,000 and $49,890 ($50,000 Cdn), they are payable on demand, unsecured and bear interest at 8% per annum.  Interest of $856 had accrued as at January 31, 2011.

 
F-8

 
Transactions with Related Parties

During the years ended January 31, 2011 and 2010 the Company incurred the following expenses with related parties:
 
 
$181,384 and $127,540, respectively, in consulting and other business expenses with a company owned by the chief financial officer of the Company.
 
 
$142,547 and $115,213 respectively, in administration, advertising and promotion, mineral exploration, travel and other business expenses with a company controlled by two directors.
 
 
$63,208 and $61,002, respectively, in administration, automobile, rental, and other business expenses with a company owned by a major shareholder and a relative of the president.
 
 
$26,221 and $25,210, respectively, in administration expenses with a major shareholder.
 
The above services were provided directly by related parties or paid by related parties on the Company’s behalf.

NOTE 4 – UNPROVED MINERAL PROPERTIES

   
January 31,
2011
   
January 31,
2010
 
             
Unproved mineral properties, beginning
  $ 643,481     $ 753,519  
Acquisition
    18,548       58,702  
Unproved mineral properties written down
    -       (168,740 )
Unproved mineral properties, ending
  $ 662,029     $ 643,481  

Farellon Property

Farellon Alto Uno al Ocho Mineral Claim
On April 25, 2008, the Company acquired the Farellon Alto Uno al Ocho mining claim located in the Commune of Freirina, Province of Huasco, III Region of Atacama, Chile for $550,000. The claim is subject to a 1.5% royalty on the net sales of minerals extracted from the property to a total of $600,000. The royalty payments are due monthly once exploitation begins, and are subject to minimum payments of $1,000 per month. The Company has no obligation to pay the royalty if it does not commence exploitation.  The Company had spent a total of $550,844 on the acquisition of this claim at January 31, 2011, and $550,253 at January 31, 2010.

Cecil Mineral Claims
On September 17, 2008, the Company acquired the Cecil mining claims for $20,000. The claims are located near the Farellon property in commune of Freirina, Province of Huasco, III Region of Atacama, Chile. At January 31, 2011, the Company had spent a total of $32,803 on the acquisition of these claims and accrued $3,096 in unpaid property taxes. At January 31, 2010, the Company spent $27,676 on the acquisition of these claims and accrued $3,096 in unpaid property taxes.
 
Mateo Property
 
Margarita Claim
On November 27, 2008, the Company purchased the Margarita mining claim for $16,072. At January 31, 2011, the Company had spent a total of $17,078 on the acquisition of this claim and accrued $667 in unpaid property taxes. At January 31, 2010, the Company had spent $16,678 on the acquisition of this claim and accrued $667 in unpaid property taxes.
 
 
F-9

 
Che Claims
On October 10, 2008, the Company entered into an option to purchase contract with a related company to acquire an option to purchase the Che Uno and Che Dos mining claims. Under the terms of the option, as amended, the Company agreed to pay $444 on December 2, 2008 as consideration for the option agreement and $20,000 by April 10, 2011 to acquire the Che claims. On December 2, 2008, the Company paid the consideration and acquired the option agreement. The claims are subject to a 1% royalty on the net sales of minerals extracted from the property to a total of $100,000. The royalty payments are due monthly once exploitation begins and are not subject to minimum payments. The Company has no obligation to pay the royalty if it does not commence exploitation. At January 31, 2011, the Company had spent a total of $1,313 on the acquisition of these claims and accrued $1,264 in unpaid property taxes. At January 31, 2010, the Company spent $778 on the acquisition of these claims and accrued $1,264 in unpaid property taxes.
 
Mateo Exploration Claims
At January 31, 2011 the Company had spent a total of $6,833 on the acquisition of these claims and accrued $8,304 in unpaid property taxes and other costs. At January 31, 2010, the Company spent $3,839 on the acquisition of these claims and accrued $8,304 in unpaid property taxes and other costs.

Irene Claims
On September 24, 2010 the Company entered into a purchase promise agreement with a related company to acquire Irene claims. Under the terms of the agreement, as amended, the Company must pay 21 million Chilean pesos (approximately $43,500 US) by May 15, 2011 to exercise the option and purchase the Irene claims.  At January 31, 2011, the Company capitalized $838 in acquisition costs for these claims.

Other Property Costs
At January 31, 2011 and January 31, 2010, the Company had spent or accrued a total of $5,209 and $4,364, respectively in acquisition costs for other generative claims.

At January 31, 2011 and January 31, 2010, the Company capitalized $33,780 and $26,561, respectively in Chilean value added tax as part of the unproved mineral claims. This VAT is recoverable from future VAT payable.

Abandoned claims
During the year ended January 31, 2010, the Company abandoned mineral claims with a cost of $29,685, as it decided not to pursue exploration of the claims. During the year ended January 31, 2011, the Company did not abandon any mineral claims.
 
NOTE 5 – COMMON STOCK
 
On October 2, 2009, the Company approved a share consolidation of 14 to 1.

On April 20, 2010, the Company engaged in a private offering of units pursuant to which it issued 100,000 units at $0.25 per unit for cash of $25,000. Each unit consists of one common share and one share purchase warrant.  Each share purchase warrant is exercisable at $0.30 for two years. A fair value of $0 has been assigned to the warrants.

On April 14, 2010, the Company engaged in a private offering of units pursuant to which it issued 40,000 units at $0.25 per unit for cash of $10,000. Each unit consisted of one common share and one share purchase warrant.  Each share purchase warrant is exercisable at $0.30 for two years. A fair value of $0 has been assigned to the warrants.

On March 29, 2010, the Company engaged in a private offering of units pursuant to which it issued 200,000 units at $0.25 per unit for cash of $50,000. Each unit consisted of one common share and one share purchase warrant.  Each share purchase warrant is exercisable at $0.30 for two years. A fair value of $0 has been assigned to the warrants.

 
F-10

 
On March 23, 2010, the Company engaged in a private offering of units pursuant to which it issued 200,000 units at $0.25 per unit for cash of $50,000. Each unit consisted of one common share and one share purchase warrant.  Each share purchase warrant is exercisable at $0.30 for two years. A fair value of $0 has been assigned to the warrants.

On January 19, 2010, the Company engaged in a private offering of units pursuant to which it issued 250,000 units at $0.25 per share in a private placement for cash of $62,500.  Each unit consists of one common share and one share purchase warrant.  Each share purchase warrant is exercisable at $0.30 for a period of two years.
 
On January 19, 2010, the Company issued 3,841,727 shares of its common stock to settle $1,152,518 in debt with related party.
 
On September 15, 2009, the Company engaged in a private offering of units pursuant to which it issued 1,428,572 shares of the Company’s common stock at $0.07 per share in a private placement for cash of $100,000.
 
Warrants
   
January 31, 2011
   
January 31, 2010
 
Warrants, beginning
    607,147       369,052  
Granted
    540,000       250,000  
Exercised
    -       -  
Expired
    (357,147 )     (11,905 )
Warrants, ending
    790,000       607,147  

The weighted average life and weighted average exercise price of the warrants at January 31, 2011 is $1.10 years and $0.30, respectively.

NOTE 6 – INCOME TAXES

The provision for income taxes differs from the amount that would have resulted in applying the combined federal statutory tax rate as follows:

   
January 31, 2011
   
January 31, 2010
 
Loss before discontinued operations and non-controlling interest
  $ (672,618 )   $ (710,745 )
Statutory income tax rate
    34 %     34 %
Expected in tax recovery at statutory income tax rates
  $ (228,690 )   $ (241,653 )
Non-deductible expenses
    (32,530 )     8,638  
Difference in foreign tax rates
    44,099       52,118  
Change in valuation allowance
    217,121       180,898  
Income tax recovery
  $ -     $ -  

Temporary differences that give rise to the following deferred income tax assets and liabilities at are:

   
January 31, 2011
   
January 31, 2010
 
Deferred income tax assets
           
Federal loss carryforwards
  $ 532,315     $ 59,292  
Foreign loss carryforwards
    221,012       176,914  
Mineral properties
    38,366       38,366  
      791,693       574,572  
Valuation allowance
    (791,693 )     (574,572 )
    $ -     $ -  

 
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The Company has $1,565,631 of United States federal net operating loss carry forwards that may be offset against future taxable income. These losses expire as follows:

2026
  $ 1,188  
2027
    14,932  
2028
    231,644  
2029
    430,210  
2030
    378,766  
2031
    508,891  
    $ 1,565,631  

The Company also has $1,300,073 of Chilean tax losses.  The Chilean tax losses can be carried forward indefinitely.
 
NOTE 7 – SUBSEQUENT EVENTS

On March 10, 2011, the Company purchased the Perth mining claims for $35,000. The properties are located in Sierra Pan de Azucar in commune of Freirina, Province of Huasco, III Region of Atacama, Chile. At March 15, 2011, the Company paid a total of $18,717 in property taxes for the Perth property.

 On March 14, 2011, the Company entered into an agreement on the Perth property with Revonergy Inc.  Revonergy Inc. paid $35,000 on signing the agreement and can earn 35% interest in the Perth property if it spends a minimum $1,450,000 on the three phase exploration program. Revonergy Inc. can earn a further 15% interest if it completes a preliminary feasibility study within four years from the signing of the agreement.
 
On April 7, 2011, the Company issued 6,723,333 units at a price of $0.30 per unit. Each unit consists of one share of common stock and one share purchase warrant. The warrants have an exercise price of $0.50 per share and are exercisable for a period of two years. The warrants contain a call provision which allows the Company to call the warrants upon the occurrence of certain conditions. The net proceeds to the Company from the offering were approximately $1,862,462. Commissions of $58,900 were paid and 196,333 share purchase warrants were  issued to agents in connection with this financing.

As part of the private placement of units described above, the Company’s CEO converted loans in the amount of $50,000 into 166,666 units and the Company’s CFO converted loans in the amount of $80,000 into 266,667 units.
 
 
F-12

 
 
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
Not applicable.
 
ITEM 9A(T):  CONTROLS AND PROCEDURES
 
Report on Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report.  The evaluation was undertaken in consultation with our accounting personnel.  Based on that evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Report on Internal Control over Financial Reporting

Our chief executive officer and our chief financial officer are responsible for establishing and maintaining internal control over financial reporting.  Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
 
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors; and
 
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Our chief executive officer and our chief financial officer assessed the effectiveness of our internal control over financial reporting as of January 31, 2011.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework
 
Based on our assessment, our chief executive officer and our chief financial officer determined that, as of January 31, 2011, our internal control over financial reporting is effective.
 
 
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Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15 (f) under the Exchange Act) during the fourth quarter of the last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 9B:  OTHER INFORMATION
 
Not applicable.
 
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
Table 13 contains certain information regarding our directors, executive officers and key personnel. There is a family relationship between Caitlin Jeffs and Michael Thompson.  Directors serve for one year and until their successors are duly elected and qualified. In Chile, Polymet has one legal representative, which is similar to a director, and a manager, which is similar to a president.
 
Table 13: Directors and officers
Name
Age
Position
Caitlin Jeffs
35
Director, chief executive officer, president and secretary
Michael Thompson
41
Director and vice president of exploration
John Da Costa
46
Chief financial officer and treasurer
Kevin Mitchell
50
Legal representative and manager of Polymet

Caitlin Jeffs, P. Geo.  Ms. Jeffs has been a director since October 2007 and our president, chief executive officer and secretary since April 21, 2008. She has more than seven years of experience as an exploration geologist.  Ms. Jeffs graduated from the University of British Columbia in 2002 with an honors bachelor of science in geology. She is a professional geologist on the register of the Association of Professional Geoscientists of Ontario. She worked for Placer Dome (CLA) Ltd. in Canada from February 2003 until May 2006 where she worked as both a project geologist managing drill programs for the exploration department at Placer Dome’s Musselwhite Mine in Northwestern Ontario and then as part of the generative team evaluating potential projects in Northwestern Ontario. Placer Dome (since acquired by Barrick Gold Corp. and Gold Corp.) was a major mining company with operations in North America, Australia, Africa and South America.  None of these companies is related to Red Metal. Ms. Jeffs was a self-employed consulting geologist from May 2006 to April 2007. She is one of the founders and the general manager of Fladgate Exploration Consulting Corporation, a firm of consulting geologists in Ontario, Canada, which provides its services to Red Metal. She was a director of Trilogy Metals Inc., a resource exploration company listed on the TSX Venture Exchange, from July 2006 to May 2007.  She lives with Michael Thompson as a family.
 
Michael Thompson, P. Geo. Mr. Thompson has been a director since October 2007 and our vice-president of exploration since April 2008. He has more than ten years of experience as an exploration geologist.  Mr. Thompson graduated from the University of Toronto in 1997 with an honors bachelor of science in geology.  He is a professional geologist on the register of the Association of Professional Geoscientists of Ontario.  He worked in Canada for Teck Resources Ltd. from 1999 until 2002 as a project geologist managing exploration projects in Northwestern Ontario. From January 2003 until May 2006 he worked for Placer Dome (CLA) Ltd. as both a project geologist managing drill programs for the exploration department at Placer Dome’s Musselwhite Mine in Northwestern Ontario and then as part of the generative team evaluating potential projects in Northwestern Ontario. Teck Resources and Placer Dome (since acquired by Barrick Gold Corp. and Gold Corp.) are major mining companies with operations in North America, Australia, Africa and South America. None of these former employers is related to Red Metal. Mr. Thompson was a self-employed consulting geologist from May 2006 to April 2007.  He is a founder and the president of Fladgate Exploration Consulting Corporation, a firm of consulting geologists in Ontario, Canada, which provides its services to Red Metal. He lives with Caitlin Jeffs as a family.
 
 
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We believe that the extensive education and experience that Ms. Jeffs and Mr. Thompson have as geologists make them uniquely qualified to serve as directors of our company.  Their knowledge of mining and geology provides them with the tools necessary to set goals for our business and to determine how those goals can be achieved.
 
John Da Costa. Mr. Da Costa has been our chief financial officer and treasurer since May 13, 2008.  Mr. Da Costa has more than twenty years of experience providing bookkeeping and accounting services for both private and public companies and is the founder and president of Da Costa Management Corp., a company that has provided management and accounting services to public and private companies since August 2003.  Red Metal is a client of Da Costa Management Corp.  Mr. Da Costa is also the treasurer of Rock City Energy Corp., a non-reporting public company, a position he has held since August 2006, a director and the chief executive officer (since February 2006) and chief financial officer and secretary (since May 2002) of GlobeTrac Inc., also a public company; and a director (from March 2004 – to July 2007) and chief executive officer and president (from July 2006 – to July 2007) and the chief financial officer (from April 2005 – to July 2007) of Trilogy Metals Inc. a resource exploration company listed on the TSX Venture Exchange.  GlobeTrac sold, marketed, distributed and installed global wireless tracking and telematics equipment in Europe until November 2004 when it wound down its operations.  GlobeTrac’s only business now is receiving and accounting for royalties and commissions receivable from the supplier of the telematics equipment.  GlobeTrac’s business objective is to locate and complete a merger with or acquire a viable business.
 
Biographical information: Significant employee

Kevin Mitchell.  Mr. Mitchell has been the legal representative and manager of Minera Polymet Limitada since it was formed in August 2007.  He is a Canadian who has lived in Chile for more than twenty years.  He has owned and operated a heavy equipment company for all of that time, mainly servicing the mining industry.  Since February 2007 he has been the legal representative and manager of Minera Farellon Limitada, a Chilean company that investigates potential projects, conducts due diligence reviews, and provides logistical support.

During the past ten years none of our directors or executive officers was involved in any legal proceedings described in subparagraph (f) of Item 401 of Regulation S-K.
 
Directors’ compensation

Our directors did not receive compensation during the years ended January 31, 2010 and 2011.  
 
Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, and the rules thereunder require our officers and directors, and persons who own more than 10% of our common stock, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and to furnish us with copies.  To our knowledge, based solely upon review of the copies of such reports received or written representations from the reporting persons, we believe that during the period covered by this annual report, our directors, executive officers and persons who own more than 10% of our common stock complied with all Section 16(a) filing requirements.

 
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Code of Ethics

We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  Our code of ethics will be provided to any person without charge, upon request.  Requests should be in writing and addressed to Caitlin Jeffs, c/o Red Metal Resources Ltd., 195 Park Avenue, Thunder Bay, Ontario P7B 1B9.

Corporate Governance

Our board of directors does not have an audit committee, a compensation committee or a nominating committee.

We have not adopted any procedures by which our security holders may recommend nominees to our board of directors and that has not changed during the last fiscal year.

None of the members of our board of directors qualifies as an “audit committee financial expert”, as defined by Item 407 of Regulation S-K promulgated under the Securities Act of 1933 and the Securities Exchange Act of 1934.
 
ITEM 11: EXECUTIVE COMPENSATION
 
We do not pay nor we are planning to pay salaries or another form of cash compensation to our executive officers and directors.
 
When we are able to do so, our plan is to implement a compensation program consisting of options to purchase shares of our common stock.  We believe that a common stock option plan will allow us to adequately compensate and incentivize the executive officers who will help us achieve our business objectives.

To date, we have granted no stock options to our executive officers or any other persons.

During the last two fiscal years, Fladgate Exploration Consulting Corporation, a company controlled by our CEO and VP of Exploration and Da Costa Management Corp., a company owned by our CFO provided us with consulting, administrative and geological services, and paid certain expenses on our behalf. We reimbursed Fladgate Exploration Consulting Corporation and Da Costa Management Corp. for these services and expenditures as discussed in the Related-party transactions section below.
 
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
Table 14  presents, as of April 25, 2011, information regarding the beneficial ownership of our common stock with respect to each of our executive officers, each of our directors, each person known by us to own beneficially more than 5% of the common stock, and all of our directors and executive officers as a group.  Beneficial ownership is determined under the rules of the Securities and Exchange Commission and generally includes voting or investment power over securities.  Each individual or entity named has sole investment and voting power with respect to the shares of common stock indicated as beneficially owned by them, subject to community property laws, where applicable, except where otherwise noted.
 
Shares of common stock subject to options or warrants that are currently exercisable or exercisable within 60 days from April 25, 2011 are considered outstanding and beneficially owned by the person holding the options or warrants for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

 
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Table 14: Security ownership
Class of security
Name and address of beneficial owner
Number of shares
beneficially owned
Percentage of
common stock
Common stock
Caitlin Jeffsa
1,775,242
10.43
Common stock
Michael Thompsona
         169,524      
  1.00
Common stock
Fladgate Exploration Consulting Corp.b
   830,087
  4.90
Common stock
John Da Costac
1,010,358d
  5.87
 
All officers and directors as a group
3,785,211
22.20
       
Common stock
Richard  N. Jeffse,f
4,572,119 g
25.73
Common stock
Susan Jeffse,f
  2,246,670h
12.50
Common stock
Robert Andjelicf,i
  5,000,000 j
  25.72
aThe address for Caitlin Jeffs and Michael Thompson is 195 Park Avenue, Thunder Bay, Ontario P7B 1B9.
bFladgate Exploration Consulting Corporation is controlled by Caitlin Jeffs and Michael Thompson.
cThe address for John Da Costa is 610-1100 Melville Street, Vancouver, British Columbia V6E 4A6.
dThis sum includes 296,667 shares held by DaCosta Management Corp., a company owned by John Da Costa.
eThe address for Richard N. Jeffs and Susan Jeffs is 49 Pont Street, London, United Kingdom SW1X 0BD.
f5% shareholder
gThis sum includes warrants exercisable for 833,334 shares.
hThis sum includes warrants exercisable for 1,033,000 shares.
iThe address for Robert Andjelic is PO Box 69, Millarville, AB T0L 1K0.
jThis sum includes warrants exercisable for 2,500,000 shares.
 
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
Director independence
 
Using the definition of “independent” in Section 803 of the Rules of the NYSE Amex, we have determined that none of our directors is independent.

Transactions with related persons

Since February 1, 2009, the directors, executive officers, or holders of more than 5% of our common stock, or members of their immediate families, as described below, have completed transactions with us in which they had direct or indirect material interests that exceeded the lesser of $120,000 or 1% of the average of our total assets at year end for the last two completed fiscal years.

Amounts due to related parties

Table 15 describes amounts due to related parties that were incurred during the fiscal years ended January 31, 2011 and January 31, 2010, and through April 21, 2011.

 
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Table 15: Due to related parties
 
Period ended
April 21, 2011*
Fiscal years ended January 31,
 
2011
2010
Due to Da Costa Management Corp.a
$97,403
$228,330
$26,324
Due to Fladgate Exploration Consulting Corporationb
$175,980
$207,742
$48,920
Due to Minera Farellon Limitadac
$103,743
$63,692
$18,719
Due to Kevin Mitchelld
$1,521
$10,347
$5,719
* The amounts accrued at April 21, 2011.
a During the period from February 1, 2011 to April 21, 2011 we paid or accrued a total of $59,174 in consulting and other business expenses paid on our behalf to Da Costa Management Corp. During the years ended January 31, 2011 and 2010, we paid or accrued a total of $181,384 and $127,540, respectively in consulting and other business expenses paid on our behalf to Da Costa Management Corp.
b During the period from February 1, 2011 to April 21, 2011 we paid or accrued a total of $67,655 in administration, mineral exploration, and investor relation services as well as other business expenses paid on our behalf to Fladgate Exploration Consulting Corporation, a company controlled by two directors. During the year ended January 31, 2011, we paid or accrued a total of $142,547 in administration, mineral exploration, and investor relation services as well as other business expenses paid on our behalf to the same company. During the year ended January 31, 2010, we paid or accrued a total of $115,213 in administration, mineral exploration, and investor relation services as well as other business expenses paid on our behalf to the same company.
c During the period from February 1, 2011 to April 21, 2011 we paid or accrued a total of $13,904 in administration, automobile and rental expenses to Minera Farellon Limitada, a company owned by Kevin Mitchell, and Richard Jeffs, the father of our president. During the years ended January 31, 2011 and 2010, we paid or accrued a total of $63,208 and $61,002 in administration, automobile, mineral exploration, rental, and other business expenses paid on our behalf to the same company. 
d During the period from February 1, 2011 to April 21, 2011 we paid or accrued a total of $6,284 in administration expense to Kevin Mitchell, a former major shareholder. During the years ended January 31, 2011 and 2010, we paid or accrued $26,221 and $25,210, respectively, in administration and other business expenses paid on our behalf to the same shareholder.

Notes payable to related party
 
Table 16 describes the promissory notes payable to related parties including accrued interest as at January 31, 2011 and 2010, and through April 21, 2011

Table 16: Notes payable to related parties
   
Fiscal years ended January 31,
 
Period ended
April 21, 2011
2011
2010
Note payable to the company owned by Richard Jeffs a
$53,621
$52,902
$ –
Note payable to Richard Jeffs a
11,123
Notes payable to Caitlin Jeffs b
60,746
Notes payable to John da Costac
Total notes payable to related parties
$64,744
$113,648
$ –
a Principle amount of the note payable to the company owned by Richard Jeffs is $50,000; it is payable on demand, unsecured and bears interest at 6% per annum compounded monthly. Interest of $ 3,620 had accrued as at April 21, 2011. Principle amount of the note payable to Richard Jeffs is $11,000; it is payable on demand, unsecured and bears interest at 8% per annum compounded monthly. Interest of $ 123 had accrued as at April 21, 2011. During the year ended January 31, 2010, we had notes payable to Richard Jeffs for total principle of $744,500 and accrued interest of $69,992, which were converted to shares of our common stock at $0.30 per share. The largest aggregate amount of principal outstanding to Richard Jeffs and the Company owned by him during the period for which disclosure is provided was $744,500.
b The principle amounts of the notes payable to Caitlin Jeffs were $10,000 US and $50,000 Cdn, they were payable on demand, unsecured and bear interest at 8% per annum compounded monthly. Interest of $1,837 had accrued as at April 8, 2011. The largest aggregate amount of principal outstanding to Caitlin Jeffs during the period for which disclosure is provided was approximately $ 62,268 US.
c The principle amounts of the notes payable to John da Costa  were $10,000 Cdn and $70,000 Cdn, they were payable on demand, unsecured and bear interest at 8% per annum compounded monthly. Interest of $851 had accrued as at April 8, 2011. The largest aggregate amount of principle outstanding to  John da Costa during the  period for which disclosure is provided was approximately $80,454 US.

 
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Transactions with directors and officers

We have completed a number of transactions with our directors and officers:

 
On September 15, 2009, we issued 1,428,571 shares of our common stock at $0.07 per share in a private placement to Caitlin Jeffs for $100,000 cash.
 
On January 19, 2010, we issued, at a deemed price of $0.30 per share, 830,087 shares of our common stock to Fladgate Exploration Consulting Corporation, owned by our directors, to settle $249,026 in accrued debt for services rendered, and 296,667 shares to Da Costa Management Corporation, owned by our chief financial officer, to settle $89,000 in accrued debt for services rendered.
 
On April 7, 2011, under the private equity financing, we issued 83,333 units at $0.30 per unit to Caitlin Jeffs and 83,333 units at $0.30 per unit to Michael Thompson. Each unit consists of one common share and one warrant entitling the holder to purchase one share of common stock for $0.50 per share. The warrants expire on April 7, 2013.
 
On April 7, 2011, under the private equity financing, we issued 266,667 units at $0.30 per unit to John da Costa. Each unit consists of one common share and one warrant entitling the holder to purchase one share of common stock for $0.50 per share. The warrants expire on April 7, 2013.
 
Transactions with other related parties

We have a close working relationship with Minera Farellon Limitada, which is owned by Kevin Mitchell, Polymet’s legal representative and Richard Jeffs, the father of our president. Minera Farellon provides administrative services and supplies our logistical needs under a contract. Minera Farellon also investigates potential claims and often ties them, either by staking new claims or optioning or buying others’ claims. This gives us an opportunity to review them to decide whether they are of interest to us. On April 12, 2011, we paid Minera Farellon Limitada 10,000,000 pesos (approximately $20,000) to acquire the Che mining claims.
 
On April 7, 2011, under a private equity financing, we issued 2,500,000 units at $0.30 per unit to Robert Andjelic. Each unit consists of one common share and one warrant entitling the holder to purchase one share of common stock for $0.50 per share. The warrants expire on April 7, 2013. On the same date, we entered into the Board Observer Agreement with Mr. Andjelic. Subject to certain exceptions, Mr. Andjelic has the right to attend in a non-voting capacity any meeting of the board, to receive all notices of board meetings and other information distributed to the members of the board, and to receive copies of actions taken by written consent.
 
We have completed a number of transactions with relatives of our president:

 
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On January 19, 2010 we issued 2,714,973 shares of our common stock at $0.30 per share to pay promissory notes issued to Richard Jeffs for cash plus accrued interest for a total of $814,492.
 
 
On December 31, 2009, we issued 200,000 units at $0.25 per unit to Susan Jeffs, the mother of our president. Each unit consists of one common share and one warrant entitling the holder to purchase one share of common stock for $0.30 per share. The warrants expire on December 31, 2011.
 
 
On April 7, 2011, under the private equity financing, we issued 833,334 units at $0.30 per unit to Richard Jeffs. Each unit consists of one common share and one warrant entitling the holder to purchase one share of common stock for $0.50 per share. The warrants expire on April 7, 2013.
 
 
On April 7, 2011, under the private equity financing, we issued 833,333 units at $0.30 per unit to Susan Jeffs. Each unit consists of one common share and one warrant entitling the holder to purchase one share of common stock for $0.50 per share. The warrants expire on April 7, 2013.
 
ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
 
(1)  Audit Fees and Related Fees
 
The aggregate fees billed and accrued for each of the last two fiscal years for professional services rendered by our principal accountant for the audit of our annual consolidated financial statements and for the review of our financial statements or for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were:
 
2011 - $0 – Mendoza Berger & Company, L.L.P.
2010 - $27,500 – Mendoza Berger & Company, L.L.P.
 
2011 - $31,966 – Dale Matheson Carr-Hilton Labonte LLP
2010 - $9,528 – Dale Matheson Carr-Hilton Labonte LLP
 
 (2)  Audit-Related Fees

The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported in the preceding paragraph:

2011 - $0 – Mendoza Berger & Company, L.L.P.
2010 - $8,202 – Mendoza Berger & Company, L.L.P.

2011 - $0 – Dale Matheson Carr-Hilton Labonte LLP
2010 - $0 – Dale Matheson Carr-Hilton Labonte LLP
 
(3)  Tax Fees
 
The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning was:
 
2011 - $0 – Mendoza Berger & Company, L.L.P.
2010 - $0 – Mendoza Berger & Company, L.L.P.

2011 - $2,755 – Dale Matheson Carr-Hilton Labonte LLP
2010 - $0 – Dale Matheson Carr-Hilton Labonte LLP

 
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(4)  All Other Fees
 
The aggregate fees billed in each of the last two fiscal years for the products and services provided by the principal accountant, other than the services reported in paragraphs (1), (2) and (3) was:
 
2011 - $0 – Mendoza Berger & Company, L.L.P.
2010 - $0 – Mendoza Berger & Company, L.L.P.

2011 - $0 – Dale Matheson Carr-Hilton Labonte LLP
2010 - $0 – Dale Matheson Carr-Hilton Labonte LLP


We do not have an audit committee.  Our board of directors pre-approves all audit and permissible non-audit services provided by the independent auditors.  These services may include audit services, audit-related services, tax services and other services.
 
ITEM 15: EXHIBITS
 
 See the index to financial statements on page 31.

The following table sets out the exhibits either filed herewith or incorporated by reference.

Exhibit
Description
3.1
Articles of Incorporation1
3.2
By-laws1
10.1
Agreement to assign contract for the option to purchase mining holdings dated September 25, 2007 between Minera Farellon Limitada and Minera Polymet Limitada2
10.2
Contract for the option to purchase mining holdings dated May 2, 2007 between Compañia Minera Romelio Alday Limitada and Minera Farellon Limitada2
10.3
Amendment number 1 to Agreement to assign contract for the option to purchase mining holdings dated November 20, 20073
10.4
Contract for the option to purchase mining holdings dated October 10, 2008 between Minera Farellon Limitada and Minera Polymet Limitada6, Amendment #1 dated October 10, 20086 and Amendment #2 dated April 7, 20094
10.5
Letter of intent for the purchase of Pertenencia Irene Una al Dos dated February 2, 2009 between Minera Farellon Limitada and Minera Polymet Limitada5
10.6
Contract for consulting services dated April 1, 2009 between Minera Farellon Limitada and Minera Polymet Limitada4,6
10.7
Contract dated September 21, 2009 with Micon International Limited for preparation of a NI 43-101 technical report7
10.8
Loan Agreement and Promissory Note dated February 11, 2010 between Red Metal Resources Ltd. and Wet Coast Management Corp. in favor of Wet Coast Management Corp.8
16
Letter re change in certifying accountant7
21
List of significant subsidiaries of Red Metal Resources Ltd.5
31.1
Certification of chief executive officer and president pursuant to Rule 13a-14(a)/15d-14(a) 9
31.2
Certification of chief financial officer pursuant to Rule 13a-14(a)/15d-14(a) 9
32
Certification pursuant to 18 U.S.C. Section 13509
1Incorporated by reference from the registrant’s report on Form SB-2 filed with the Securities and Exchange Commission on May 22, 2006 as file number 333-134-363
2Incorporated by reference from the registrant’s report on Form 8-K filed with the Securities and Exchange Commission on October 2, 2007
3Incorporated by reference from the registrant’s report on Form 8-K filed with the Securities and Exchange Commission on May 1, 2008
4Incorporated by reference from the registrant’s report on Form 8-K filed with the Securities and Exchange Commission on April 15, 2009
5Incorporated by reference from the registrant’s annual report on Form 10-K for the fiscal year ended January 31, 2009 filed with the Securities and Exchange Commission on May 4, 2009
6Denotes a management contract
7 Incorporated by reference from the registrant’s report on Form 10 filed with the Securities and Exchange Commission on February 12, 2010
8 Incorporated by reference from the registrant’s annual report on Form 10-K for the fiscal year ended January 31,
  2010 filed with the Securities and Exchange Commission on April 30, 2010
9 Filed herewith

 
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SIGNATURES
 
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Dated:  May 2, 2011
 
   
RED METAL RESOURCES LTD.
 
         
   
By:  
/s/ Caitlin Jeffs
 
     
Caitlin Jeffs, Chief Executive Officer
 
 
   
By:  
/s/ John Da Costa
 
     
John Da Costa, Chief Financial Officer
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated
 
Signature
 
Title
 
Date
         
/s/ Caitlin Jeffs  
 
Chief Executive Officer,  
 
May 2, 2011
Caitlin Jeffs  
 
President, Secretary and director
   
         
/s/ John Da Costa
 
Chief Financial Officer
 
May 2, 2011
John Da Costa
       
         
/s/ Michael Thompson
 
Director 
 
May 2, 2011
Michael Thompson
       
 
 
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