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

FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _______ to _______

Commission File Number: 001-12974

SANTA FE GOLD CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 84-1094315
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1128 Pennsylvania NE, Suite 200, Albuquerque, NM 87110
(Address of principal executive offices)(Zip Code)

Registrant's telephone number including area code: (505) 255-4852

N/A
Former name, former address, and former fiscal year, if changed since last report

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Check one:

Larger accelerated filer [   ] Accelerated filer                   [X]
Non-accelerated filer    [   ] Smaller reporting company [   ]
(Do not check if a smaller reporting company)  

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [   ]    No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
109,000,030 shares outstanding as of May 7, 2012.


SANTA FE GOLD CORPORATION
INDEX TO FORM 10-Q

    Page
     
PART I
FINANCIAL INFORMATION
     
Item 1. Financial Statements 3
     
  Consolidated Balance Sheets as of March 31, 2012 (Unaudited) and June 30, 2011 3
     
Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended March 31, 2012 and 2011 (Unaudited) 4
     
Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2012 and 2011 (Unaudited) 5
     
  Notes to the Unaudited Consolidated Financial Statements 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
     
Item 4. Controls and Procedures 22
     
PART II
OTHER INFORMATION
     
Item 1. Legal Proceedings 23
     
Item 1A. Risk Factors 23
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
     
Item 3. Defaults Upon Senior Securities 23
     
Item 4. Submission of Matters to a Vote of Security Holders 23
     
Item 5. Other Information 23
     
Item 6. Exhibits 24
     
SIGNATURES 24
     
CERTIFICATIONS  

2


PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


SANTA FE GOLD CORPORATION
CONSOLIDATED BALANCE SHEETS

    March 31,     June 30,  
ASSETS   2012     2011  
    (Unaudited)        
CURRENT ASSETS:            
       Cash and cash equivalents $  597,871   $  172,531  
       Accounts receivable   2,649,654     2,230,605  
       Inventory   140,970     175,578  
       Marketable securities   190,642     97,260  
       Prepaid expenses and other current assets   1,356,022     279,064  
       Note receivable and accrued interest   209,533     -  
                           Total Current Assets   5,144,692     2,955,038  
             
MINERAL PROPERTIES   579,000     579,000  
             
PROPERTY, PLANT AND EQUIPMENT,
               net of depreciation of $4,994,932 and $3,090,516, respectively
  12,403,235     13,104,215  
             
OTHER ASSETS:            
       Construction in process   12,577,447     8,427,113  
       Idle equipment, net   1,223,528     1,223,528  
       Note receivable and accrued interest   -     203,422  
       Restricted cash   230,716     410,374  
       Deferred financing costs   479,307     314,700  
                           Total Other Assets   14,510,998     10,579,137  
                           Total Assets $  32,637,925   $  27,217,390  
             
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)    
CURRENT LIABILITIES:            
       Accounts payable $  1,200,052   $  1,090,907  
       Accrued liabilities   1,729,125     1,976,751  
       Derivative instrument liabilities   3,495,452     8,973,066  
       Current portion, notes payable, net of discount of $410,316 and $-0-, respectively   6,641,766     78,384  
       Current portion, capital leases   40,877     83,856  
       Senior subordinated convertible notes payable, net of discount of
             $9,252 and $-0-, respectively
  440,748     -  
       Deferred revenue   2,855,824     3,611,266  
       Accrued interest payable   10,063     255,109  
                           Total Current Liabilities   16,413,907     16,069,339  
             
LONG TERM LIABILITIES:            
       Notes payable, net discount of $50,479 and $-0-, respectively   3,006,335     58,957  
       Capital leases, net of current portion   14,162     45,057  
       Senior secured convertible notes payable, net of discount of
             $-0- and $2,498,065, respectively
  -     11,001,935  
       Senior subordinated convertible notes payable, net of discount of
             $-0- and $19,684, respectively
  -     430,316  
       Asset retirement obligation   155,363     149,236  
                           Total Liabilities   19,589,767     27,754,840  
             
STOCKHOLDERS' EQUITY (DEFICIT):            
       Common stock, $.002 par value, 300,000,000 shares authorized; 109,000,030 and
           94,744,412 shares issued and outstanding, respectively; Includes non-vested
           granted shares of 237,500 and 575,000, respectively
  217,525     188,341  
       Additional paid in capital   73,759,989     59,021,550  
       Accumulated (deficit)   (61,021,940 )   (59,746,543 )
       Accumulated other comprehensive income (loss)   92,584     (798 )
                           Total Stockholders' Equity (Deficit)   13,048,158     (537,450 )
                           Total Liabilities and Stockholders' Equity (Deficit) $  32,637,925   $  27,217,390  

The accompanying notes are an integral part of the unaudited consolidated financial statements.
3


SANTA FE GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)

    Three Months Ended     Nine Months Ended  
    March 31,     March 31,  
    2012     2011     2012     2011  
SALES $  3,675,293   $  2,894,007   $  8,144,512   $  4,144,269  
                         
OPERATING COSTS AND EXPENSES:                        
       Costs applicable to sales   1,623,592     1,604,449     4,276,570     2,303,871  
       Exploration, mine and mill start up costs   1,001,225     597,266     2,243,246     1,669,663  
       General and administrative   802,356     679,757     2,494,516     2,171,297  
       Depreciation and amortization   668,454     577,857     1,985,173     1,725,858  
       Accretion of asset retirement obligation   -     -     6,127     -  
                 Total Operating Costs and Expenses   4,095,627     3,459,329     11,005,632     7,870,689  
LOSS FROM OPERATIONS   (420,334 )   (565,322 )   (2,861,120 )   (3,726,420 )
                         
OTHER INCOME (EXPENSE):                        
       (Loss) on disposal of assets   -     -     (152,587 )   -  
       Interest income   2,662     2,750     7,747     9,188  
       Miscellaneous income   -     2,485     5,328     14  
       Gain (loss) on derivative instrument liabilities   1,301,722     4,425,628     4,099,846     (898,934 )
       Accretion of discounts on notes payable   (108,673 )   (322,782 )   (1,447,358 )   (931,939 )
       Interest expense   (239,300 )   (180,457 )   (927,253 )   (551,791 )
                   Total Other Income (Expense)   956,411     3,927,624     1,585,723     (2,373,462 )
                         
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES   536,077     3,362,302     (1,275,397 )   (6,099,882 )
                         
PROVISION FOR INCOME TAXES   -     -     -     -  
                         
NET INCOME (LOSS)   536,077     3,362,302     (1,275,397 )   (6,099,882 )
                         
OTHER COMPREHENSIVE INCOME (LOSS)                        
       Unrealized gain (loss) on marketable securities   14,401     (25,102 )   93,382     66,840  
                         
COMPREHENSIVE INCOME (LOSS) $  550,478   $  3,337,200   $  (1,182,015 ) $  (6,033,042 )
                         
Basic and Diluted Per Share data                        
       Net Earnings (Loss) - basic and diluted $  0.00   $  0.04   $  (0.01 ) $  (0.07 )
                         
Weighted Average Common Shares Outstanding:                        
       Basic and diluted   108,675,592     94,126,551     99,670,730     92,943,423  

The accompanying notes are an integral part of the unaudited consolidated financial statements.


SANTA FE GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

    Nine Months Ended  
    March 31,  
    2012     2011  
CASH FLOWS FROM OPERATING ACTIVITIES:            
     Net loss $  (1,275,397 ) $ (6,099,882 )
     Adjustments to reconcile net loss to net cash used in operating activities:        
               Depreciation   1,985,173     1,725,858  
               Stock-based compensation   635,199     864,965  
               Accretion of discount on notes payable   1,447,358     931,939  
               Accretion of asset retirement obligation   6,127     -  
               (Gain) loss on derivative instrument liabilities   (4,099,846 )   898,934  
               Loss on disposal of assets   152,587     -  
               Amortization of deferred financing costs   360,393     73,738  
     Net change in operating assets and liabilities:            
               Accounts receivable   (419,049 )   (2,783,632 )
               Inventory   34,608     -  
               Prepaid expenses and other current assets   (1,076,958 )   (109,951 )
               Accounts payable and accrued liabilities   (138,481 )   1,649,185  
               Deferred revenue   (755,442 )   (195,326 )
               Accrued interest payable   (245,046 )   209,104  
                               Net Cash Used in Operating Activities   (3,388,774 )   (2,835,068 )
             
CASH FLOWS FROM INVESTING ACTIVITIES:            
     Decrease to restricted cash   179,658     -  
     Proceeds from disposal of assets   25,000     -  
     Purchase of marketable securities   -     (98,058 )
     Notes receivable and accrued interest   (6,111 )   (201,400 )
     Purchase of property, plant and equipment   (1,461,780 )   (862,720 )
     Construction in progress   (4,150,334 )   (2,737,147 )
                               Net Cash Used in Investing Activities   (5,413,567 )   (3,899,325 )
             
CASH FLOWS FROM FINANCING ACTIVITIES:            
     Proceeds from issuance of stock   700,000     2,000,001  
     Proceeds from notes payable   15,105,120     77,306  
     Payments on notes payable   (5,133,565 )   (170,400 )
     Payments on capital leases   (73,874 )   (103,013 )
     Payment of private placement fees   -     (136,000 )
     Payment of financing costs   (1,370,000 )   -  
                               Net Cash Provided by Financing Activities   9,227,681     1,667,894  
             
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   425,340     (5,066,499 )
             
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   172,531     5,540,130  
             
CASH AND CASH EQUIVALENTS, END OF PERIOD $  597,871   $  473,631  
             
SUPPLEMENTAL CASH FLOW INFORMATION:            
     Cash paid for interest (Includes $153,965 capitalized interest) $  1,319,807   $  558,331  
     Cash paid for income taxes $  -   $  -  
             
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:        
     Stock issued for services $  48,000   $  16,550  
             
     Issuance of common stock for conversion of convertible notes payable $  13,432,424   $  -  

The accompanying notes are an integral part of the unaudited consolidated financial statements.
5


SANTA FE GOLD CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

            Santa Fe Gold Corporation (the Company) is a U.S. mining company incorporated in Delaware in August 1991. Its general business strategy is to acquire, explore and develop mineral properties. The Company’s principal assets are the 100% owned Summit silver-gold project in New Mexico, the leased Ortiz gold property in New Mexico, and the 100% owned Black Canyon mica project in Arizona.

            The unaudited interim consolidated financial statements of the Company included herein have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions for Form 10-Q under Article 8.03 of Regulation S-X. These statements do not include all of the information and notes to the financial statements required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine month period ended March 31, 2012, are not necessarily indicative of the results that may be expected for our fiscal year ending June 30, 2012. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2011, included in the Company’s Annual Report on Form 10-K, as filed with Securities and Exchange Commission.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Going Concern

            The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.

            The Company had a net loss of $1,275,397 for the nine months ended March 31, 2012, has a working capital deficit of $11,269,215, which includes a non-cash financial derivative liability of $3,495,452 and deferred revenue of $2,855,824, and has a total accumulated deficit of $61,021,940 at March 31, 2012. The Company generated revenues of $8,144,512 from the sales of precious metals in the nine months ended March 31, 2012. To continue as a going concern, the Company is dependent upon an increased ramp up to full production on the Company’s Summit mine site; increased throughput recovery of precious metals through the Banner mill; and continued fund raising for project development and working capital for operational and administrative expenses. Effective April 1, 2012, will be the beginning of commercial production at the Summit mine. The Company expects to ramp up to full production levels during the remainder of 2012 and anticipates increases in both tonnage and ore grades.

            The Company’s consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

Principles of Consolidation

            The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Azco Mica, Inc., a Delaware corporation; The Lordsburg Mining Company, a New Mexico corporation; Minera Sandia, S.A. de C.V., a Mexican corporation and Santa Fe Gold Barbados Corporation, a Barbados corporation. All significant inter-company accounts and transactions have been eliminated in consolidation.

6


Estimates

            The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates under different assumptions or conditions.

            Significant estimates are used when accounting for the Company’s carrying value of mineral properties, fixed assets, depreciation, accruals, derivative instrument liabilities, taxes and contingencies, which are discussed in the respective notes to the consolidated financial statements.

Marketable Securities

            Marketable securities are classified as available for sale and classified as current assets as they are subject to use within one year. The marketable securities are carried at fair value with unrealized gains and losses, if any, included as a component of accumulated other comprehensive income (loss) in stockholders’ equity (deficit).

Inventory

            Inventory is carried at the lower of cost or net realizable value. Inventory classifications include stockpiled ore, in-process inventory, siliceous flux material and precious metals concentrate. Currently the stockpiled ore represents ore that is extracted from the mine and is waiting for processing. The ore currently is valued solely at the cost of transportation to the mill site as the Summit mine is still in process of ramping up to full production from the development stage. In-process inventory represents material that is currently being processed through the Banner mill. The in-process inventory is currently valued at stockpile ore costs plus applicable costs to crush the ore into mill feed. The siliceous flux material inventory and the precious metals concentrates awaiting shipment are valued at stockpile ore costs, plus allocated mill processing costs per ton based upon the processing requirements of the final product.

Fair Value Measurements

            The carrying values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximated their related fair values as of March 31, 2012, due to the relatively short-term nature of these instruments. The carrying value of the Company’s convertible debentures approximates the fair value based on the terms at which the Company could obtain similar financing and the short term nature of these instruments.

Derivative Financial Instruments

             The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

            The Company reviews the terms of convertible debt, equity instruments and other financing arrangements to determine whether there are embedded derivative instruments, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Also, in connection with the issuance of financing instruments, the Company may issue freestanding options or warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity. The Company may also issue options or warrants to non-employees in connection with consulting or other services.

            Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For warrant-based derivative financial instruments, the Company uses the Black-Scholes option pricing model to value the derivative instruments. To the extent that the initial fair values of the freestanding and/or bifurcated derivative instrument liabilities exceed the total proceeds received, an immediate charge to income is recognized, in order to initially record the derivative instrument liabilities at their fair value.

7


            The discount from the face value of debt or equity instruments resulting from allocating some or all of the proceeds to the derivative instruments, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to income, usually using the effective interest method.

            The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.

Reclamation Costs

           The Company follows ASC 410, Asset Retirement and Environmental Obligations, which requires that an asset retirement obligation (“ARO”) associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which it is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated asset. The cost of the tangible asset, including the initially recognized ARO, is depleted, such that the cost of the ARO is recognized over the useful life of the asset. The ARO is recorded at fair value, and accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value. The fair value of the ARO is measured using expected future cash flow, discounted at the Company’s credit-adjusted risk-free interest rate. At June 30, 2011, the Company has made a provision for an asset retirement obligation for the Summit mine and Banner mill sites aggregating $149,236. The projected required asset retirement obligation at settlement value is $230,716 and the accretion of the discounted liability will be recognized quarterly through December 2016.

            The Company’s asset retirement obligation through March 31, 2012, is as follows:

Balance at June 30, 2011 $  149,236  
Accretion expense for the nine months ended March 31, 2012   6,127  
Balance at March 31, 2012 $  155,363  

Deferred Revenue

            Deferred revenue represents a cash advance made under a definitive gold sale agreement to sell a portion of the life-of-mine gold production only, not silver production, from our Summit silver-gold mine. Under the terms of the agreement, the Company received an upfront cash deposit of $4 million, plus it will receive ongoing production payments equal to the lesser of $400 per ounce or the prevailing market price, for each ounce of gold delivered pursuant to the agreement for the life of the mine. The upfront cash advance will be amortized by the difference between the market price and $400 per ounce for those gold deliveries where the prevailing market price exceeds $400 per ounce. The Company will also recognize the on-going production payments as revenue for gold delivered pursuant to the agreement. Deferred revenue on the Company’s balance sheet is categorized as current if the Company expects to recognize such revenue within the following twelve months. Current deferred revenue amounted to $2,855,824 at March 31, 2012.

Revenue Recognition

            Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred either physically or through an irrevocable transfer of metals to the buyer’s account, the price is fixed or determinable, no related obligations remain and collectability is probable.

            Sales of all metals products sold directly to the Company’s metals buyers, including by-product metals, are recorded as revenues upon a buyer either taking physical delivery of the metals product in the case of siliceous flux material or upon the buyer receiving all required documentation necessary to take physical delivery of the metals product in the case of concentrate (generally at the time the product is loaded onto a shipping vessel at the originating port and the bill of lading is generated).

             Revenues for metals products are recorded at current market prices at the time of delivery and are subsequently adjusted to the current market prices existing at the end of each reporting period. Due to the period of time existing between delivery and final settlement with the buyer, the Company must estimate the prices at which sales of its metals will be settled. Changes in metals prices between delivery and final settlement will result in adjustments to revenues previously recorded.

8


            Sales of metals products are recorded net of charges from the buyer for treatment, refining, smelting losses, and other negotiated charges. Charges are estimated upon shipment of product based on contractual terms, and actual charges do not vary materially from estimates. Costs charged by smelters include a metals payable fee, fixed treatment and refining costs per ton of product.

            Sales of refined gold related to the definitive gold sale agreement dated September 11, 2009 are recorded as revenues when the buyer takes delivery. The recorded revenues are final at that time. Due to the nature of the definitive gold sale agreement an obligation exists for the delivery of refined gold concurrent with the delivery of other metals products. Consequently the associated costs to purchase refined gold are also recorded at the same time as the delivery of other metals products. The costs to purchase refined gold are recorded using the current market price upon delivery of the refined gold or upon accrual of the obligation if undelivered. If necessary the accrual for any unsettled deliveries of refined gold and the related costs to purchase such are adjusted to the current market price existing at the end of each reporting period until final delivery and adjustment occurs.

Net Earnings (Loss) per Common Share

            The Company calculates net income (loss) per share as required by Accounting Standards Codification subtopic 260-10, Earnings per Share (“ASC 260-10”). Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During the periods when they are anti-dilutive, common stock equivalents, if any, are not considered in the computation. Consequently the impact of outstanding stock equivalents has not been included in the current period as they would be anti-dilutive.

Comprehensive Income (Loss)

            In addition to net income (loss), comprehensive income (loss) includes all changes in equity during a period, such as cumulative unrealized changes in the fair value of marketable securities available for sale or other investments.

Stock-Based Compensation

             In connection with terms of employment with the Company’s executives and employees, the Company issues options to acquire its common stock. Employee and non-employee awards are made at the discretion of the Board of Directors. Such options may be exercisable at varying exercise prices and generally vest over a period of six months to a year.

            The Company accounts for share based payments in accordance with ASC 718, Compensation - Stock Compensation, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on the grant date fair value of the award. In accordance with ASC 718-10-30-9, Measurement Objective – Fair Value at Grant Date, the Company estimates the fair value of the award using the Black-Scholes option pricing model for valuation of the share-based payments. The Company believes this model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility and interest rates, and to allow for actual exercise behavior of option holders. The simplified method is used to determine compensation expense since historical option exercise experience is limited relative to the number of options issued. The compensation cost is recognized ratably using the straight-line method over the expected vesting period.

             Stock-based compensation costs recognized for the nine months ended March 31, 2012 and 2011 amounted to $635,199 and $864,965, respectively.

Reclassifications

            Certain items in these consolidated financial statements have been reclassified to conform to the current year’s presentation.

9


Recent Accounting Pronouncements

            In May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”). ASU 2011-04 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively. The Company anticipates that the adoption of this standard will not materially expand its consolidated financial statement note disclosures.

             In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”), which amends current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity (deficit). Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. ASU 2011-05 will be effective for public companies during the interim and annual periods beginning after December 15, 2011, with early adoption permitted. The Company’s adopted ASU 2011-05 did not have an impact on the Company’s consolidated financial position, results of operations or cash flows.

            In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (“ASU 2011-12”). ASU 2011-12 defers changes in Update 2011-05 that relate to the presentation of reclassification adjustments. ASU 2011-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-12 to have a material impact on its results of operations, financial condition, or cash flows.

            Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC during the current reporting period did not, or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

NOTE 3 – CONTEMPLATED ACQUISITION

             The Company entered into a non-binding Memorandum of Understanding (“MOU”) on September 24, 2010 with Columbus Silver Corporation (TSXV: CSC) (“Columbus Silver”), pursuant to which the Company agreed to acquire all the outstanding shares of common stock of Columbus Silver in exchange for the Company’s common stock. In accordance with the Memorandum of Understanding, the Company purchased 1,000,000 shares of Columbus Silver common stock on October 28, 2010 in a private placement valued at $98,058. Proceeds of the issuance were used by Columbus Silver as bridge financing for operational expenses through December 31, 2010. Additionally on January 27, 2011, the Company advanced $200,000 to Columbus Silver in exchange for a promissory note bearing interest at 4% per annum. All accrued interest and principal is due and payable on December 31, 2012. The loan was extended for the purpose of providing Columbus Silver with working capital in connection with the MOU.

            On September 6, 2011, the Company entered into a new Memorandum of Understanding with Columbus Silver Corporation (TSXV: CSC) (“Columbus Silver”) pursuant to which the Company conditionally agreed to acquire all of Columbus Silver’s outstanding common stock for a cash amount of Cdn $0.20 per outstanding share in a transaction valued at $10 million. Until closing of the transaction, the Company agreed to provide advances for bridge financing to Columbus Silver to fund leasehold payments and for working capital, which through the end of March 2012 totaled $827,716.

            On December 15, 2011, the Company entered into definitive agreements governing the proposed acquisition of Columbus Silver in a transaction valued at approximately $10 million. The definitive agreement contemplates a business combination by way of a Plan of Arrangement, which is subject to Canadian court approval. Canadian regulatory approvals have been obtained, and the termination date within the definitive agreement to complete the proposed acquisition is May 31, 2012, unless mutually extended by both parties. On March 22, 2012, Columbus Silver reported that their shareholders approved the motion for the sale of Columbus Silver by a significant margin. In addition, the proposed transactions are subject to the Company arranging the necessary financing and to the final approval of the boards of directors of the Company and Columbus Silver. The Senior Secured Gold Stream Credit Agreement entered into on December 23, 2011 provides for a conditional $10 million facility earmarked for the acquisition of Columbus Silver and satisfies the financing requirement under the definitive agreement. The provisions of the Senior Secured Gold Stream Agreement require the Company to secure additional financing in order to drawdown on the $10 million facility. In the event the transaction is unable to consummate due to failure to arrange the additional financing, the advances of $827,716 and note receivable of $209,533, including accrued interest, may not be refundable to the Company.

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NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

            The following table provides the components of prepaid expenses and other current assets as of:

    March 31,     June 30,  
    2012     2011  
Supplies $  64,783   $  69,643  
Prepaid expenses   256,435     209,421  
Advances to Columbus Silver   827,716     -  
Columbus Silver acquisition costs   207,088     -  
  $  1,356,022   $  279,064  

NOTE 5 – INVENTORY

            The following table provides the components of inventory as of:

    March 31,     June 30,  
    2012     2011  
Stockpiled ore $  0   $  23,296  
In-process material   0     24,281  
Siliceous flux material   2,794     46,135  
Precious metals concentrate   138,176     81,866  
  $  140,970   $  175,578  

NOTE 6 – NOTE RECEIVABLE

            On January 27, 2011, the Company advanced $200,000 to Columbus Silver Corporation (“Columbus Silver”) (TSXV: CSC) in exchange for a promissory note bearing interest at 4% per annum. All accrued interest and principal is due and payable on December 31, 2012. The loan was extended for the purpose of providing Columbus Silver with working capital in connection with a non-binding Memorandum of Understanding (“MOU”) dated September 23, 2010, in contemplation of a business combination (the “Transaction”). Under certain circumstances listed in the definitive agreement dated December 15, 2011 in which the transaction is unable to consummate, the note receivable of $209,533, including accrued interest, may not be refundable to the Company. As of March 31, 2012, accrued interest receivable on the note receivable was $9,533.

NOTE 7- DERIVATIVE INSTRUMENT LIABILITIES

            On December 30, 2010, in connection with the registered direct offering to three institutional investors for 1,666,668 shares of the Company’s common stock, the Company issued 833,334 five year warrants giving the holders the right to purchase common stock at $1.50 per share. The warrants are exercisable immediately after issuance and will expire five years from the date of issuance. Using the Black-Scholes option pricing model, the fair market value of the warrants under the placement at the time of issuance was determined to be $669,372 with the following assumptions: risk-free rate of interest of 2.01%, expected life of 5.0 years, expected stock price volatility of 79.51%, and expected dividend yield of zero. The private placement was subject to the issuance of 100,000 warrants to the placement agent, exercisable at $1.50 per share and has an exercise period of approximately 3.92 years. The warrants are exercisable immediately after issuance. Using the Black-Scholes option pricing model, the fair market value of the placement agent warrants under the placement at the time of issuance was determined to be $62,614 with the following assumptions: risk-free rate of interest of 1.47%, expected life of 3.92 years, expected stock price volatility of 68.65%, and expected dividend yield of zero.

11


            On August 2, 2011, the Company secured a $5 million senior secured loan with Victory Park Capital Advisors, LLC (“Victory Park”), see NOTE 10. In connection with the loan, the Company issued warrants to purchase 500,000 shares of its common stock. The warrants have an exercise price of $1.00 per share, are exercisable immediately after issuance and will expire five years from the date of issuance. Using the Black-Scholes option pricing model, the fair market value of the warrants at the time of issuance was determined to be $339,247 with the following assumptions: risk-free rate of interest of 1.23%, expected life of 5.0 years, expected stock price volatility of 86.79%, and expected dividend yield of zero.

            The fair market value of the derivative instruments liabilities at March 31, 2012, was determined to be $3,495,452 with the following assumptions: risk free interest rate of 0.16% to 0.87%, remaining contractual life of 0.58 to 4.34 years, expected stock price volatility of 53.93% to 71.25%, and expected dividend yield of zero. Based upon the change in fair value, the Company has recorded a non-cash gain on derivative instruments for the nine months ended March 31, 2012, of $4,099,846 and a corresponding decrease in the derivative instruments liability.

    Derivative     Derivative     Derivative Gain  
    Liability as of     Liability as of     (Loss) Through  
    June 30, 2011     March 31, 2012     March 31, 2012  
Convertible Debentures:                  
   Purchase Agreement Warrants $ 5,712,913   $ 3,495,452   $  2,217,461  
   Amendment 2 Warrants   332,387     -     332,387  
   Embedded Conversion Option   2,927,766     -     2,927,766  
                                                 Totals $ 8,973,066   $ 3,495,452     5,477,614  
                   
Portion of derivative applied to Additional Paid-In Capital     (1,717,015 )
  Amount allocated to warrants at inception     339,247  
              $ 4,099,846  

            The derivative liability is comprised of the following as of:

    March 31,     June 30,  
    2011     2011  
Current portion of derivative instruments liability $ 3,495,452   $ 8,973,066  
Long-term portion of derivative instruments liability   --     --  
  $ 3,495,452   $ 8,973,066  

NOTE 8 – CONVERTIBLE NOTES PAYABLE AND DEBENTURES

Convertible Senior Subordinated Notes

            On October 30, 2007, the Company completed the placement of 10% Senior Subordinated Convertible Notes of $450,000. The notes were placed with three accredited investors for $150,000 each. The notes have a term of 60 months, and at such time all remaining principal and interest shall be due. The notes bear interest at 10% per annum. Interest will accrue for 18 months from the date of closing. Interest on the outstanding principal balance will then be payable in quarterly installments commencing on the first day of the 19th month following closing. In connection with the transaction, the Company issued a five year warrant for each $2.50 invested, for a total of 180,000 warrants, each warrant giving the note holder the right to purchase one share of common stock at a price of $1.25 per share. At the option of the holders of the convertible notes, the outstanding principal and interest is convertible at any time into shares of the Company’s common stock at conversion price of $1.25 per share. The notes will be automatically be converted into common stock if the weighted average closing sales price of the stock exceeds $2.50 per share for ten consecutive trading days. The shares underlying the notes and warrants will be registered on request of the note holders, provided the weighted average closing price of the stock exceeds $1.50 per share for ten consecutive trading days.

            At March 31, 2012, accrued interest due on the Senior Subordinated Convertible Notes was $6,292.

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Senior Secured Convertible Subordinated Debentures

            On December 21, 2007, the Company entered into definitive agreements for the placement with a single investor, Sulane Holdings, Inc., of a 7% Senior Secured Convertible Debenture in the amount of $13,500,000. Proceeds from the debenture were issued in accordance with a pre-determined funding schedule related to the Summit project’s anticipated construction requirements. The term of the debenture is 60 months, at the end of which time all remaining principal and interest shall be due. The debenture bears interest at the rate of 7% per annum. Interest on the outstanding principal balance is payable in quarterly installments, commencing on July 1, 2009. Interest may be paid in cash or stock at the investor’s election. The entire amount of principal and any unpaid interest will be due December 31, 2012. The investor may at any time convert unpaid principal and interest into shares of the Company’s common stock at the rate of $1.00 per share. In connection with the transaction, for every $2.00 of the original principal amount of the debenture, the investor will receive a warrant to purchase one share of common stock at a price of $1.00. The warrants are exercisable from July 1, 2010 to December 31, 2014. The Company received total advances under the agreement of $13,500,000, and the Company issued an aggregate of 6,750,000 warrants under the debenture advances. In early January 2012 all accrued interest due on the Senior Secured Convertible Subordinated Debentures was paid in full.

            On December 23, 2011, the Company issued 13,500,000 shares of its common stock in connection with the conversion of $13.5 million principal amount of its Senior Secured Convertible Debentures held by Sulane Holdings Inc., at a conversion price of $1.00 per share. The Company did not receive any cash proceeds in connection with the debt conversion.

            The components of the convertible notes payable and debentures are as follows:

March 31, 2012   Principal     Unamortized        
    Amount     Discount     Net  
Current portion $ 450,000   $  (9,252 ) $  440,748  
Long-term portion, net of current   -     -     -  
  $ 450,000   $  (9,252 ) $  440,748  

June 30, 2011   Principal     Unamortized        
    Amount     Discount     Net  
Current portion $  -   $  -   $  -  
Long-term portion, net of current   13,950,000     (2,517,749 )   11,432,251  
  $ 13,950,000   $ (2,517,749 ) $ 11,432,251  

            Aggregate yearly maturities of long term debt based upon payment terms at March 31, 2012, are as follows:

2012 $  450,000  
Less: unamortized original discount   (9,252 )
  $  440,748  

NOTE 9 – SENIOR SECURED GOLD STREAM CREDIT AGREEMENT

            On December 23, 2011, the Company and its subsidiaries entered into a Senior Secured Gold Stream Credit Agreement (the “Credit Agreement”) with Waterton Global Value, L.P. (“Waterton”). The Credit Agreement provides for two $10 million tranches and a $5 million revolving working capital facility. On December 23, 2011, the Company closed the first $10 million tranche of the Credit Agreement. The second $10 million tranche, which is subject to several funding conditions, is earmarked to fund the strategic acquisition of Columbus Silver.

            Proceeds from the initial $10 million tranche of the Credit Agreement were used to retire the Company’s $5 million, 15% Senior Secured Bridge loan with Victory Park Capital Advisors, LLC, in addition to the payment of transaction fees and expenses. The Company is utilizing the remaining net proceeds for general corporate purposes, including but not limited to, working capital for the Summit silver-gold project.

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            The Credit Agreement provides for a 9% coupon and amortizes over a 30-month term (assuming both tranches are drawn) with an initial 6-month grace period during which the Company is not required to make any payments. As part of the transaction, the Company has agreed pursuant to a gold and silver sale agreement (the “Gold and Silver Supply Agreement”) to sell the gold and silver originating from the Summit property to Waterton, see NOTE 13.

            Pursuant to a series of guarantees, security agreements, deeds of trust, a mortgage and a stock pledge agreement, the senior obligations are secured by a first priority lien on the stock of the Company’s subsidiaries and on liens covering substantially all of the Company’s assets, with the exception of the Ortiz gold project, including the Summit silver-gold project, the Black Canyon mica project and the Planet micaceous iron oxide project. Existing creditor, Sandstorm Gold (Barbados) Ltd., executed an intercreditor agreement that provides for subordination of its security interests in favor of Waterton.

            The Credit Agreement calls for a fee of 1.5% of the gross amount borrowed to each of Global Hunter Securities and Source Capital Group, Inc. who are registered broker dealers and members of FINRA and SIPC. The fees are to be paid half upon closing of the first tranche of $10,000,000 and half upon closing of the second tranche of $10,000,000. No fees are payable in connection with the revolving credit facility of $5,000,000. Fees aggregating $300,000 were paid in relation to the closing of the first tranche for the quarter ended December 31, 2011. The outstanding amounts owed for the Senior Secured Gold Stream Credit Agreement, including discounts, are aggregated with Notes Payable for financial statement presentation; see NOTE 10.

NOTE 10 – NOTES PAYABLE

            On June 5, 2008, the Company agreed to exercise the option to purchase the Planet MIO property, consisting of thirty-one patented mining claims totaling 523 acres in La Paz County, Arizona. The Company originally leased the property in 2000 from New Planet Copper Mining Company under the terms of a Lease with Option to Purchase. The Company agreed to exercise the purchase option in connection with settlement of an action the Company commenced in March 2007 seeking to confirm that the lease remained in good standing. The purchase price was $250,000. The Company signed a promissory note for $200,000 with interest payable at 10% per annum from the date of closing of the transaction. The original provisions of the note called for a $50,000 payment at the signing of the note, which occurred in August 2008, and four subsequent principal payments of $50,000 plus interest due each anniversary date of the agreement. In August 2009, the amortization schedule of the note was amended to reflect four equal annual payments of principal and interest of $63,094. The due date for the first annual payment was extended with the interest rate increased to 20% per annum during the extension period. The Company also agreed to pay an additional $2,000 in legal and miscellaneous fees to document the amendment. All other provisions of the original agreement remain unchanged including the provision for a 5% royalty to be paid on any future production from the property.

            On July 25, 2008, the Company entered into an installment sales contract for $94,613 to purchase certain equipment. The term of the agreement is for 36 months at an interest rate of 6.75%, with the equipment securing the loan.

            On September 30, 2009, the Company entered into an installment sales contract for $16,825 to purchase certain equipment. The term of the agreement is for 36 months at an interest rate of 9.25%, with the equipment securing the loan.

            On September 27, 2010, the Company entered into an agreement to finance insurance premiums in the amount of $77,306 at an interest rate of 6.99% with equal payments due monthly beginning November 1, 2010 and continuing until September 1, 2011.

           On August 2, 2011, the Company entered into a financing agreement for a $5 million senior secured loan for working capital. The loan bears interest at 15% per annum payable in monthly installments in arrears. The loan becomes due in six months from the anniversary date of the loan and the loan may be repaid at any time without penalty. The senior obligations are secured by a first priority lien on the stock of the Company’s subsidiaries and first priority liens covering substantially all of the assets of the Company, including the Summit silver-gold project, the Black Canyon mica project and the Planet micaceous iron oxide project. In connection with the loan, the Company issued warrants to purchase 500,000 shares of its common stock. The warrants have an exercise price of $1.00 per share and a term of five years. The financing agreement was retired with proceeds from the December 23, 2011 Credit Agreement entered into by the Company; see NOTE 9.

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            On September 30, 2011, the Company entered into an agreement to finance insurance premiums in the amount of $105,121 at an interest rate of 4.99% with equal payments due monthly beginning November 1, 2011 and continuing until September 1, 2012.

            The following summarizes notes payable, including the Senior Secured Gold Stream Credit Agreement, at March 31, 2012 and June 30, 2011:

    March 31, 2012     June 30, 2011  
    (Unaudited)        
Note payable for mineral property, 
                     interest at 10%, payable in 4 annual installments of $
                     63,094, including interest through August 2012
$  57,359   $  109,502  
             
Installment sales contract on equipment, 
                     interest at 6.75%, payable in 36 monthly installments of $2,911, 
                     including interest through September 2011
  --     5,777  
             
Installment sales contract on equipment, 
                     interest at 9.25%, payable in 36 monthly installments of $537, 
                     including interest through October 2012
  3,159     7,635  
             
Financing contract on insurance premiums 
                     interest at 6.99%, payable in 11 monthly installments of 
                     $7,276, including interest through September 2011
  --     14,427  
             
Financing contract on insurance premiums 
                     interest at 4.99%, payable in 11 monthly installments of 
                     $9,797, including interest through September 2012
  48,378     --  
             
Senior Secured Gold Stream Credit Agreement, interest at 9% per annum, 
                     payable monthly in arrears, principal payments deferred to 
                     July 2012; principal installments are $425,000 for July and 
                     August 2012, $870,455 monthly for September 2012 through 
                     June 2013 and $445,450 in July 2013, net of discount of $460,795
  9,539,205     --  
             
Total Outstanding Notes Payable   9,648,101     137,341  
Less: Current maturities   (6,641,766 )   (78,384 )
Obligations of notes payable due after one year $ 3,006,335   $  58,957  

            The aggregate maturities for notes payable, including the Senior Secured Gold Stream Credit Agreement, as of March 31, 2012, is as follows:

Fiscal year ending June 30,      
                                                                         2012 $  30,468  
                                                                         2013   9,632,978  
                                                                         2014   445,450  
                                                                         Less: unamortized discount   (460.795 )
             Total Outstanding Notes Payable $ 9,648,101  

NOTE 11 – CAPITAL LEASES

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            The Company utilizes capital leases for the purchase of equipment. Lease terms and interest rates for the equipment are 60 months at 6.25%, 36 months at 5.34%, and 36 months at 5.78% . The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. The assets are amortized or depreciated over the lower of their related lease terms or their estimated productive lives.

            Minimum future lease payments under capital leases, as of March 31, 2012, for each of the following years and in aggregate, are as follows:

Fiscal year ended June 30,      
                                   2012 $  10,748  
                                   2013   43,041  
                                   2014   3,587  
Total minimum lease payments   57.376  
Amount representing interest   (2,337 )
Present value of future minimum lease payments   55,039  
Current portion of capital lease obligations   (40,877 )
Obligations of capital leases due after one year $  14,162  

NOTE 12 – FAIR VALUE MEASUREMENTS

             U.S. accounting standards require disclosure of a fair-value hierarchy of inputs the Company uses to value an asset or a liability. In September 2006, the FASB issued new accounting guidance, which establishes a framework for measuring fair value under generally accepted accounting principles (“GAAP”) and expands disclosures about fair value measurements. The Company previously partially adopted this guidance for all instruments recorded at fair value on a recurring basis. In the second quarter of fiscal 2010, the Company adopted the remaining provisions of the guidance for all non-financial assets and liabilities that are not re-measured at fair value on a recurring basis. The adoption of these provisions did not have an impact on the Company’s consolidated financial statements.

             Fair value standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, the standards establish a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires that the Company maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of the fair-value hierarchy are described as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities. For the Company, Level 1 inputs include quoted prices on the Company’s securities that are actively traded.

Level 2: Inputs other than Level 1 which are observable, either directly or indirectly. For the Company, Level 2 inputs include assumptions such as estimated life; risk free rate and volatility estimates used in determining the fair values of the Company’s option and warrant securities issued derivative financial instruments.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flows methodologies and similar techniques that use significant unobservable inputs.

            The Company’s financial instruments consist of marketable securities and derivative instruments which are measured at fair value on a recurring basis. Marketable securities are comprised of 1,000,000 shares of common stock of Columbus Silver Corporation which is traded on the TSX Venture Exchange (TSXV: CSC). The stock was purchased in accordance with a Memorandum of Understanding entered into on September 24, 2010 for the purpose of consummating a business combination. The Company’s derivative instruments consist of certain embedded features contained within its debt instruments and certain warrant contracts. The Company’s derivatives are measured on their respective origination dates, at the end of each reporting period and at other points in time when necessary, such as modifications, using Level 3 inputs in accordance with GAAP. The Company does not report any financial assets or liabilities that it measures using Level 2 inputs. The fair value measurement of financial instruments and other assets as of March 31, 2012 are as follows:

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                      March 31,  
    Level 1     Level 2            Level 3     2012  
Marketable securities $  190,642     ---     ---   $  190,642  
                         
Other Assets:                        
         Idle equipment, net   ---     ---   $  1,223,528     1,223,528  
                         
Value of derivative instruments liability   ---     ---     3,495,452     3,495,452  

            Idle equipment includes equipment associated with the mica project, for which the Company has ceased operations, and are classified as Level 3. The fair value of the idle equipment was determined based upon an independent third party appraisal. The appraised value was established based upon comparable sales of similar assets and certain assumptions regarding market demand for these assets. As this valuation was based upon unobservable inputs, we classified the idle equipment as Level 3. There was no change in the carrying valuation of the idle equipment during the nine months ended March 31, 2012.

NOTE 13 – COMMITMENTS

            On September 11, 2009, the Company entered into a definitive gold sale agreement with Sandstorm Gold Ltd. (TSX-V: SSL) (“Sandstorm”) to sell a portion of the life-of-mine gold production (but not silver production) from our Summit silver-gold mine. Under the agreement we received an upfront cash deposit of $4.0 million, plus we will receive ongoing production payments equal to the lesser of $400 per ounce or the prevailing market price, for each ounce of gold delivered pursuant to the agreement for the life of the mine. Gold production subject to the agreement includes 50% of the first 10,000 ounces of gold produced, and 22% of the gold thereafter. The amount of payable gold can be reduced from 22% to 15% provided that within 36 months the Summit mine reaches certain performance levels in any consecutive 12 month period, in compliance with prefeasibility estimates, including 1) the rate of ore mined and processed must average 400 tons per day or more, and 2) payable gold production must exceed 11,500 ounces during such consecutive 12 month period. Sandstorm made an initial payment of $500,000 and on October 7, 2009 paid the remaining $3,500,000 balance of the upfront cash deposit. The Company will receive credit against the $4,000,000 upfront cash deposit for the difference between the market price and $400 per ounce for those gold deliveries where the prevailing market price exceeds $400 per ounce. These credits will be recognized as revenue in addition to the ongoing production payments received for gold delivered pursuant to the agreement. In certain circumstances, including failure to meet minimum production rates, interruption in production due to permitting issues and customary events of default, the agreement may be terminated. In such event, the Company may be required to return to Sandstorm the upfront cash deposit of $4.0 million less a credit for gold delivered up to the date of that event, which is determined using the difference between the market price and $400 per ounce for gold deliveries where the prevailing market price exceeded $400 per ounce.

            On March 29, 2011, the Company entered into Amendment 1 for the definitive gold sale agreement dated September 11, 2009. The amendment extended the original completion guarantee date from April 2011 to June 30, 2012. In exchange for the amended completion guarantee date, the Company agreed to deliver an additional 700 ounces of gold at equivalent sales terms over and above what is currently due under the agreement. Under the terms of the amendment the delivery of the additional gold was to be made prior to June 30, 2011.

            On June 28, 2011, the Company entered into Amendment 2 for the definitive gold sale agreement. The amendment extended the delivery date for the additional 700 ounces of gold agreed upon in Amendment 1 from June 30, 2011 until October 15, 2011. In exchange for the deferred delivery date the Company agreed to pay a per diem of 3 ounces of gold for each day the additional 700 ounces of gold under Amendment 1 remain outstanding past June 30, 2011 until the actual date of delivery, in no event later than October 15, 2011. Based upon the sale terms of the agreement, the Company recorded an accrued liability of $773,850 for 700 ounces of gold based upon the closing gold price on June 30, 2011. On August 9, 2011 the Company satisfied the requirements of Amendment 2 and delivered 817 ounces of gold. The net cost of delivering the gold after receiving payment from Sandstorm of $400 per ounce delivered was $1,075,785. In order to recognize the final cost of delivering the gold, the accrued liability of $773,850 at June 30, 2011 was adjusted by an additional $301,935 and recognized during the quarter ended September 30, 2011 as a non-recurring component of costs applicable to sales.

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            On December 23, 2011, the Company and its subsidiaries entered into a Senior Secured Gold Stream Credit Agreement (the “Credit Agreement”) with Waterton Global Value, L.P. (“Waterton”). The Credit Agreement provides for two $10 million tranches and a $5 million revolving working capital facility. On December 23, 2011, the Company closed the first $10 million tranche of the Credit Agreement. The second $10 million tranche, which is subject to several funding conditions, is earmarked to fund the strategic acquisition of Columbus Silver. As part of the transaction, the Company has agreed pursuant to a gold and silver sale agreement (the “Gold and Silver Supply Agreement”) to sell refined gold and silver to Waterton for the life the Summit mine. Gold and silver subject to the agreement includes all gold and silver originating from the Summit property that is not otherwise committed to delivery to and purchased by Sandstorm Gold, Ltd, pursuant to the September 9, 2011 definitive gold sale agreement. The sales price for refined gold and silver is based upon a formulation which considers the London Bullion Market Association (“LBMA”) PM fix settlement price for each respective metal, less a discount of three percent for each metal, and a transaction cost of $1.75 per ounce for gold and $0.07 per ounce for silver. The discount on gold and silver is only applicable until and ceases after the later of either, three years after all outstanding amounts due under the Senior Secured Gold Stream Credit Agreement have been repaid, or the date on which the Company has sold 125,000 gold equivalent ounces under the Gold and Silver Supply Agreement.

            On February 16, 2012, the Company agreed to purchase equipment valued at $790,225 for use in underground mining operations. The Company made an initial down payment of $237,068 with the placement of the order, and the balance is due prior to final delivery of the equipment which is expected to be in late May 2012. In the event the Company does not pay the balance due when required, the down payment may be non-refundable.

NOTE 14 – LEGAL MATTERS

            On August 31, 2011, the Company filed a Complaint in the United States District Court for the District of New Mexico against Ortiz Mines, Inc. (“OMI”) in connection with OMI’s purported termination of the Company’s exclusive leasehold rights to explore, develop and mine gold, silver, copper and other minerals on the Ortiz Mine Grant in Santa Fe County, New Mexico and OMI’s demand for significant additional consideration to allow the lease to continue. The Complaint alleges several causes of action, including breach of contract and breach of the covenant of good faith and fair dealing. The Complaint seeks both declaratory and injunctive relief. The Company believes OMI’s purported termination of the Lease was wrongful and intends to vigorously prosecute legal claims to enforce its rights under the Lease and recover all applicable damages. On September 2, 2011, in relation to the Complaint, the Company filed a Current Report on Form 8-K.

NOTE 15- STOCKHOLDERS’ EQUITY (DEFICIT)

Issuances of Common Stock

            On February 23, 2012, an individual exercised an option to purchase 20,000 shares of common stock at average price of $0.94 per share on a cashless basis. Under the cashless basis exercise, 2,020 shares were issued.

            On January 30, 2012, an individual exercised an option to purchase 20,000 shares of common stock at average price of $0.94 per share on a cashless basis. Under the cashless basis exercise, 3,598 shares were issued.

            On January 12, 2012, the Company issued 700,000 shares of the Company’s stock pursuant to Regulation S of the Securities Act of 1933 at $1.00 per share for total net proceeds of $700,000.

            On December 23, 2011, 13,500,000 shares of common stock were issued in connection with the conversion of $13.5 million principal amount of its Senior Secured Convertible Debentures, at a conversion price of $1.00 per share. The Company did not receive any cash proceeds in connection with the debt conversion.

            On July 1, 2011, 50,000 shares of common stock were issued to a consultant for services, valued at $48,000 based on the closing market price on the date of the transaction.

            On July 1, 2011, the Company issued 337,500 shares of previously recorded vested stock grants to employees of the Company.

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Issuances of Options

            During the nine months ended March 31, 2012, 95,000 options were cancelled and 40,000 options were exercised on a cashless basis.

            On January 3, 2012, the Company granted 75,000 five-year options at an exercise price of $0.95 per share to each of the two outside directors, the closing price on the date of grant and the options will vest on June 30, 2012. The options were valued at $74,465 using the Black-Scholes option pricing model. The options were valued using the following significant assumptions: a risk free interest rate of 0.37%, expected life of 2.75 years, stock price volatility of 85.2% and expected dividend yield of zero. Stock-based compensation of $36,609 was recorded during the quarter ended March 31, 2012 and $37,856 will be reported over the remaining vesting period. 

            On January 9, 2012, the Company granted a five (5) year option to five employees to purchase 350,000 shares of common stock at an option exercise price of $0.94 per share, the closing price on the date of grant and the options will vest on June 30, 2012. The options were valued at $171,609 using the Black-Scholes option pricing model. The options were valued using the following significant assumptions: a risk free interest rate of 0.35%, expected life of 2.74 years, stock price volatility of 85.21% and expected dividend yield of zero. Stock-based compensation of $84,367 was recorded during the quarter ended March 31, 2012 and $87,241 will be reported over the remaining vesting period.

            On March 12, 2012, the Company granted 250,000 five-year options at an exercise price of $1.03 per share to an employee, the closing price on the date of grant and the options will vest on September 12, 2012. The options were valued at $132,325 using the Black-Scholes option pricing model. The options were valued using the following significant assumptions: a risk free interest rate of 0.44%, expected life of 2.75 years, expected stock price volatility of 83.39% and expected dividend yield of zero. Stock-based compensation of $13,664 was recorded during the quarter ended March 31, 2012 and $118,661 will be reported over the remaining vesting period.

Issuances of Warrants

            On January 26, 2012, the Company entered into an agreement for investor relations services to be provided over a period of four months and requiring the issuance of 250,000 warrants exercisable at $1.25 per share with an exercise period of 5.0 years. The warrants are to be issued in two separate transactions with the first 125,000 warrants due and exercisable immediately upon execution of the agreement. The remaining 125,000 warrants are due and exercisable after 90 days. Using the Black-Scholes option pricing model, the initial fair market value for the entire 250,000 placement agent warrants upon execution of the agreement was determined to be $112,379 with the following assumptions: risk-free rate of interest of 0.31%, expected life of 5 years, expected stock price volatility of 62.92%, and expected dividend yield of zero. This amount is being reported as stock compensation over the period of the agreement and $60,369 has been expensed for the quarter ended March 31, 2012, with $52,010 remaining as unreported stock compensation. Upon issuance of the remaining 125,000 warrants, a final valuation will be performed and stock compensation adjusted accordingly if necessary.

            On January 12, 2012, in connection with a private placement for 700,000 shares of the Company’s common stock pursuant to Regulation S of the Securities Act of 1933, the Company issued 350,000 five year warrants giving the holder the right to purchase common stock at $1.00 per share. The warrants under GAAP accounting are considered equity warrants with fair market value of $172,550. The warrants were valued using the following significant assumptions: a risk free interest rate of 0.84%, expected life of 5.0 years, expected stock price volatility of 84.57% and expected dividend yield of zero.

            On August 8, 2011, the Company issued 250,000 warrants exercisable at $1.00 per share and with an exercise period of 5.0 years for investor relations services to be provided over a period of one year. The warrants are exercisable immediately after issuance. The warrants under GAAP accounting are considered equity warrants and using the Black-Scholes option pricing model, the fair market value of the placement agent warrants at the time of issuance was determined to be $138,426 with the following assumptions: risk-free rate of interest of 1.11%, expected life of 5 years, expected stock price volatility of 86.96%, and expected dividend yield of zero. This amount is being reported as stock compensation over the period of the agreement and $77,367 has been expensed for the nine months ended March 31, 2012, and $61,059 remains as unreported stock compensation.

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            On August 2, 2011, in connection with a $5 million senior secured loan with Victory Park, the Company issued warrants to purchase 500,000 shares of its common stock. The warrants have an exercise price of $1.00 per share, are exercisable immediately after issuance and will expire five years from the date of issuance. Using the Black-Scholes option pricing model, the fair market value of the warrants at the time of issuance was determined to be $339,247 with the following assumptions: risk-free rate of interest of 1.23%, expected life of 5.0 years, expected stock price volatility of 86.79%, and expected dividend yield of zero.

            During the nine months ended March 31, 2012, a total of 3,161,396 warrants have expired.

            Stock option and warrant activity, both within the 1989 stock Option Plan and the 2007 Equity incentive Plan and outside of these plans, for the nine months ended March 31, 2012, are as follows:

    Stock Options           Stock Warrants  
          Weighted                 Weighted  
          Average                 Average  
          Exercise                 Exercise  
    Shares     Price           Shares     Price  
Outstanding at June 30, 2011   7,355,000     0.48           15,942,862     1.22  
   Granted   750,000     0.97           1,350,000     1.05  
   Canceled   (95,000 )   0.86           ---     ---  
   Expired   ---     ---           (3,161,396 )   1.00  
   Exercised   (40,000 )   0.94           ---     ---  
Outstanding at March 31, 2012   7,970,000     0.52           14,131,466     1.25  

            Stock options and warrants exercisable at March 31, 2012, are as follows:

Outstanding and Exercisable Options Outstanding and Exercisable Warrants
      Weighted         Weighted  
      Average         Average  
      Contractual  Weighted       Contractual  Weighted
Exercise     Remaining Average Exercise     Remaining Average
Price Outstanding Exercisable   Life Exercise Price Outstanding Exercisable Life Exercise
Range Number Number (in Years) Price Range    Number Number (in Years) Price
                   
$0.11 4,000,000 4,000,000 1.52 $0.11 $1.00 8,171,807 8,171,807 2.92 $1.00
                   
$0.46 100,000 100,000 0.32 $0.46 $1.06 253,773 253,773 2.28 $1.06
                   
$0.55 175,000 175,000 0.75 $0.55 $1.25 464,858 464,858 1.83 $1.25
                   
$0.60 610,000 610,000 1.68 $0.60 $1.50 933,334 933,334 3.63 $1.50
                   
$0.86 800,000 800,000 3.19 $0.86 $1.625 461,539 461,539 2.75 $1.625
                   
$0.88 50,000 50,000 3.92 $0.88 $1.70 3,846,155 3,846,155 2.81 $1.70
                   
$0.94 350,000 - 4.78 $0.94          
                   
$0.95 150,000 - 4.76 $0.95          
                   
$1.01 765,000 765,000 4.13 $1.01          
                   
$1.03 250,000 - 4.95 $1.03          
                   
$1.165 20,000 20,000 2.13 $1.165          

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$1.21 150,000 150,000 3.75 $1.21          
                   
$1.30 125,000 125,000 1.08 $1.30          
                   
$1.30 150,000 150,000 1.61 $1.30          
                   
$1.38 150,000 150,000 2.75 $1.38          
                   
$1.70 125,000 125,000 1.08 $1.70          
                   
  7,970,000 7,220,000     14,131,466 14,131,466    

Outstanding Options 2.30 $0.52   Outstanding Warrants 2.88 $1.25
Exercisable Options 2.04 $0.48   Exercisable Warrants 2.88 $1.25

            As of March 31, 2012, the aggregate intrinsic value of all stock options and warrants vested and expected to vest was approximately $3,423,900 and the aggregate intrinsic value of currently exercisable stock options and warrants was approximately $3,423,900. The intrinsic value of each option share is the difference between the fair market value of the common stock and the exercise price of such option or warrant share to the extent it is "in-the-money". Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the quarter and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation is based on the $0.89 closing stock price of the Common Stock on March 31, 2012. The total number of in-the-money options and warrants vested and exercisable as of March 31, 2012, was 5,735,000.

            The total intrinsic value of options and warrants exercised during the nine months ended March 31, 2012, was $6,200. Intrinsic value of exercised shares is the total value of such shares on the date of exercise less the cash received from the option and warrant holder to exercise the options.

            The total fair value of options and warrants granted during the nine months ended March 31, 2012, was approximately $708,271. The total grant-date fair value of option and warrant shares vested during the nine months ended March 31, 2012, was approximately $15,894.

NOTE 16 – SUBSEQUENT EVENTS

            The Company has evaluated events and transactions that occurred subsequent to March 31, 2012 for possible disclosure or recognition in the consolidated financial statements. A listing of these items is included below.

            On April 1, 2012, the Company announced it has achieved commercial production, with mechanized mining of the ore body and increased production levels.

            On April 16, 2012, the Company granted 250,000 three-year options to an outside consultant at an exercise price of $1.00 per share.

            On April 23, 2012, the Company announced the death of Lawrence G. Olson, chairman of the board. Mr. Olson became a director of the Company in 1999 and held the position of Chairman since 2000. W. Pierce Carson, current CEO and director, has been appointed as Chairman of the Company.

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Form 10-Q may contain certain “forward-looking” statements as such term is defined in the private securities litigation reform act of 1995 and by the securities and exchange commission in its rules, regulations and releases, which represent the Company’s expectations or beliefs, including but not limited to, statements concerning the Company’s operations, economic performance, financial condition, growth and acquisition strategies, investments, and future operational plans. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may”, “will”, “expect”, “believe”, “anticipate”, “intent”, “could”, “estimate”, “might”, “Plan”, “predict” or “continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company’s control, and actual results may differ materially depending on a variety of important factors, including uncertainty related to acquisitions, governmental regulation, managing and maintaining growth, the operations of the company and its subsidiaries, volatility of stock price and any other factors discussed in this and other registrant filings with the securities and exchange commission. The company does not intend to undertake to update the information in this Form 10-Q if any forward-looking statement later turns out to be inaccurate.

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            The following discussion summarizes the results of our operations for the three and nine month periods ended March 31, 2012, and compares those results to the three and nine month periods ended March 31, 2011. It also analyzes our financial condition at March 31, 2012. This discussion should be read in conjunction with the Management’s Discussion and Analysis, including the audited financial statements for the years ended June 30, 2011, 2010 and 2009 and Notes to the financial statements, in our Form 10-K for our fiscal year ended June 30, 2011.

Overview

            Santa Fe Gold Corporation (“the Company”, “our” or “we”) is a U.S. mining company, incorporated in August 1991 in the state of Delaware, with a general business strategy to acquire and develop mining properties amenable to low cost production. We currently are focused on: (1) continuing the ramp up to full production at our Summit silver-gold property located in New Mexico during the remainder of 2012, (2) conducting further studies on our Ortiz gold project located in New Mexico, continuing to raise working capital for operating and administrative expenses and finalizing the acquisition of Columbus Silver.

            We commenced processing operations at the Banner Mill in March 2010. Commissioning of the mill proceeded satisfactorily and in July 2010, the mill facilities were placed into service and depreciation started to be recognized on the plant, and we are continuing to increase throughput at the Banner Mill. Effective April 1, 2012, will be the beginning of commercial production at the Summit mine. The Company expects to ramp up to full production levels during the remainder of 2012 and anticipates increases in both tonnage and ore grades.

Basis of Presentation and Going Concern

            The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.

            The Company had a net loss of $1,275,397 for the nine months ended March 31, 2012, has a working capital deficit of $11,269,215 which includes a non-cash financial derivative liability of $3,495,452 and deferred revenue of $2,855,824 and has a total accumulated deficit of $61,021,940 at March 31, 2012.

            The Company has increased revenue-generating operations during the current nine months as we ramp up to commercial production at our Summit mine site and work towards attaining full throughput at our Banner Mill. To continue as a going concern, the Company is dependent on continued fund raising for project development and payment of general and administration expenses until production at the Summit mine site ramps up to full commercial production later in 2012 and profitable operations are achieved. The Company, other than its current financing facilities, has no additional commitment from any party to provide additional working capital should it be required and there is no assurance that such funding will be available as needed, or if available, that its terms will be favorable or acceptable to the Company.

            The Company’s consolidated financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

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Derivative Financial Instruments

            In connection with the issuance of debt or equity instruments, we may issue options or warrants to purchase our common stock. In certain circumstances, these options or warrants may be classified as derivative liabilities, rather than as equity. Additionally, the debt or equity instruments may contain embedded derivative instruments, such as conversion options, which in certain circumstances, may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability.

            The identification of, and accounting for, derivative instruments is complex. Our derivative instrument liabilities are revalued at the end of each reporting period, with changes in the fair value of the derivative liability recorded as charges or credits to income, in the period in which the changes occur. For warrants that are accounted for as a derivative instrument liability, we determined the fair value of these warrants using the Black-Scholes option pricing model. That model requires assumptions related to the remaining term of the instruments and risk-free rates of return, our current common stock price and expected dividend yield, and the expected volatility of our common stock price over the life of the warrants. The identification of, and accounting for, derivative instruments and the assumptions used to value them can significantly affect our consolidated financial statements.

RESULTS OF OPERATIONS

Operating Results for the Three Months Ended March 31, 2012 and 2011

            Sales

            We had revenues of $3,675,293 for the three months ended March 31, 2012, as compared to $2,894,007 for the three months ended March 31, 2011. The increase of $781,286, an increase of 27%, and is attributable to increased production at the Summit mine and related shipments of precious metals concentrates, flux material consisting of gold and silver and the sale of refined gold. Sales for the current quarter consisted of concentrate sales of $1,054,809, flux material of $2,215,729, and refined gold of $404,755.

            The definitive gold sale agreement entered into on September 11, 2009 stipulates that we deliver the contractual production quantity in refined gold. See the Liquidity and Capital Resources section within this Item 2 for additional information. The Summit Project is not currently configured or permitted to produce refined gold. To fulfill the contractual terms per the definitive gold sale agreement, refined gold is purchased for delivery. The agreement calls for the sale of gold at the fixed price of $400 per ounce plus the upfront advance, representing deferred revenue, which is to be credited by the difference between the market price and the fixed price of gold for the number of ounces delivered. The revenue component of $404,755 for the delivery of refined gold is comprised of $100,967 representing sales of gold at the fixed price of $400 per ounce, and $303,788 representing the realization of deferred revenue related to the upfront cash advance.

            Operating Costs and Expenses

            Costs applicable to sales aggregate $1,623,592 for the three months ended March 31, 2012, as compared to $1,604,449 for the three months ended March 31, 2011. The increase of $19,143 is attributable to the cost increases associated with the shipments of concentrate and flux material for smelting feedstock totaling $494,789, purchases of refined gold of $294,380 and an offsetting decrease in the accrual of costs for purchasing refined gold of $770,026 in order to satisfy the delivery requirements of the definitive gold sale agreement. During the quarter ended March 31, 2012, the Summit project ramped up to starting commercial production effective April 1, 2012. Costs applicable to sales are higher than normally expected until full commercial production is attained. We anticipate these costs will decrease in relation to sales once we achieve full production at the mine and corresponding full throughput at the mill site during the remainder of 2012.

            Exploration, mine and mill start up costs were $1,001,225 for the three months ended March 31, 2012, as compared to $597,266 for the three months ended March 31, 2011, an increase of $403,959. The increase is attributable to expanding production operations at the Summit mine site and a related increase in the throughput at the Banner Mill. The increase in costs is primarily comprised of: vehicle operating costs of $131,765; mine general operating costs of $148,872; repairs and maintenance aggregating $43,295; shop supplies aggregating $40,405; $31,817 in related royalties and miscellaneous exploration costs aggregating $33,392. These increases were mainly offset by a decrease in leased equipment costs aggregating $13,574.

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            General and administrative expenses increased to $802,356 for the three months ended March 31, 2012, from $679,757 for the comparative three month period ended March 31, 2011, an increase of $122,599. The increase is mainly attributable to employee stock-based compensation of $18,633; meals and entertainment of $11,464; corporate filing fees of $9,180 and investor relations of $139,707. These increases were offset by decreased expenses in the following areas: legal fees $40,874 and consulting fees aggregating $21,298.

            Depreciation and amortization expense increased to $668,454 for the quarter ended March 31, 2012, as compared to $577,857 for the comparable quarter ended March 31, 2011, an increase of $90,597. The increase is attributable primarily to additional equipment put into service during the ramp up to achieve commercial production in the current quarter and additional equipment placed into service.

            Other Income and Expenses

            Other income and (expenses) for the three months ended March 31, 2012, were $956,411 as compared to $3,927,624 for the comparable three months ended March 31, 2011. The decrease in net other income of $2,971,213 is primarily attributable to the decrease gain recognized on derivative instruments liability of $3,123,906 and an increase in interest expense of $58,843, and was offset by a decrease in accretion of discounts on notes payable of $214,109.

            The increase in interest expense was due primarily to interest on the ten million dollar Senior Secured Gold Stream Credit Agreement that was placed on December 23, 2011.

            Gain (Loss) on Derivative Financial Instruments

            We recognized a gain on derivative financial instruments of $1,301,722 for the three months ended March 31, 2012, as compared to a gain of $4,425,628 for the prior year’s comparable period, resulting in a decreased recognized gain of $3,123,906. The non-cash decreased gain recognized arises from adjustments to record the derivative financial instruments at fair values in accordance with current accounting standards. The derivative financial instruments arose in connection with senior secured convertible notes and the issuance of warrants attached to stock subscriptions and warrants issued under our registered direct offerings. Otherwise, we generally do not use derivative financial instruments for other purposes, such as hedging cash flow or fair-value risks. The decrease in the derivative gain for the three months ended March 31, 2012, is attributable mainly to adjustments to record the change in fair value for the embedded conversion feature of derivative financial instruments, the warrants previously issued under our registered direct offerings, changes in the market price of our common stock, which is a component of the calculation model, and the issuance of additional warrants resulting in derivative treatment. We use the Black-Scholes option pricing model to estimate the fair value of this derivative. Because Black-Scholes uses our stock price, changes in the stock price will result in volatility in the earnings in future periods as we continue to reflect the derivative financial instruments at fair values.

Operating Results for the Nine Months Ended March 31, 2012 and 2011

            Sales

            We had revenues of $8,144,512 for the nine months ended March 31, 2012, as compared to $4,144,269 for the nine months ended March 31, 2011. The increase of $4,000,243, an increase of 96.5%, and is attributable to increased production at the Summit mine and related shipments of precious metals concentrates and flux material consisting of gold and silver, and the sale of refined gold. Sales for the current period of measurement consisted of concentrate sales of $2,927,150, flux material of $3,895,220, and refined gold $1,322,142.

            The definitive gold sale agreement entered into on September 11, 2009 stipulates that we deliver the contractual production quantity in refined gold. See the Liquidity and Capital Resources section within this Item 2 for additional information. The Summit Project is not currently configured or permitted to produce refined gold. To fulfill the contractual terms per the definitive gold sale agreement, refined gold is purchased for delivery. The agreement calls for the sale of gold at the fixed price of $400 per ounce plus the upfront advance, representing deferred revenue, which is to be credited by the difference between the market price and the fixed price of gold for the number of ounces delivered. The revenue component of $1,322,142 for the delivery of refined gold is comprised of $566,700 representing sales of gold at the fixed price of $400 per ounce, and $755,442 representing the realization of deferred revenue related to the upfront cash advance.

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            Operating Costs and Expenses

            Costs applicable to sales aggregate $4,276,570 for the nine months ended March 31, 2012, as compared to $2,303,871 for the nine months ended March 31, 2011. The increase of $1,972,699 is attributable to the costs associated with the shipments of concentrate and flux material for smelting feedstock totaling $1,268,583 and the cost of purchasing refined gold of $1,349,992 in order to satisfy the delivery requirements and an offsetting decrease in the accrual of costs for purchasing refined gold of $645,876 in order to satisfy the delivery requirements of the definitive gold sale agreement. Of this amount, approximately $301,935 is non-recurring and attributable to the completion guarantee extension as discussed in NOTE 13 to the unaudited consolidated financial statements. During the quarter ended March 31, 2012, the Summit project ramped up to starting commercial production effective April 1, 2012. Costs applicable to sales are higher than normally expected until full production is attained. We anticipate these costs will decrease in relation to sales once we achieve full commercial production at the mine and corresponding full throughput at the mill site during the remainder of 2012.

            Exploration, mine and mill start up costs were $2,243,246 for the nine months ended March 31, 2012, as compared to $1,669,663 for the nine months ended March 31, 2011, an increase of $573,583. The increase is attributable to expanding production operations at the Summit mine site and a related increase in the throughput at the Banner Mill. The increase in costs is primarily comprised of: vehicle operating costs of $252,806; mine general operating costs of $312,763; repairs and maintenance aggregating $137,394; shop supplies aggregating $42,747; property taxes of $43,692 and $211,694 in related royalties. These increases were mainly offset by decreases in labor burden aggregating $270,207; general mill expenses of $43,341: property, casualty and liability insurance of $69,510 and leased equipment costs aggregating $14,089.

            General and administrative expenses increased to $2,494,516 for the nine months ended March 31, 2012, from $2,171,297 for the comparative nine month period ended March 31, 2011, an increase of $323,219. The increase is mainly attributable to legal fees of $106,723; financing costs of $356,656; investor relations cost aggregating $97,091; audit and accounting fees of $20,179; and increased costs attributable to our subsidiaries of $13,970. These increases were offset by decreased expenses in the following significant areas: employee stock-based compensation of $255,824; property, casualty and liability insurance of $9,509 and corporate filing fees of $8,189, which were related to Security and Exchange Commission filings. The increase in legal fees and financing costs is mainly attributable to the financing facilities the Company has closed during the nine months ended March 31, 2012.

            Depreciation and amortization expense increased to $1,985,173 for the nine months ended March 31, 2012, as compared to $1,725,858 for the comparative nine months ended March 31, 2011, an increase of $259,315. The increase is a result of additional equipment put into service during the ramp up to achieve commercial production and additional equipment purchased and placed into service.

            Other Income and Expenses

            Other income and (expenses) for the nine months ended March 31, 2012, were $1,585,723 as compared to $(2,373,462) for the comparable nine months ended March 31, 2011. The increase in net other income of $3,959,185 is primarily attributable to the increase gain recognized on derivative instruments liability of $4,998,780 and was offset by increases in interest expense of $375,462; accretion of discounts on notes payable of $515,419 and a loss on disposal of assets of $152,587.

            The increase in interest expense was due primarily to interest on the five million dollar working capital bridge loan that was placed in August 2011 and retired in December 2011, and the ten million dollar Senior Secured Gold Stream Credit Agreement that was placed on December 23, 2011.

            Gain (Loss) on Derivative Financial Instruments

            We recognized a gain on derivative financial instruments of $4,099,846 for the nine months ended March 31, 2012, as compared to a loss of $898,934 for the prior year’s comparable period, resulting in an increased gain of $4,998,780. The non-cash increased gain arises from adjustments to record the derivative financial instruments at fair values in accordance with current accounting standards. The derivative financial instruments arose in connection with senior secured convertible notes and the issuance of warrants attached to stock subscriptions and warrants issued under our registered direct offerings. Otherwise, we generally do not use derivative financial instruments for other purposes, such as hedging cash flow or fair-value risks. The increase in the derivative gain for the nine months ended March 31, 2012, is attributable mainly to adjustments to record the change in fair value for the embedded conversion feature of derivative financial instruments, the warrants previously issued under our registered direct offerings, changes in the market price of our common stock, which is a component of the calculation model, and the issuance of additional warrants resulting in derivative treatment. We use the Black-Scholes option pricing model to estimate the fair value of this derivative. Because Black-Scholes uses our stock price, changes in the stock price will result in volatility in the earnings in future periods as we continue to reflect the derivative financial instruments at fair values.

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Liquidity and Capital Resources

            To continue with the deployment of our business strategies, we will require significant additional working capital. We also will require additional working capital for employment of necessary corporate personnel, and related general and administrative expenses until we reach profitable operations.

            As of March 31, 2012, we have cash and cash equivalents of $597,871, accounts receivable for product sales of $2,649,654, a working capital deficit of $11,269,215, which includes a non-cash financial derivative liability of $3,495,452 and deferred revenue of $2,855,824, and an accumulated deficit of $61,021,940.

            We are continuing to pursue a joint venture or sale of the Black Canyon mica project. Management has determined to deploy its resources in the area of precious metals based upon the current and projected market trends in this area.

            We continue to seek funding to advance our business plan and strategies. Historically, we have relied upon equity related financing to fund our deployment of our business plan. We will require additional funding to meet our corporate general and administrative commitments over and above our current financing facilities to continue feasibility studies on our mineral properties and to initiate exploration programs until we reach profitability. The Summit project has achieved commercial production as of April 1, 2012. Currently our operations for our remaining fiscal year 2012 will be funded mainly from anticipated sales of precious metals, our current financing facilities, the sale of our equity securities, possibly through the exercise of certain options and warrants, and through additional financing facilities as required. We believe we will be able to finance our continuing future activities as required, although there are no assurances of success in this regard or in our ability to obtain continued financing through capital markets, joint ventures, or other acceptable arrangements. If our plans are not successful, future operations and liquidity may be adversely impacted. In the event that we are unable to obtain required capital, we may be forced to reduce our exploration and operating expenditures or to cease development operations altogether.

            On September 11, 2009, we entered into a definitive gold sale agreement with Sandstorm Gold Ltd. (TSX-V: SSL) (“Sandstorm”) to sell a portion of the life-of-mine gold production (but not silver production) from our Summit silver-gold mine. Under the agreement we received an upfront cash deposit of $4.0 million, plus we will receive ongoing production payments equal to the lesser of $400 per ounce or the prevailing market price, for each ounce of gold delivered pursuant to the agreement for the life of the mine. Gold production subject to the agreement includes 50% of the first 10,000 ounces of gold produced, and 22% of the gold thereafter. The amount of payable gold can be reduced from 22% to 15% provided that within 36 months the Summit mine reaches certain performance levels in any consecutive 12 month period, in compliance with prefeasibility estimates, including 1) the rate of ore mined and processed must average 400 tons per day or more, and 2) payable gold production must exceed 11,500 ounces during such consecutive 12 month period. We will receive credit against the $4,000,000 upfront cash deposit for the difference between the market price and $400 per ounce for those gold deliveries where the prevailing market price exceeds $400 per ounce. These credits will be recognized as revenue, in addition to the ongoing production payments received for gold delivered pursuant to the agreement. In certain circumstances, including failure to meet minimum production rates, interruption in production due to permitting issues and customary events of default, the agreement may be terminated. In such event, we may be required to return to Sandstorm the upfront cash deposit of $4.0 million less a credit for gold delivered up to the date of that event, which is determined using the difference between the market price and $400 per ounce for gold deliveries where the prevailing market price exceeded $400 per ounce.

            On January 20, 2010, the we entered into definitive security purchase agreements with 23 institutional investors (collectively, “Purchasers") to sell an aggregate of $10.0 million of units, each unit consisting of one Share and one-half of a Warrant to purchase a Share by way of a registered direct offering. Pursuant to the transaction, we sold to the Purchasers an aggregate of 7,692,310 Shares and Warrants to purchase up to 3,846,155 additional Shares. The Warrants are exercisable at an exercise price of $1.70 per share upon issuance and have a term of five years. In connection with the placement we issued 461,539 warrants to placement agents, exercisable at $1.625 per share and having a term of approximately 4.9 years. These placement agent warrants vested six months from the date of issuance. We received net proceeds from the offering of approximately $9,375,000, after deducting placement agent fees and other offering expenses.

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            The securities were issued pursuant to the Company's effective S-3 Registration Statement under which the securities are registered. The units, including the Shares and Warrants (including the Placement Agent warrants) and shares issuable upon exercise of the Warrants were issued pursuant to a prospectus supplement dated as of January 20, 2010, which was filed with the Securities and Exchange Commission ("SEC") in connection with a takedown from the Company’s shelf registration statement on Form S-3, which became effective on December 29, 2009, and the base prospectus contained in such registration statement.

            On December 29, 2010, we entered into a definitive security purchase agreements with three institutional investors to sell an aggregate of $2 million of units, each unit consisting of one share and one-half warrant per share to purchase a share by way of the placement. Under the agreement, we sold 1,666,668 shares and warrants to purchase 833,334 additional shares of our common stock. The warrants will be exercisable at an exercise price of $1.50 per share immediately upon the issuance of the stock and will expire five years from the date they are first exercisable. In connection with the transaction, we paid the placement agent a fee of $136,000 and issued 100,000 warrants exercisable at $1.50 per share which have an exercise period of approximately 3.92 years. The warrants are exercisable immediately after issuance. We received $1,864,001 net cash proceeds from the placement, after deducting placement agent fees and other offering expenses.

            The units, including the shares and warrants (including the Placement Agent warrants) and shares issuable upon exercise of the Warrants are issued pursuant to the prospectus supplement dated as of December 29, 2010, which was filed with the Securities and Exchange Commission (“SEC”) in connection with a takedown from the Company’s shelf registration statement on Form S-3 (File No. 333-163112), which became effective on December 29, 2009, and the base prospectus contained in such registration statement.

            On March 29, 2011, we amended the definitive gold sale agreement dated September 11, 2009. The amendment extended the original completion guarantee date from April 2011 to June 30, 2012. In exchange for the amended completion guarantee date, we agreed to deliver an additional 700 ounces of gold at equivalent sales terms over and above what is currently due under the agreement. Based upon the sale terms of the agreement, the Company recorded an accrued liability of $727,300 based upon the closing gold price on March 31, 2011. Under the terms of the amendment the delivery was to be made prior to June 30, 2011.

            On June 28, 2011, we entered into Amendment 2 for the definitive gold sale agreement. The amendment extended the delivery date for the additional 700 ounces of gold agreed upon in Amendment 1 from June 30, 2011 until October 15, 2011. In exchange for the deferred delivery date we agreed to pay a per diem of 3 ounces of gold for each day the additional 700 ounces of gold under Amendment 1 remain outstanding past June 30, 2011 until the actual date of delivery, but no later than October 15, 2011. Based upon the sale terms of the agreement, we recorded an accrued liability of $773,850 for 700 ounces of gold based upon the closing gold price on June 30, 2011. On August 9, 2011 the Company satisfied the requirements of Amendment 2 and delivered 817 ounces of gold. The net cost of delivering the gold after receiving payment from Sandstorm of $400 per ounce delivered was $1,075,785. In order to recognize the final cost of delivering the gold, the accrued liability of $773,850 at June 30, 2011 was adjusted by an additional $301,935 and recognized during the quarter ended September 30, 2011 as a non-recurring component of costs applicable to sales.

            On August 2, 2011, we entered into a financing agreement for $5 million senior secured bridge loan for working capital. The loan charged interest at 15% per annum payable in monthly installments in arrears. The loan covered a term of six months with the ability to be repaid at any time without penalty. The senior obligations were secured by a first priority lien on the stock of our subsidiaries and on liens covering substantially all of the assets of the Company, including the Summit silver-gold project, the Black Canyon mica project and the Planet micaceous iron oxide project. In connection with the loan, we issued warrants to purchase 500,000 shares of our common stock. The warrants have an exercise price of $1.00 per share and a term of five years. The financing agreement was retired in conjunction with proceeds from the Senior Secured Gold Stream Credit Agreement consummated on December 23, 2011.

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           On December 23, 2011, the Company and its subsidiaries entered into a Senior Secured Gold Stream Credit Agreement (the “Credit Agreement”) with Waterton Global Value, L.P. (Waterton”). The Credit Agreement provides for two $10 million tranches and a $5 million revolving working capital facility. On December 23, 2011, we closed the first $10 million tranche of the Credit Agreement. The second $10 million tranche, which is subject to several funding conditions, is earmarked to fund the strategic acquisition of Columbus Silver.

            Proceeds from the initial $10 million tranche of the Credit Agreement were used to retire the Company’s $5 million, 15% Senior Secured Bridge loan with Victory Park Capital Advisors, LLC, in addition to the payment of transaction fees and expenses. We used the remaining net proceeds for general corporate working capital purposes, including but not limited to, working capital for the Summit silver-gold project.

             The Credit Agreement provides for a 9% coupon and amortizes over a 30-month term (assuming both tranches are drawn) with an initial 6-month grace period during which the Company is not required to make any payments. As part of the transaction, the Company agreed pursuant to a gold and silver sale agreement (the “Gold and Silver Supply Agreement”) to sell refined gold and silver to Waterton for the life of each mine subject to the agreement. Gold and silver subject to the agreement includes all gold and silver originating from the Summit property that is not otherwise committed to delivery to and purchased by Sandstorm Gold, Ltd, pursuant to the September 9, 2011 definitive gold sale agreement. The sales price for refined gold and silver is based upon a formulation which considers the London Bullion Market Association (“LBMA”) PM fix settlement price for each respective metal, less a discount of three percent for each metal, and a transaction cost of $1.75 per ounce of gold and $0.07 per ounce of silver. The discount on gold and silver is only applicable until and ceases after the later of either, three years after all outstanding amounts due under the Senior Secured Gold Stream Credit Agreement have been repaid, or the date on which the Company has sold 125,000 gold equivalent ounces under the Gold and Silver Supply Agreement.

            On December 23, 2011, we issued 13,500,000 shares of our common stock in connection with the conversion of $13.5 million principal amount of its Senior Secured Convertible Debentures at a conversion price of $1.00 per share. We did not receive any cash proceeds in connection with the debt conversion.

            On January 12, 2012, we issued 700,000 shares of the Company’s stock pursuant to Regulation S of the Securities Act of 1933 at $1.00 per share for total net proceeds of $700,000 and we issued 350,000 five year warrants giving the holder the right to purchase common stock at $1.00 per share. The warrants under GAAP accounting are considered equity warrants with fair market value of $172,550. The warrants were valued using the following significant assumptions: a risk free interest rate of 0.84%, expected life of 5.0 years, expected stock price volatility of 84.57% and expected dividend yield of zero.

Factors Affecting Future Operating Results

            We continue to deploy our plan to place the Company on an improved financial footing. In addition to the significant capital raisings in 2010 and the $5 million working capital facility in 2011, we placed the $25 million Credit Agreement in December 2011. The first tranche of Credit Agreement was used to retire the Company’s $5 million, 15% senior secured bridge loan and for working capital purposes. The second $10 million tranche, which is subject to several funding conditions, is earmarked to fund the strategic acquisition of Columbus Silver. The Credit Agreement also provides for a $5 million revolving working capital facility

            We plan to procure capital with long term financing arrangements and/or equity placements as required. If we continue to secure required financing on acceptable terms, we believe we will be in a position to execute our business plan on our property sites and complete the acquisition of Columbus Silver.

            We originally entered into a non-binding Memorandum of Understanding (“MOU”) on September 24, 2010 with Columbus Silver Corporation (TSXV: CSC) (“Columbus Silver”), pursuant to which we agreed to acquire all the outstanding shares of common stock of Columbus Silver in exchange for the Company’s common stock. In accordance with the Memorandum of Understanding, we purchased 1,000,000 shares of Columbus Silver common stock on October 28, 2010 in a private placement valued at $98,058. Proceeds of the issuance were used by Columbus Silver as bridge financing for operational expenses through December 31, 2010. Additionally on January 27, 2011, we advanced $200,000 to Columbus Silver in exchange for a promissory note bearing interest at 4% per annum. All accrued interest and principal is due and payable on December 31, 2012. The loan was extended for the purpose of providing Columbus Silver with working capital in connection with the MOU.

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            On September 6, 2011, the we entered into a new Memorandum of Understanding with Columbus Silver Corporation (TSXV: CSC) (“Columbus Silver”) pursuant to which we conditionally agreed to acquire all of Columbus Silver’s outstanding common stock for a cash amount of Cdn $0.20 per outstanding share in a transaction valued at approximately $10 million. Until closing of the transaction, we agreed to provide advances for bridge financing to Columbus Silver to fund leasehold payments and for working capital, which through the end of March 2012 totaled $827,716.

            On December 15, 2011, the Company entered into definitive agreements governing the proposed acquisition of Columbus Silver in a transaction valued at approximately $10 million. The definitive agreement contemplates a business combination by way of a Plan of Arrangement, which is subject to Canadian court approval. Canadian regulatory approvals have been obtained, and the termination date within the definitive agreement to complete the proposed acquisition is May 31, 2012, unless mutually extended by both parties. On March 22, 2012, Columbus Silver reported that their shareholders approved the motion for the sale of Columbus Silver by a significant margin. In addition, the proposed transactions are subject to the Company arranging the necessary financing and the final approval of the boards of directors of the Company and Columbus Silver. The Senior Secured Gold Stream Credit Agreement entered into on December 23, 2011 provides for a conditional $10 million facility earmarked for the acquisition of Columbus Silver and satisfies the financing requirement under the definitive agreement. The provisions of the Senior Secured Gold Stream Agreement require the Company to secure additional financing in order to drawdown on the $10 million facility. In the event the transaction is unable to consummate due to failure to arrange the additional financing, the advances of $827,716 and note receivable of $209,533, including accrued interest, may not be refundable to the Company.

Off-Balance Sheet Arrangements

            During the three months ended March 31, 2012, we did not engage in any off-balance sheet arrangements defined in Item 303(a) (4) of the SEC’s Regulation S-K.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

            There has been no material change in the market risks discussed in Item 7A of Santa Fe Gold’s Form 10-K for the fiscal year ended June 30, 2011.

ITEM 4 – CONTROLS AND PROCEDURES

            We maintain “disclosure controls and procedures” (as defined in Rules 13a-15(d) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms, and that our disclosure controls and procedures are effective in alerting management on a timely basis to material information required to be disclosed in our periodic reports. Under the supervision of, and the participation of our management, our Chief Executive Officer and Principal Financial Officer, or persons performing similar functions, has conducted an evaluation of our disclosure controls and procedures as of March 31, 2012. This evaluation included certain areas in which we have made, and are continuing to make, changes to improve and enhance controls. Based on this evaluation, our Chief Executive Officer and Principal Financial Officer has concluded that our disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by us in reports we file with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods required, and are effective in alerting management on a timely basis to material information required to be disclosed in our periodic reports.

            During the quarter ended March 31, 2012, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

             On August 31, 2011, we filed a Complaint in the United States District Court for the District of New Mexico against Ortiz Mines, Inc. (“OMI”) in connection with OMI’s purported termination of our exclusive leasehold rights to explore, develop and mine gold, silver, copper and other minerals on the Ortiz Mine Grant in Santa Fe County, New Mexico and OMI’s demand for significant additional consideration to allow the lease to continue. The Complaint alleges several causes of action, including breach of contract and breach of the covenant of good faith and fair dealing. The Complaint seeks both declaratory and injunctive relief. We believe OMI’s purported termination of the Lease was wrongful and intend to vigorously prosecute legal claims to enforce our rights under the Lease and recover all applicable damages.

            Except for the Complaint filed against Ortiz Mines, Inc., we are not currently subject to any legal proceedings, and to the best of our knowledge, no such proceedings are threatened, the results of which would have a material impact on our properties, results of operation, or financial condition. Nor, to the best of our knowledge, are any of our officers or directors involved in any legal proceedings in which we are an adverse party.

ITEM 1A. RISK FACTORS

            Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described in our annual report on Form 10-K for our year fiscal ended June 30, 2011, in addition to the other information included in this quarterly report. If any of the risks described actually occurs, our business, financial condition or results of operations would likely suffer. In that case, the trading price of our common stock could fall.

            As of March 31, 2012, there have not been any material changes to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011, although we may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

            On January 12, 2012, we issued 700,000 shares of our stock pursuant to Regulation S of the Securities Act of 1933 at $1.00 per share for total net proceeds of $700,000.

            On December 23, 2011, the Company issued 13,500,000 shares of its common stock in connection with the conversion of $13.5 million principal amount of its Senior Secured Convertible Debentures at a conversion price of $1.00 per share. The Company did not receive any cash proceeds in connection with the debt conversion.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

            None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

            None

ITEM 5. OTHER INFORMATION

            Mine Safety Disclosures

     The Dodd-Frank Wall Street Reform and Consumer Protection Act (“The Act”) requires the operators of mines, including gold and silver mines, to include in each periodic report filed with the Securities and Exchange Commission certain specified disclosures regarding the company’s history of mine safety.

            In evaluating these disclosures, consideration should be given to factors such as: (i) the number of citations and orders may vary depending on the size of the mine, (ii) the number of citations issued will vary from inspector to inspector and mine to mine, and (iii) citations and orders can be contested and appealed, and in that process, are often reduced in severity and amount, and are sometimes dismissed.

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            Specified disclosures relating to The Act and pertaining to the Summit Mine for the three months ended March 31, 2012 are as follows:

(i)

Total number of violations of mandatory health or safety standards that could “significantly and substantially” (“S&S”) contribute to a safety or health hazard under the Federal Mine Safety and Health Act of 1977 (the “Mine Safety Act”) for which the Company received a citation from the Mine Safety and Health Administration (“MSHA”): - None; (These are violations that could "significantly and substantially" contribute to a safety or health hazard as issued.);

   
(ii)

Total number of orders and citations issued under Section 104(b) of the Mine Safety Act (a “failure to abate”): - None;

   
(iii)

Total number of citations and orders for unwarrantable failure to comply with mandatory health and safety standards under Section 104(b): - None;

   
(iv)

Total number of imminent danger orders under Section 107(a) of the Mine Safety Act issued to the Company: - None;

   
(v)

Total dollar value of proposed assessments from MSHA: - $600;

   
(vi)

Total number of mining related fatalities: - None;

   
(vii)

Mines for which the operator has received written notice of a pattern of violations or the potential to have such a pattern: - None;

   
(viii)

Pending legal action before the Mine Safety and Health Review Commission: - We have multiple citation protests pending before the Commission.

ITEM 6. EXHIBITS

            (a)      The following exhibits are filed as part of this report:

  31.1

Certification of Chief Executive Officer and Principal Accounting Officer of Periodic Report pursuant to Rule 13a-14a and Rule 15d-14(a).

     
  32.1

Certification of Chief Executive Officer and Principal Accounting Officer pursuant to 18 U.S.C. – Section 1350.

SIGNATURES:

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  /s/ W. Pierce Carson
Dated: May 7, 2012              W. Pierce Carson,
               Chief Executive Officer, President, Director
             and Principal Accounting Officer

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