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EX-4.9 - EXHIBIT 4.9 - Li3 Energy, Inc.v332173_ex4-9.htm
EX-5.1 - EXHIBIT 5.1 - Li3 Energy, Inc.v332173_ex5-1.htm
EX-4.8 - EXHIBIT 4.8 - Li3 Energy, Inc.v332173_ex4-8.htm
EX-4.11 - EXHIBIT 4.11 - Li3 Energy, Inc.v332173_ex4-11.htm
EX-23.1 - EXHIBIT 23.1 - Li3 Energy, Inc.v332173_ex23-1.htm
EX-4.10 - EXHIBIT 4.10 - Li3 Energy, Inc.v332173_ex4-10.htm

 

As filed with the Securities and Exchange Commission on January 16, 2013

Registration No. 333-185714

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

  

 

 

FORM S-1/A

Amendment No. 1

  

REGISTRATION STATEMENT UNDER THE

SECURITIES ACT OF 1933

  

 

 

Li3 Energy, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada   1479   20-3061907
(State or other jurisdiction   (Primary Standard   (I.R.S. Employer
of incorporation or   Industrial Classification   Identification Number)
organization)   Code Number)    

 

Marchant Pereira 150 Of. 803

Providencia, Santiago de Chile

Chile

(56) 2-2896-9100

(Address, including zip code, and telephone number, including area code, of registrant’s principal

executive offices)

 

VCorp Services, LLC

1645 Village Center Circle STE 170

Las Vegas, NV 89134

(888) 528-2677

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies of communications, including communications sent to agent for service, should be sent to:

 

 

Richard I. Anslow, Esq.

Anslow & Jaclin LLP

195 Route 9 South, Suite 204

Manalapan, New Jersey 07726

Tel No.: (732) 409-1212

Fax No.: (732) 577-1188

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:þ

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

 If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company þ

 

 

 
 

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class Of Securities to be Registered  Amount to
be
Registered
(1)
   Proposed
Maximum
Offering
Price
per share
(2)
   Proposed
Maximum
Aggregate
Offering
Price
   Amount of
Registration
Fee
 
Common stock, $0.001 par value per share    127,750,000   $0.05   $6,387,500   $871.26 
                     
Common stock, $0.001 par value per share, issuable upon exercise of the Warrants    100,000(3)  $0.05   $5,000   $0.68 
                     
Total                  $871.94 

 

(1) This registration statement includes an indeterminate number of additional shares of common stock issuable for no additional consideration pursuant to any stock dividend, stock split, recapitalization or other similar transaction effected without the receipt of consideration, which results in an increase in the number of outstanding shares of our common stock. In the event of a stock split, stock dividend or similar transaction involving our common stock, in order to prevent dilution, the number of shares registered shall be automatically increased to cover the additional shares in accordance with Rule 416(a) under the Securities Act of 1933, as amended.
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended, using the average of the high and low prices as reported on the OTC Bulletin Board on December 26, 2012 which was $0.05 per share.
(3) Represents shares of the registrant’s common stock issuable upon exercise of warrants to purchase shares of common stock being registered for resale. Such warrants have been issued to certain selling stockholders named in this registration statement.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the commission, acting pursuant to said Section 8(a), may determine.

 

 
 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS   DATED JANUARY 16, 2013
  SUBJECT TO COMPLETION  

 

127,850,000 Shares of Common Stock

 

 

Li3 Energy, Inc.

 

This prospectus covers the sale by the selling stockholders of up to (i) 127,750,000 shares of common stock, par value $0.001 per share, (ii) 50,000 shares issuable upon the exercise of 100,000 five-year A warrants to purchase one-half share of our common stock (“A Warrant”), at an exercise price of $0.51 per whole share; and (iii) 50,000 shares issuable upon the exercise of 100,000 five-year B warrants to purchase one-half share of our common stock (“B Warrant”), at an exercise price of $0.75 per whole share. The shares being sold by the selling stockholders were issued to them in a private placement transaction which was exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the “Securities Act”). Our common stock and warrants are more fully described in “Description of Securities.”

 

These shares will be offered for sale by the selling shareholders in accordance with the “Plan of Distribution.” We will not receive any proceeds from the sales of shares of our common stock or warrants by the selling stockholders. However, to the extent the warrants are exercised for cash, if at all, we will receive up to $31,500. We will pay the expenses incurred in connection with the offering described in this prospectus, with the exception of brokerage expenses, fees, discounts and commissions, which will be paid by selling stockholders.

 

Our common stock is presently traded on the Over-the-Counter Bulletin Board (“OTCBB”) under the symbol “LIEG.” On January 14, 2013, the last sale price of our shares as reported by the OTCBB was $0.05 per share. The prices at which the selling stockholders may sell the shares of common stock that are part of this offering may be market prices prevailing at the time of sale, at negotiated prices, at fixed prices, or at varying prices determined at the time of sale. See “Plan of Distribution.”

  

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 7 to read about factors you should consider before investing in shares of our common stock.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is                 , 2012

 

 
 

 

TABLE OF CONTENTS

 

PROSPECTUS SUMMARY 2
RISK FACTORS 7
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 15
DIVIDEND POLICY 16
USE OF PROCEEDS 16
PENNY STOCK CONSIDERATIONS 16
SELLING STOCKHOLDERS 16
DESCRIPTION OF BUSINESS 18
MARKET PRICE OF AND DIVIDENDS ON OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS 34
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 35
DIRECTORS AND EXECUTIVE OFFICERS 47
EXECUTIVE COMPENSATION 53
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 59
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 61
DESCRIPTION OF SECURITIES 61
PLAN OF DISTRIBUTION 67
SHARES ELIGIBLE FOR FUTURE SALE 68
LEGAL MATTERS 69
EXPERTS 69
WHERE YOU CAN FIND MORE INFORMATION 69
INDEX TO FINANCIAL STATEMENTS F-1

 

1
 

 

 

PROSPECTUS SUMMARY

 

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before investing in the common stock. You should carefully read the entire prospectus, including “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements, before making an investment decision. All references to “we,” “us,” “our,” and the “Company” mean Li3 Energy, Inc.

 

Overview

 

Li3 Energy, Inc. is a South America based and U.S. listed exploration company in the lithium and mining sector. We aim to acquire, develop and commercialize a significant portfolio of lithium brine deposits in the Americas. We are currently focused on further exploring, developing and commercializing our 60% controlling interest in our flagship Maricunga Project, located in the northeast section of the Salar de Maricunga in Region III of Atacama, in northern Chile. The recently completed technical report produced in accordance with National Instrument 43-101 of the Canadian Securities Administrator proves Maricunga’s attractive lithium and potassium grades and recommends the project to advance to the Feasibility Study stage. We are seeking to be a low cost producer of lithium, potassium nitrate and other mineral products.

 

In Chile, our assets consist of 1,438 hectares located within the Salar de Maricunga as well as 4,900 hectares of other prospective land holdings that are strategically located within close proximity to the Salar de Maricunga that could serve as potential processing sites for the project. Together, our total Chilean land holdings consist of 6,338 hectares, and to the best of our knowledge, we are one of the only companies with an advanced stage lithium and potassium project within Salar de Maricunga. We plan to continue exploring other synergistic opportunities to further augment and strengthen this property and its land portfolio throughout the region.

 

Through our strategic partners, we have been evaluating the use of advanced process technologies that may further improve upon the economics and shorten the commercial production timeline of our Maricunga Project. We plan to further evaluate these technologies in pilot/demonstration and test facilities that will measure both effectiveness and economic feasibility when measured against the conventional lithium commercialization process.

 

Upon Li3 obtaining the necessary permits to exploit lithium, our goals are to: a) advance the Maricunga project to the Feasibility Study stage; b) support the global implementation of clean and green energy initiatives; c) meet growing lithium market demand; and d) become a mid-tier, low cost secondary supplier of lithium, potassium nitrate, and other strategic minerals, serving global clients in the energy, fertilizer and specialty chemical industries. A summary of our key recent activities is found below:

 

  · May 2011 - Completed acquisition of 60% Controlling Interest in Maricunga Project.
  · June 2011 - Maricunga identified as “Top 11 Lithium Projects in the World” - signumBOX.
  · August 2011 - Strategic Partnership with POSCO Canada Ltd., a wholly owned subsidiary of POSCO (NYSE: PKX), which established an $18 million Exploration and Development program for Maricunga, among other things.

  · September 2011 - Completed $8 million funding tranche with POSCAN and launched $8 million Phase One Plan.
  · January 2012 - Executed agreement with R3 Fusion Inc. for Pilot / Demonstration Facility.
  · March 2012 - MOU with POSCO to construct Test Facility (advanced process technology).
  · April 2012 - As required by POSCAN, we issued a technical report, which was prepared in accordance with National Instrument 43-101 of the Canadian Securities Administrators validating our earlier exploration campaign at Maricunga recommending the project to advance to the Feasibility Study stage.
  · August 2012 - Completed a $10 million funding tranche from POSCAN.

  · Sept 2012 - Organized a consortium to bid on auction for lithium exploitation permit.
     

  

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·Participated in government auction for lithium exploitation permit in September 2012, and initially have been unsuccessful.

·December 2012 – Evaluating the production of potassium and other bi-products from the Maricunga properties.

 

We believe that if we are successful in advancing the Maricunga Project through the Feasibility Study stage, obtain the necessary Chilean government approvals/licenses, close and acquire additional land acreage to support further development of the Maricunga project, achieve a Definitive Feasibility Study, and raise the necessary capital, we could begin commercial production and begin generating revenues by the end of calendar year 2015. However, there can be no assurance that we will achieve our stated objectives.

 

We are led by a management team of seasoned industry veterans with extensive exploration, mining, minerals, finance and commercialization expertise and a Board of Directors, which includes global industry leaders who have advised, led and operated numerous mining entities and an experienced technical team, many of whom have worked on other junior lithium projects.

 

We are an exploration stage company and as such, we have never generated revenues from operations and currently do not expect to generate any such revenues in the near term.

 

Strategic Plan

 

Part of our strategic plan is to explore and develop our existing projects as well as to identify other synergistic opportunities with new projects with production potential that could also be advanced in an accelerated manner, with the goal of becoming a company with valuable lithium, potassium, nitrates and other industrial minerals properties.  Our primary objective is to become a low cost lithium producer as well as a significant producer of potassium nitrate. The key to achieving this objective is to become an integrated chemical company through the strategic acquisition and development of lithium assets as well as other assets that have by-product synergies. The third leg of our strategic plan is to develop improved technologies for the extraction of lithium from brines.

 

We have acquired a 60% interest in the Maricunga project, an advanced lithium and potassium chloride project in Chile, and we continue to explore other lithium and industrial minerals prospects in the region.

 

Our current strategy principally involves the exploration of the Maricunga property and the acquisition of a source of iodine and nitrate. On the Maricunga project, we have received $8 million of funding from POSCAN, which was spent to complete our Phase One Exploration and Development Plan. Such plan has been completed, and we have successfully produced a technical report in accordance with National Instrument 43-101 of the Canadian Securities Administrators for Maricunga. Upon receiving the NI 43-101 compliant resource report, we satisfied the conditions to receive an additional $10 million of funding from POSCAN. In August 2012, we received the $10 million second tranche funding as committed by POSCAN.

 

Subject to our assessment of the probability of obtaining a lithium exploitation permit from the government of Chile, we now expect to spend the necessary funds in order to complete a lithium production feasibility study on Maricunga (a “feasibility study” means a comprehensive study of a mineral deposit in which all geological, engineering, legal, operating, economic, social, environmental and other relevant factors are considered in sufficient detail that it could reasonably serve as the basis for a final decision whether to advance the development of the deposit for mineral production). In the event that the Company is successful in obtaining the lithium exploitation permit in some capacity (either through the Chilean Government or through the acquisition of “Grandfathered” properties not subject to the lithium exploitation permit), Li3 believes the Company would be required to raise approximately $230 million to $260 million to bring the project into production.

 

We were not successful obtaining a lithium exploitation license in a recent government auction process. In the event that we ultimately do not obtain the necessary permits for lithium exploitation for our current Maricunga properties, we will likely pursue a strategy for the production of potassium from those properties. Our Technical Report in accordance with National Instrument 43-101 of the Canadian Securities Administrators (“NI 43-101”) shows that potassium resources are available in the Maricunga properties. As part of our strategic plan, we always had plans to produce a potassium by-product alongside the lithium. Potassium exploitation does not require special permits and is exploitable via regular mining concessions, according to the Chilean Mining Code.

 

 

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During this process, we will still recover the lithium, but we will not be able to sell it without a permit. It is believed that this legislation could change in the future and thus we will be able to eventually sell our lithium production.

 

Our alternative would be producing potash that in combination with sodium nitrates will mix to produce potassium nitrate (KNO3). Potassium nitrate is a valuable product used in fertilizers. Potassium nitrate is used extensively as a fertilizer. Its advantage over commodity based fertilizers such as potash is that it provides two essential elements (nitrogen and potassium) in a single product. Because it has no sodium chloride content, it does not rot or damage delicate plants such as tobacco or the roots of fruit trees. As it is totally water soluble, naturally-derived potassium nitrate is especially suitable for use in organic farming and in hydroponic (soil free) agriculture. There is an increase in demand for this product, particularly in China, India, and Brazil. Chile is today the largest producer of potassium nitrate.

 

In the event we were to develop potassium nitrate production on the Maricunga properties, we would complete a feasibility study of the economics of the project and would be required to raise approximately $130 million to $150 million to bring the project into production.

 

To produce potassium nitrate, we will also be required to obtain a source of sodium nitrate which could come from either 1) developing a sodium nitrate and iodine project; or 2) buying the sodium nitrate from different producers in the north of Chile. The Atacama Desert in the north of Chile is rich in sodium nitrate. The Company previously had an option on the Alfredo iodine and nitrates project. At the time we decided not to pursue that option because we were focused on pursuing the Maricunga properties as a lithium project. This property as well as a number of other projects in the north of Chile with the similar characteristics that we have evaluated in the past may continue to be available. Also, there are a number of producers of iodine in the north of Chile that have nitrates stockpiled which, as nitrates by themselves, are not economically profitable. There would be opportunities for us to acquire these to complement our potassium production.

 

In parallel to these efforts, we continue to consider various alternatives to continue to pursue our lithium strategy. These include the acquisition of nearby properties within the same Maricunga Salar that do not require special lithium permits for exploitation.

 

Lithium Exploitation Permitting in Chile

 

The mining industry is heavily regulated and changes in international laws and regulations can be significant. Both mineral exploration and extraction require permits from various foreign, federal, state, provincial and local governmental authorities and are governed by laws and regulations, including those with respect to prospecting, mine development, mineral production, transport, export, taxation, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters.

 

In Chile, lithium is not exploitable via regular mining concessions. The Chilean Mining Code (“CMC”) establishes the reserve of lithium to the State of Chile and expressly provides that the exploration or exploitation of “non-concessible” substances (including lithium) can be performed only directly by the State of Chile, or its companies, or by means of administrative concessions or special operation contracts, fulfilling the requirements and conditions set forth by the President of the Republic of Chile for each case. Currently neither the Company nor its subsidiaries have sufficient authority (or permits) to exploit lithium in Chile. However, the government of Chile has introduced a process to increase the exploitation of lithium in Chile. In February 2012, the Chilean Government outlined plans to improve its worldwide competiveness. The Boost Competitive Agenda (a package of reforms intended to remove regulatory red tape, to encourage entrepreneurship, innovation, competition and boost productivity of the economy), is coordinated by the Office of Competiveness of the Ministry of Economy and was initiated in August, 2011. In February 2012, the Office of Competitiveness introduced ten new measures to extend the government’s commitment to ensure that development continues to reach Chile, including “Re-launching the Chilean Lithium Industry”, which Chile’s Minister of Economy stated seeks to lift restrictions and implement mechanisms to improve competitiveness within the industry, promote further investment and protect the country’s market share and standing in the world lithium market.

 

4
 

 

The Chilean Government’s Ministry of Mining established its first ever auction for the award of lithium, production quotas and licenses (Special Lithium Operations Contracts, or “CEOL”) which would permit the exploitation of an aggregate of 100,000 tons of lithium metal (approximately 530,000 tons of lithium carbonate equivalent) over a 20-year period, subject to a 7% royalty. In September 2012, we formed a consortium consisting of us, POSCO, Daewoo International Corp, and Mitsui & Co. (the “Consortium”) for the purpose of participating in such CEOL auction. As required under the rules established by the Ministry of Mining, on September 14 2012, the Consortium submitted its bid for the CEOLs.

 

On September 24, 2012, the Ministry of Mining opened the bids and informed us that the Consortium’s bid was not the winning bid.

 

On October 1, 2012, the Ministry of Mining informed us that the Chilean Government decided to invalidate the CEOL process and the results announced on September 24, 2012, due to an administrative error.

 

On October 5, 2012, we submitted a “Request for Reconsideration” to the Chilean Government, requesting it to reconsider the invalidation and award the CEOL to the second highest bidder – the Consortium.

 

On October 17, 2012, the Chilean Government ratified its decision to invalidate the CEOL process and not to accept any of the bids.

 

On October 22, 2012, the Company submitted another “Request for Reconsideration” to the Chilean Government. The Chilean Government had 30 days to answer the Company´s request.

 

On November 19, 2012, the Chilean Government rejected our Request for Reconsideration appeal.

 

On November 22, 2012, the Chilean Government ratified its decision to invalidate the CEOL process as well as rescinding the CEOL Basis, which defined the regulations that regulated the CEOL process.

 

We are currently in the process of preparing our presentation to the Chilean Comptroller. This is deemed to be the last administrative recourse before pursuing legal remedies.

 

Pending the outcome of the permitting process, we are exploring other strategies that could enable us to obtain rights to exploit lithium in Chile, whether from our flagship Maricunga project or otherwise. Additionally, we are evaluating the Maricunga project as a potential producer of potassium nitrate. However, there can be no assurance that we will be able to do so in the near future or at all. The Company will evaluate any future impairment based on consideration of economic and operational feasibility and a continuing assessment of its rights to exploit minerals under Chilean laws and regulations.

  

About This Offering

 

This prospectus relates to the public offering of up to 127,750,000 outstanding shares of our common stock plus 100,000 shares of our common stock issuable upon the exercise of our outstanding warrants (described under Selling Stockholders below) by the selling stockholders listed in this prospectus.  This prospectus shall also cover any additional shares of our common stock that shall become issuable by reason of any stock dividend, stock split, recapitalization or other similar transaction affected without the receipt of consideration that results in an increase in the number of the outstanding shares of our common stock.

 

On May 20, 2011, we and the Maricunga Sellers signed the Framework Contract of Mining Project Development and Buying and Selling of Shares of Sociedades Legales Mineras Litio 1 a 6 de la Sierra Hoyada de Maricunga, (the “Acquisition Agreement”) which in the aggregate, held the undeveloped mineral rights to the Marticunga property, whereby we, through our Chilean subsidiary, Minera Li Energy SPA (“Minera Li”), acquired from the Maricunga Sellers a 60% interest in each of the Maricunga Companies. The purchase price was $6,370,000 in cash, including amounts paid to agents, and 127,500,000 restricted shares of our common stock (the “Maricunga Purchase Price Shares”), (which had a fair value of $31,875,000), 50% of which was restricted from sale for nine months and the remainder of which is restricted from sale for 18 months as provided in the Acquisition Agreement (the “Lock-Up”). Additionally, we agreed to register the Maricunga Purchase Price Shares under the Securities Act.

 

In November and December 2009, we conducted a private placement offering of units of our securities at a price of $0.25 per unit (the “2009 Offering”). Each unit consisted of (i) one share of our common stock, (ii) a warrant representing the right to purchase one-half of one (0.5) share of common stock, exercisable for a period of five years at an exercise price of $0.50 per whole share (the “A Warrant”), and (iii) a warrant representing the right to purchase one-half of one (0.5) share of common stock, exercisable for a period of five years at an exercise price of $1.00 per whole share (the “B Warrant”). In the aggregate, the Company sold 14,000,000 Units for gross proceeds of $3,500,000 in the 2009 Offering. Both the shares of common stock and the A Warrants and B Warrants contained in the units carry “piggyback” registration rights.

 

The shares offered by this prospectus may be sold by the selling stockholders from time to time in the open market, through negotiated transactions or otherwise at market prices prevailing at the time of sale or at negotiated prices.  We will receive none of the proceeds from the sale of the shares by the selling stockholders.  However, we may receive the proceeds from the exercise of the warrants held by the selling stockholders, to the extent the warrants are not exercised on a cashless basis. We will bear all expenses of registration incurred in connection with this offering, but all selling and other expenses incurred by the selling stockholders will be borne by them.

 

 

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Shares of common stock offered by selling stockholders   127,750,000 shares of common stock, par value $0.001 per share, (ii) 50,000 shares issuable upon the exercise of 100,000 five-year A Warrants to purchase one-half share of our common stock, at an exercise price of $0.51 per whole share; and (iii) 50,000 shares issuable upon the exercise of 100,000 five-year B Warrants to purchase one-half share of our common stock, at an exercise price of $0.75 per whole share.
Shares of common stock outstanding before the offering   393,574,919
Shares of common stock outstanding after the offering (assuming full exercise of all of the outstanding Warrants in this offering)   393,674,919
Use of Proceeds   We will not receive any of the proceeds from the sales of our common stock by the selling stockholders. However, we may receive the proceeds from the exercise of the warrants held by the selling stockholders, to the extent the warrants are not exercised on a cashless basis.
Risk Factors   The common stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” below.
OTCBB symbol   LIEG

 

Corporate Information and History

 

Our principal executive offices are located at Marchant Pereira 150 Of. 803, Providencia, Santiago de Chile, Chile, and our telephone number at our principal executive offices is (56) 2-2896-9100. Our website address is www.li3energy.com. The information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or the registration statement of which it forms a part. The information on our website is not part of this prospectus.

 

Forward Stock Splits

 

All common stock share and per share numbers herein give retroactive effect to our 3.031578-for-1 forward stock split in the form of a dividend which was effected on July 29, 2008, and our 15.625-for-1 forward stock split in the form of a dividend which was effected on November 16, 2009, unless otherwise stated.

 

 

 

 

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RISK FACTORS

 

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this prospectus, before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our shares of common stock could decline, and you may lose all or part of your investment. You should read the section entitled “Cautionary Note Regarding Forward-Looking Statements” below for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this prospectus.

 

Risks Relating to the Company’s Business

 

We are an exploration stage company and currently have no revenues. Our business plan depends on our ability to explore for and develop mineral reserves and place any such reserves into extraction. Because we have a limited operating history, it is difficult to predict our future performance.

 

Although we were formed in June 2005, we have been and continue to be an exploration stage company. Therefore, we have limited operating and financial history available to help potential investors evaluate our past performance and the risks of investing in us. Moreover, our limited historical financial results may not accurately predict our future performance. Companies in their initial stages of development present substantial business and financial risks and may suffer significant losses. As a result of the risks specific to our new business and those associated with new companies in general, it is possible that we may not be successful in implementing our business strategy.

 

We have generated no revenues to date and do not anticipate generating any revenues in the near term. Our activities to date have been limited to capital formation, organization, acquisition of interests in mining properties and limited exploration on our projects, including digging and sampling of test pits and brine analysis on our Maricunga property. We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. Our success is significantly dependent on a successful exploration, mining and production program. Our operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We may be unable to locate exploitable quantities of mineral resources or operate on a profitable basis. We are in the exploration stage and potential investors should be aware of the difficulties normally encountered by enterprises in the exploration stage. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our Company.

 

Our past losses raise doubt about our ability to continue as a going concern.

 

The consolidated financial statements contained herein have been prepared assuming we will continue as a going concern. At September 30, 2012, we had no source of current revenue, had a cash balance of $3,795,310, positive working capital of $1,357,349 and negative cash flows from operations of $20,429,898 during the period from June 24, 2005 (inception) through September 30, 2012. On August 17, 2012, we received $9,499,990 in funding from POSCAN. We believe this positive working capital position is sufficient to maintain our basic operations, which does not include future exploration and acquisition activities, for at least the next 12 months. We cannot predict if and when we may generate profits.  After that, we expect to finance our operations primarily through future equity or debt financing. However, as discussed in the notes to our consolidated financial statements included in this Report, there exists substantial doubt about our ability to continue as a going concern because there is no assurance that we will be able to obtain such capital, through equity or debt financing, or any combination thereof, on satisfactory terms or at all.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Mineral operations are subject to applicable law and government regulation. Even if we discover a mineral resource in a commercially exploitable quantity, these laws and regulations could restrict or prohibit the exploitation of that mineral resource.

 

Both mineral exploration and extraction require permits from various foreign, federal, state, provincial and local governmental authorities and are governed by laws and regulations, including those with respect to prospecting, mine development, mineral production, transport, export, taxation, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. There can be no assurance that we will be able to obtain or maintain any of the permits required for the continued exploration of our mineral properties or for the construction and operation of a mine on our properties at economically viable costs.

 

In Chile, lithium is not exploitable via regular mining concessions. The Chilean Mining Code (“CMC”) establishes the reserve of lithium to the State of Chile and expressly provides that the exploration or exploitation of “non-concessible” substances (including lithium) can be performed only directly by the State of Chile, or its companies, or by means of administrative concessions or special operation contracts, fulfilling the requirements and conditions set forth by the President of the Republic of Chile for each case. Currently, neither the Company nor its subsidiaries have sufficient authority (or permits) to explore and exploit lithium in Chile.

 

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The Chilean Government’s Ministry of Mining established its first ever auction for the award of lithium, production quotas and licenses (Special Lithium Operations Contracts, or “CEOL”) which would permit the exploitation of an aggregate of 100,000 tons of lithium metal (approximately 530,000 tons of lithium carbonate equivalent) over a 20 year period, subject to a seven percent royalty. In September 2012, we formed a consortium consisting of us, POSCO, Daewoo International Corp, and Mitsui & Co. (the “Consortium”) for the purpose of participating in such CEOL auction. As required under the rules established by the Ministry of Mining, on September 14, 2012, the Consortium submitted its bid for the CEOLs.

 

On September 24, 2012, the Ministry of Mining opened the bids and informed us that the Consortium’s bid was not the winning bid.

 

On October 1, 2012, the Ministry of Mining informed us that the Chilean Government decided to invalidate the CEOL process and the results announced on September 24, 2012, due to an administrative error.

 

On October 5, 2012, we submitted a “Request for Reconsideration” to the Chilean Government, requesting it to reconsider the invalidation and award the CEOL to the second highest bidder – the Consortium.

 

On October 17, 2012, the Chilean Government ratified its decision to invalidate the CEOL process and not to accept any of the bids.

 

On October 22, 2012, the Company submitted another “Request for Reconsideration” to the Chilean Government. The Chilean Government had 30 days to answer the Company´s request.

 

On November 19, 2012, the Chilean Government rejected our Request for Reconsideration appeal.

 

On November 22, 2012, the Chilean Government ratified its decision to invalidate the CEOL process as well as rescinding the CEOL Basis, which defined the regulations that regulated the CEOL process.

 

We are currently in the process of preparing our presentation to the Chilean Comptroller. This is deemed to be the last administrative recourse before pursuing legal remedies.

 

Pending the outcome of the permitting process, we are exploring other strategies that could enable us to obtain rights to exploit lithium in Chile, whether from our flagship Maricunga project or otherwise. Additionally, we are evaluating the Maricunga project as a potential producer of potassium nitrate. However, there can be no assurance that we will be able to do so in the near future or at all.

 

Accordingly, there can be no assurance that we will be able to obtain the permits necessary to exploit any minerals that our exploration activities discover in a timely manner or at all. Any such delay or failure would have a material adverse effect on our development horizon for Maricunga and our prospects.

 

Our option on the Alfredo Property has expired, and we may have a continuing obligation in the event we develop future iodine nitrate properties in Chile.

 

On August 3, 2010, we signed an agreement to acquire Alfredo Holdings, Ltd. which held an option to acquire six mining concessions in Pozo Almonte, Chile. We allowed the option to expire because we determined that the project was not economically viable. Pursuant to an amendment to our agreement with the Alfredo Sellers, if and when certain milestones are achieved with respect to any future Li3 Energy Chilean iodine nitrate project, we must make additional payments to the Alfredo Sellers in an aggregate amount of up to $5.5 million.

 

All of our properties are in the exploration stage. Investment in exploration projects increases the risks inherent in our mining activities. There is no assurance that we can establish the existence of any mineral resource on any of our properties in commercially exploitable quantities, and our mining operations may not be successful.

 

We have not established that any of our mineral properties contains any meaningful levels of mineral reserves. There can be no assurance that future exploration and mining activities will be successful.

 

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A mineral reserve is defined by the SEC in its Industry Guide 7 (which can be viewed at http://www.sec.gov/divisions/corpfin/forms/industry.html.secguide7) as that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. There can be no assurance that we will ever establish any mineral reserves.

 

Even if we do eventually discover a meaningful mineral reserve on one or more of our properties, there can be no assurance that we will be able to develop our properties into producing mines and extract those resources. Both mineral exploration and development involve a high degree of risk and few properties which are explored are ultimately developed into producing mines. Furthermore, we cannot be sure that an overall exploration success rate or extraction operations within a particular area will ever come to fruition and, in any event, production rates inevitably decline over time. The commercial viability of an established mineral deposit will depend on a number of factors including, by way of example, the size, grade and other attributes of the mineral deposit, the proximity of the resource to infrastructure such as a smelter, roads and a point for shipping, government regulation and market prices. Most of these factors will be beyond our control, and any of them could increase costs and make extraction of any identified mineral resource unprofitable.

 

We have limited financial resources and may not be able to fund our anticipated exploration activities. If we are unable to fund our exploration activities, our potential profitability will be adversely affected.

 

Our anticipated exploration activities will require financial resources substantially in excess of our current working capital. If we are not able to finance our exploration activities, then we will be unable to identify commercially exploitable resources even if present on our properties. If we fail to adequately support our exploration activities, it could have a material adverse effect on our results of operations and the market price of our shares. There can be no assurance that capital will be available to us when needed, on favorable terms or at all.

 

If we establish the existence of a mineral resource on any of our properties in a commercially exploitable quantity, we will require additional capital in order to develop the property into a producing mine. If we are unable to obtain additional funding, our business operations will be harmed and if we do obtain additional financing, existing shareholders may suffer substantial dilution.

 

If we do discover mineral resources in commercially exploitable quantities on any of our properties, we will be required to expend substantial sums of money to establish the extent of the resource, develop processes to extract it and develop extraction and processing facilities and infrastructure. Although we may derive substantial benefits from the discovery of a major deposit, there can be no assurance that such a resource will be large enough to justify commercial operations, nor can there be any assurance that we will be able to raise the funds required for development on a timely basis.

 

We have raised some capital to date, including through the sale of equity securities and convertible notes, but we currently do not have any contracts or firm commitments for additional financing. There can be no assurance that additional financing will be available in amounts or on terms acceptable to us, if at all. An inability to obtain additional capital would restrict our ability to grow and could diminish our ability to continue to conduct our business operations. If we are unable to obtain additional financing, we will likely be required to curtail exploration and development plans and possibly cease operations. Any additional equity financing may involve substantial dilution to then existing shareholders.

 

Newer battery and/or fuel cell technologies could decrease demand for lithium over time.

 

Many materials and technologies are being researched and developed with the goal of making batteries lighter, more efficient, faster charging and less expensive. Some of these technologies could be successful and could impact demand for lithium batteries in personal electronics, electric and hybrid vehicles and other applications. Advances in nanotechnology, in particular, offer the prospect of significantly better batteries in the future. For example, researchers at Stanford University have recently demonstrated ultra-lightweight, bendable batteries and super capacitors made from paper coated with ink made of carbon nanotubes and silver nanowires; the material charges and discharges very quickly, making it potentially useful in hybrid and electric vehicles, which need rapid power for acceleration and would benefit from quicker charging than is available with current technologies. We cannot predict which new technologies may ultimately prove to be commercializable and on what time horizon. While lithium battery technology is currently among the best available for electronics, vehicles and other applications, commercialized battery technologies that offer superior weight, capacity, charging time and/or cost could significantly adversely affect the demand for lithium in the future and thus could significantly adversely impact our prospects and future revenues.

 

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Mineral exploration and development is subject to extraordinary operating risks. We do not currently insure against these risks. In the event of a cave-in or similar occurrence, our liability may exceed our resources, which could have an adverse impact on us.

 

Mineral exploration, development and production involve many risks which even a combination of experience, knowledge and careful evaluation may not be able to overcome. Our operations will be subject to all the hazards and risks inherent in the exploration for mineral resources and, if we discover a mineral resource in commercially exploitable quantity, our operations could be subject to all of the hazards and risks inherent in the development and production of resources, including liability for pollution, cave-ins or similar hazards against which we cannot insure or against which we may elect not to insure. Any such event could result in work stoppages and damage to property, including damage to the environment. We do not currently maintain any insurance coverage against these operating hazards. The payment of any liabilities that arise from any such occurrence would have a material adverse impact on us.

 

Lithium, iodine and nitrates prices are subject to unpredictable fluctuations.

 

We may derive revenues, if any, either from the extraction and sale of lithium, iodine and potassium nitrate, as well as other potentially economic salts produced from the lithium salar brines, or from the sale of our mineral resource properties. The price of these commodities may fluctuate widely, and is affected by numerous factors beyond our control, including international, economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates, global or regional consumptive patterns, speculative activities, increased production due to new extraction developments and improved extraction and production methods and technological changes in the markets for the end products. The effect of these factors on the price of these minerals, and therefore the economic viability of any of our exploration properties and projects, cannot accurately be predicted.

 

The mining industry is highly competitive, and we face competition from many established domestic and foreign companies.  We may not be able to compete effectively with these companies.

 

The markets in which we operate are highly competitive.  The mineral exploration, development, and production industry is largely un-integrated.  We compete against numerous well-established national and foreign companies in every aspect of the mineral mining industry.  Some of our competitors have longer operating histories and greater technical facilities, and significantly greater recognition in the market and financial and other resources, than we.  We may not compete effectively with other exploration companies in locating and acquiring mineral resource properties, and customers may not buy any or all of the mineral products that we expect to produce.

 

Because we are small and have limited capital, we may have to limit our exploration and developmental mining activity which may result in a loss of your investment.

 

Because we are a small exploration stage company and do not have much capital, we may have to limit our exploration and production activity.  As such, we may not be able to complete an exploration program that is as thorough as we would like.  In that event, existing reserves may go undiscovered.  Without finding reserves, we cannot generate revenues and you may lose any investment you make in our shares.

 

Compliance with environmental and other government regulations could be costly and could negatively impact production.

 

Our operations are subject to numerous federal, state and local laws and regulations governing the operation and maintenance of our facilities and the discharge of materials into the environment or otherwise relating to environmental protection.  These laws and regulations may:

 

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·require that we acquire permits before commencing extraction operations;
·restrict the substances that can be released into the environment in connection with mining and extraction activities;
·limit or prohibit mining activities on protected areas such as wetland or wilderness areas; and
·require remedial measures to mitigate pollution from former operations, such as dismantling abandoned production facilities.

 

Under these laws and regulations, we could be liable for personal injury and clean-up costs and other environmental and property damages, as well as administrative, civil and criminal penalties.  We do not believe that insurance coverage for environmental damages that occur over time is available at a reasonable cost, and we do not maintain any such insurance.  Also, we do not believe that insurance coverage for the full potential liability that could be caused by sudden and accidental environmental damages is available at a reasonable cost.  Accordingly, we may be subject to liability or we may be required to cease production (subsequent to any commencement) from properties in the event of environmental damages.

 

We may be unable to amend the mining claims that we are seeking to acquire to cover the primary minerals that we plan to develop.

 

Our business plan includes acquisition, exploration and development of lithium brine properties.  However, we may pursue this goal by acquiring salt-mining claims and/or options or other interests in salt-mining claims or other types of claims, which we intend to seek to have amended to cover lithium extraction.  There can be no assurance that we will be successful in amending any such claims timely, economically or at all.  See Risk Factors - “Mineral operations are subject to applicable law and government regulation” above.

 

We may have difficulty managing growth in our business.

 

Because of the relatively small size of our business, growth in accordance with our long-term business plans, if achieved, will place a significant strain on our financial, technical, operational and management resources.  As we increase our activities and the number of projects we are evaluating or in which we participate, there will be additional demands on our financial, technical, operational and management resources.  The failure to continue to upgrade our technical, administrative, operating and financial control systems or the occurrence of unexpected expansion difficulties, including the recruitment and retention of required personnel could have a material adverse effect on our business, financial condition and results of operations and our ability to timely execute our business plan.

 

If we are unable to keep our key management personnel, then we are likely to face significant delays at a critical time in our corporate development and our business is likely to be damaged.

 

Our success depends upon the skills, experience and efforts of our management and other key personnel, including our Chief Executive Officer.  As a relatively new company, much of our corporate, scientific and technical knowledge is concentrated in the hands of a few individuals.  We do not have employment agreements with any of our employees other than our Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and Vice President.  We do not maintain key-man life insurance on any of our management or other key personnel.  The loss of the services of one or more of our present management or other key personnel could significantly delay our exploration and development activities as there could be a learning curve of several months or more for any replacement personnel.  Furthermore, competition for the type of highly skilled individuals we require is intense and we may not be able to attract and retain new employees of the caliber needed to achieve our objectives.  Failure to replace key personnel could have a material adverse effect on our business, financial condition and operations.

 

Difficult conditions in the global capital markets may significantly affect our ability to raise additional capital to continue operations.

 

The ongoing worldwide financial and credit upheaval may continue indefinitely.  Because of reduced market liquidity, we may not be able to raise additional capital when we need it.  Because the future of our business will depend on our ability to explore and develop the mineral resources on our existing properties and to complete the acquisition of one or more additional mineral resource properties for which, most likely, we will need additional capital, we may not be able to complete such development and acquisition projects or develop or acquire revenue producing assets.  As a result, we may not be able to generate income and, to conserve capital, we may be forced to curtail our current business activities or cease operations entirely.

 

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Being a public company has increased our expenses and administrative workload.

 

As a public company, we must comply with various laws and regulations, including the Sarbanes-Oxley Act of 2002 and related rules of the SEC.  Complying with these laws and regulations requires the time and attention of our board of directors and management, and increases our expenses.  Among other things, we must:

 

·maintain and evaluate a system of internal control over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;
·maintain policies relating to disclosure controls and procedures; prepare and distribute periodic reports in compliance with our obligations under federal securities laws;
·institute a more comprehensive compliance function, including with respect to corporate governance; and
·involve to a greater degree our outside legal counsel and accountants in the above activities.

 

In addition, being a public company has made it more expensive for us to obtain director and officer liability insurance.  In the future, we may be required to accept reduced coverage or incur substantially higher costs to obtain this coverage.  These factors could also make it more difficult for us to attract and retain qualified executives and members of our board of directors, particularly directors willing to serve on an audit committee which we expect to establish.

 

Risks Related to our Common Stock:

 

There is not now, and there may not ever be, an active market for our common stock.

 

There currently is a limited public market for our common stock.  Further, although our common stock is currently quoted on the OTC Bulletin Board (the “OTCBB”), trading of our common stock may be extremely sporadic.  For example, several days may pass before any shares may be traded.  As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations of the price of, our common stock.  Accordingly, investors must assume they may have to bear the economic risk of an investment in our common stock for an indefinite period of time.  There can be no assurance that a more active market for our common stock will develop, or if one should develop, there is no assurance that it will be sustained.  This severely limits the liquidity of our common stock, and would likely have a material adverse effect on the market price of our common stock and on our ability to raise additional capital.

 

We cannot assure you that our common stock will become liquid or that it will be listed on a securities exchange.

 

Until our common stock is listed on a national securities exchange such as the New York Stock Exchange or the Nasdaq National Market, we expect our common stock to remain eligible for quotation on the OTCBB, or on another over-the-counter quotation system.  In those venues, however, an investor may find it difficult to obtain accurate quotations as to the market value of our common stock.  In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors.  Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock.  This would also make it more difficult for us to raise capital.

 

Our common stock is subject to the “penny stock” rules of the SEC and FINRA’s sales practice requirements, and the trading market in our common stock is limited, which makes transactions in our common stock cumbersome and may reduce the value of an investment in the stock.

 

The SEC has adopted Rule 15g-9, which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions.  For any transaction involving a penny stock, unless exempt, the rules require:

 

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·that a broker or dealer approve a person’s account for transactions in penny stocks; and
·the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

 

·obtain financial information and investment experience objectives of the person; and
·make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form sets forth:

 

·the basis on which the broker or dealer made the suitability determination; and
·that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of common stock and cause a decline in the market value of stock.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions.  Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

In addition to the "penny stock" rules promulgated by the SEC, the Financial Industry Regulatory Authority (FINRA) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information.  Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers.  FINRA’s requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.

 

The price of our common stock may become volatile, which could lead to losses by investors and costly securities litigation.

 

The trading price of our common stock is likely to be highly volatile and could fluctuate in response to factors such as:

 

·actual or anticipated variations in our operating results;
·announcements of developments by us, our strategic partners or our competitors;
·announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
·adoption of new accounting standards affecting our industry;
·additions or departures of key personnel;
·sales of our common stock or other securities in the open market; and
·other events or factors, many of which are beyond our control.

 

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The stock market is subject to significant price and volume fluctuations.  In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been initiated against such company.  Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our management’s attention and resources, which could harm our business and financial condition.

 

Compliance with U.S. securities laws, including the Sarbanes-Oxley Act, will be costly and time-consuming.

 

We are a reporting company under U.S. securities laws and are obliged to comply with the provisions of applicable U.S. laws and regulations, including the Securities Act of 1933 (the “Securities Act”), the Exchange Act, and the Sarbanes-Oxley Act of 2002 and the related rules of the SEC, and the rules and regulations of the relevant U.S. market, in each case, as amended from time to time.  Preparing and filing annual and quarterly reports and other information with the SEC, furnishing audited reports to stockholders and other compliance with these rules and regulations will involve a material increase in regulatory, legal and accounting expenses and the attention of management, and there can be no assurance that we will be able to comply with the applicable regulations in a timely manner, if at all.

 

We do not anticipate dividends to be paid on our common stock, and investors may lose the entire amount of their investment.

 

Cash dividends have never been declared or paid on our common stock, and we do not anticipate such a declaration or payment for the foreseeable future.  We expect to use future earnings, if any, to fund business growth.  Therefore, stockholders will not receive any funds absent a sale of their shares.  We cannot assure stockholders of a positive return on their investment when they sell their shares, nor can we assure that stockholders will not lose the entire amount of their investment.

 

If securities analysts do not initiate coverage or continue to cover our common stock or publish unfavorable research or reports about our business, this may have a negative impact on the market price of our common stock.

 

The trading market for our common stock may be affected by, among other things, the research and reports that securities analysts publish about our business and the Company.  We do not have any control over these analysts.  There is no guarantee that securities analysts will cover our common stock.  If securities analysts do not cover our common stock, the lack of research coverage may adversely affect its market price.  If we are covered by securities analysts, and our stock is the subject of an unfavorable report, our stock price and trading volume would likely decline.  If one or more of these analysts ceases to cover us or fails to publish regular reports on us, then we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.

 

State Blue Sky registration - potential limitations on resale of the shares.

 

The holders of the shares of our common stock and persons who desire to purchase the shares in any trading market that might develop in the future, should be aware that there may be significant state law restrictions upon the ability of investors to resell the securities.  Accordingly, investors should consider the secondary market for our securities to be a limited one.  It is the intention of our management to seek coverage and publication of information regarding us in an accepted publication which permits a “manuals exemption.”  This manuals exemption permits a security to be sold by shareholders in a particular state without being registered if the company issuing the security has a listing for that security in a securities manual recognized by that state.  The listing entry must contain (i) the names of issuers, officers, and directors, (ii) an issuer’s balance sheet, and (iii) a profit and loss statement for either the fiscal year preceding the balance sheet or for the most recent fiscal year of operations.  The principal accepted manuals are those published by Standard and Poor’s, and Mergent, Inc.  Many states expressly recognize these manuals.  A smaller number of states declare that they recognize securities manuals, but do not specify the recognized manuals.  Among others, the following states do not have any provisions and, therefore, do not expressly recognize the manuals exemption:  Alabama, California, Georgia, Illinois, Kentucky, Louisiana, Montana, South Dakota, Tennessee, Vermont, and Wisconsin.

 

You may experience dilution of your ownership interests because of the future issuance of additional shares of our common stock.

 

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In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders and the purchasers of our common stock offered hereby.  We are currently authorized to issue an aggregate of 1,000,000,000 shares of capital stock consisting of 990,000,000 shares of common stock and 10,000,000 shares of preferred stock with preferences and rights to be determined by our Board of Directors.  As of January 14, 2013, there are 393,574,919 shares of our common stock and no shares of our preferred stock outstanding.  There are 4,200,000 shares of our common stock reserved for issuance under our 2009 Equity Incentive Plan (the “2009 Plan”), of which we have 1,450,000 nonqualified stock options and 950,000 restricted stock units outstanding. Furthermore, we have committed to grant Restricted Stock Units with respect to an aggregate of 900,000 shares; however, we do not currently have enough shares authorized for issuance under our 2009 Plan to satisfy all of these obligations. In addition, there are 160,395,585 shares of our common stock issuable upon the exercise of outstanding warrants and another approximately 20,962,267 shares issuable upon conversion of outstanding convertible promissory notes.

 

Any future issuance of our equity or equity-backed securities may dilute then-current stockholders’ ownership percentages and could also result in a decrease in the fair market value of our equity securities, because our assets would be owned by a larger pool of outstanding equity.  As described above, we may need to raise additional capital through public or private offerings of our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock.  We may also issue such securities in connection with hiring or retaining employees and consultants (including stock options issued under our equity incentive plans), as payment to providers of goods and services, in connection with future acquisitions or for other business purposes.  Our Board of Directors may at any time authorize the issuance of additional common or preferred stock without common stockholder approval, subject only to the total number of authorized common and preferred shares set forth in our certificate of incorporation.  The terms of equity securities issued by us in future transactions may be more favorable to new investors, and may include dividend and/or liquidation preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect.  Also, the future issuance of any such additional shares of common or preferred stock or other securities may create downward pressure on the trading price of the common stock.  There can be no assurance that any such future issuances will not be at a price (or exercise prices) below the price at which shares of the common stock are then traded.

 

We may obtain additional capital through the issuance of preferred stock, which may limit your rights as a holder of our common stock.

 

Without any stockholder vote or action, our Board of Directors may designate and approve for issuance shares of our preferred stock.  The terms of any preferred stock may include priority claims to assets and dividends and special voting rights which could limit the rights of the holders of our common stock.  The designation and issuance of preferred stock favorable to current management or stockholders could make any possible takeover of us or the removal of our management more difficult.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward looking statements that involve risks and uncertainties, principally in the sections entitled “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements other than statements of historical fact contained in this prospectus, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Risk Factors” or elsewhere in this prospectus, which may cause our or our industry’s actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assumes no obligation to update any such forward-looking statements.

 

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You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this prospectus. Before you invest in our securities, you should be aware that the occurrence of the events described in the section entitled “Risk Factors” and elsewhere in this prospectus could negatively affect our business, operating results, financial condition and stock price. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this prospectus to conform our statements to actual results or changed expectations.

 

DIVIDEND POLICY

 

We have never declared any cash dividends with respect to our common stock.  Future payment of dividends is within the discretion of our Board of Directors and will depend on our earnings, capital requirements, financial condition and other relevant factors. We presently intend to retain future earnings, if any, for use in our business and have no present intention to pay cash dividends on our common stock.

 

USE OF PROCEEDS

 

We will not receive any of the proceeds from the sale of the shares and warrants described in this prospectus. However, we may receive up to $31,500 upon the exercise of the warrants if the holders exercise them for cash. If some or all of the warrants are exercised, the money we receive will be used for general corporate purposes, including working capital requirements.

 

PENNY STOCK CONSIDERATIONS

 

Our common stock will be a penny stock, therefore, trading in our securities is subject to penny stock considerations. Broker-dealer practices in connection with transactions in “penny stocks” are regulated by certain penny stock rules adopted by the SEC.

 

Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system). Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit their market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.

  

SELLING STOCKHOLDERS

 

The common shares and warrants held by selling stockholders being registered for resale consist of: (i) 127,750,000 shares of common stock, par value $0.001 per share, (ii) 50,000 shares issuable upon the five year A Warrant to purchase one-half share of our common stock, at an exercise price of $0.51 per whole share; and (iii) 50,000 shares issuable upon the five year B Warrant to purchase one-half share of our common stock, at an exercise price of $0.75 per whole share.

 

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The following table provides certain information with respect to the selling stockholders’ beneficial ownership of our common stock as of January 14, 2013, the total number of shares they may sell under this prospectus from time to time, and the number of shares they will own thereafter assuming no other acquisitions or dispositions of our common stock. For the table below, beneficial ownership of our common stock is determined in accordance with the rules of the Securities and Exchange Commission and includes any shares of common stock over which a selling stockholder exercises sole or shared voting or investment power, or of which a selling stockholder has a right to acquire ownership at any time within 60 days of January 14, 2013. The ability of a selling stockholder to acquire ownership of such shares may be limited by provisions not allowing the selling stockholder to beneficially own more than 4.99% of the Company. However, for the calculation of the below table, such provisions were not taken into account. The selling stockholders can offer all, some or none of their shares, thus we have no way of determining the number they will hold after this offering. We have therefore prepared the table below on the assumption that the selling stockholders will sell all shares covered by this prospectus.

 

Name of Selling
Stockholder
  Shares
Beneficially
Owned prior
to Offering
   Percentage
Beneficially
Owned
prior to
Offering
   Shares to Offer   Shares
Beneficially
Owned after
Offering
   Percentage
Beneficially
Owned After
Offering
 
Calcata Sociedad
Anónima S.A. (1)
   51,041,666    13.0%   51,041,666    -    - 
Campos Mineral Asesorias Profesionales Limitad (2)   18,375,000    4.7%   18,375,000    -    - 
Christian Hidalgo Reyes   16,333,334    4.2%   16,333,334    -    - 
Roberto Gaona Velasco(3)   16,333,334    4.2%   16,333,334    -    - 
Jorge Barrozo Sankan   12,250,000    3.1%   12,250,000    -    - 
Jean Pierre Naciff Catalano   8,166,666    2.1%   8,166,666    -    - 
Legal Collection Services Inc.(4)   1,666,667   *    1,666,667    -    - 
Construcciones Inversiones y Rentas El Retamo Limitada (5)   1,666,667   *    1,666,667    -    - 
Jose Banus Nogue   2,444,445   *    1,111,111    -    - 
Asesorias JVS Limitada (6)   555,555   *    555,555    -    - 
Jim Fallon   500,000   *    250,000    250,000   * 
Paul Roberts   100,000   *    100,000    -    - 
Total   129,433,334         127,850,000           

 

*Less than 1%

 

1)Entity is managed by its Chief Executive Officer, Paolo Cifuentes Corona.

2)Entity is managed by Patricio Campos, a Director of the Company.

3)Roberto Gaona Velaso is the General Manager of Minera Li Energy SPA, a subsidiary of the Company.

4)Entity is managed by Carlos Esteban Díaz Egaña.

5)Entity is managed by Juan Carlos Méndez González.

6)Entity is managed by Jorge Valenzuela C.

 

Except as disclosed in the table above, to our knowledge, none of the selling stockholders or beneficial owners:

 

has had a material relationship with us other than as a stockholder at any time within the past three years;
has ever been one of our officers or directors or an officer or director of our affiliates; or
are broker-dealers or affiliated with broker-dealers.

 

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With respect to those selling stockholders noted above who are or were affiliated with registered broker-dealers, each has represented to us that the shares being registered for resale were purchased in the ordinary course of business and, at the time of purchase, such selling stockholder had no agreements or understandings, directly or indirectly, with any person to distribute the shares.

 

DESCRIPTION OF BUSINESS

 

Our Company

 

Li3 Energy, Inc. is a South America based and U.S. listed exploration company in the lithium and mining sector. We aim to acquire, develop and commercialize a significant portfolio of lithium brine deposits in the Americas. We are currently focused on further exploring, developing and commercializing our 60% controlling interest in our flagship Maricunga Project, located in the northeast section of the Salar de Maricunga in Region III of Atacama, in northern Chile. The recently completed technical report produced in accordance with National Instrument 43 101 of the Canadian Securities Administrator proves Maricunga’s attractive lithium and potassium grades and recommends the project to advance to the Feasibility Study stage. We are seeking to be a low cost producer of lithium, potassium nitrate and other mineral products.

 

In Chile, our assets consist of 1,438 hectares located within the Salar de Maricunga as well as 4,900 hectares of other prospective land holdings that are strategically located within close proximity to the Salar de Maricunga that could serve as potential processing sites for the project. Together, our total Chilean land holdings consist of 6,338 hectares, and to the best of our knowledge, we are one of the only companies with an advanced stage lithium and potassium project within Salar de Maricunga. We plan to continue exploring other synergistic opportunities to further augment and strengthen this property and its land portfolio throughout the region.

 

Through our strategic partners, we have been evaluating the use of advanced process technologies that may further improve upon the economics and shorten the commercial production timeline of its Maricunga Project. We plan to further evaluate these technologies in pilot/demonstration and test facilities that will measure both effectiveness and economic feasibility when measured against the conventional lithium commercialization process.

 

Upon Li3 obtaining the necessary permits to exploit lithium, our goals are to: a) advance the Maricunga project to the Feasibility Study stage; b) support the global implementation of clean and green energy initiatives; c) meet growing lithium market demand; and d) become a mid-tier, low cost secondary supplier of lithium, potassium nitrate, and other strategic minerals, serving global clients in the energy, fertilizer and specialty chemical industries. A summary of our key recent activities is found below:

 

·May 2011 - Completed acquisition of 60% Controlling Interest in Maricunga Project.
·June 2011 - Maricunga identified as “Top 11 Lithium Projects in the World” - signumBOX.
·August 2011 - Strategic Partnership with POSCO Canada Ltd., a wholly owned subsidiary of POSCO (NYSE: PKX), which established an $18 million Exploration and Development program for Maricunga, among other things.
·September 2011 - Completed $8 million funding tranche with POSCAN and launched $8 million Phase One Plan.
·January 2012 - Executed agreement with R3 Fusion Inc. for Pilot / Demonstration Facility.
·March 2012 - MOU with POSCO to construct Test Facility (advanced process technology).
·April 2012 - As required by POSCAN, we issued a technical report, which was prepared in accordance with National Instrument 43-101 of the Canadian Securities Administrators validating our earlier exploration campaign at Maricunga recommending the project to advance to the Feasibility Study stage.
·August 2012 - Completed a $10 million funding tranche from POSCAN.
·Sept 2012 - Organized a consortium to bid on auction for lithium exploitation permit.
·Participated in government auction for lithium exploitation permit in September 2012, and initially have been unsuccessful.
·December 2012 – Evaluating the production of potassium and other bi-products from the Maricunga properties.

 

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We believe that if we are successful in advancing the Maricunga Project through the Feasibility Study stage, obtain the necessary Chilean government approvals/licenses, close and acquire additional land acreage to support further development of the Maricunga project, achieve a Definitive Feasibility Study, and raise the necessary capital, we could begin commercial production and begin generating revenues by the end of calendar year 2015. However, there can be no assurance that we will achieve our stated objectives.

 

We are led by a management team of seasoned industry veterans with extensive exploration, mining, minerals, finance and commercialization expertise and a Board of Directors, which includes global industry leaders who have advised, led and operated numerous mining entities and an experienced technical team, many of whom have worked on other junior lithium projects.

 

We are an exploration stage company and as such, we have never generated revenues from operations and currently do not expect to generate any such revenues in the near term.

 

Strategic Plan

 

Part of our strategic plan is to explore and develop our existing projects as well as to identify other synergistic opportunities with new projects with production potential that that could also be advanced in an accelerated manner, with the goal of becoming a company with valuable lithium and other industrial minerals properties.  Our primary objective is to become a low cost lithium producer as well as a significant producer of potassium nitrate. The key to achieving this objective is to become an integrated chemical company through the strategic acquisition and development of lithium assets as well as other assets that have by-product synergies. The third leg of our strategic plan is to develop improved technologies for the extraction of lithium from brines.

 

Acquisition of Additional Accretive Land Acreage for Potential Processing Facility

 

On May 11, 2012, we signed an agreement to receive 100% ownership from a group of 18 concessions, named Verde 1, 2, 3, 4, 5, 6, 7, and Amarillo 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12. These concessions are located in Region III of Atacama in northern Chile, 55km northeast of the city of Copiapo and 70 km west of the Maricunga Project. Collectively, these concessions cover a total area of 4,900 hectares. We paid approximately $10,000 to acquire the property concessions. We are evaluating Llano de Varas as a potential site for processing facilities.

 

Value added Nitrate Project

 

We believe that Maricunga, when combined with a potential nitrate acquisition, would create the following rooted synergies:

 

·Based on preliminary chemical analysis, the Maricunga Project has the potential to produce lithium as well as a significant amount of potassium chloride. We believe that production of potassium would significantly improve the economics of any potential Nitrate Acquisition, as sodium nitrate from the caliche deposit can be reacted with potassium chloride (potash) to produce a value added potassium nitrate (KNO3). Potassium nitrate is a valuable product used in fertilizers, which could create additional revenue.
·A stand-alone potential Nitrate project would produce iodine and a sodium sulfate byproduct, which is needed to remove magnesium from brines in order to purify the lithium product. The sodium sulfate can then be used as a low cost raw material which can be employed in Maricunga, subsequently improving its economics. This would generate a credit for the lithium carbonate (Li2CO3) produced at Maricunga.

 

 

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Evaluation of Advanced Process Technologies

 

As such, the third aspect of our strategic plan involves exploring the use of technologies that, when measured against the conventional approach to lithium commercialization could possibly improve the project economics and shorten time to market. We believe that the lithium industry (specifically the juniors) has not embarked upon much R&D efforts addressing several critical areas that we hope to gain a competitive edge if it can improve upon:

 

1) The approximately 60% lithium yield loss from brine to end-product;

2) The land and capital intensive (CAPEX) foot-print necessary for solar evaporation ponds; and

3) The typical 4 year speed to market of a typical lithium project from start to commercial production.

 

In the current lithium market, in which three large global companies supply 80% of the world’s lithium with few mid-tier producers, we feel that in order to compete, we must address these critical areas. Accordingly, we have sought strategic partners who we believe are capable of deploying both the intellectual and financial capital necessary to assist us in these initiatives.

 

Project Overviews

 

Chile - Maricunga Project

 

Location

 

The Salar de Maricunga is located in Region III of northern Chile at an elevation of approximately 3,750 m. It is classified as a mixed type of salar of the Na-Cl-Ca/SO4 system. The Salar de Maricunga was originally sampled by CORFO (the Chilean governmental organization that promotes economic growth in Chile) in the early 1980s. Based on the due diligence conducted in connection with the acquisition of our Maricunga interest and on our recent issued technical report, which was prepared in accordance with National Instrument 43-101 of the Canadian Securities Administrator (“NI 43-101 report”), our management believes the local brine contains high grades of lithium and potassium with reasonable magnesium levels and low sulphate content and the salar had a highly productive aquifer system within the extensive colluvial/alluvial sediments surrounding the salar.

 

Location of the Salar de Maricunga

 

 

Maricunga Project within the Salar

 

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The Maricunga property is undeveloped and covers an area of approximately 3,553 acres (1,438 hectares), comprising six exploitation mining concessions granted by the Chilean government, each held by one of the Maricunga Companies, and is located in the northeast section of the Salar de Maricunga in Region III of Atacama in northern Chile. Each mining concession grants the owner the right to explore for, but not develop commercially, mineral deposits at the Maricunga property.  These mining properties are not subject to royalties or other agreements.  However, we must pay annual licenses in March of each year, aggregating approximately $15,000 per year.

 

On May 20, 2011, we and the Maricunga Sellers signed the Framework Contract of Mining Project Development and Buying and Selling of Shares of Sociedades Legales Mineras Litio 1 a 6 de la Sierra Hoyada de Maricunga, (the “Acquisition Agreement”) whereby we, through our Chilean subsidiary, Minera Li Energy SPA (“Minera Li”), acquired from the Maricunga Sellers a 60% interest in each of the Maricunga Companies. The purchase price was $6,370,000 in cash, including amounts paid to agents, and 127,500,000 restricted shares of our common stock (the “Maricunga Purchase Price Shares”), 50% of which was restricted from sale for nine months and the remainder of which is restricted from sale for 18 months as provided in the Acquisition Agreement (the “Lock-Up”).  The Lock-Up will terminate if (a) we sign an agreement with one or more investors for them to finance the necessary development of the project to the stage of commercial production; (b) an offer with characteristics of a take-over bid is made for our shares; (c) our current CEO sells his shares in the Company, or (d) we agree to sell our shares in Minera Li and/or Minera Li agrees to the sale of the Shares.  In the event of (d) above, we have agreed that the sale price in any such sale will be based on at least two valuations carried out by institutions with recognized experience in these types of mining assets. Pursuant to the Acquisition Agreement, on June 2, 2011, upon the registration in Chile of the transfer of the shares in the Maricunga Companies to Minera Li, closing occurred and Maricunga Purchase Price Shares were paid to the Maricunga Sellers.  Although we had agreed to register, under the Securities Act, half of the Maricunga Purchase Price Shares by January 31, 2012, and the remainder by October 31, 2012, we have not yet registered any of the Maricunga Purchase Price Shares. Our agreement with the Maricunga Sellers does not provide for liquidated damages in the event of delay in filing a registration statement or having it declared effective.

 

As part of the acquisition, we agreed with the Maricunga Sellers:  (a) to increase the number of directors constituting our Board of Directors to seven; (b) that the Maricunga Sellers will have the right to nominate three of our directors and that a fourth director (who shall hold the position of Chairman of the Board) will be jointly nominated by the Maricunga Sellers and by our management (such persons, or any successors thereto nominated by the Maricunga Sellers or by the Maricunga Sellers and management, as the case may be, the “Nominees”), and that the Board shall appoint such Nominees to fill vacancies created in the Board by the increase in the number of directors and by resignations, to serve until the next annual meeting of shareholders; (c) that the Nominees shall continue to be nominated as directors by our management at the next and subsequent annual meetings of our shareholders, and at any special meeting of the shareholders at which directors are to be elected (collectively, a “Meeting”), during the period of the Lock-Up (but the Nominees will be subject to reelection by the shareholders as provided in our By-Laws); and (d) that if any Nominee is not elected by the shareholders pursuant to the By-Laws, the Maricunga Sellers, or the Maricunga Sellers and management, as the case may be, will have the right to designate the same or another person as their Nominee at the next Meeting, provided it is within the period of the Lock-Up. Pursuant to these provisions, our Board of Directors was expanded and Messrs. De Aguirre, Campos and Fraser were appointed to our Board as Nominees of the Maricunga Sellers.

 

21
 

 

We currently maintain 60% ownership of the Maricunga project, with minority shareholders owning the remaining 40%. The Chilean Mining Code requires shareholders of legal mining companies (such as the Maricunga Companies) to contribute their pro rata portion of exploration and exploitation expenses that are established at a shareholders meeting (“Required Contributions”).

 

At shareholders meetings held on October 6, 2011, the Maricunga Companies established Required Contributions that were to be funded by the shareholders on or prior to January 4, 2012. The minority shareholders of each Maricunga Company defaulted on their obligations to fund such Required Contributions.

 

The Chilean Mining Code permits any legal mining company to initiate an executive trial, the final resolution of which would state that shares held by shareholders who fail to make any Required Contribution must be sold at a public auction. The Chilean Mining Code establishes that the minimum bid in such auction shall be the amount of the Required Contribution that the defaulting shareholders failed to contribute (the “Default Amount”). The proceeds of such auction shall go first to the relevant legal mining company in the amount of the Default Amount, and any proceeds in excess thereof shall be paid to the defaulting shareholders. If the minimum bid is not achieved in the auction, then the defaulting shareholders’ shares in the legal mining company will be cancelled and each non-defaulting shareholder’s funding obligations will increase proportionally.

 

As the majority shareholder, we have filed lawsuits distributed to four civil courts of Copiapo, third Region of Atacama, Chile, against the minority shareholders seeking either payment of their pro rata portion of costs or an auction of their share of the properties. The minority shareholders have not paid their contributions to the costs of conservation and explorationwhich were agreed upon at the shareholders’ meeting on October 6, 2011.

 

Certain minority shareholders have filed counterclaims against us to declare, among other things, the invalidation of such shareholders’ meeting at which required contributions were established that such minority shareholders failed to make. We filed dilatory defenses because we were not served according to law and also filed a complaint against the officer serving the process. Once the Court decides on our dilatory defenses, we will have ten days to present our substantive defense. Our future plans are not dependent on the outcome of this matter with respect to the development of the Maricunga project. As of the date of this filing, the court has not reached a decision regarding this matter.

 

The mining industry in Chile is regulated by the Political Constitution of Chile (“Constitution”), the Constitutional Organic Mining Law (“COM”) and the Chilean Mining Code (“MC”) along with other general and special regulations.  Specifically, the Constitution provides that the national government is the owner of all mines, although any individual or company may apply for an Exploration Concession or Exploitation Concession to explore or mine mineral deposits; the COM regulates all concessions and claims; and the MC elaborates on the provisions of the Constitution and the COM. The civil courts receive applications for concessions, grant concessions, terminate and resolve issues arising with respect to concessions. The National Geology and Mining Service (“NGMS”) within the Chilean Ministry of Mining is responsible for approving the technical requirements related to the form, boundary and location of concessions. The NGMS also maintains a public record of concessions and supervises technical compliance with mining regulations. There is no binding legal code for reporting on mineral resources and reserves. However, a code prepared by the Chilean Institute of Mining Engineers and other entities including the Chilean Securities and Exchange Commission, representatives of the private sector and sponsored by the Chilean Ministry of Mining was issued in December 2003. This code is based on the Australian Joint Ore Reserves Committee system. The right to explore or exploit a designated area, and apply for concessions is on a first come first served basis, subject to an Exploration concession holder's exclusive right to file for an exploitation concession in respect of their concession area. Concessions can be freely assigned or transferred, mortgaged, and in general subject to any legal contracts.  The ownership rights of a concession can be enforced against the government of Chile or any other party.

 

The ownership rights of a concession holder differ from the ownership rights of a surface title holder in that a concession holder has the right to:

 

a)upon providing the agreed indemnity payment to the surface land holder, occupy as much of the surface land as is necessary for the exploration or exploitation works;

 

22
 

 

b)impose an easement on an unwilling surface land holder through a simple and summary procedure before the relevant civil court. Certain restrictions will apply where surface land is covered by dwellings and/ or is land where vineyards and fruit trees are planted. The respective surface land holder is entitled to compensation, fixed by mutual agreement or judicial resolution, as requested.

 

The significant differences between an Exploration Concession and an Exploitation Concession are summarized below:

 

An exploration concession:

 

i)is granted by the Chilean Ministry of Mines for an initial period of two years with a right to apply for a further two year period prior to expiry of the initial concession. Where an extension is granted, the concession holder must relinquish half of the original designated area;
ii)requires annual payment;
iii)enables exploration over the concession area and provides an exclusive right to file for an Exploitation Concession in respect of that concession area;
iv)must be greater than 100 hectares and less than or equal to 15,000 hectares in area;
v)does not require an environmental authorization for exploration works; unless the exploration is inside a protected zone;
vi)does not require work to be undertaken on the concession area in order to maintain interest in that concession; and
vii)does not authorize its owner to exploit the minerals in that concession.

 

An exploitation concession:

 

i)is of unlimited duration;
ii)requires annual payment;
iii)involves a more onerous process for filing and higher costs for filing and compliance;
iv)does not require work to be undertaken on the concession in order to maintain interest in that concession;
v)must be greater than 1 hectare and less than or equal to 5,000 hectares in area;
vi)does not require an environmental authorization for exploration works unless the exploration is inside a protected zone and indeed require said authorization and closing plans for exploitation works;
vii)grants mining rights which prevail over third party claims; and
viii)entitles the owner to exploit the minerals in that concession area.

 

Our Lithium exploitation mining concessions have the following grant numbers:

 

a)Litio 1- 1/29 is registered in folio 478 overleaf N° 158 year 2004 of the Property Registry kept by the Mine Registrar of Copiapo.
b)Litio 2- 1/29 is registered in folio 485 overleaf N° 159 year 2004 of the Property Registry kept by the Mine Registrar of Copiapo.
c)Litio 3- 1/58 is registered in folio 491 overleaf N° 160 year 2004 of the Property Registry kept by the Mine Registrar of Copiapo.
d)Litio 4- 1/60 is registered in folio 498 N° 161 year 2004 of the Property Registry kept by the Mine Registrar of Copiapo.
e)Litio 5- 1/60 is registered in folio 504 N° 162 year 2004 of the Property Registry kept by the Mine Registrar of Copiapo.
f)Litio 6- 1/60 is registered in folio 511 N° 163 year 2004 of the Property Registry kept by the Mine Registrar of Copiapo.

 

The area of each of our concessions is:

 

a)Litio 1- 1/29 - 130 hectares.
b)Litio 2- 1/29 - 143 hectares.
c)Litio 3- 1/58 - 286 hectares.
d)Litio 4- 1/60 - 297 hectares.
e)Litio 5- 1/60 - 300 hectares.
f)Litio 6- 1/60 - 282 hectares.

 

23
 

 

2011 Maricunga Project Exploration and Drilling Campaign

 

We plan to utilize co-by-product credits in the commercialization of its Maricunga Project. The Maricunga project is being explored as a source of lithium carbonate and potassium chloride, with co-product boric acid. Lithium carbonate would be sold in the open market as battery grade material.  Potassium chloride production is planned to be used in the production of potassium nitrate from a potential sodium nitrate/iodine project. If we are successful in acquiring it, or another sodium nitrate/iodine project, a portion of the by-product sodium sulphate production from any iodine operation that we may have, could be returned to Maricunga to adjust the sulphate balance for calcium removal in the lithium brine.

 

In December 2011, we completed on schedule, the $8 million Phase One of the $18 million Exploration and Development Program established in August 2011. We reported the initial results from brine samples taken during the sonic and reverse circulation well drilling program initiated in October 2011. The drilling contractors used by us in Maricunga are leading Sonic Drilling Contractors and leading Reverse Circulation Well Drilling Contractors. We carried out sonic drilling for the collection of undisturbed samples from continuous core for porosity determinations and brine samples for laboratory chemical analyses.  Six sonic boreholes for a total of 900 meters were drilled and completed to a depth of 150 meters each. We carried out reverse circulation well drilling with isolated brine sampling. A total of 884 meters of 6-inch monitoring wells were drilled and a total of 300 meters of 17 inch production wells were drilled.

 

From the Phase One Program, a total of 431 samples were taken during the drilling and were submitted to the University of Antofagasta in Antofagasta, Chile for analysis. The preliminary laboratory analysis of the 431 Maricunga brine samples, demonstrated the following values and characteristics:

 

MARICUNGA                      Ratio   Ratio   Ratio 
(mg/l)       K      Li    Mg    Ca    SO4    K/Li    Mg/Li    SO4/Li 
Average   8,988    1,240    8,284    12,417    718    7.2    6.7    0.6 
Maximum   14,669    2,050    15,100    31,600    2,960    7.2    7.4    1.4 

 

Other Properties

 

We have acquired other interest in certain Peruvian and Argentina properties during 2010. We have determined that these properties were not economically feasible, and as a result, we have impaired any investment in these properties and will not be pursuing them any further. We have recorded an impairment of $300,000 in fiscal 2012 and $50,000 in fiscal 2011 relating to these properties.

 

Strategic Partners

 

POSCO / POSCAN

 

On August 24, 2011, we entered into a Securities Purchase Agreement (the “SPA”) and an Investor Rights Agreement (the “IRA” and, together with the SPA, the “POSCAN Agreements”) with POSCO Canada Ltd. (“POSCAN”), a wholly owned subsidiary of POSCO. Pursuant to the POSCAN Agreements, on September 14, 2011, POSCAN purchased 38,095,300 Units of our securities for approximately $8 million, with each “Unit” consisting of one share of our common stock and a three-year warrant to purchase one share of our common stock at an exercise price of $0.40 per share.

 

24
 

 

The SPA further provided that POSCAN would purchase an additional 47,619,000 Units at the same $0.21 price per Unit (for an aggregate additional purchase price of approximately $10 million) upon satisfaction of certain conditions, including:  (i) completion of a resource report prepared in accordance with National Instrument 43-101 of the Canadian Securities Administrators, that concludes that our Maricunga property meets certain technical requirements and that proceeding to the feasibility study phase for the Maricunga project is warranted; (ii) completion of a work program agreed to by us and POSCAN; and (iii) having the necessary permits and approvals in place for building and operating a brine test facility on the Maricunga property. In addition to being the relevant milestone under our agreement with POSCAN, we believe that the Canadian standards for Resource Reports are generally perceived as the industry standard, having marketability worldwide.  The SPA provides that we are to use the proceeds from such investments exclusively for activities related to the development of the Maricunga project, pursuant to budgets mutually agreeable to us and POSCAN. However, we and POSCAN ultimately modified the terms of POSCAN’s second tranche investment as described below.

 

The SPA includes provisions for POSCAN to purchase brine from the Maricunga property and test it at POSCAN’s test facility in Korea.  In addition, the SPA provides that we and POSCAN will discuss and evaluate the development, financing and construction of a brine testing facility on the Maricunga property, and that if such facility is built, we would (i) supply the test facility with brine and other materials and utilities and (ii) assist POSCAN in obtaining any rights, licenses and permits required to build and operate such facility.

 

The securities purchased by POSCAN will be locked up and may not be sold (subject to customary exceptions) until the earlier of nine months from their issuance and November 20, 2012.  Pursuant to the IRA, we have granted POSCAN the right to demand registration of the common stock included in the Units, and issuable upon exercise of the warrants included in the Units, commencing 12 months after the date of issuance of the Units and ending five years after the date of the IRA.  As of the date of this filing, POSCAN has not required a registration of such shares. Our obligation to register any such shares shall terminate once they may be sold without registration in any 30 day period pursuant to Rule 144 under the Securities Act.  Upon a registration demand made by POSCAN pursuant to the IRA, we must file a registration statement covering the relevant shares within 75 calendar days of such demand, and use our best efforts to have it declared effective within 120 calendar days of filing.  If we do not meet these deadlines, we must pay liquidated damages of 2% of the purchase price of the relevant securities per month until such failures are cured (up to an aggregate maximum of 10%).  POSCAN will also have “piggy-back” registration rights with respect to such shares.

 

The IRA provides that we will appoint a director nominated by POSCAN to our Board of Directors, and will continue to nominate a POSCAN-designee at each annual meeting for as long as POSCAN owns not less than 10% of the issued and outstanding shares of our common stock.  So long as POSCAN holds any shares of our common stock (subject to customary exceptions), we shall not issue any new securities to any person unless we have also offered to POSCAN the right to purchase its pro rata share of such securities on the same terms and conditions as are offered, as to maintain its then percentage interest in our outstanding capital.  The IRA also provides that, until the earlier of (i) POSCAN owning less than 10% of our issued and outstanding common stock and (ii) our aggregate market capitalization exceeding $250 million, we may not undertake certain actions without the approval of POSCAN (which approval may be evidenced by the affirmative vote or consent of POSCAN’s director nominee), including:  a liquidation, merger or reorganization; a sale of all or substantially all of our assets; incurring indebtedness in excess of $1,000,000 (subject to certain exceptions); create or take any action that results in our holding the capital stock of any subsidiary that is not wholly owned (with certain exceptions); transfer or license our proprietary technology to a third party; substantially change the scope of our business; or amend or waive any non-competition or non-solicitation provision applicable to our Chief Executive Officer or Chief Operating Officer.

 

POSCO (with its subsidiaries) is a diversified company, with operations in energy, chemicals and materials and is one of the largest steel manufacturers in the world.   There can be no assurance that any final agreement will be reached with POSCAN with respect to a pilot plant, a commercial plant, any further investment by POSCAN, any purchase by POSCAN of our production, or otherwise.

 

On February 23, 2012, POSCO announced that it has developed technology that may improve lithium recovery from brine and shorten processing times compared to the conventional processes currently being used in the lithium market. On March 7, 2012, we and POSCO executed a Non-Binding Memorandum of Understanding to construct a test facility for the recovery of lithium and other products at POSCO’s expense, with technical support from us as necessary. The parties expect that products from the test facility will not be commercialized and will be for testing purposes only. Upon successful completion of the test facility, evaluating the merits and validation of the technology, the parties may discuss commercialization of the products in detail, including off-take agreements between the parties.

 

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On August 17, 2012, we entered into an Additional Agreement to Stock Purchase Agreement (the “Additional Agreement”) with POSCAN which, among other things, modified certain provisions of the SPA. Also on August 17, 2012, we closed on POSCAN’s second tranche of investment under the SPA, selling 62,499,938 Units to POSCAN for $9,999,990, with each “Unit” consisting of one share of common stock and a three-year warrant to purchase one share of common stock for $0.21 per share.

 

The Additional Agreement reduced POSCAN’s purchase price per Unit for the second tranche of investment from $0.21 per share to $0.16 per share, and reduced the exercise price of all of the warrants sold under the SPA (the “POSCAN Unit Warrants”) from $0.40 per share to $0.21 per share. Pursuant to the Additional Agreement, we also agreed to issue to POSCAN a two-year warrant (the “POSCAN Bonus Warrant”) to purchase 5,000,000 shares of our common stock at an exercise price of $0.15 per share. Furthermore, the Additional Agreement provides that, subject to certain exceptions, we must issue additional shares of our common stock to POSCAN in the event that we issue or sell any such shares to third parties for a price of less than $0.16 per share at any time during the 18 months immediately following August 17, 2012.

 

The Additional Agreement provides restrictions on our use of the proceeds from the Second Closing, and includes our agreement to use our best efforts to obtain a Chilean lithium production concession and to take certain steps towards commercialization of our flagship Maricunga property. Other than having the right to participate in future fundings, POSCAN has no current commitments to provide the Company with any additional funding in the future.

 

R3 Fusion, Inc.

 

R3 Fusion, Inc. (“R3”) is a technology company that has developed, patented, demonstrated and is currently commercializing its Short Path Condensate Recovery (SPaCeR) technology, which utilizes waste process heat and engineering designed to achieve a highly cost effective means of environmentally friendly fluid processing.

 

We believe the SPaCeR technology may speed the rate of mineral recovery from brine. However there can be no assurance that it will do so on a commercially favorable basis or at all. Not only do we believe R3’s SPaCer technology can aid in the recovery of lithium, but we believe it will allow brine mining operations to use smaller facilities, reducing their footprint by as much as 1,000-fold.

 

On January 13, 2012, we entered into an agreement with R3 (the “R3 Agreement”) to apply R3’s SPaCeR in processing brine from our properties. Pursuant to the R3 Agreement, R3 will provide us with a demonstration plant consisting of two units having a design flow capacity of at least 1.6 liters per second each, and on-site training. Upon installation of the facilities, we will pay R3 equipment use fees of $37,500 per month for the first twelve months following successful installation and commissioning of the system, and, if we elect to keep the equipment on site thereafter, $12,500 per month for up to an additional thirty-six months. As of the date of this filing, such equipment has not yet been installed.

 

The R3 Agreement also provides that we will be given the exclusive license (the “Exclusive Rights”), subject to final negotiations, to exploit R3’s SPaCeR technology throughout the world for the processing of lithium-containing brine for so long as we are using such systems in the processing of brine at our facilities in South America.

 

Lithium Exploitation Permitting in Chile

 

The mining industry is heavily regulated and changes in international laws and regulations can be significant. Both mineral exploration and extraction require permits from various foreign, federal, state, provincial and local governmental authorities and are governed by laws and regulations, including those with respect to prospecting, mine development, mineral production, transport, export, taxation, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters.

 

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In Chile, lithium is not exploitable via regular mining concessions. The Chilean Mining Code (“CMC”) establishes the reserve of lithium to the State of Chile and expressly provides that the exploration or exploitation of “non-concessible” substances (including lithium) can be performed only directly by the State of Chile, or its companies, or by means of administrative concessions or special operation contracts, fulfilling the requirements and conditions set forth by the President of the Republic of Chile for each case. Currently neither the Company nor its subsidiaries have sufficient authority (or permits) to exploit lithium in Chile. However, the government of Chile has introduced a process to increase the exploitation of lithium in Chile In February 2012, the Chilean Government outlined plans to improve its worldwide competiveness. The Boost Competitive Agenda (a package of reforms intended to remove regulatory red tape, to encourage entrepreneurship, innovation, competition and boost productivity of the economy), is coordinated by the Office of Competiveness of the Ministry of Economy and was initiated in August, 2011. In February 2012, the Office of Competitiveness introduced ten new measures to extend the government’s commitment to ensure that development continues to reach Chile, including “Re-launching the Chilean Lithium Industry”, which Chile’s Minister of Economy stated seeks to lift restrictions and implement mechanisms to improve competitiveness within the industry, promote further investment and protect the country’s market share and standing in the world lithium market.

 

The Chilean Government’s Ministry of Mining established its first ever auction for the award of lithium, production quotas and licenses (Special Lithium Operations Contracts, or “CEOL”) which would permit the exploitation of an aggregate of 100,000 tons of lithium metal (approximately 530,000 tons of lithium carbonate equivalent) over a 20 year period, subject to a seven percent royalty. In September 2012, we formed a consortium consisting of us, POSCO, Daewoo International Corp, and Mitsui & Co. (the “Consortium”) for the purpose of participating in such CEOL auction. As required under the rules established by the Ministry of Mining, on September 14 2012, the Consortium submitted its bid for the CEOLs.

 

On September 24, 2012, the Ministry of Mining opened the bids and informed us that the Consortium’s bid was not the winning bid.

 

On October 1, 2012, the Ministry of Mining informed us that the Chilean Government decided to invalidate the CEOL process and the results announced on September 24, 2012, due to an administrative error.

 

On October 5, 2012, we submitted a “Request for Reconsideration” to the Chilean Government, requesting it to reconsider the invalidation and award the CEOL to the second highest bidder – the Consortium.

 

On October 17, 2012, the Chilean Government ratified its decision to invalidate the CEOL process and not to accept any of the bids.

 

On October 22, 2012, the Company submitted another “Request for Reconsideration” to the Chilean Government. The Chilean Government had 30 days to answer the Company´s request

 

On November 19, 2012, the Chilean Government rejected our Request for Reconsideration appeal.

 

On November 22, 2012, the Chilean Government ratified its decision to invalidate the CEOL process as well as rescinding the CEOL Basis, which defined the regulations that regulated the CEOL process.

 

We are currently in the process of preparing our presentation to the Chilean Comptroller. This is deemed to be the last administrative recourse before pursuing legal remedies. 

 

Pending the outcome of the permitting process, we are exploring other strategies that could enable us to obtain rights to exploit lithium in Chile, whether from our flagship Maricunga project or otherwise. Additionally, we are evaluating the Maricunga project as a potential producer of potassium nitrate. However, there can be no assurance that we will be able to do so in the near future or at all.

 

Other Permits

 

Our operations are subject to numerous federal, state and local laws and regulations governing the operation and maintenance of our facilities and the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations may:

 

·Require that we acquire permits before commencing extraction operations;
·Restrict the substances that can be released into the environment in connection with mining and extraction activities;

 

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·Limit or prohibit mining activities on protected areas such as wetland or wilderness areas; and
·Require remedial measures to mitigate pollution from former operations, such as dismantling abandoned production facilities.

 

Companies who operate must meet, maintain and abide by strict environmental regulations in accordance with state, federal and international laws and regulations. We will also have to abide and comply with National Labor Laws that protect and govern its employees. Additionally, we believe that between our management team, the consultants and experts we have hired, they will be able to satisfy any and all regulatory and compliance requirements.

 

Brine Exploration Phases

 

The life cycle of a brine mining operation can be divided into five phases:

 

·Mining activity begins with the “exploration phase,” in which one seeks to define the type, extent, location and value of deposits and to estimate the grade and size of the deposits;
·The “feasibility phase” then ensues to address the financial viability of the project (including any permitting requirements) and to determine whether or not to proceed to development - the end of the feasibility stage is marked by the conclusion of a feasibility study;
·If the decision is made to move forward after the feasibility stage, then the “development phase” follows, in which the infrastructure needed to begin operations is constructed;
·Upon completion of such infrastructure, a project enters the “production phase,” during which the applicable minerals are extracted, produced and sold;
·Once all economically extractable minerals have been produced, a mine is closed and it enters the “reclamation phase,” in which the area is made suitable for future uses.

 

We are currently in the exploration phase, seeking to define the type, extent, location and value of deposits.

 

Competition

 

We are currently categorized as a junior mineral resource exploration company that competes with other mineral resource exploration companies for financing, personnel and equipment and for the acquisition of mineral properties. Although our commissioned report which was prepared in accordance with National Instrument 43-101 of the Canadian Securities Administrators completed by Hains Technology and Associates deemed Maricunga suitable to advance to the Feasibility Study stage and a Chilean based independent research firm signumBOX listed Maricunga as one of the top lithium salars in the world, many of the mineral resource exploration companies with whom we compete have greater financial and technical resources than those available to us. Accordingly, these competitors may be able to spend greater amounts on acquisitions of mineral properties of merit, on exploration of their mineral properties and on development of their mineral properties and on exploration and development. This competition could result in competitors having mineral properties of greater quality and interest to prospective investors who may finance additional exploration and/or development. This competition could adversely impact on our ability to finance further exploration and to achieve the financing necessary for us to develop our mineral properties.

 

Compliance with Government Regulation

 

We are committed to complying with and are, to our knowledge, in compliance with, all governmental and environmental regulations applicable to our company and our properties. Permits from a variety of regulatory authorities are required for many aspects of mine operation and reclamation. We cannot predict the extent to which these requirements will affect our company or our properties if we identify the existence of minerals in commercially exploitable quantities. In addition, future legislation and regulation could cause additional expense, capital expenditure, restrictions and delays in the exploration of our properties.

 

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Employees

 

We have eight full-time employees and/or contract employees, including our Chief Executive Officer, Chief Financial Officer, and Executive Vice President.  In addition, we engage several advisors and consultants. 

 

We engage contractors from time to time to consult with us on specific corporate affairs or to perform specific tasks in connection with our exploration programs.

 

Subsidiaries

 

We currently have six wholly owned subsidiaries:

 

1.Li3 Energy Peru SRL, a private limited company organized under the laws of Peru;
2.Minera Li Energy SPA, a wholly owned subsidiary in Chile;
3.Alfredo Holdings, Ltd., an exempted limited company incorporated under the laws of the Cayman Islands;
4.Pacific Road Mining Chile, S.A. a Chilean corporation, which is a subsidiary of Alfredo;
5.Noto Energy S.A., an Argentinean corporation; and
6.Li3 Energy Caymans, Inc., an exempted limited company incorporated under the laws of the Cayman Islands.

 

We also own 60% of each of Sociedades Legales Mineras Litio 1 a 6 de la Sierra Hoyada de Maricunga, a group of six Chilean mining companies, which are wholly owned by Minera Li Energy SPA.

 

Intellectual Property

 

We do not own, either legally or beneficially, any patent or trademark nor any material intellectual license, and are not dependent on any such rights. We have trademarked Li3 Energy, its logo and registered the domain name www.li3energy.com. We consider many of our lithium mining site evaluation, exploration and development techniques to be proprietary, and periodically evaluate whether to seek protection for any such techniques.

 

Lithium and Lithium Mining

 

Lithium is the lightest metal in the periodic table of elements.  It is a soft, silver white metal and belongs to the alkali group of elements, which includes sodium, potassium, rubidium, cesium and francium. The chemical symbol for lithium is “Li,” and its atomic number is 3.

  

Like the other alkali metals, lithium has a single valence electron that is easily given up to form a cation (positively charged ion). Because of this, it is a good conductor of both heat and electricity and highly reactive, though it is the least reactive of the alkali metals.  Lithium possesses a low coefficient of thermal expansion (which describes how the size of an object changes with a change in temperature) and the highest specific heat capacity (a measure of the heat, or thermal energy, required to increase the temperature of a given quantity of a substance by one unit of temperature) of any solid element.

 

No other metal is as lightweight, better at holding a charge or as good at dissipating heat as lithium. These properties make lithium an excellent material for manufacturing batteries (lithium-ion batteries).  According to the U.S. Geological Survey’s (“USGS”) “Mineral Commodity Summaries 2011,” batteries accounted for 23% of lithium end-usage globally, and we expect demand for lithium from the battery segment to grow along with demand for such batteries.  Although lithium markets vary by location, global end-usage was estimated by the USGS as follows:  ceramics and glass, 31%; batteries, 23%; lubricating greases, 10%; air treatment, 5%; continuous casting, 4%; primary aluminum production, 3%; and other uses, 24%.  Lithium use in batteries expanded significantly in recent years, because rechargeable lithium batteries are being used increasingly in portable electronic devices and electrical tools.

 

As mentioned earlier, lithium belongs to the alkali group of metals. This group of metals is typically extracted from solutions called brines, which are associated with evaporite deposits.  Lithium is also contained in the mineral spodumene, which occurs in a rock called pegmatite.  To a lesser extent lithium occurs as a component of certain clay minerals.

 

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Historically, and especially during the period leading up to and during World War II, lithium was designated a strategic metal, heavily used in the aircraft industry because it is light and strong. During this period the mineral spodumene (a lithium aluminum silicate) was mined by open pit hard rock mining methods and processed to recover the lithium.  During the post-war period, lithium production from the higher cost hard rock mines was replaced by the lower cost extraction of lithium from the mineral rich brines associated with evaporite deposits. Evaporite deposits occur in environments characterized by arid conditions with extremely high evaporation rates. This environment typically occurs at high altitudes, greater than 12,000 feet above sea level, so evaporite deposits occur in only a very few locations in the world, including China (the province of Qinghai and the Autonomous Region of Tibet); the Puna Plateau, a high altitude plateau covering part of Argentina, Chile, Bolivia and the southern portion of Peru; and in a small region in Nevada, which is the core of what is called the Great Basin of the western United States.  Over 70% of the world’s lithium is produced from the brines associated with the evaporite deposits on the Puna Plateau of South America.

 

Brine extraction (mining) and the recovery of lithium and other economic compounds is analogous to pumping water from an aquifer, but instead of fresh water, the water contains a variety of mineral salts in solution, including lithium, potassium (K), magnesium (Mg) and sodium (Na).  This form of “mining” is much more efficient, cost effective and environmentally friendly than open pit mining.  Lithium production from spodumene can typically cost in the range of $4,300 to $4,800 per metric ton of lithium carbonate and is a process that is highly sensitive to energy costs.  On the other hand, lithium production from brines can be accomplished at costs in the range of $2,200 to $2,600 per metric ton of lithium carbonate.  However, the processing cost can vary by a wide range, depending largely on:

 

·lithium concentration in the particular brine;
·evaporation rates at the site, which determine how quickly the brine can be concentrated; and
·the balance of other minerals in the brine, which affects the degree of processing needed to remove impurities.

 

Lithium use in Batteries

 

Lithium demand is being driven by its increasing use in the batteries of portable consumer electronics, including mobile phones and laptop computers, and in a range of industrial applications including ceramics and lubricants.  The most dramatic increase in demand is being spurred by auto makers racing to bring lithium-ion battery powered and hybrid electric cars to market, as major automobile manufacturers are forming partnerships with established battery manufacturers to build battery plants for their mass production. In addition, lithium-ion batteries used in transportation is expected to increase to approximately $8 billion by 2015 from $876 million in 2010, largely fueled by government subsidies and incentives.

  

A lithium-ion battery (Li-ion battery) is a type of rechargeable battery in which lithium ions move from the anode (negative terminal) to the cathode (positive terminal) during discharge, and from the cathode to the anode when charging.  Lithium-ion batteries are one of the most popular types of battery, because they have one of the best energy-to-weight ratios, no memory effect (the effect in which certain other rechargeable batteries lose their maximum energy capacity if they are repeatedly recharged after being only partially discharged) and a slow loss of charge when not in use.

 

Rechargeable battery materials used in electric vehicles include lead-acid (traditional “wet” and gel or “valve regulated”), nickel-cadmium, nickel-metal-hydride, lithium-ion, lithium-ion polymer, and, less commonly, zinc-air and molten salt.  Ideally, a battery for an electric car needs to be light, small, energy dense, quick to recharge, relatively inexpensive, long lasting, and safe.  Today’s electric and hybrid vehicles are primarily powered by nickel-metal-hydride (NiMH) batteries.  NiMH batteries are safe, abuse-tolerant and offer much longer life cycles than older lead-acid batteries, while providing reasonable energy density.   However, NiMH batteries are more expensive than lead-acid batteries, as a result of the high nickel content.

 

Li-ion batteries have a higher energy density than most other types of rechargeable.  A Li-ion battery can achieve power density of 100-170 watt hours (Wh) per kilogram (kg) of weight, versus NiMH’s 30-80 Wh/kg.  This means that for their size or weight they can store more energy than other rechargeable batteries. Li-ion batteries also operate at higher voltages than other rechargeable, typically about 3.7 volts for Li-ion vs. 1.2 volts for NiMH or NiCd.  This means a single cell can often be used rather than multiple NiMH or NiCd cells.

 

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Finally, Li-ion batteries have a lower self-discharge rate than other types of rechargeable batteries.  This means that once they are charged they will retain their charge for a longer time than other types of rechargeable batteries.  NiMH and NiCd batteries can lose anywhere from 1-5% of their charge per day (depending on the storage temperature) even if they are not installed in a device. Li-ion batteries, on the other hand, can retain most of their charge even after months of storage.

 

Ideal Brine Conditions

 

The most important metrics when evaluating lithium brine resources are:

 

1)lithium content;
2)evaporation rate;
3)magnesium to lithium ratio;
4)potassium content; and
5)sulphate to lithium ratio.

 

The boron content is also important, as it allows for the production of another saleable product, boric acid.

 

The lithium concentration in the brines is typically measured in parts per million (ppm) or weight percentages. The higher the lithium concentration, the better. However, high local evaporation rates can compensate for lower lithium concentrations.

 

Providing that lithium contents are high enough, the magnesium to lithium (Mg:Li) ratio is another important chemical feature in assessing favorable brine chemistry and the ultimate economic viability of a site at an early stage.  The lower the ratio the better, as a high ratio means that, during the evaporation process, an increasing amount of lithium will be trapped (“entrained”) in the magnesium salts when they crystallize early.  This will ultimately lead to a lower lithium recovery rate and thus less profitability.  High Mg:Li ratios also generally mean that more soda ash (Na 2 CO 3) reagent is required during the processing of the brine (as described below) and, therefore, may add significantly to costs.

 

The potassium (K) concentration in the brines is typically measured as a weight percentage. 

 

The lower the sulphate (SO4) to lithium ratio in the final lithium brine pond, the more the brine will be amenable to lithium extraction via the conventional solar evaporation process.  This is because lithium sulphate (Li 2 SO 4) is highly soluble and so, to the extent that it is able to form, the lithium recovery will suffer.

 

Key Stages of Lithium Recovery

 

Currently the most economical way to recover lithium from a salar (a dry lake or salt flat) is by solar evaporation.  However, the process is subject to natural conditions, and the evaporation rate, relative humidity, wind velocity, temperature and brine composition have a tremendous influence on the solar pond requirements and in turn on pumping and settling rates to meet production quotas.

 

Each lithium recovery process has a unique design based on the concentrations of Li, Na, K, Mg, calcium (Ca) and SO4 in the brine, and, although there may be some similarities, each salar has its own customized methodology for optimum recovery due to the varying ionic concentrations.  Wells are drilled, and the mineral rich brine is pumped to the surface into a series of large shallow ponds of increasing concentration.  As water evaporates, the concentration of minerals in solution increases. Typically the brine evaporates over an 18-24 month period until it has a sufficient concentration of lithium salts.  At that point, the concentrate is shipped by truck or pipelined to processing plants where it is converted to usable salt products.  In the plant, sodium carbonate (soda ash) is added to precipitate lithium carbonate, which is dried and shipped to end users to be further processed into pure lithium metal.  The by-products such as potassium chloride (potash), sodium borate (borax) and other salts may also be recovered and sold to end users.

 

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The primary reagents used to produce lithium from brine are lime and soda ash. Both substances are natural materials, commonly used in many processes and have no detrimental environmental effect when used properly. Other than solar energy, only minor amounts of fuels are consumed in the production process (pumping the brines into the ponds, etc.).

 

Potentially economic salts produced from the salar brine are NaCl, carnallite, sylvinite and bischoffite, as well as the final end-point brine.  The chemical pond to pond process from the brine feed from the salar to the end-point brine ready for the processing plant is as follows:

 

·Calcium Chloride (CaCl2) is added at the beginning in the first pond in order to precipitate out most of the sulphate (SO 4) in the form of gypsum (CaSO 4). Removal of the sulphate is important, as it is detrimental in downstream processing. Furthermore, the gypsum itself has multiple uses from agriculture to construction.
·In the next two ponds and after solar evaporation, sylvinite will begin to precipitate, which is a combination of table salt and potash (KCl). The sylvinite can be harvested and sent to a froth flotation circuit to produce potash.
·Finally, the sequential ponding process moves to the lithium ponds until the end-point brine is sufficiently rich in lithium. The lithium is still largely in the final ponds, because it is extremely soluble (likes to stay dissolved in solution), although there will be some lithium entrained in Mg and K salts in previous ponds.

 

Global Market

 

Based on the most recent available information from the United States Geological Survey (“USGS”), market conditions improved for lithium-based products in 2011, as sales volumes for major lithium producers in Australia in Chile were reported to increase by more than 20% in the third quarter of 2011, compared with those of the same period in 2010. Consumption by lithium end-use products such as batteries, ceramics and glass, grease, and other industrial applications all increased. In 2011, Chile produced 37.1% of the lithium carbonate worldwide, while Argentina and Australia produced 9.4% and 33.2%, respectively. Many new companies have been reported to be exploring worldwide.

 

The increase in 2011 production was due primarily to the increase of the lithium-ion battery market, as global sales were $13.9 billion during 2011. These sales are projected to rise to $16.1 billion in 2012, $18.6 billion in 2013, $23.6 billion in 2015, and $34.3 billion in 2020. Other lithium end uses have increased, but not at the same rates as lithium-ion batteries. According to Roskill Information Services Ltd., lithium-ion batteries were the largest single end use for lithium in 2011 (22% of total end use) , but glass & ceramics were still important (21% of total use in 2011).

 

According to the USGS, Chile is the leading lithium producer in the world.  Argentina, Australia, China, and the United States are also major producers.  The 2012 edition of the USGS Mineral Commodity Summaries gives the following estimated world lithium mine production (in metric tons of lithium content):

 

   Mine production 
   2011 (est.)   2010 
Chile   12,600    10,510 
Australia   11,300    9,260 
China   5,200    3,950 
Argentina   3,200    2,950 
Portugal   820    800 
Zimbabwe   470    470 
Brazil   160    160 
United States   Withheld    Withheld 
World total (rounded)   33,750 1   28,1001

 

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1.    Excludes U.S. production.

 

Substitution for lithium compounds is possible in batteries, ceramics, greases, and manufactured glass.  Examples are calcium and aluminum soaps as substitutes for stearates in greases; calcium, magnesium, mercury, and zinc as anode material in primary batteries; and sodic and potassic fluxes in ceramics and glass manufacture. Lithium carbonate is not considered to be an essential ingredient in aluminum potlines. Substitutes for aluminum-lithium alloys in structural materials are composite materials consisting of boron, glass, or polymer fibers in engineering resins.

 

Nitrate Market and Production

 

Potassium nitrate is a chemical compound with the formula KNO3. It occurs as a mineral niter and is a natural solid source of nitrogen. Its common names include saltpeter and nitrate of potash.  Major uses of potassium nitrate are in fertilizers, rocket propellants and fireworks. When used as a food additive in the European Union, the compound is referred to as E252.

 

Potassium nitrate can be produced through various chemical reactions, including:

 

NH4NO3 (ammonium nitrate) + KCl (potash) NH4Cl (ammonium chloride) + KNO3

NH4NO3 + KOH (potassium hydroxide) NH3 (ammonia) + KNO3 + H2O

NaNO3 (sodium nitrate) + KCl NaCl (table salt) + KNO3

 

Potassium nitrate is mainly used in fertilizers, as a source of nitrogen and potassium, two of the macro nutrients for plants. Potassium nitrate is also one of the three components of black powder (gunpowder), along with powdered charcoal (substantially carbon) and sulfur, where it acts as an oxidizer.

 

In the process of food preservation, potassium nitrate, more commonly known as saltpeter, has been a common ingredient of salted meat since the middle ages, but its use has been mostly discontinued due to inconsistent results compared to more modern nitrate and nitrite compounds. Even so, saltpeter is still used in some food applications, such as charcuterie and the brine used to make corned beef.

 

Potassium nitrate is an efficient oxidizer, which produces a lilac flame upon burning due to the presence of potassium. It is therefore used in amateur rocket propellants and in fireworks.  It is also added to pre-rolled cigarettes to maintain an even burn of the tobacco.

 

Potassium nitrate is the main component (usually about 98%) of tree stump remover, as it accelerates the natural decomposition of the stump. It is also commonly used in the heat treatment of metals as a solvent in the post-wash. The oxidizing, water solubility and low cost make it an ideal short-term rust inhibitor.

 

Potassium nitrate can also be found in some toothpastes for sensitive teeth.  Recently, the use of potassium nitrate in toothpastes for treating sensitive teeth (dentine hypersensitivity) has increased dramatically, even though studies to this effect have been inconclusive.

 

World population growth and its effects on the scarcity of water and increased competition on land use for living, industry, nature and agriculture, increase the need for agriculture efficiency. The amount of land in agriculture per capita will further decrease in the future as world population is expected to grow faster than the growth of arable land. Therefore, crop productivity has to increase in order to provide the same amount of food in relation to the growing world population. The growing importance of specialty plant nutrition products, such as potassium nitrate, has been driven by these factors as one of its main uses is for premium crops.

 

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MARKET PRICE OF AND DIVIDENDS ON OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

 

Price Range of Common Stock

 

Our common stock trades on the OTCBB under the symbol LIEG. The OTCBB is a quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter (“OTC”) equity securities. An OTCBB equity security generally is any equity that is not listed or traded on a national securities exchange. The following table shows, for the periods indicated, the high and low bid prices per share of our common stock as reported by the OTCBB quotation service. These bid prices represent prices quoted by broker-dealers on the OTCBB quotation service. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not represent actual transactions.

 

     Fiscal Year Ending
June 30, 2013
    Fiscal Year Ending
June 30, 2012
    Fiscal Year Ending
June 30, 2011
 
    High     Low     High     Low     High     Low  
                                     
First Quarter (July 1 - September 30)   $ 0.10     $ 0.06     $ 0.23     $ 0.10     $ 0.42     $ 0.18  
Second Quarter (October 1 – December 31)   $ 0.08     $ 0.05     $ 0.13     $ 0.06     $ 0.32     $ 0.10  
Third Quarter (January 1 – March 31)(through January 14, 2013)   $ 0.06     $ 0.05     $ 0.14     $ 0.07     $ 0.51     $ 0.21  
Fourth Quarter (April 1 – June 30)   $ -     $ -     $ 0.10     $ 0.06     $ 0.45     $ 0.19  

 

Holders of Common Stock

 

As of January 14, 2013, there were approximately 190 stockholders of record. Because shares of our common stock are held by depositaries, brokers and other nominees, the number of beneficial holders of our shares is substantially larger than the number of stockholders of record. On January 14, 2013, the last reported sale price per share for our common stock as reported by the OTCBB quotation service was $0.05 per share.

 

Dividends

 

We have never declared any cash dividends with respect to our common stock.  Future payment of dividends is within the discretion of our Board of Directors and will depend on our earnings, capital requirements, financial condition and other relevant factors. We presently intend to retain future earnings, if any, for use in our business and have no present intention to pay cash dividends on our common stock.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

Our Board of Directors adopted, and our stockholders approved, our 2009 Equity Incentive Plan (the “2009 Plan”) on October 19, 2009.  The 2009 Plan reserves a total of 5,000,000 shares of our common stock for issuance pursuant to awards granted thereunder.  If an incentive award granted under the 2009 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2009 Plan.

 

As of January 14, 2013, we have outstanding 1,450,000 nonqualified stock options under the 2009 Plan, with a weighted average exercise price of approximately $0.38 per share, of which options for 866,666 are currently vested.  In addition, we have granted (a) an award of 2,500,000 shares of restricted stock under the 2009 Plan, of which 2,500,000 shares are currently issued and vested, and (b) awards of restricted stock units with respect to 950,000 shares of common stock, 233,333 of which are currently vested.  For all option grants, our Board of Directors has set (or will set) the exercise price of the options at a price equal to or greater than the fair market value of our common stock on the date of grant of the options.  Of the outstanding options under the 2009 Plan, 866,666 have vested.  200,000 of such options vested immediately and have a five year term, 1,000,000 options vest in three equal installments on each of the first, second and third anniversary of the date of grant and have a ten year term, and the remaining 250,000 options vest in after eighteen months from the date of grant and have a five year term Furthermore, we have committed to grant Restricted Stock Units with respect to an aggregate of 900,000 shares; however, we do not currently have enough shares authorized for issuance under our 2009 Plan to satisfy all of these obligations.

 

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The following table provides information as of June 30, 2012, with respect to the shares of common stock that may be issued under our existing equity compensation plans:

 

       Weighted-     
       average   Number of securities 
   Number of securities   Exercise price of   remaining available for 
   to be issued upon   Outstanding   future issuance under equity 
   exercise of   options,   compensation plans 
   outstanding options,   Warrants and   (excluding securities reflected 
   warrants and rights   rights   in column (a)) 
Plan Category  (a)   (b)   (c) 
Equity compensation plans approved by security holders (1)   1,450,000   $0.38    1,050,000 (2)
Equity compensation plans not approved by security holders   -    -    - 
Total   1,450,000   $0.38    1,050,000 (2)

 

(1) Represents the 2009 Equity Incentive Plan.
   
(2) 950,000 of such shares are reserved for issuance pursuant to Restricted Stock Units granted under the 2009 Plan, 233,333 of which have vested.

 

See “Executive Compensation” for information regarding individual equity compensation arrangements received by our executive officers pursuant to their employment agreements with us.

    

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

The following discussion and analysis of the results of operations and financial condition for the fiscal years ended June 30, 2012 and 2011, as well as for the three month period ended September 30, 2012, and should be read in conjunction with our financial statements, and the notes to those financial statements that are included elsewhere in this prospectus.

 

Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the “Risk Factors”, “Cautionary Notice Regarding Forward-Looking Statements” and “Description of Business” sections in this prospectus. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

 

Overview

 

We are a South America based and US listed exploration company in the lithium and mining sector. We aim to acquire, develop and commercialize a significant portfolio of lithium brine deposits in the Americas. 

 

We own (a) a 60% interest in the Maricunga project, which consists of mining concessions covering an area of approximately 3,553 acres (1,438 hectares) prospective for lithium and potassium brines, and is located in the Salar de Maricunga in northern Chile; (b) a mining concession on 2,995 acres (1,212 hectares) situated on brine salars in Argentina, known as Cauchari; and (c) undeveloped mineral claims prospective for lithium and potassium covering a total area of 19,500 acres (7,890 hectares) located in the Regions of Puno, Tacna and Moquegua, Peru. We are currently evaluating additional exploration and production opportunities.

 

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We were initially incorporated on June 24, 2005, as Mystica Candle Corp. in the business of manufacturing, marketing and distributing soy-blend scented candles and oils. It was determined that we could not continue with the original business plan. In July 2008, we changed our name to NanoDynamics Holdings, Inc., to facilitate discussions with NanoDynamics, Inc. regarding a possible business combination that was not completed. In October 2009, we changed our name to Li3 Energy, Inc. as we refocused our business strategy on the energy sector and lithium mining opportunities.

 

Going Concern

 

At September 30, 2012, the Company had no source of current revenue, a cash balance on hand of $3,795,310, positive working capital of $1,357,349 and the Company recognized negative cash flows from operations of $20,429,898 during the period from June 24, 2005 (inception) through September 30, 2012. On August 17, 2012, the Company received $9,499,990 in net funding from POSCAN. The Company believes its current positive working capital position is sufficient to maintain its basic operations, which do not include future exploration and acquisition activities, for at least the next 10 months, however, at budgeted levels of activity the Company would be required to raise substantial additional funds.

 

In the course of our exploration activities, we have sustained and continue to sustain losses. We cannot predict if and when we may generate profits. In the event we identify commercial reserves of minerals, we will require substantial additional capital to develop those reserves and permits from the Chilean government to exploit the mineral reserves, neither of which is assured (See Operational Update below).

 

To take us into the operational stage and to begin generating revenues, we will require a substantial injection of funds to progress development of our properties. We expect to finance our future growth primarily through equity and debt financings. However, there exists substantial doubt about our ability to continue as a going concern because there is no assurance that we will be able to obtain such capital. Additionally, no assurance can be given that any such financing, if obtained, will be adequate to meet our ultimate capital needs and to support our growth. If adequate capital cannot be obtained on a timely basis and on satisfactory terms, then our operations would be materially negatively impacted.

 

Our ability to complete additional equity or debt offerings is dependent on the state of the debt and/or equity markets at the time of any proposed offering, and such market’s reception of us and the offering terms. In addition, our ability to complete an offering may be dependent on the status of our exploration activities, which cannot be predicted. There is no assurance that capital in any form would be available to us, and if available, on terms and conditions that are acceptable.

 

These conditions raise substantial doubt about our ability to continue as a going concern. Our continuation as a going concern is dependent on our ability to meet our obligations, to obtain additional financing as may be required until such time as we can generate sources of recurring revenues and to ultimately attain profitability. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Operational Update

 

Maricunga

 

On May 20, 2011, we, through our Chilean subsidiary, Minera Li, acquired a 60% interest in each of Sociedades Legales Mineras Litio 1 a 6 de la sierra Hoyada de Maricunga.

 

The Maricunga property is an exploration property and covers an area of approximately 3,553 acres (1,438 hectares), comprising six concessions and is located in the northeast section of the Salar de Maricunga in Region III of Atacama in northern Chile. Each concession grants the owner the right to explore for mineral deposits at the Maricunga property.

 

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In September 2011, in order to provide funding to begin the initial assessments of producible minerals from the Maricunga Project, we entered into a subscription agreement with POSCO Canada Ltd. (“POSCAN”), a wholly owned subsidiary of POSCO (a South Korean company). In accordance with the subscription agreement, POSCAN purchased 38,095,300 Units of our securities for approximately $8 million, with each “Unit” consisting of one share of our common stock for $0.21 per share and a three-year warrant to purchase one share of our common stock at an exercise price of $0.40 per share.

 

In December 2011, we completed our phase one exploration work on Maricunga with the $8 million funding from POSCAN. In April 2012, we reported the completion of the NI 43-101 of the Canadian Securities Administrators (NI 43-101) that summarizes and validates the results of our $8 million Phase One Exploration and Development Program on our Maricunga Project in Chile, completed in December 2011. The Technical Report was prepared by Donald H. Hains, P. Geo., Principal of Hains Technology Associates, who is a Qualified Person as defined by NI 43-101. The key highlights of the Compliant Measured Report include:

 

·Further exploration work and expenditures are warranted to advance the Maricunga Project to the Feasibility Stage (economic assessment);
·The property holds significant potential for development as a source of lithium, potassium and boron;
·Exploration work indicates that the brines in the property are enriched in lithium and potassium and that the brine has a sufficient Mg/Li ratio permitting lithium recovery.

 

In August 2012, POSCAN purchased an additional 62,499,938 Units of our securities for gross proceeds of $9,999,990, with each “Unit” consisting of one share of common stock for $0.16 per share and a three-year warrant to purchase one share of common stock for $0.21 per share. In connection with the transaction, we agreed to reduce the exercise price of all of the warrants previously sold to POSCAN from $0.40 per share to $0.21 per share and issued to POSCAN a two-year warrant (the “Bonus Warrant”) to purchase 5,000,000 shares of our common stock at an exercise price of $0.15 per share.

 

Furthermore, subject to certain exceptions, we must issue additional shares of our common stock to POSCAN in the event that we issue or sell any such shares to third parties for a price of less than $0.16 per share at any time during the 18 months immediately following the Second Closing. During September 2012, the Company entered into settlement agreements providing for the Company to issue one share of the Company’s common stock for every $0.067 of obligations released by the Receivable Holder. As a result this provision was triggered and the Company is seeking a waiver.

 

We plan to apply some of those funds towards the necessary expenditures in order to complete a feasibility study on Maricunga. In the event producible quantities of minerals are determined to be economically feasible, we will still be required to obtain permits from the Chilean government to exploit the mineral reserves. There is no assurance that our testing or feasibility analysis will indicate economically producible quantities or that we will be able to obtain the necessary permits to exploit the mineral resources.

 

We may also seek to acquire additional properties for any processing site and we also plan to make improvements to the Maricunga site infrastructure, camp, and property.

 

Lithium permit update

 

In 2012, the Chilean Government’s Ministry of Mining established its first ever auction for the award of lithium production quotas and licenses (Special Lithium Operations Contracts, or CEOLs), which would permit the exploitation of an aggregate of 100,000 tons of lithium metal (approximately 530,000 tons of lithium carbonate equivalent) over a 20 year period, subject to a seven percent royalty.

 

In September 2012, we formed a consortium consisting of us, POSCO, Daewoo International Corp, and Mitsui & Co. (the “Consortium”) for the purpose of participating in such CEOL auction. As required under the rules established by the Ministry of Mining, on September 14, 2012, the Consortium submitted its bid for the CEOLs.

 

On September 24, 2012, the Ministry of Mining opened the bids and informed us that the Consortium’s bid was not the winning bid.

 

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On October 1, 2012, the Ministry of Mining informed us that the Chilean Government decided to invalidate the CEOL process and the results announced on September 24, 2012, due to an administrative error.

 

On October 5, 2012, we submitted a “Request for Reconsideration” to the Chilean Government, requesting it to reconsider the invalidation and award the CEOL to the second highest bidder – the Consortium.

 

On October 17, 2012, the Chilean Government ratified its decision to invalidate the CEOL process and not to accept any of the bids.

 

On October 22, 2012, the Company submitted another “Request for Reconsideration” to the Chilean Government. The Chilean Government had 30 days to answer the Company´s request

 

On November 19, 2012, the Chilean Government rejected our Request for Reconsideration appeal.

 

On November 22, 2012, the Chilean Government ratified its decision to invalidate the CEOL process as well as rescinding the CEOL Basis, which defined the regulations that regulated the CEOL process.

 

We are currently in the process of preparing our presentation to the Chilean Comptroller. This is deemed to be the last administrative recourse before pursuing legal remedies. 

 

The Company will evaluate any future impairment based on consideration of economic and operational feasibility and a continuing assessment of its rights to exploit minerals under Chilean laws and regulations.

 

Maricunga Shareholders’ Lawsuit Update

 

As the majority shareholder, we have filed lawsuits distributed to four civil courts of Copiapo, third Region of Atacama, Chile, against the minority shareholders seeking either payment of their pro rata portion of costs or an auction of their share of the properties. The minority shareholders have not paid their contributions to the costs of conservation and explorationwhich were agreed upon at the shareholders’ meeting on October 6, 2011.

 

Certain minority shareholders have filed counterclaims against us to declare, among other things, the invalidation of such shareholders’ meeting at which required contributions were established that such minority shareholders failed to make. We filed dilatory defenses because we were not served according to law and also filed a complaint against the officer serving the process. Once the Court decides on our dilatory defenses, we will have ten days to do present our substantive defense. Our future plans are not dependent on the outcome of this matter with respect to the development of the Maricunga project. As of the date of this filing, the court has not reached a decision regarding this matter.

 

Strategic Plan

 

Part of our strategic plan is to explore and develop our existing projects as well as to identify other synergistic opportunities with new projects with production potential that could also be advanced in an accelerated manner, with the goal of becoming a company with valuable lithium, potassium, nitrates and other industrial minerals properties.  Our primary objective is to become a low cost lithium producer as well as a significant producer of potassium nitrate. The key to achieving this objective is to become an integrated chemical company through the strategic acquisition and development of lithium assets as well as other assets that have by-product synergies. The third leg of our strategic plan is to develop improved technologies for the extraction of lithium from brines.

 

We have acquired a 60% interest in the Maricunga project, an advanced lithium and potassium chloride project in Chile, and we continue to explore other lithium and industrial minerals prospects in the region.

 

Our current strategy principally involves the exploration of the Maricunga property and the acquisition of a source of iodine and nitrate. On the Maricunga project, we have received $8 million of funding from POSCAN, which was spent to complete our Phase One Exploration and Development Plan. Such plan has been completed, and we have successfully produced a technical report in accordance with National Instrument 43-101 of the Canadian Securities Administrators for Maricunga. Upon receiving the NI 43-101 compliant resource report, we satisfied the conditions to receive an additional $10 million of funding from POSCAN. In August 2012, we received the $10 million second tranche funding as committed by POSCAN.

 

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Subject to our assessment of the probability of obtaining a lithium exploitation permit from the government of Chile, we now expect to spend the necessary funds in order to complete a lithium production feasibility study on Maricunga (a “feasibility study” means a comprehensive study of a mineral deposit in which all geological, engineering, legal, operating, economic, social, environmental and other relevant factors are considered in sufficient detail that it could reasonably serve as the basis for a final decision whether to advance the development of the deposit for mineral production). In the event that the Company is successful in obtaining the lithium exploitation permit in some capacity (either through the Chilean Government or through the acquisition of “Grandfathered” properties not subject to the lithium exploitation permit), Li3 believes the company would be required to raise approximately $230 million to $260 million to bring the project into production.

 

We were not successful obtaining a lithium exploitation license in a recent government auction process. In the event that we ultimately do not obtain the necessary permits for lithium exploitation for our current Maricunga properties, we will likely pursue a strategy for the production of potassium from those properties. Our Technical Report in accordance with National Instrument 43-101 of the Canadian Securities Administrators (“NI 43-101”) shows that potassium resources are available in the Maricunga properties. As part of our strategic plan, we always had plans to produce a potassium by-product alongside the lithium. Potassium exploitation does not require special permits and is exploitable via regular mining concessions, according to the Chilean Mining Code.

 

During this process, we will still recover the lithium, but we will not be able to sell it without a permit. It is believed that this legislation could change in the future and thus we will be able to eventually sell our lithium production.

 

Our alternative would be producing potash that in combination with sodium nitrates will mix to produce potassium nitrate (KNO3). Potassium nitrate is a valuable product used in fertilizers. Potassium nitrate is used extensively as a fertilizer. Its advantage over commodity based fertilizers such as potash is that it provides two essential elements (nitrogen and potassium) in a single product. Because it has no sodium chloride content, it does not rot or damage delicate plants such as tobacco or the roots of fruit trees. As it is totally water soluble, naturally-derived potassium nitrate is especially suitable for use in organic farming and in hydroponic (soil free) agriculture. There is an increase in demand for this product, particularly in China, India, and Brazil. Chile is today the largest producer of potassium nitrate.

 

In the event we were to develop potassium nitrate production on the Maricunga properties, we would complete a feasibility study of the economics of the project and would be required to raise approximately $130 million to $150 million to bring the project into production.

 

To produce potassium nitrate, we will also be required to obtain a source of sodium nitrate which could come from either 1) developing a sodium nitrate and iodine project; or 2) buying the sodium nitrate from different producers in the north of Chile. The Atacama Desert in the north of Chile is rich in sodium nitrate. The Company previously had an option on the Alfredo iodine and nitrates project. At the time we decided not to pursue that option because we were focused on pursuing the Maricunga properties as a lithium project. This property as well as a number of other projects in the north of Chile with the similar characteristics that we have evaluated in the past may continue to be available. Also, there are a number of producers of iodine in the north of Chile that have nitrates stockpiled which, as nitrates by themselves, are not economically profitable. There would be opportunities for us to acquire these to complement our potassium production.

 

In parallel to these efforts, we continue to consider various alternatives to continue to pursue our lithium strategy. These include the acquisition of nearby properties within the same Maricunga Salar that do not require special lithium permits for exploitation. 

 

Application of Intensified Evaporative Technology (R3 Fusion)

 

R3 Fusion, Inc. (“R3”) is a technology company that has developed, patented, demonstrated and is currently commercializing its Short Path Condensate Recovery (SPaCeR) technology, which utilizes waste process heat and engineering designed to achieve a highly cost effective means of environmentally friendly fluid processing.

 

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We believe the SPaCeR technology may speed the rate of mineral recovery from brine, however, there can be no assurance that it will do so on a commercially favorable basis or at all. Not only do we believe R3’s SPaCer technology can aid in the recovery of lithium, but we believe it will allow brine mining operations to use smaller facilities, reducing their footprint by as much as 1,000-fold.

 

On January 13, 2012, we entered into an agreement, (the “R3 Agreement”), with R3 Fusion, Inc. (“R3”) to apply R3’s SPaCeR in processing brine from our properties. Pursuant to the R3 Agreement, R3 will provide us with a demonstration plant consisting of two units having a design flow capacity of at least 1.6 liters per second each, and on-site training. Upon installation of the facilities, we will pay R3 equipment use fees of $37,500 per month for the first twelve months following successful installation and commissioning of the system, and, if we elect to keep the equipment on site thereafter, $12,500 per month for up to an additional thirty-six months. As of the date of this filing, such equipment has not yet been installed.

 

The R3 Agreement also provides that we will be given the exclusive license (the “Exclusive Rights”), subject to final negotiations, to exploit R3’s SPaCeR technology throughout the world for the processing of lithium-containing brine for so long as we are using such systems in the processing of brine at our facilities in South America.

 

Results of Operations

 

Three Months Ended September 30, 2012 Compared with Three Months Ended September 30, 2011

 

Revenues

 

We had no revenues during the three months ended September 30, 2012 and 2011. 

  

Exploration expenses

 

During the three months ended September 30, 2012 and 2011, we incurred exploration expenses of $352,921 and $468,242, respectively.  The expenses incurred during the three months ended September 30, 2012 relate to our efforts to obtain the environmental permits that will allow us take the project to a feasibility stage.

 

General and administrative Expenses

 

Our general and administrative expenses for the three months ended September 30, 2012 and 2011 consisted of the following:

 

           Increase 
   September 30, 2012   September 30, 2011   (Decrease) 
Professional fees-legal  $149,108   $269,303   $(120,195)
Wages and salaries   344,312    169,886    174,426 
Travel expenses   71,552    204,483    (132,931)
Stock based compensation   150,717    204,745    (54,028)
Marketing and investor relations   35,965    56,409    (20,444)
Professional fees-others   39,934    85,115    (45,181)
Professional fees-finance/accounting   111,000    60,910    50,090 
Board of Directors expense   61,000    -    61,000 
Professional Fees-audit   47,360    74,405    (27,045)
Filing fees   34,613    2,400    32,213 
Other   98,644    122,540    (23,896)
   $1,144,205   $1,250,196   $(105,991)

 

We incurred total general and administrative expenses of $1,144,205 for the three months ended September 30, 2012 compared to $1,250,196 for the three months ended September 30, 2011, a $105,991 decrease, which comprised of:

 

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·Professional fees-legal decreased by $120,195 primarily due to $135,000 of fees recorded for the period ended September 30, 2011 related to the POSCO capital raise dated August 24, 2011;
·Wages and salaries expense increased by $174,426 due to hiring of additional staff after the period ended September 30, 2011, including a full time CFO and Vice President and redundancy payments;
·Travel expenses decreased by $132,931 due to the decrease in investor relations activities and the decrease in seeking sources of funding due to the closing of the second tranche of funding with POSCO;
·Stock based compensation decreased by $54,028 primarily due to a decrease in the amount of unvested options and common stock which remain to be amortized as amounts granted earlier are fully amortized;
·Marketing and investor relations decreased by $20,444, which was primarily due to the decrease in investor relations activities and the efforts of the Company to control costs;
·Professional fees-others decreased by $45,181 primarily due to a reduction in the use of outside professionals;
·Professional fees-finance/accounting increased by $50,090 due primarily to the increasing complexity of the entity which required more accounting services;
·Board of Directors fees increased by $61,000 due to the approval of fees to be paid to the Board of Directors in 2012;
·Professional fees-audit decreased by $27,045 due primarily to completion of the audit at a later date for the year ended June 30, 2012 compared to that of the prior period, which resulted in more audit fees being incurred after September 30, 2012 than after September 2011; and
·Filing fees increased by $32,213 mainly due to the Form S-1 filings during the year 2012, XBRL requirements which started during 2012 and an increase in press release activities in 2012.

 

Loss on settlement

 

The Company recorded a loss on settlement of $5,816 as a result of settlement agreements with respect to an aggregate of $390,336 of obligations, under which the Company issued an aggregate of 5,825,761 shares of the Company’s common stock, valued at $396,152.

 

Other Income/expense

 

Other expense for the three months ended September 30, 2012, was $72,961 compared to other income in the amount of $5,558,418 for the three months ended September 30, 2011.  The decrease in other income was primarily due the change in loss on debt extinguishment, recognition of change in fair value of warrant derivative liabilities, warrant modification expense, and the change in interest expense.

 

We recognized a loss on debt extinguishment of $37,235 compared with a loss on debt extinguishment of $841,752 for the three months ended September 30, 2012 and 2011, respectively. The differences related to the difference in the terms of existing debt compared to debt under the modified terms of the debt agreements.

 

We recognized an unrealized gain from the change in the fair value of the derivative liability related to our outstanding warrant instruments of $243,205 during the three months ended September 30, 2012 compared to a net unrealized gain of $6,948,644, which included a realized loss of $511,511 during the three months ended September 30, 2011.  The change in fair value of our derivative warrant liability has no impact on our cash flows from operations.

 

We recognized warrant modification expense in conjunction with the closing of POSCAN’s second tranche of investment on August 17, 2012, when the Company adjusted the exercise price of the warrants previously issued to POSCAN from $0.40 to $0.21 per share. The incremental value of the warrants before and after the modification was $171,150 and was reported as current period expense. There were no warrant modifications during the three months ended September 30, 2011.

 

Net interest expense amounted to $172,515 and $533,489 during the three months ended September 30, 2012 and 2011, respectively.  The decrease in interest expense was primarily a result of amortization of the debt discount and deferred financing costs on the zero coupon convertible notes of $532,260 during the three months ended September 30, 2011, partially offset by the increase in interest for the three months ended September 30, 2012 due to interest on registration rights penalties of $23,321, interest on notes payable entered into during 2012 of $46,622, and interest on employees’ insurance due to late payments totaling $37,601.  

 

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During the three months ended September 30, 2012 and 2011, we recorded gains on foreign currency transactions of $64,734 and losses on foreign currency transactions of $14,985 respectively, and such activity related to our operations in Peru and Chile.

 

Fiscal Year Ended June 30, 2012 Compared with Fiscal Year Ended June 30, 2011

 

Revenues

 

We had no revenues during the years ended June 30, 2012 and 2011.

 

Exploration Expenses

 

During the years ended June 30, 2012 and 2011, we incurred exploration expenses of $6,193,533 and $560,075, respectively. The expenses incurred during the year ended June 30, 2012, relate to our efforts to begin exploration activities on our Maricunga project in Chile and principally include drilling expenses and other related expenses. The expenses incurred during the year ended June 30, 2011, relate primarily to our other properties which we no longer are exploring.

 

Mineral Rights Impairment Expense

 

During the years ended June 30, 2012 and 2011, we incurred impairment expenses of $300,000 and $4,120,000, respectively. Mineral rights impairment expense for the year ended June 30, 2012, is a result of the impairment of the Noto properties. Mineral rights impairment expense recorded during the year ended June 30, 2011 is a result of the impairments of the Alfredo property ($4,070,000) and the Peru property ($50,000). We determined that these projects did not meet our requirements for additional mining development activities.

 

Loss on Settlements, Net

 

During the year ended June 30, 2011, we recorded a loss on settlement of $1,920,000 as a result of issuing 6,000,000 shares of our common stock in connection with a settlement related to the Puna property obligation.  In addition, we recorded a gain on settlement of $422,500 as a result of a settlement with Lacus (payment of $150,000 in cash and 500,000 shares of the Company’s common stock), which was less than we had accrued for these expenses as of June 30, 2010. The Puna and Lacus settlements were related to the Argentinean properties that were terminated. There were no similar transactions during the year ended June 30, 2012.

 

General and Administrative Expenses

 

Our general and administrative expenses for the years ended June 30, 2012 and 2011 consisted of the following:

 

           Increase 
   June 30, 2012   June 30, 2011   (Decrease) 
Professional fees-legal  $1,210,123   $1,021,198   $188,925 
Wages and salaries   1,115,824    571,337    544,487 
Travel expenses   896,898    697,729    199,169 
Stock based compensation   649,580    1,941,862    (1,292,282)
Registration rights penalties   479,777    38,750    441,027 
Write-offs of deposits on potential acquisitions   400,000    -    400,000 
Marketing and investor relations   395,416    232,289    163,127 
Professional fees-others   375,881    45,868    330,013 
Professional fees-finance/accounting   330,798    414,804    (84,006)
Office expenses   307,320    91,864    215,456 
Board of Directors expenses   215,935    -    215,935 
Professional fees-audit   205,273    150,710    54,563 
Insurance   100,079    63,828    36,251 
Filing fees   99,791    57,536    42,255 
Other   213,348    120,892    92,456 
   $6,996,043   $5,448,667   $1,547,376 

 

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We incurred total general and administrative expenses of $6,996,043 for the year ended June 30, 2012 compared to $5,448,667 for the year ended June 30, 2011, a $1,547,376 increase, which comprised of:

 

·Professional fees-legal increased by $188,925 due to due diligence expenses in connection to potential acquisitions and the POSCAN funding;
·Wages and salaries expense increased by $544,487 due to the increase in hiring of new employees, including a CEO, a full time CFO, and office staff;
·Travel expenses increased by $199,169 due to investor relations activities in relation to seeking sources of funding;
·Registration rights penalties increased by $441,027 due to penalties incurred in connection with the failure to file a timely registration statement;
·Write-offs of deposits on potential acquisitions increased by $400,000 due to write-offs of payments to New World Resource Corp. and to the Claritas and Bongos properties;
·Marketing and investor relations increased by $163,127 due to activities for actively seeking various sources of funding;
·Professional fees-others increased by $330,013 due to consulting fees related to the acquisition and development of the Maricunga project;
·Office expenses increased by $215,456 mainly due to the opening of our new office in Chile;
·Board of Directors fees increased by $215,935 due to the approval of fees to be paid to the Board of Directors in 2012;
·Professional fees-audit increased by $54,563 due to higher activity as a result of the development of the Maricunga project;
·Insurance increased by $36,251 mainly due to insurance costs related to the new Chile location;
·Filing fees increased by $42,255 mainly due to the Form S-1 filings during the year 2012, XBRL requirements which started during 2012 and an increase in press release activities in 2012;
·Other expenses increased by $92,456 mainly due to the higher activity as result of the development of the Maricunga project.
·These increases were partially offset by an $84,006 decrease in professional fees-finance/accounting due to the hiring of new employees during 2012 and a $1,292,282 decrease in stock compensation to as a result of fewer services paid for with stock.

 

Other (Income) Expense

 

Loss on Debt Extinguishment

 

We incurred a loss on debt extinguishment of $841,752 during the year ended June 30, 2012 as a result of entering into a waiver agreement with the lenders whereby the terms of the notes were extended and the conversion price was reduced from $0.40 per share to $0.12 per share, which resulted in us expensing all unamortized deferred financing costs and recording the difference between the carrying value of the notes and the estimated fair value of the post-modification notes as expense. There were no similar transactions during the year ended June 30, 2011.

 

Change in Fair Value of Derivative Liability - Warrant Instruments

 

During the year ended June 30, 2012, we recorded a gain of $10,780,342 on the change in fair value of derivative liability - warrant instruments, compared to a loss of $6,116,147 during the year ended June 30, 2011.  The change in fair value of our derivative warrant liability has no impact on our cash flows from operations and was primarily a result of the decrease in our stock price during the year ended June 30, 2012.

 

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Warrant Modification Expense

 

During the year ended June 30, 2011, we modified certain warrants by which new warrants were issued in exchange for the exercise of previously issued warrants.  The newly issued warrants were treated as derivatives as they contain certain anti-dilution features.  We valued the new warrants issued as a result of the modification using a modified lattice model and recorded expense of $1,068,320 during the year ended June 30, 2011. There were no similar transactions during the year ended June 30, 2012.

 

Interest Expense

 

During the years ended June 30, 2012 and 2011, interest expense was $1,150,634 and $410,056, respectively.  The increase in interest expense was a result of interest and amortization of the debt discount on the $1.5 million zero coupon convertible notes issued in May 2011, and interest on new promissory notes issued during the second half of fiscal year 2012.

 

Gain on Foreign Currency Transactions

 

During the years ended June 30, 2012 and 2011, gain on foreign currency transactions amounted to $14,142 and $1,383, respectively.  

 

Net Loss

 

Net loss for the year ended June 30, 2012 was $4,687,478 compared to a net loss of $19,219,382 for the year ended June 30, 2011.  The decrease is primarily due to an unrealized gain on the change in fair value of derivative liabilities - warrant instruments of $10,780,342 in 2012 compared to an unrealized loss of $6,116,147 in 2011. This decrease was partially offset by a $1,863,334 increase in our total operating expenses in 2012, compared to the prior year.

 

Net Loss Attributable to Non-Controlling Interest

 

During the years ended June 30, 2012 and 2011, the net loss attributable to non-controlling interests was $2,375,407 and $-0-, respectively.  This represents the non-controlling interest’s 40% share of expenses relating to the exploration of the Maricunga Property.

 

Liquidity and Capital Resources

 

We are primarily engaged in exploration and acquisition of new properties and do not generate income from operations currently. Our primary source of liquidity has been debt and equity financing.

 

Although we have begun the acquisition of certain mining properties, any of such properties that we may acquire will require exploration and development that could take years to complete before it begins to generate revenues. There can be no assurances that we will be successful in acquiring such properties or that if we do complete acquisitions, properties acquired will be successfully developed to the revenue producing stage. If we are not successful in our proposed mining operations, our business, results of operations, liquidity and financial condition will suffer materially.

 

Various factors outside of our control, including the price of lithium, potassium nitrate and other minerals, overall market and economic conditions, the volatility in equity markets may limit our ability to raise the capital needed to execute our plan of operations. These or other factors could adversely affect our ability to raise additional capital. As a result of an inability to raise additional capital, our short-term or long-term liquidity and our ability to execute our plan of operations could be significantly impaired.

 

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POSCAN funding

 

In September 2011, POSCO Canada Ltd. (“POSCAN”), a wholly owned subsidiary of POSCO (a South Korean company), purchased 38,095,300 Units of our securities for approximately $8 million (or $0.21 per Unit), with each “Unit” consisting of one share of our common stock and a three-year warrant to purchase one share of our common stock at an exercise price of $0.40 per share.

 

In August 2012, we received the second tranche of funding by POSCAN. We issued 62,499,938 Units to POSCAN for gross proceeds of $9,999,990 (or $0.16 per Unit), with each “Unit” consisting of one share of common stock and a three-year warrant to purchase one share of common stock for $0.21 per share.

 

Pursuant to the Additional Agreement, we reduced POSCAN’s purchase price per Unit for the second tranche from $0.21 per share to $0.16 per share, and reduced the exercise price of all of the warrants sold under the POSCAN SPA from $0.40 per share to $0.21 per share.

 

Pursuant to the Additional Agreement, we also agreed to issue to POSCAN a two-year warrant (the “Bonus Warrant”) to purchase 5,000,000 shares of our common stock at an exercise price of $0.15 per share. Furthermore, subject to certain exceptions, we must issue additional shares of our common stock to POSCAN in the event that we issue or sell any such shares to third parties for a price of less than $0.16 per share at any time during the 18 months immediately following the Second Closing.

 

POSCAN has no current commitments to provide us with funding in the future.

 

Shares for Debt Settlement

 

In addition to utilizing our capital to acquire properties and pay other corporate costs, we periodically issue shares of our common stock as consideration in lieu of cash to conserve our cash and meet our obligations. We likely will continue to issue common stock for these purposes where feasible, if we determine that it is in our economic best interests. In September 2012, we issued 5,825,761 shares of our common stock for the settlement of $390,336 relating to certain outstanding liabilities at June 30, 2012.

 

Convertible Notes

 

In September 2012, the Company entered into a Second Amendment and Waiver Agreement with the holders of the zero-coupon convertible notes (the “Second Waiver Agreement”).  Pursuant to the Second Waiver Agreement, the zero-coupon convertible notes maturity date was extended to September 28, 2013, and the aggregate principal amount thereof was increased to $1,880,000, which includes an Original Issue Discount of 12.1%. The Waiver Agreement also reduced the conversion price of the zero-coupon bridge notes from $0.12 to $0.095 per share.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Critical Accounting Policies

 

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States ("U.S. GAAP").  U.S. GAAP represents a comprehensive set of accounting and disclosure rules and requirements.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions, however, in the past the estimates and assumptions have been materially accurate and have not required any significant changes. Should we experience significant changes in the estimates or assumptions that would cause a material change to the amounts used in the preparation of our financial statements, material quantitative information will be made available to investors as soon as it is reasonably available.

 

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We believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management has made significant estimates related to the fair value of shares issued for mineral acquisitions; the fair value of derivative liabilities; stock-based payments; and contingencies.

 

Mineral Exploration and Development Costs

 

All exploration expenditures are expensed as incurred. Costs of acquisition and option costs of mineral rights are capitalized upon acquisition. Mine development costs incurred to develop new ore deposits, to expand the capacity of mines, or to develop mine areas substantially in advance of current production are also capitalized once proven and probable reserves exist and the property is determined to be a commercially mineable property. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. If we do not continue with exploration after the completion of the feasibility study, the cost of mineral rights will be expensed at that time. Costs of abandoned projects are charged to mining costs, including related property and equipment costs. To determine if capitalized costs are in excess of their recoverable amount, periodic evaluation of the carrying value of capitalized costs and any related property and equipment costs are performed based upon expected future cash flows and/or estimated salvage value in accordance with ASC 360-10-35-15, Impairment or Disposal of Long-Lived Assets.

 

Share-Based Payments

 

The Company estimates the fair value of each stock option award at the grant date by using the Black-Scholes option pricing model and common shares based on the last quoted market price of the Company’s common stock on the date of the share grant. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. As share-based compensation expense is recognized based on awards ultimately expected to vest, the Company reduces the expense for estimated forfeitures based on historical forfeiture rates. Previously recognized compensation costs may be adjusted to reflect the actual forfeiture rate for the entire award at the end of the vesting period. Excess tax benefits, if any, are recognized as an addition to paid-in capital.

 

Fair Value Measurements

 

As defined in FASB ASC Topic No. 820 - 10, fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC Topic No. 820 - 10 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements.

 

As required by FASB ASC Topic No. 820 - 10, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. 

 

Non-Controlling Interests

 

We are required to report our non-controlling interests as a separate component of shareholders’ equity. We are also required to present the consolidated net income and the portion of the consolidated net income allocable to the non-controlling interests and to our shareholders separately in our consolidated statements of operations. Losses applicable to the non-controlling interests are allocated to the non-controlling interests even when those losses are in excess of the non-controlling interests’ investment basis.

 

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DIRECTORS AND EXECUTIVE OFFICERS

 

Below are the names and certain information regarding our current executive officers and directors:

 

Name   Age   Title   Date First Appointed
Luis Francisco Saenz   41   President, Chief Executive Officer and Director   October 19, 2009
Luis Santillana   36   Chief Financial Officer, Secretary and Treasurer   July 1, 2012
Patrick Cussen   63   Chairman of the Board   December 5, 2011
Alan S. Fraser   50   Director   October 23, 2011
Patricio A. Campos   66   Director   October 23, 2011
Eduardo G. de Aguirre   65   Director   October 23, 2011
SungWon Lee   46   Director   December 19, 2012
Harvey McKenzie   66   Director   June 27, 2011
David G. Wahl   68   Director   February 18, 2010

 

The following person served as an executive officer of our Company until his resignation at the close of business on December 5, 2012 and will continue to serve as independent consultant for the Company:

 

R. Thomas Currin, Jr.   55   Chief Operating Officer   August 11, 2010

 

The following person served as a director of our Company until his resignation at the close of business on December 18, 2012:

 

Hyundae Kim   42   Director   September 14, 2011

 

Directors are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified. Our executive officers are appointed by the Board of Directors and serve at its pleasure.

 

Certain biographical information for each of our executive officers and directors is set forth below.

 

Luis Francisco Saenz joined our Board of Directors on October 19, 2009. Mr. Saenz has been our Chief Executive Officer since October 19, 2009 and our President since September 14, 2011. He is currently, and has been since July 21, 2008, the President and a Director of the publicly traded Loreto Resources Corporation (LRTC.OB), and he also served as their Chief Executive Officer from July 21, 2008 until August 25, 2011. Mr. Saenz was formerly employed at Standard Bank (“Standard”) with Standard’s investment banking unit, Standard Americas, Inc. Mr. Saenz joined Standard in New York in 1997 and relocated to Peru in 1998 to establish Standard’s Peru representative office. While in Peru, Mr. Saenz led Standard’s mining and metals organization effort in the Latin America region. Mr. Saenz returned to New York in 2007 to head Standard’s mining and metals team in the Americas. Mr. Saenz previously worked for Pechiney World Trade in the base metals trading area before joining Merrill Lynch as Vice-President for Commodities in Latin America. Mr. Saenz graduated from Franklin and Marshall College in 1991 with a Bachelor of Arts degree in economics and international affairs.

 

Luis Santillana became our Vice President of Finance on March 1, 2012, and has been our Chief Financial Officer, Treasurer and Secretary since July 1, 2012. Mr. Santillana strengthens our existing management team and brings additional domain expertise, having over 10 years’ experience in the mining industry, specifically in finance, fund raising, debt facilities, deal negotiation and execution, strategic and financial planning, financial valuations, treasury management, and improvement of management reporting. Prior to joining our Company, Mr. Santillana held the position of Strategic Planning Manager for ENRC plc,, a $7 billion revenue, diversified mining company listed on the London Stock Exchange (FTSE 100). Based in London, he was involved in strategic and financial planning and management reporting for ENRC. From September 2008 to June 2010, Mr. Santillana was responsible for the financial planning and treasury functions at London Mining plc, an iron-ore mining company listed on the London Stock Exchange (AIM). Prior to joining London Mining plc, Mr. Santillana worked for Hochschild Mining plc, a Peruvian gold and silver producer, where he was part of the core management team that led Hochschild Mining’s successful IPO and listing on the London Stock Exchange (FTSE 250). Mr. Santillana holds an MBA from IESE Business School (Spain) and a Bachelor’s Degree in Industrial Engineering from Universidad de Lima (Peru).

 

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Patrick Cussen joined our Company as Chairman of the Board of Directors in September 2011. Mr. Cussen brings us 40 years of mineral and mining expertise and is currently the President of Celta, a Chilean mining consulting and service company to the Latin American mining industry advising global clients including: Antofagasta Minerals, Vale, Phelps Dodge (Freeport), Placer Dome (Barrick), Codelco, Citibank, LS-Nikko Copper and Royal Gold. From 1972 - 1985, Mr. Cussen held numerous positions within Codelco, the world’s largest copper producer, culminating as Managing Director, Chile Copper Ltd., a London based Codelco subsidiary. From 1985 - 1990, Mr. Cussen was VP Sales, Empresa Minera de Mantos Blancos S.A. (subsidiary of Anglo American Chile). Mr. Cussen is currently Chairman of the Board of the Center for Copper and Mining Studies, Cesco, the Chilean think-tank on mining. Mr. Cussen is also a former member of the board of the Chilean Copper Commission. Mr. Cussen is an industrial civil engineer and holds an MA in economics from the University of Chile.

 

Mr. Cussen’s qualifications to serve on our board of directors include his experience with the mining industry.

 

Patricio Campos joined our Board of Directors in September 2011. Mr. Campos brings us valuable domain expertise having over 39 years’ experience in the mining industry, specifically in project exploration, evaluation, technical and economic preparation. His mineral and mining experience includes copper, gold and non-metallic (coal, phosphate, limestone, nitrate and iodine, lithium (brines) minerals, boron and potassium chloride projects. Mr. Campos has also acted as a consultant in the evaluation of ore deposit reserves, copper, gold, iodine, nitrate, coal, phosphate, lithium salars, boron, potassium chloride and potassium sulphate projects. Prior to joining our Company, Mr. Campos previously led and supervised the construction of several plants (iodine, bagging) for Chemical & Mining Co. of Chile Inc. (NYSE: SQM), a multi-national global producer and seller of fertilizers and specialty chemicals and Bifox Ltd. (phosphoric acid, grinding, crushing). Additionally, Mr. Campos has worked as a consultant spanning 30 years for companies such as Anglo American (Salar de Atacama Project), SQM (Salar de Atacama Project), Falcon Mines, MAGSA, ACF Minera S.A., SCM Montevideo & Montecristo, and Sociedad Minera Isla Riesco. Mr. Campos has also actively participated in due diligence processes and negotiations for assets such as Algorta Norte S.A.’s iodine project, SQM’s Salar de Atacama and Antucoya copper projects, Codelco´s El Hueso gold mine and other exploration projects, Phelp Dodge’s Safford project, among others. Mr. Campos is a former Professor of Mining Economy at the Mining Department, Universidad de Chile and a former Professor for due diligence, Mining Department, Escuela de Ingenieria, Unversidad de Chile and Instituto de Indenieros de Minas de Chile. Currently Mr. Campos is a member of the Comité de Recursos Mineros del IIMCh (Mining Resources Committee, Chile). Mr. Campos received his Civil Mining Engineering degree from Universidad de Chile and Graduated in economic evaluation and project preparation, Bid-Odeplan-Universidad Católica de Chile.

 

Mr. Campos’s qualifications to serve on our board of directors include his experience with the mining industry.

 

Alan S. Fraser joined our Board in September 2011 and brings us over 24 years of experience in Engineering Business Development specifically for Mining Projects, Mining Project Evaluations, Due Diligence Studies, Process Plants, Power Plants, Petrochemical Process Plants, Sulphuric Acid Plants, Infrastructure and Environmental Assessments. Currently, Mr. Fraser is the Managing Director and shareholder of P3 Consultores S.A, a Project Management Services Company providing risk administration to clients including Anglo American, Colahuasi and others. From 2001 to 2009, Mr. Fraser held numerous positions, culminating as the Director, Business Development for Fluor, Chile S.A. servicing global clients including BHP Billiton Base Metals, Rio Tinto, Anglo American, Xstrata, Codelco, Antofagasta Minerals, Southern Peru Copper Corporation, General Atomics. While in this capacity, Mr. Fraser actively participated in numerous resource projects including; winning the Gaby SX-EW EPCM Project for Codelco, ($900 million), Pascua Lama EPC Project for Barrack Gold ($2.3 billion), Gold Mill EPCM Project for Minera Yanacocha ($240 million), Sulphide Leach EPCM Project of Minera Escondida Ltda. ($780 million), Ilo Smelter Modernization EPCM Project ($400 million), and engineering studies as Codelco Minco 230 k tpd, Salobo Feasibility Study for CVRD (Brazil), additional work for Newmont/Minera Yanacocha including the Gold Mill Project, Collahuasi SX/EW expansion studies and Material Handling support, Minera Escondida Water Supply Studies. Also recent detail engineering services for the expansion of Lomas Bayas ($47 million) and the Feasibility Study of the El Morro project ($1.5 billion). Mr. Fraser is a Civil Mining Engineer, Universidad de Chile, Santiago, Chile.

 

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Mr. Fraser’s qualifications to serve on our board of directors include his experience with the mining industry.

 

Eduardo de Aguirre joined our Board of Directors in October 2011. Mr. de Aguirre brings us over 35 years' experience in business development, project management and finance. Since 2007, Mr. de Aguirre has served as Legal Representative to General Dynamics Installation Services Inc., Chile who are building and commissioning radio telescopes for the ALMA Project for a total value of about $150MMUS. ALMA is the largest astronomical project in existence in the world, now in construction in the Atacama desert in Chile and will be fully operational in 2013. Its total cost is in the range of billions of dollars. In addition, since 2005, he has acted as Consultant and Sales Representative for Latin America to General Dynamics SATCOM Technologies Inc. Prior to that, from 2000 - 2011, he acted as a consultant for various Chilean entities including Target-DDI, AACA, ASL, Filmosonido and ViaSat. From 1989 - 2000, Mr. de Aguirre served as Regional Manager in South America and as General Manager of the Chilean Subsidiary of Scientific Atlanta, Inc. Mr. de Aguirre is a Civil Industrial Engineer and attended Engineering School at the Catholic University, Santiago, Chile.

 

Mr. de Aguirre’s qualifications to serve on our board of directors include his experience in business development, project management and finance.

 

SungWon Lee, PhD. was appointed to our Board of Directors on December 19, 2012, in connection with the closing of POSCAN’s initial investment in our securities.  Dr. Lee is a metallurgist with vast knowledge in aluminum forming and superplasticity. Dr. Lee joined POSCO in 2000 and has held various roles including Team Leader of the New Business Development Department where his activities included sourcing and reviewing numerous investment projects, joint ventures and organic growth projects. Dr. Lee led the development of the Magnesium Coil Project and the Fe-Mn Alloy Joint Venture both of which are operating units within POSCO Group. Dr. Lee has been serving as the Director of the Lithium Project Department within POSCO since 2010. Dr. Lee graduated with a Bachelor of Science from Yonsei University, Korea, M.S. Metallurgical Engineering, Yonsei University, Korea and PhD. Materials Science and Engineering, University of Southern California, USA.

 

Dr. Lee’s qualifications to serve on our board of directors include his experience with metallic minerals.

 

Harvey McKenzie was appointed to our Board of Directors on June 27, 2011. Mr. McKenzie is a Chartered Accountant and has been the CFO and corporate secretary of Anconia Resources Corp. (TSXV: ARA.V) since June 2011 and the CFO and a director of Martina Minerals Corp. (TSXV: MTN.V) (formerly Manor Global Inc., a capital pool company), since February 2005.  Prior thereto, Mr. McKenzie served as the CFO of several Canadian publicly listed exploration, development and producing mining companies, including Eurotin Inc. from May 2011 to September 2011, Sino Vanadium Inc. from May 2010 to March 2011, Iberian Minerals Corp. from July 2007 to June 2009, Carlisle Goldfields Limited from September 2006 to July 2007, and Asian Mineral Resources Limited from July 2006 to January 2008.  From August 2005 to July 2007, he was the CFO and a director of Card One Plus, Ltd., an electronic payment solutions company. Prior thereto he was the CFO of Thistle Mining Inc. from March 1999 to August 2005 (TSXV: TMG.V). He has also served as a consultant for several private companies and on the boards of several junior Canadian natural resource companies for over a decade. Prior thereto, he was in the financial services sector from 1987 to 1995; and from 1983 to 1987 he served as Director of Information Services of Ernst & Young, Chartered Accountants, in Toronto. From 1977 to 1983, he provided management and controllership functions for various financial institutions. From 1970 to 1977, he served as an Auditor for PricewaterhouseCoopers, Chartered Accountants. Mr. McKenzie obtained his Diploma in Alternate Dispute Resolution from the University of Toronto in 2001. He obtained his C.A. from the Institute of Chartered Accountants of Ontario in 1973 and his B.Sc. (Hons.) in Mathematics from the University of Toronto in 1970.

 

Mr. McKenzie’s qualifications to serve on our board of directors include his experience with companies involved in the mining and mineral industry.

 

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David G. Wahl, P. Eng., P.Geo. ICD.D was appointed to our Board of Directors on February 18, 2010.  From 2005 to the present, Mr. Wahl has been the President and CEO of Southampton Associates - Consulting Engineers & Geoscientist, a private consulting concern specializing in mining and technical issues for corporate clients, financial institutions and governments. Mr. Wahl is a Director of Renforth Resources Inc. (TSX-V) and Femin Inc (Frankfurt). Mr. Wahl also has served in a technical advisory capacity to certain financial institutions, government agencies, and national legal and accounting firms.  As a past director of the Prospectors and Developers Association, Mr. Wahl provided independent peer review of the OSC/TSE Mining Standard Task Force and for Canadian National Instrument 43-101.  Mr. Wahl contributed to a similar review process as co-chair of the Professional Engineers of Ontario Review Committee.  Mr. Wahl is a graduate of the Colorado School of Mines and received a degree as an Engineer of Mines in 1968.

 

Mr. Wahl’s qualifications to serve on our board of directors include his experience with companies involved in the mining and mineral industry.

 

Rights to Nominate Directors

 

We have agreed with the Maricunga Sellers:  (a) to increase the number of directors constituting our Board of Directors to seven; (b) that the Maricunga Sellers will have the right to nominate three of our directors and that a fourth director (who shall hold the position of Chairman of the Board) will be jointly nominated by the Maricunga Sellers and by our management (such persons, or any successors thereto nominated by the Maricunga Sellers or by the Maricunga Sellers and management, as the case may be, the “Nominees”), and that the Board shall appoint such Nominees to fill vacancies created in the Board by the increase in the number of directors and by resignations, to serve until the next annual meeting of stockholders; (c) that the Nominees shall continue to be nominated as directors by our management at the next and subsequent annual meetings of our stockholders, and at any special meeting of the stockholders at which directors are to be elected (collectively, a “Meeting”), during the period of the Lock-Up (but the Nominees will be subject to reelection by the stockholders as provided in our By-Laws); and (d) that if any Nominee is not elected by the stockholders pursuant to the By-Laws, the Maricunga Sellers, or the Maricunga Sellers and management, as the case may be, will have the right to designate the same or another person as their Nominee at the next Meeting, provided it is within the period of the Lock-Up.  To date, the Maricunga Sellers have exercised their right to nominate the following Board members: Eduardo de Aguirre, Patricio Campo, and Alan Fraser. All three Nominees were appointed to our Board of Directors on October 23, 2011. Thereafter, our Chairman of the Board, Patrick Cussen, was appointed to our Board on December 5, 2011.

 

Pursuant to the Investor’s Rights Agreement between POSCAN and us, dated as of August 24, 2011, we were required to appoint a director nominated by POSCAN to our Board of Directors, and we must continue to nominate a POSCAN-designee at each annual meeting for as long as POSCAN owns not less than 10% of the issued and outstanding shares of our common stock.  We appointed Mr. SungWon Lee to our Board of Directors on December 19, 2012.

 

Involvement in Certain Legal Proceedings

 

To the best of our knowledge, other than as disclosed below, none of our directors or executive officers has, during the past ten years:

 

been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

 

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been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

   

Harvey McKenzie was the Chief Financial Officer of Thistle Mining Inc. when, on January 7, 2005, Thistle Mining obtained protection from creditors pursuant to the Companies’ Creditors Arrangement Act, (Canada). The restructuring was completed on June 30, 2005.

 

Board of Director Meetings

 

Our business is under the general oversight of the Board of Directors as provided by the laws of Nevada and our bylaws. During the fiscal year ended June 30, 2012, the Board of Directors held seven meetings and took action by unanimous written consent in lieu of a meeting two times. Except as set forth below, each incumbent director attended at least 75% of the Board of Directors meetings and the meetings of the committees on which he served during fiscal 2012 (or the portion thereof during which he has been a director).

 

Director  Percentage of meetings
attended
 
Hyundae Kim   11%
Patricio Campos   50%
David Wahl   57%
Eduardo Aguirre   63%

 

Board Committees

 

Until December 5, 2011, we had not established any committees of our Board of Directors.  The entire Board of Directors has historically performed all functions that would otherwise be performed by committees, including audit and nominating committees.  Effective December 5, 2011, our Board of Directors formed an Audit Committee, a Compensation Committee, a Health, Safety, Environment and Community Committee and a Nominating and Corporate Governance Committee. We have subsequently adopted charters for all such committees.

 

Audit Committee

 

The purpose of the Audit Committee of the Board of Directors is to represent and assist the Board in monitoring (i) accounting, auditing, and financial reporting processes; (ii) the integrity of our financial statements; (iii) our internal controls and procedures designed to promote compliance with accounting standards and applicable laws and regulations; and (iv) the appointment of and evaluating the qualifications and independence of our independent registered public accounting firm. The Audit Committee’s responsibilities are set forth in its formal charter. The Audit Committee consists of Mr. McKenzie (Chairperson) and Messrs. Cussen and Fraser. The Audit Committee was formed on December 5, 2011, and has met two times during fiscal 2012.

 

The Board of Directors has determined that all Audit Committee members are financially literate under the rules of the Nasdaq Stock Market. The Board also determined that Mr. McKenzie qualifies as an “audit committee financial expert” within the meaning of Item 407 of Regulation S-K promulgated under the Exchange Act.

 

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Compensation Committee

 

The purpose of the Compensation Committee of the Board of Directors is to (i) assist the Board in discharging its responsibilities with respect to compensation of our executive officers, (ii) evaluate the performance of our executive officers, and (iii) administer our stock and incentive compensation plans and recommend changes in such plans to the Board as needed. The Compensation Committee’s specific responsibilities are set forth in its formal charter. The Compensation Committee currently consists of Mr. De Aguirre (Chairman) and Messrs. Cussen and Saenz. Mr. Saenz, as Chief Executive Officer, is not independent within the meaning of the rules of the Nasdaq Stock Market; nonetheless, we believe that his presence on the Compensation Committee is productive, given the size and history of our Company. The Compensation Committee was formed on December 5, 2011, and has met two times during fiscal 2012.

 

Health, Safety, Environment and Community Committee

 

The purpose of the Health, Safety, Environment and Community Committee of the Board of Directors is to assist the Board in discharging its responsibilities with respect to (i) employee health and safety, (ii) the protection of the environment, and (iii) our relationship to the local communities affected by our operations. The Health, Safety, Environment and Community Committee’s specific responsibilities are set forth in its formal charter. The Health, Safety, Environment and Community Committee currently consists of Mr. Campos (Chairman) and Messrs. Fraser and Wahl. The Health, Safety, Environment and Community Committee was formed on December 5, 2011, and has not met during fiscal 2012.

 

Nominating and Corporate Governance Committee

 

The purpose of the Nominating and Corporate Governance Committee of the Board of Directors is to assist the Board in identifying qualified individuals to become Board members, in determining the composition of the Board and its committees, in monitoring a process to assess Board effectiveness and in developing and implementing corporate procedures and policies. The Nominating and Corporate Governance Committee’s specific responsibilities are set forth in its formal charter. The Nominating and Corporate Governance Committee currently consists of Mr. Cussen (Chairman) and Messrs. McKenzie and Saenz. Mr. Saenz, as Chief Executive Officer, is not independent within the meaning of the rules of the NASDAQ Stock Market; nonetheless, we believe that his presence on the Nominating and Corporate Governance Committee is productive, given the size and history of the Company. The Nominating and Corporate Governance Committee was formed on December 5, 2011, and has not met during fiscal 2012.

 

Shareholder Communications

 

Currently, we do not have a policy with regard to the consideration of any director candidates recommended by security holders.  To date, no security holders have made any such recommendations.

 

Director Independence

 

Because our common stock is not currently listed on a national securities exchange, we have used the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:

 

·the director is, or at any time during the past three years was, an employee of the company;
·the director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service);
·a family member of the director is, or at any time during the past three years was, an executive officer of the company;
·the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions);

 

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·the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the company served on the compensation committee of such other entity; or the director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the past three years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit.

 

Our Board of Directors has determined that each of Messrs. De Aguirre, Campos, Cussen, Fraser, Lee, McKenzie and Wahl- is an “Independent Director” within the meaning of the rules of the NASDAQ Stock Market. Furthermore, our Board has determined that each member of the Audit Committee is “independent” within the meaning of Rule 10A-3(b)(1) under the Exchange Act.

 

EXECUTIVE COMPENSATION

 

The following table sets forth information concerning the total compensation paid or accrued by us during the last two fiscal years ended June 30, 2012 and June 30, 2011 to (i) all individuals that served as our principal executive officer or acted in a similar capacity for us at any time during the fiscal year ended June 30, 2012; and (ii) all individuals that served as executive officers of ours at any time during the fiscal year ended June 30, 2011 that received annual compensation during such fiscal year in excess of $100,000.

 

Summary Compensation Table

 

                          Change         
                          in         
                          Pension         
                          Value         
                          and Non-         
                      Non-Equity   qualified         
                      Incentive   Deferred         
Name and             Stock   Option   Plan   Compensation   All Other     
Principal     Salary   Bonus   Awards   Awards   Compensation   Earnings   Compensation     
Position  Year  ($)   ($)   ($)   ($)   ($)   ($)   ($)   Total ($) 
Luis Francisco Saenz  2012   225,000    200,000    -    -    -    -    19,070    444,070 
Chief Executive Officer   (1)  2011   75,000    -    154,000    -    -    -    -    229,000 
                                            
Thomas E. Currin  2012   212,500    -    -    -    -    -    -    212,500 
Chief Operating Officer   (2)  2011   75,000    100,000    1,232,500    343,310    -    -    -    1,750,810 
                                            
Luis Santillana  2012   61,667    20,000    34,500    30,725    -    -    -    146,892 
Chief Financial Officer     (3)  2011   -    -    -    -    -    -    -    - 
                                            
Eric E. Marin  2012   201,772    -    -    -    -    -    -    201,772 
Interim Chief Financial Officer   (4)  2011   10,000    -    -    -    -    -    -    10,000 

 

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  (1) Mr. Saenz was appointed our Chief Executive Officer as of October 19, 2009.  Mr. Saenz has an employment agreement with us as described below.  We granted Mr. Saenz 1,500,000 shares of our restricted common stock upon his initial hire and 700,000 restricted stock units on June 27, 2011, which had a grant date fair value of $154,000.  We have been paying Mr. Saenz at the rate of $100,000 per annum for the first calendar quarter of 2011 and $200,000 per annum thereafter. On May 2, 2012, our Board of Directors approved a cash bonus of $200,000 for Mr. Saenz’ achievements for fiscal years 2010 and 2011 and an increase to Mr. Saenz’ compensation from $200,000 per annum to $250,000 per annum, retroactive as of January 1, 2012. In December 2011, the Company paid approximately $19,070 for Mr. Saenz’ rental expenses for an apartment located in Chile.

 

  (2)

Mr. Currin was appointed our Chief Operating Officer on August 11, 2010.  We granted 2,500,000 shares of restricted stock to MIZ under the 2009 Plan, which vest upon the achievement of certain milestones, and the grant date fair value of which is $950,000.  During the year ended June 30, 2011, we also granted to MIZ 736,842 shares of common stock outside of the 2009 Plan with a grant date fair value of $282,500.  In connection with our hiring of Mr. Currin, we granted 1,000,000 stock options under the 2009 Plan to MIZ, having a grant date fair value of $343,310.  Mr. Currin’s base salary was $200,000 per annum.  However, pursuant to an amendment to the our Employment Services Agreement with MIZ, we issued an aggregate of 500,000 shares of our common stock in lieu of (i) all base salary earned in calendar year 2010 and (ii) one-half of the base salary for the first calendar quarter of 2011. On May 2, 2012, our Board of Directors approved an increase to Mr. Currin’s compensation from $200,000 per annum to $225,000 per annum, retroactive as of January 1, 2012.

 

On December 5, 2012, Mr. Currin submitted a letter of resignation to the Company, effective immediately. He will continue providing services for the Company as an independent consultant.

 

  (3) Mr. Santillana served as our Vice President of Finance from March 1, 2012 until June 30, 2012, when he was appointed Chief Financial Officer. Mr. Santillana has an employment agreement with us as described below. We agreed to grant Mr. Santillana restricted stock units under our 2009 Plan with respect to 250,000 shares of our common stock and options under our 2009 Plan to purchase another 250,000 shares of our common stock, however, such grants have not yet been made. We paid Mr. Santillana a $20,000 bonus during fiscal year 2012, and we have been paying Mr. Santillana at the rate of $185,000 per annum for the entire period of his employment.

 

  (4) Mr. Marin was appointed our Interim Chief Financial Officer on January 13, 2010.  Mr. Marin was compensated through our Engagement Letter with Marin Management Services, LLC, dated January 7, 2010 (the “Marin Agreement”), pursuant to which we pay $200 per hour for Mr. Marin’s services to us as Interim Chief Financial Officer. On November 23, 2011, we entered into a Contractor Services Agreement (the “R&M Agreement”) with R&M Global Advisors, Inc., an entity controlled by Mr. Marin, in which we have retained Mr. Marin’s services as our Interim Chief Financial Officer for a term beginning on September 15, 2011, and continuing for six months thereafter with provision for automatic renewal for successive six month periods unless either provides notice of non-renewal.  Under the R&M Agreement, we will pay an initial fee of $15,000 plus a monthly fee of $15,000 per month, commencing retroactively on September 15, 2011. The amounts for the fiscal year 2012 represent billings for professional services by R&M Global Advisors. Mr. Marin resigned at the close of business on June 30, 2012.

 

Outstanding Equity Awards at Fiscal Year-End

 

We have not issued any stock options or maintained any stock option or other incentive plans other than our 2009 Equity Incentive Plan. (See “Market for Common Equity and Related Stockholder Matters - Securities Authorized for Issuance under Equity Compensation Plans,” above).  

 

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The following tables set forth information regarding stock options held by the Company’s Named Executive Officers at June 30, 2012.

 

Option Awards
           Equity incentive         
           plan awards:         
   Number of   Number of   Number of         
   securities   securities   securities         
   underlying   underlying   underlying         
   unexercised   unexercised   unexercised   Option plan     
   options   options   unearned   exercise   Option 
Name  exercisable (#)   unexercisable (#)   options (#)   price ($)   expiration date 
Luis Saenz (2)   -    -    -    -    - 
Luis Santillana (3)   -    250,000    250,000    0.40    3-1-2017 
Thomas Currin (4)   -    666,666    666,666   $0.38    8-10-2020 
Eric E. Marin   -    -    -    -    - 

 

Stock Awards
Name  Number of
 Shares
 or Units
 of Stock That
 Have Not
 Vested (#)
   Market Value of
 Shares or Units of
 Stock That Have
 Not Vested ($)
   Equity Incentive Plan
 Awards: Number of
 Unearned Shares, Units
 or Other Rights That
 Have Not Vested (#)
   Equity Incentive Plan Awards:
 Market or Payout Value of Unearned
 hares, Units or Other Rights That
 Have Not Vested (#) (1)
 
Luis Saenz
(2)
   -    -    466,667   $63,000 
Luis Santillana(3)   -    -    250,000    - 
Thomas Currin (4)   -    -    1,700,000   $153,000 
Eric E. Marin   -    -    -    - 

 

(1)Value is based on last sale price of our common stock on June 30, 2012, which was $0.09 per share.
   
(2)In May 2011, Mr. Saenz received a grant of 700,000 restricted stock units (each unit is equivalent to one common share) under the 2009 Plan of which 233,333 units vested on January 15, 2012 and the remaining 466,667 units will vest in equal installments on January 15, 2013 and 2014, respectively. The vested units have not been issued as of June 30, 2012.

 

(3)Pursuant to an Employment Agreement, we have agreed to grant Mr. Santillana 250,000 restricted stock units under our 2009 Equity Incentive Plan, which shall vest in three equal installments on each of March 1, 2013, 2014 and 2015. We have also agreed to grant Mr. Santillana an option under our 2009 Equity Incentive Plan to purchase an aggregate of 250,000 shares of our common stock, exercisable for a term of five years at an exercise price of $0.40 per share, which option shall vest in its entirety on September 1, 2013.

 

(4)Consists of awards granted to MIZ Comercializadora, S. de R.L. (“MIZ”), a corporation owned in part by Mr. Currin.  Mr. Currin was granted 2,500,000 restricted common shares under the 2009 Plan subject to vesting upon achievement of various milestones.  800,000 shares have vested as of June 30, 2012. Also includes options granted under the 2009 Plan to purchase 1,000,000 shares of common stock which vests in three equal installments on each of August 10, 2011, 2012 and 2013.

 

We have no plans in place and have never maintained any plans that provide for the payment of retirement benefits or benefits that will be paid primarily following retirement, including, but not limited to, tax qualified deferred benefit plans, supplemental executive retirement plans, tax-qualified deferred contribution plans and nonqualified deferred contribution plans.

 

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Agreements with Executive Officers

 

We have an employment agreement with each of our Chief Executive Officer, our Chief Financial Officer and our Executive Vice President.  Each of our former Interim Chief Financial Officer and our former Chief Operating Officer is compensated through an agreement between us and his affiliate.

 

Employment Agreement with Luis Saenz

 

We have entered into an Employment Services Agreement with our Chief Executive Officer, Luis Saenz, effective as of August 24, 2011.  Under the Employment Services Agreement we will pay Mr. Saenz such base salary as may be determined by our Board of Directors.  The Employment Services Agreement has an initial term of one year and is automatically renewed for successive one-year terms unless either party delivers timely notice of its intention not to renew.  We may also pay Mr. Saenz an annual bonus at such time and in such amount as may be determined by our Board of Directors in its sole discretion.

 

Mr. Saenz’s employment by us remains “at-will” and terminable at any time for any reason or for no reason.  If Mr. Saenz’s employment is terminated by us without Cause, we must continue to pay him any base salary at the rate then in effect for a period of 18 months.  If Mr. Saenz terminates the Employment Services Agreement for Good Reason, or in the event of a termination of employment due to a permanent disability, we will continue to pay him any base salary at the rate then in effect for a period of 18 months.

 

For the duration of the employment period and, unless we terminate Mr. Saenz’s employment without Cause, for a period of 18 months thereafter, Mr. Saenz has agreed not to directly or indirectly compete with any business engaged in by us or proposed to be engaged in by us during the period of his employment anywhere within the countries in which we are then operating.

 

The foregoing is a summary of the principal terms of the Employment Services Agreement and is qualified in its entirety by the detailed provisions of the actual agreement, which is incorporated by reference as an exhibit to this Report and is incorporated herein by reference.

 

Engagement Letter with Marin Management Services/ R&M Global Advisors, Inc.

 

Mr. Marin formerly served as our Interim Chief Financial Officer from January 13, 2010 until June 2012.  During this period Mr. Marin and his consulting firm R&M Global Advisors, Inc. received compensation varying from $200 per hour in the initial stages of the arrangement to $15,000 a month prior to his contract being terminated effective June 30, 2012.

 

Employment Services Agreement with MIZ Comercializadora

 

Mr. Currin formerly served as our Chief Operating Officer from August 11, 2010 until December 5, 2012.  During this period Mr. Currin and his consulting firm MIZ Comercializadora, S. de R.L. received compensation starting at a base fee of $200,000 per year and including the ability to participate in our 2009 Plan. Following his resignation on December 5, 2012, the Company and Mr. Currin entered into a termination agreement, pursuant to which all previous awards granted under the 2009 Plan vested immediately. Mr. Currin will continue providing services for the Company as an independent consultant.

 

Employment Services Agreement with Luis Santillana

 

We are party to an Employment Services Agreement with Mr. Santillana, dated as of December 1, 2011, amended as of March 1, 2012 (the “Employment Agreement”). Under the Employment Agreement, Mr. Santillana shall devote his full-time efforts to us, and we have been paying Mr. Santillana an annual base salary of $185,000. The Employment Agreement has an initial term of one year and is automatically renewed for successive one-year terms unless either party delivers timely notice of its intention not to renew. Pursuant to the Employment Agreement, we have agreed to pay Mr. Santillana an initial bonus of $40,000, $20,000 of which has been paid to date, and we may also pay Mr. Santillana an annual bonus of up to 50% of his base salary, at such time and in such amount as may be determined by our Board of Directors in its sole discretion. We have agreed to grant Mr. Santillana 250,000 restricted stock units under our 2009 Equity Incentive Plan, which shall vest in three equal installments on each of March 1, 2013, 2014 and 2015. We have also agreed to grant Mr. Santillana an option under our 2009 Equity Incentive Plan to purchase an aggregate of 250,000 shares of our common stock, exercisable for a term of five years at an exercise price of $0.40 per share, which option shall vest in its entirety on September 1, 2013. However, we have not yet granted any options or restricted stock units to Mr. Santillana.

 

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Mr. Santillana’s employment by us is “at-will” and terminable at any time for any reason or for no reason. If Mr. Santillana’s employment is terminated by us without Cause or in connection with a Change of Control (as such terms are defined in the Employment Agreement) or if he terminates his employment for Good Reason (as defined in the Employment Agreement), his restricted stock units and options will vest immediately and expire nine months after such termination. If we terminate Mr. Santillana’s employment without Cause, or in connection with a Change of Control, or if Mr. Santillana terminates his employment for Good Reason, or in the event of a termination of employment due to a permanent disability, we will continue to pay Mr. Santillana his base salary at the rate then in effect for a period of nine months.

 

For the duration of the employment period and, unless we terminate Mr. Santillana’s employment without Cause, for a period of nine months thereafter, Mr. Santillana has agreed not to directly or indirectly compete with any business engaged in by us or proposed to be engaged in by us during the period of his employment anywhere within the countries in which we are then operating.

 

The foregoing is a summary of the principal terms of the Employment Agreement and is qualified in its entirety by the detailed provisions of the actual agreement, which is filed as an exhibit to this Annual Report and is incorporated herein by reference.

 

Compensation of Non-Employee Directors

 

On May 2, 2012, our Board adopted a plan of compensation for its non-employee directors’ services to the Company, pursuant to which each current and former non-employee director shall be paid cash (the “Cash Director Compensation”) at the greatest of the following annual rates that applies to such director during the relevant time periods: $64,000 for the Chairman of the Board; $40,000 for the Audit Committee Chairman; $34,000 for the Chairman of any other standing Board committee; and $24,000 for directors who do not chair any committees. The Cash Director Compensation shall be deemed to begin to accrue retroactively for each non-employee director on the later of such director’s initiation of substantial involvement with the Board, as determined in good faith by the Chief Executive Officer, and July 1, 2011 (each such director’s “Compensation Start Date”). The increased rates of Cash Director Compensation for the Chairman of the Board and Committee Chairmen shall only apply to the period of time that the relevant director served in such capacity.

 

The Board also determined to grant to each of its non-employee directors other than the Chairman of the Board 100,000 Restricted Stock Units under the 2009 Plan, which shall vest in three equal installments on each of the first three anniversaries of such director’s Compensation Start Date. Finally, the Board determined to grant to the Chairman of the Board 300,000 Restricted Stock Units under the 2009 Plan, which shall vest in three equal installments on each of the first three anniversaries of his becoming Chairman of the Board. Such restricted stock units have not yet been granted, as we do not have sufficient shares authorized at this time for issuance pursuant to awards under our 2009 Plan to accommodate all of such restricted stock units.

 

Equity Compensation Plan Information

 

On October 19, 2009, our Board of Directors adopted, and our stockholders approved, the 2009 Equity Incentive Plan (the “2009 Plan”), which reserved a total of 5,000,000 shares of our common stock for issuance under the 2009 Plan (800,000 shares of which have been issued and the restrictions thereon lapsed).  If an incentive award granted under the 2009 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2009 Plan.

 

In addition, the number of shares of Common Stock subject to the 2009 Plan, any number of shares subject to any numerical limit in the 2009 Plan, and the number of shares and terms of any incentive award are expected to be adjusted in the event of any change in our outstanding common stock by reason of any stock dividend, spin-off, split-up, stock split, reverse stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares or similar transaction.

 

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Administration

 

It is expected that the Compensation Committee of our Board of Directors, or the Board of Directors in the absence of such a committee, will administer the 2009 Plan.  Subject to the terms of the 2009 Plan, the Compensation Committee would have complete authority and discretion to determine the terms of awards under the 2009 Plan.

 

Grants

 

The 2009 Plan authorizes the grant to participants of nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, performance grants intended to comply with Section 162(m) of the Internal Revenue Code (as amended, the “Code”) and stock appreciation rights, as described below:

 

·Options granted under the 2009 Plan entitle the grantee, upon exercise, to purchase a specified number of shares from us at a specified exercise price per share. The exercise price for shares of our common stock covered by an option cannot be less than the fair market value of the common stock on the date of grant unless agreed to otherwise at the time of the grant.

 

·Restricted stock awards and restricted stock units may be awarded on terms and conditions established by the compensation committee, which may include performance conditions for restricted stock awards and the lapse of restrictions on the achievement of one or more performance goals for restricted stock units.

 

·The compensation committee may make performance grants, each of which will contain performance goals for the award, including the performance criteria, the target and maximum amounts payable, and other terms and conditions.

 

·The 2009 Plan authorizes the granting of stock awards. The compensation committee will establish the number of shares of our common stock to be awarded and the terms applicable to each award, including performance restrictions.

 

·Stock appreciation rights (“SARs”) entitle the participant to receive a distribution in an amount not to exceed the number of shares of our common stock subject to the portion of the SAR exercised multiplied by the difference between the market price of a share of common stock on the date of exercise of the SAR and the market price of a share of common stock on the date of grant of the SAR.

 

Duration, Amendment and Termination

 

The Board has the power to amend, suspend or terminate the 2009 Plan without stockholder approval or ratification at any time or from time to time.  No change may be made that increases the total number of shares of our common stock reserved for issuance pursuant to incentive awards or reduces the minimum exercise price for options or exchange of options for other incentive awards, unless such change is authorized by our stockholders within one year. Unless sooner terminated, the 2009 Plan would terminate ten years after its adoption.

 

Grants to Officers and Directors

 

On December 9, 2009, the Board approved non-incentive stock option grants under the 2009 Plan to the individual non-employee directors, and in the amounts, listed in the table below.  These options can be exercised at a price of $0.25 per share, the fair market value of our common stock on the date of grant, as determined by the Board, based on the offering price of our common stock sold in relatively contemporaneous private placement transactions, vest in three equal installments on each of the first, second and third anniversaries of the date of grant and expire after ten years.

 

Name of Optionee  Number of Shares 
Douglas Perkins   50,000 
Anthony Hawkshaw   50,000 
Kjeld Thygesen   500,000 

 

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In connection with Mr. Perkins’s departure from our Board on February 18, 2010, the options granted to him on December 9, 2009, terminated.  At such time, Mr. Perkins entered into a consulting arrangement with us, and the Board granted him non-statutory stock options under the 2009 Plan to purchase 50,000 shares of our common stock at an exercise price of $1.00 per share, which option vested immediately and expires after two years.

 

In addition, the Chief Executive Officer gave Anthony Hawkshaw 50,000 of his common stock shares for services rendered during the year ended June 30, 2010.

 

Upon Mr. Thygesen’s resignation from the Board of Directors on September 14, 2011, his options, to the extent unvested, terminated immediately.  Accordingly, only 166,667 of his options remained outstanding following such resignation, and they expired unexercised on December 14, 2011.  Upon Mr. Hawkshaw’s resignation from the Board of Directors on October 14, 2011, his options, to the extent unvested, terminated immediately.  Accordingly, only 16,667 of his options remain outstanding following such resignation, and they expired on January 14, 2012.

 

As noted above, pursuant to the Employment Services Agreement, we have granted to MIZ an option to purchase an aggregate of 1,000,000 shares of our common stock under the 2009 Plan, exercisable at a price of $0.38 per share, the fair market value per share of common stock on August 11, 2010, with a term of ten years. One third of such options vests on each of August 11, 2011, 2012 and 2013.  If we terminate Mr. Currin’s employment for Cause, then all such options, whether or not vested, will immediately expire.  If his employment is terminated voluntarily by MIZ without Good Reason, then all unvested options will immediately expire.  Vested options, to the extent unexercised, will expire one month after the termination of employment (or nine months in the case of his death or permanent disability).  If his employment is terminated (a) in connection with a Change of Control (as defined in the Employment Services Agreement), (b) by us without Cause or (c) by MIZ for Good Reason, then all unvested options will immediately vest and will expire nine months after such event.

 

The Board granted 700,000 restricted stock units to Luis Saenz, which vest in three equal installments on January 15, 2012, 2013 and 2014.

 

Pursuant to an Employment Agreement, we have agreed to grant Mr. Santillana 250,000 restricted stock units under our 2009 Equity Incentive Plan, which shall vest in three equal installments on each of March 1, 2013, 2014 and 2015. We have also agreed to grant Mr. Santillana an option under our 2009 Equity Incentive Plan to purchase an aggregate of 250,000 shares of our common stock, exercisable for a term of five years at an exercise price of $0.40 per share, which option shall vest in its entirety on September 1, 2013.

 

The Board also determined to grant to each of its non-employee directors other than the Chairman of the Board 100,000 Restricted Stock Units under the 2009 Plan, which shall vest in three equal installments on each of the first three anniversaries of such director’s Compensation Start Date. Finally, the Board determined to grant to the Chairman of the Board 300,000 Restricted Stock Units under the 2009 Plan, which shall vest in three equal installments on each of the first three anniversaries of his becoming Chairman of the Board. Such restricted stock units have not yet been granted, as we do not have sufficient shares authorized at this time for issuance pursuant to awards under our 2009 Plan to accommodate all of such restricted stock units.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information regarding our shares of common stock beneficially owned as of January 14, 2013, for (i) each stockholder known to be the beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each named executive officer and director, and (iii) all executive officers and directors as a group. A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children.

 

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For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of January 14, 2013. For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within 60 days of January 14, 2013 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership. Unless otherwise noted, the address of each person below id c/o Li3 Energy, Inc., Marchant Pereira 150 Of. 803 Providencia, Santiago de Chile, Chile.

 

Name of Beneficial Owner and
Address
  Amount and Nature of Beneficial
Ownership of Common Stock
   Percent of Common Stock (1) 
5% Shareholders        
POSCO Canada Ltd.
650 W. Georgia St., Suite 2350
Vancouver, British Columbia
V6B 4N9
Canada
   206,190,476    (2)   41.3%
Calcata Sociedad Anónima S.A.
San Antonio N°19, Of. 1601
Santiago, Santiago
Chile
   51,041,666    (3)(4)   13.0%
Directors and Executive Officers               
Luis Francisco Saenz   3,324,378    (5)   * 
Luis Santillana   298,507         * 
Patrick Cussen   3,113,060    (6)*     
Patricio A. Campos   18,818,388    (4)(7)   4.8%
Harvey McKenzie   605,589    (8)   * 
Eduardo G. de Aguirre   443,388         * 
Alan S. Fraser   358,209         * 
David G. Wahl   358,209         * 
SungWon Lee   0         - 
All directors and executive officers as a group (9 people)   27,319,728         6.9%

* Less than 1%.

 

1) Based upon 393,574,919 shares of common stock issued and outstanding as of January 14, 2013. Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person.
2)Includes 105,595,238 shares of our common stock underlying warrants that are presently exercisable.
3)Estimate of beneficial ownership, based on information available to us.  The beneficial owner may have acquired shares held in street name, of which we are not aware.
4)Because of the arrangements described in “Directors and Officers—Rights to Nominate Directors” above these persons  may be deemed to constitute a group as defined in Section 13(d) of the Exchange Act.  However, each such person (a) disclaims membership in a group and (b) disclaims beneficial ownership of the shares of Common Stock beneficially owned by any other such person or any other person.
5)Includes 233,333 shares of common stock underlying options held by Mr. Saenz that are presently exercisable.
6)Includes 750,000 shares of our common stock underlying warrants that are presently exercisable
7)Includes 18,375,000 shares held by Campos Mineral Asesorias Profesionales Limitada, an entity controlled by Mr. Campos.
8)Includes 37,037 shares of our common stock underlying warrants that are presently exercisable.

 

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Securities Authorized for Issuance under Equity Compensation Plans

 

Our Board of Directors adopted, and our stockholders approved, the 2009 Plan on October 19, 2009.  The 2009 Plan reserved a total of 5,000,000 shares of our common stock for issuance pursuant to awards granted thereunder (800,000 of which have been issued and the restrictions with respect thereto have lapsed).  If an incentive award granted under the 2009 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2009 Plan.  As of the date hereof, we have outstanding option awards under the 2009 Plan exercisable for an aggregate of 1,450,000 shares of our common stock, 866,666 of which have vested.  In addition, we have granted a restricted stock award under the 2009 Plan with respect to 2,500,000 shares of common stock, 2,500,000 of which have vested. We also have outstanding Restricted Stock Units under the 2009 Plan with respect to 950,000 shares, of which 233,333 have vested. Furthermore, we have committed to grant Restricted Stock Units with respect to an aggregate of 900,000 shares; however, we do not currently have enough shares authorized for issuance under our 2009 Plan to satisfy all of these obligations.  We have not maintained any other equity compensation plans since our inception.  

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 

 

In November 2009, we started utilizing the administrative personnel and office space with an office located in Lima, Peru, in which our Chief Executive Officer functioned in the same capacities (the “Related Party Company”), for which we were obligated for reimbursement of administrative salaries, rent, utilities and maintenance expenses. On July 31, 2010, we were assigned the lease from the Related Party Company and as a result, we did not incur related party expenses related to this lease during the years ended June 30, 2012 and 2011. As of June 30, 2012 and 2011, the payable due to the Related Party Company is $11,400 and $10,986, respectively.

 

We have retained Mr. Currin’s services as our Chief Operating Officer under an Employment Services Agreement, dated as of August 11, 2010, with MIZ Comercializadora, S. de R.L. (“MIZ”), a corporation owned in part by Mr. Currin. On December 5, 2012, Mr. Currin submitted a letter of resignation to the Company, effective immediately. He will continue providing services for the Company as an independent consultant. The description of such agreement set forth above under “Item 11, Executive Compensation - Employment Services Agreement with MIZ Comercializadora” is incorporated herein by reference.

 

We are party to a services agreement (the “R&M Agreement”) between R&M Global Advisors, LLC. (“R&M Global Advisors”) and us, in which Eric Marin (a partial owner of R&M Global Advisors) served as our interim Chief Financial Officer. R&M Global Advisors was paid $145,187 and $10,000 in cash for compensation during the years ended June 30, 2012 and 2011, respectively. R&M Global Advisors was paid $85,395 for the three months ended September 30, 2012, of which $81,300 was included in accounts payable as of June 30, 2012, and $22,500 in cash for compensation during the three months ended September 30, 2011. No amounts were due to R&M Global Advisors as of September 30, 2012.

 

On June 30, 2012, we entered into Amendment No. 1 to the R&M Agreement (the “R&M Amendment”) with R&M Global Advisors. Pursuant to the R&M Amendment, R&M Global Advisors and we mutually agreed to terminate Eric Marin’s services as our Interim Chief Financial Officer at the close of business on June 30, 2012.

 

See “Directors and Officers—Rights to Nominate Directors” above for information regarding certain rights of the Alfredo Sellers to designate one or more persons to be nominated for election to our Board of Directors.

 

DESCRIPTION OF SECURITIES

 

Introduction

 

In the discussion that follows, we have summarized selected provisions of our certificate of incorporation, bylaws and the Nevada Revised Statutes relating to our capital stock. This summary is not complete. This discussion is subject to the relevant provisions of Nevada law and is qualified in its entirety by reference to our certificate of incorporation and our bylaws. You should read the provisions of our certificate of incorporation and our bylaws as currently in effect for provisions that may be important to you.

  

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Authorized Capital Stock

 

Our Articles of Incorporation, as amended, provide for the issuance of 1,000,000,000 shares of capital stock, of which 990,000,000 are shares of common stock, par value $0.001 per share, and 10,000,000 are blank-check preferred stock, par value $0.001 per share.

 

Equity Securities Issued and Outstanding

 

As of January 14, 2013, there were issued and outstanding:

 

·393,574,919 shares of our common stock;
·No shares of our preferred stock;
·Options to purchase 1,450,000 shares of our common stock of which 866,666 options are currently exercisable;
·2,500,000 shares of restricted stock;
·466,666 shares of common stock issuable upon vesting of outstanding Restricted Stock Units;
·233,334 shares of common stock issuable pursuant to vested Restricted Stock Units;
·333,334 shares of common stock reserved for issuance pursuant to awards granted under our 2009 Plan; and
·Warrants to purchase 160,395,585 shares of our common stock, all of which warrants are currently exercisable.

 

In addition, we have granted the following rights to purchase our securities:

 

·A convertible note in the principal amount of $45,000, which provides that the principal and interest balance due thereon are convertible at the holder’s option pursuant to terms to be mutually agreed upon by us and the holder;
·An aggregate of $1,880,000 face amount of zero-coupon convertible notes which are convertible into shares of our common stock at the lender’s option at a conversion price of $0.095; and
·An option, exercisable upon the occurrence of certain events, to purchase between $2.5 million and $10.0 million of our common stock.

 

Common Stock

 

Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of our common stock entitled to vote in any election of directors may elect all of the directors standing for election. Apart from preferences that may be applicable to any holders of preferred stock outstanding at the time, holders of our common stock are entitled to receive dividends, if any, ratably as may be declared from time to time by the Board out of funds legally available thereof. Upon our liquidation, dissolution or winding up, the holders of our common stock are entitled to receive ratably our net assets available after the payment of all liabilities and liquidation preferences on any outstanding preferred stock. Holders of our common stock have no preemptive, subscription, redemption or conversion rights, and there are no redemption or sinking fund provisions applicable to our common stock. The rights, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock which we may designate and issue in the future. Each outstanding share of our common stock is duly authorized, fully paid and non-assessable.

 

Preferred Stock

 

Under the terms of our amended and restated certificate of incorporation, our board of directors has authority, without any vote or action of our stockholders, to issue up to 10,000,000 shares of “blank check” preferred stock in one or more series and to fix the relative rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption terms (including sinking fund provisions) and liquidation preferences and the number of shares constituting a series or the designation of such series.

 

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While we do not currently have any plans for the issuance of preferred stock, the issuance of such preferred stock could adversely affect the rights of the holders of common stock and, therefore, reduce the value of the common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of the common stock until the board of directors determines the specific rights of the holders of the preferred stock; however, these effects may include:

 

·Restricting dividends on the common stock;
·Diluting the voting power of the common stock;
·Impairing the liquidation rights of the common stock; or
·Delaying or preventing a change in control of the Company without further action by the stockholders.

 

Dividends

 

Since inception we have not paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our board of directors will have the discretion to declare and pay dividends in the future. Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our board of directors may deem relevant.

 

2009 Plan

 

Our Board of Directors adopted, and our stockholders approved, the 2009 Plan on October 19, 2009. The 2009 Plan reserves a total of 5,000,000 shares of our common stock for issuance under the 2009 Plan. If an incentive award granted under the 2009 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2009 Plan.

 

Options

 

As of the date of this prospectus, we have outstanding 1,450,000 nonqualified stock options under the 2009 Plan, with a weighted average exercise price of approximately $0.38 per share, of which options for 866,666 are currently vested.  In addition, we have granted (a) an award of 2,500,000 shares of restricted stock under the 2009 Plan, which are currently issued and vested, and (b) awards of restricted stock units with respect to 950,000 shares of common stock, 233,333 of which are currently vested.  For all option grants, our Board of Directors has set (or will set) the exercise price of the options at a price equal to or greater than the fair market value of our common stock on the date of grant of the options.  Of the outstanding options under the 2009 Plan, 866,666 have vested.  200,000 of such options vested immediately and have a five year term, 1,000,000 options vest in three equal installments on each of the first, second and third anniversary of the date of grant and have a ten year term, and the remaining 250,000 options vest in after eighteen months from the date of grant and have a five year term Furthermore, we have committed to grant Restricted Stock Units with respect to an aggregate of 900,000 shares; however, we do not currently have enough shares authorized for issuance under our 2009 Plan to satisfy all of these obligations.

 

Restricted Stock

 

On August 11, 2010, the Company granted to MIZ an award under the 2009 Plan pursuant to which the Company issued 2,500,000 restricted shares of its common stock (the “Restricted Stock”) as part of the compensation for the services of our former Chief Operating Officer, Tom Currin. Following the resignation of Mr. Currin on December 5, 2012, all the restricted shares have vested.

 

On June 27, 2011, the Company granted to Luis F. Saenz, its Chief Executive Officer, an award under the 2009 Plan of 700,000 shares of Restricted Stock, vesting in three equal installments on each of January 15, 2012, January 15, 2013 and January 15, 2014, pursuant to the terms of an award agreement between the Company and Mr. Saenz.

 

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Warrants

 

We have the following outstanding warrants to purchase common stock:

 

·7,198,591 “A” warrants; $0.26 per share exercise price; expiring November-December 2014;
·7,269,408 “B” Warrants; $0.38 per share exercise price; expiring November-December 2014;
·11,768,935 “C Warrants; $0.26 per share exercise price; expiring September 2015;
·607,325 “Agent C” Warrants; $0.17 per share exercise price; expiring September 2015;
·1,400,000 “D” Warrants; $0.05 per share exercise price; expiring November 2015 ;
·4,890,418 “E” Warrants; $0.15 per share exercise price; expiring February 2016;
·5,416,953 “F” Warrants; $0.35 per share exercise price; expiring February 2016;
·11,960,050 “G” Warrants; $0.29 per share exercise price; expiring April 2014;
·1,913,606 “Agent G” Warrants; $0.22 per share exercise price; expiring April 2014;
·1,500,000 “Lender” Warrants; $0.34 per share exercise price; expiring May 2016;
·75,000 “Arranger” Warrants; $0.29 per share exercise price; expiring May 2016;
·800,000 “Consultant” Warrants; $0.29 per share exercise price; expiring April 2014;
·38,095,300 “POSCAN A” Warrants; $0.20 per share exercise price; expiring September 2014;
·62,499,938 “POSCAN B” Warrants; $0.20 per share exercise price; expiring September 2015; and
·5,000,000 “POSCAN Bonus” Warrants; $0.15 per share exercise price; expiring August 2014.

 

Certain of the warrants, at the option of the holders, may be exercised by cash payment of the exercise price, or by “cashless exercise.” A “cashless exercise” means that in lieu of paying the aggregate purchase price for the shares being purchased upon exercise of the warrants in cash, the holder will forfeit a number of shares underlying the warrants with a “fair market value” equal to such aggregate exercise price. We will not receive proceeds upon exercise of warrants to the extent that such warrants are exercised by cashless exercise. The warrants contain provisions that protect their holders against dilution by adjustment of the exercise price and (in some cases) number of shares issuable upon exercise upon the occurrence of specific events.

 

At our option, following the 45th day after the date of this prospectus, upon written notice to the holders, we may call the A Warrants or B Warrants for redemption if the closing bid price of our common stock equals or exceeds $0.75 per share or $1.50 per share, respectively, on any trading day within 20 days prior to such written notice; provided that a registration statement under the Securities Act covering the resale of the shares of common stock issuable upon exercise of the relevant class of Warrants has been effective for at least 45 days and such registration statement remains effective until redemption.

 

No holder of Warrants will possess any rights as a stockholder with respect to the Warrants, except to the extent such Warrants are exercised.

 

Convertible Securities

 

We issued an unsecured Convertible Promissory Note (the “Convertible Note”) dated April 30, 2009, bearing an interest rate of 8.25% per annum, in the amount of $45,000, due on November 8, 2010, to Milestone Enhanced Fund Ltd. (“Milestone”).  The Convertible Note provides that principal and interest balance due on the Convertible Note are convertible at Milestone’s option pursuant to terms to be mutually agreed upon by us and Milestone in writing at a later date.  We and Milestone have not yet negotiated such conversion terms. The Convertible Note is in default as of September 30, 2012 and remains payable to Milestone. To date, no demand or communication has been received from Milestone.

 

On May 2, 2011, we entered into and simultaneously closed a Credit Agreement for a $1.5 million bridge loan with three private institutional investors. Under the Credit Agreement, we issued to each lender a zero-coupon original issue discount note due February 2, 2012.  The notes were originally convertible into shares of the Company’s common stock at the lender’s option at an exercise price of $0.40 per share.  The aggregate face amount of the notes at maturity is $1,677,438. We may prepay the notes at our option (together with accrued original issue discount), and must prepay them (together with accrued original issue discount) first out of the net proceeds of any future capital raising transactions by us.

 

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Pursuant to an Amendment and Waiver Agreement between us and the holders of our zero-coupon bridge notes, dated as of August 25, 2011 (the “Waiver Agreement”), effective upon the September 14, 2011, closing of POSCAN’s initial $8 million investment, the zero-coupon bridge notes are now due on June 30, 2012, and we are not required to make any prepayment out of the proceeds of the POSCAN investment.  The Waiver Agreement does not alter the principal amount of the zero-coupon bridge notes; however, it provides that such notes will accrue interest at a rate of 15% per annum from February 2, 2012, until June 30, 2012.  The Waiver Agreement also reduced the conversion price of the zero-coupon bridge notes to $0.12 per share.

 

On September 28, 2012, the Company entered into a Second Amendment and Waiver Agreement with the holders of the zero-coupon convertible notes (the “Second Waiver Agreement”). Pursuant to the Second Waiver Agreement, the zero-coupon convertible notes’ maturity date was extended to September 28, 2013, and the aggregate principal amount thereof was increased to $1,880,000, which includes an Original Issue Discount of 12.1%. The Waiver Agreement also reduced the conversion price of the zero-coupon bridge notes from $0.12 to $0.095 per share. In connection with the Waiver Agreement, the Company agreed to pay an arranger a cash fee (“arranger fee”) of $37,600.

 

Stock Splits

 

On July 29, 2008, we effected a forward stock split pursuant to which each share of our common stock then outstanding was converted into 3.031578 shares of common stock. Then, on November 16, 2009, we effected another forward stock split pursuant to which each share of our common stock then outstanding was converted into 15.625 shares of common stock.  All share and per share amounts in this prospectus have been adjusted to give retroactive effect to such stock splits, unless otherwise stated.

 

Registration Rights

 

We have agreed to register under the Securities Act half of the 127,500,000 Maricunga Purchase Price Shares “best efforts” basis by January 31, 2012 and the remainder by October 31, 2012. In the event that the SEC limits the number of shares that may be sold pursuant to the registration statement, we may remove from the registration statement such number of shares as specified by the SEC, and may file subsequent registration statements covering the resale of additional shares of such common stock. Accordingly, we are not obligated to pay any penalties in the event we are unable to register the shares, or obtain or maintain an effective registration statement related to such shares.

 

We granted “piggy-back” registration rights to the investors purchasing units in the 2009 Private Placement and our 2010 Private Placements. If we determine to register for sale for cash any of our common stock for our own account or for the account of others, then the holders of the common stock and warrants issued in the 2009 Private Placement and 2010 Private Placements will have the right to have such shares, and the shares of common stock issuable upon exercise of the warrants, included in such registration statement, subject to customary exceptions and scale backs.

 

We granted “demand” registration rights under the POSCAN Agreements that give POSCAN the right to demand registration after 12 months following the date of issuance of any registrable securities under the POSCAN Agreements. Additionally, POSCAN was granted “piggy-back” registration rights. If we register for sale for cash any of our common stock for our own account or for the account of others, then POSCAN will have the rights to have any registrable securities under the POSCAN Agreements included in such registration statement, subject to customary exceptions and scale backs. All registration rights set forth in the POSCAN Agreements shall terminate five years following the date of the issuance of securities under the POSCAN Agreements.

 

Rights of First Refusal and Preemptive Rights

 

Under the POSCAN Agreements, we also granted a “preemptive” right to POSCAN. The Company agreed not to issue any new securities to any person unless the Company also offers to POSCAN the right to purchase the number of shares of Common Stock necessary such that POSCAN’s pro rata percentage upon the new issuance remains equal to that prior to the new issuance.

 

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Adjustments to Exercise and Conversion Prices of Outstanding Securities

 

All of our outstanding warrants contain weighted-average anti-dilution provisions that will be triggered if and to the extent securities are issued (or deemed issued) for a price per share that is less than the then-effective respective exercise prices of such warrants.

 

On April 30, 2009, the Company issued an unsecured Convertible Promissory Note (the “Convertible Note”) to Milestone, bearing an interest rate of 8.25% per annum, in the amount of $45,000, due November 8, 2010.  The Convertible Note provides that the principal and interest balance due on the Convertible Note are convertible at Milestone’s option pursuant to terms to be mutually agreed upon by the Company and Milestone in writing at a later date.  The Company and Milestone have not yet negotiated such conversion terms.  The total interest accrued on the Convertible Note at September 30, 2012 and June 30, 2012 was $12,603 and $11,678, respectively. The Convertible Note is in default as of September 30, 2012 and remains payable to Milestone. To date, no demand or communication has been received from Milestone.

 

Anti-Takeover Effects of Provisions of Nevada State Law

 

We may be or in the future we may become subject to Nevada’s control share laws. A corporation is subject to Nevada’s control share law if it has more than 200 stockholders, at least 100 of whom are stockholders of record with addresses in Nevada on the corporation’s stock ledger, and if the corporation does business in Nevada, including through an affiliated corporation. This control share law may have the effect of discouraging corporate takeovers. As of December 7, 2012, we have 191 stockholders of record and none of them have addresses of record in Nevada.

 

The control share law focuses on the acquisition of a “controlling interest,” which means the ownership of outstanding voting shares that would be sufficient, but for the operation of the control share law, to enable the acquiring person to exercise the following proportions of the voting power of the corporation in the election of directors: (1) one-fifth or more but less than one-third; (2) one-third or more but less than a majority; or (3) a majority or more. The ability to exercise this voting power may be direct or indirect, as well as individual or in association with others.

 

The effect of the control share law is that an acquiring person, and those acting in association with that person, will obtain only such voting rights in the control shares as are conferred by a resolution of the stockholders of the corporation, approved at a special or annual meeting of stockholders. The control share law contemplates that voting rights will be considered only once by the other stockholders. Thus, there is no authority to take away voting rights from the control shares of an acquiring person once those rights have been approved. If the stockholders do not grant voting rights to the control shares acquired by an acquiring person, those shares do not become permanent non-voting shares. The acquiring person is free to sell the shares to others. If the buyer or buyers of those shares themselves do not acquire a controlling interest, the shares are not governed by the control share law.

 

If control shares are accorded full voting rights and the acquiring person has acquired control shares with a majority or more of the voting power, any stockholder of record, other than the acquiring person, who did not vote in favor of approval of voting rights, is entitled to demand fair value for such stockholder’s shares.

 

In addition to the control share law, Nevada has a business combination law, which prohibits certain business combinations between Nevada corporations and “interested stockholders” for three years after the interested stockholder first becomes an interested stockholder, unless the corporation’s Board of Directors approves the combination in advance. For purposes of Nevada law, an interested stockholder is any person who is: (a) the beneficial owner, directly or indirectly, of 10% or more of the voting power of the outstanding voting shares of the corporation; or (b) an affiliate or associate of the corporation and at any time within the previous three years was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then-outstanding shares of the corporation. The definition of “business combination” contained in the statute is sufficiently broad to cover virtually any kind of transaction that would allow a potential acquirer to use the corporation’s assets to finance the acquisition or otherwise to benefit its own interests rather than the interests of the corporation and its other stockholders.

 

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The effect of Nevada’s business combination law is to potentially discourage parties interested in taking control of our company from doing so if it cannot obtain the approval of our Board of Directors.

 

Transfer Agent

 

The transfer agent for our common stock is Continental Stock Transfer & Trust Company. The transfer agent’s address is 17 Battery Place, New York, New York 10004, and its telephone number is (212) 845-3212.

 

PLAN OF DISTRIBUTION

 

We are registering for resale by the selling stockholders (i) 127,750,000 shares of common stock, par value $0.001 per share, (ii) 50,000 shares issuable upon the five year A Warrant to purchase one-half share of our common stock, at an exercise price of $0.51 per whole share; and (iii) 50,000 shares issuable upon the five year B Warrant to purchase one-half share of our common stock, at an exercise price of $0.75 per whole share. We will not receive any proceeds from the sales of shares of our common stock or warrants by the selling stockholders. However, to the extent the warrants are exercised for cash, if at all, we will receive up to $31,500. We will pay the expenses incurred in connection with the offering described in this prospectus, with the exception of brokerage expenses, fees, discounts and commissions, which will be paid by selling stockholders.

 

The selling stockholders may pledge or grant a security interest in some or all of the shares of common stock or warrants owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock or warrants from time to time pursuant to this prospectus.

 

The selling stockholders also may transfer and donate the shares of common stock or warrants in other circumstances, in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

 

The selling stockholders will sell their shares of common stock or warrants subject to the following:

 

·all of a portion of the shares of common stock or warrants beneficially owned by the selling stockholders or their perspective pledgees, donees, transferees or successors in interest, may be sold on the OTC Bulletin Board market, any national securities exchange or quotation service on which the shares of our common stock may be listed or quoted at the time of sale, in the over-the counter market, in privately negotiated transactions, through the writing of options, whether such options are listed on an options exchange or otherwise, short sales or in a combination of such transactions;

 

·each sale may be made at market prices prevailing at the time of such sale, at negotiated prices, at fixed prices or at varying prices determined at the time of sale;

 

·some or all of the shares of common stock or warrants may be sold through one or more broker-dealers or agents and may involve crosses, block transactions or hedging transactions. The selling stockholders may enter into hedging transactions with broker-dealers or agents, which may in turn engage in short sales in the course of hedging in positions they assume. The selling stockholders may also sell shares of common stock or warrants short and deliver shares of common stock or warrants to close out short positions or loan or pledge shares of common stock or warrants to broker-dealers or agents that in turn may sell such shares or warrants; and

 

·in connection with such sales through one or more broker-dealers or agents, such broker-dealers or agents may receive compensation in the form of discounts, concessions or commissions from the selling stockholders and may receive commissions from the purchasers of the shares of common stock or warrants for whom they act as broker-dealer or agent or to whom they sell as principal (which discounts, concessions or commissions as to particular broker-dealers or agents may be in excess of those customary in the types of transaction involved). Any broker-dealer or agent participating in any such sale may be deemed to be an “underwriter” within the meaning of the Securities Act and will be required to deliver a copy of this prospectus to any person who purchases any shares of common stock or warrants from or through such broker-dealer or agent. We have been advised that, as of the date hereof, none of the selling stockholders have made any arrangements with any broker-dealer or agent for the sale of their shares of common stock or warrants.

 

67
 

 

The selling stockholder and any broker-dealer participating in the distribution of the shares of common stock or warrants may be deemed to be “underwriters” within the meaning of the Securities Act, and any profits realized by the selling stockholders and any commissions paid, or any discounts or concessions allowed to any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. In addition, any shares of common stock or warrants covered by this prospectus which qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this prospectus. A selling stockholder may also transfer, devise or gift the shares of common stock or warrants by other means not covered in this prospectus in which case the transferee, devisee or giftee will be the selling stockholder under this prospectus.

 

If required at the time a particular offering of the shares of common stock or warrants are made, a prospectus supplement or, if appropriate, a post-effective amendment to the registration statements of which this prospectus is a part, will be distributed which will set forth the aggregate amount of shares of common stock or warrants being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers.

 

Under the securities laws of some states, the shares of common stock or warrants may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of common stock or warrants may not be sold unless such shares or warrants have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with. There can be no assurance that any selling stockholder will sell any or all of the shares of common stock or warrants registered pursuant to the registration statement of which this prospectus forms a part.

 

The selling stockholders and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M under the Exchange Act, which may limit the timing of purchases and sales of any of the securities by the selling stockholders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the securities to engage in market-making activities with respect to the securities. All of the foregoing may affect the marketability of the securities and the ability of any person or entity to engage in market-making activities with respect to the securities.

 

The selling stockholders will pay all underwriting discounts and selling commissions and expenses, brokerage fees and transfer taxes, as well as the fees and disbursements of counsel to and experts for the selling stockholders, if any. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed 8% of the proceeds from the sale of such securities. We have agreed pursuant to the purchase agreement in the private placement where these securities were issued, the agreement with the placement agents, and the warrants to indemnify those selling stockholders against liabilities, including certain liabilities under the Securities Act, or that the selling stockholders will be entitled to contribution. We will be indemnified by the selling stockholders against certain liabilities, including liabilities under the Securities Act of 1933 that may arise from any written information furnished to us by the selling stockholders for use in this prospectus, in accordance with the purchase agreement or will be entitled to contribution. Once sold under this registration statement, of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands of persons other than our affiliates.

 

SHARES ELIGIBLE FOR FUTURE SALE

 

As of January 14, 2013, we had 393,574,919 shares of common stock outstanding, not including shares issuable upon exercise of our warrants. All shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by our “affiliates,” as that term is defined in Rule 144 promulgated under the Securities Act.

 

The outstanding shares of our common stock not included in this prospectus will be available for sale in the public market as follows:

 

68
 

 

Public Float

 

Of our outstanding shares, as of January 14, 2013 approximately 177,936,262 shares are beneficially owned by executive officers, directors and affiliates (excluding shares of our common stock which may be acquired upon exercise of stock options and warrants which are currently exercisable or which become exercisable within 60 days of January 14, 2013). The approximately 215,638,657 remaining shares constitute our public float.

 

Rule 144

 

In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for 90 days, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for a least six months (including any period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliated person who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the provisions of Rule 144.

 

In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for 90 days, our affiliates or persons selling shares on behalf of our affiliates who own shares that were acquired from us or an affiliate of ours at least six months prior to the proposed sale are entitled to sell upon expiration of the lock-up agreements described above, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:

 

·1% of the number of shares of common stock then outstanding, which will equal approximately shares immediately after this offering; or

 

·the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

 

Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

 

LEGAL MATTERS

 

The validity of the shares of common stock offered by this prospectus and certain other legal matters as to Nevada law will be passed upon for us by Anslow & Jaclin LLP.

 

EXPERTS

 

Our audited consolidated financial statements appearing in this prospectus and registration statement have been audited by GBH CPAs, PC, an independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein and in the registration statement, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We filed with the SEC a registration statement under the Securities Act for the common stock in this offering. This prospectus does not contain all of the information in the registration statement and the exhibits and schedule that were filed with the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and the exhibits that were filed with the registration statement. Statements contained in this prospectus about the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and we refer you to the full text of the contract or other document filed as an exhibit to the registration statement.

  

We file annual, quarterly, and current reports and other information with the SEC. Our filings with the SEC are available to the public on the SEC’s website at www.sec.gov. Those filings are also available to the public on our corporate website at www.li3energy.com. The information we file with the SEC or contained on, or linked to through, our corporate website or any other website that we may maintain is not part of this prospectus or the registration statement of which this prospectus is a part. You may also read and copy, at the SEC’s prescribed rates, any document we file with the SEC, including the registration statement (and its exhibits) of which this prospectus is a part, at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. You can call the SEC at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room.

  

69
 

 

 

LI3 ENERGY, INC.

(An Exploration Stage Company)

INDEX TO FINANCIAL STATEMENTS

 

  Page
   
Report of Independent Registered Public Accounting Firm F-2
   
Consolidated Balance Sheets as of June 30, 2012 and 2011 F-3
   
Consolidated Statements of Operations and Comprehensive Loss for the years ended June 30, 2012 and 2011 and for the period from June 24, 2005 (Inception) through June 30, 2012 F-4
   
Consolidated Statement of Changes in Stockholders’ Equity for the period  from June 24, 2005 (Inception) through June 30, 2012 F-5
   
Consolidated Statements of Cash Flows for the years ended June 30, 2012 and 2011  and for the period from June 24, 2005 (Inception) through June 30, 2012 F-6
   
Notes to Consolidated Financial Statements F-7

 

F-1
 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors

Li3 Energy, Inc.

(An Exploration Stage Company)

Providencia, Santiago, Chile

 

We have audited the accompanying consolidated balance sheets of Li3 Energy, Inc. (an Exploration Stage Company) as of June 30, 2012 and 2011, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the years then ended and for the period from June 24, 2005 (inception) to June 30, 2012. These consolidated financial statements are the responsibility of Li3 Energy, Inc.’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

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

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Li3 Energy, Inc., as of June 30, 2012 and 2011, and the results of their operations and their cash flows for the years then ended and for the period from June 24, 2005 (inception of the exploration stage) to June 30, 2012 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has no source of recurring revenue; negative working capital and cash flows; and has suffered recurring losses from operations; which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ GBH CPAs, PC              
   
   
   

GBH CPAs, PC

www.gbhcpas.com

Houston, Texas

 

October 15, 2012 

 

F-2
 

 

 

Li3 ENERGY, INC.

(An Exploration Stage Company)

Consolidated Balance Sheets

 

   June 30, 2012   June 30, 2011 
Assets          
Current assets:          
Cash  $27,689   $952,401 
Deferred financing costs   -    103,250 
Prepaid expenses and advances   8,841    41,809 
Total current assets   36,530    1,097,460 
Mineral rights   63,741,000    64,041,000 
Property and equipment, net   175,220    - 
Other assets   10,650    - 
Total non-current assets   63,926,870    64,041,000 
Total assets  $63,963,400   $65,138,460 
           
Liabilities & Stockholders' Equity          
Current liabilities:          
Accounts payable  $2,331,722   $259,992 
Accounts payable - related parties   104,326    110,986 
Accrued expenses   994,827    433,028 
Accrued registration rights penalties   518,243    - 
Zero-coupon convertible debt, net of unamortized discount of $-0- and $1,304,674, respectively   1,783,181    372,764 
Notes payable   1,245,000    95,000 
Total current liabilities   6,977,299    1,271,770 
Derivative liabilities - warrant instruments   7,653,928    15,244,754 
Total liabilities   14,631,227    16,516,524 
Commitments and contingencies          
Stockholders' equity:          
Preferred stock, $0.001 par value, 10,000,000 shares  authorized; no shares issued and outstanding   -    - 
Common stock, $0.001 par value, 990,000,000 shares authorized; 323,782,553 and 279,913,920 shares issued and outstanding as of June 30, 2012 and June 30, 2011, respectively   323,783    279,914 
Additional paid-in capital   63,578,079    58,307,796 
Other comprehensive income   83,563    - 
Deficit accumulated during exploration stage   (37,773,845)   (35,461,774)
Total stockholders' equity of Li3 Energy, Inc.   26,211,580    23,125,936 
Non-controlling interests   23,120,593    25,496,000 
Total stockholders' equity   49,332,173    48,621,936 
Total liabilities and stockholders' equity  $63,963,400   $65,138,460 

 

See accompanying notes to the consolidated financial statements.

 

F-3
 

 

Li3 ENERGY, INC.

(An Exploration Stage Company)

Consolidated Statements of Operations

           June 24, 2005 
       (Inception) 
   Years ended June 30,   through 
   2012   2011   June 30, 2012 
Revenues  $-   $-    2,278 
                
Cost of goods sold   -    -    (1,182)
                
Gross profit   -    -    1,096 
                
Operating expenses:               
Exploration expenses   6,193,533    560,075    9,089,387 
Mineral rights impairment expense   300,000    4,120,000    9,138,785 
Loss on settlements, net   -    1,497,500    1,497,500 
Inventory impairment   -    -    1,469 
General and administrative expenses   6,996,043    5,448,667    15,395,323 
Total operating expenses   13,489,576    11,626,242    35,122,464 
                
Other (income) expense:               
Loss on debt extinguishment   841,752    -    841,752 
Change in fair value of derivative liabilities - warrant instruments   (10,780,342)   6,116,147    1,559,352 
Warrant modification expense   -    1,068,320    1,068,320 
Gain on foreign currency transactions   (14,142)   (1,383)   (10,365)
Interest expense   1,150,634    410,056    1,568,825 
Total other (income) expense   (8,802,098)   7,593,140    5,027,884 
                
Net loss   (4,687,478)   (19,219,382)   (40,149,252)
Net loss attributable to the noncontrolling interest   (2,375,407)   -    (2,375,407)
Net loss attributable to Li3 Energy, Inc.  $(2,312,071)  $(19,219,382)  $(37,773,845)
                
Net loss per common share - basic and diluted  $(0.01)  $(0.16)     
                
Weighted average number of  common shares outstanding - basic and diluted   313,997,372    123,690,841      
                
Comprehensive income (loss)               
Net loss  $(4,687,478)  $(19,219,382)  $(40,149,252)
Other comprehensive income - foreign currency translation adjustments   83,563    -    83,563 
Total comprehensive loss   (4,603,915)   (19,219,382)   (40,065,689)
Comprehensive loss attributable to noncontrolling interests   (2,375,407)   -    (2,375,407)
Comprehensive loss attributable to Li3 Energy, Inc.  $(2,228,508)   -   $(37,690,282)
                

 

See accompanying notes to the consolidated financial statements.

 

F-4
 

 

 

Li3 ENERGY, INC.

(An Exploration Stage Company)

Consolidated Statement of Changes in Stockholders’ Equity

From June 24, 2005 (Inception) through June 30, 2012

 

                   Deficit         
                   Accumulated       Total 
           Additional   Other   During the   Non-   Stockholders' 
   Common Stock   Paid-in   Comprehensive   Exploration   Controlling   Equity 
   Shares   Par Value   Capital   Loss   Stage   Interest   (Deficit) 
                             
Balance at June 24, 2005 (inception)   -   $-   $-   $-   $-   $-   $- 
                                    
Stock issued for cash, June 2005   71,052,672    71,052    (63,552)   -    -    -    7,500 
                                    
Net loss   -    -    -    -    -    -    - 
                                    
 Balance, June 30, 2005   71,052,672    71,052    (63,552)   -    -    -    7,500 
                                    
Stock issued for cash, March 2006   47,368,454    47,368    2,632    -    -    -    50,000 
                                    
Net loss   -    -    -    -    (14,068)   -    (14,068)
                                    
Balance, June 30, 2006   118,421,126    118,420    (60,920)   -    (14,068)   -    43,432 
                                    
Net loss   -    -    -    -    (16,081)   -    (16,081)
                                    
Balance, June 30, 2007   118,421,126    118,420    (60,920)   -    (30,149)   -    27,351 
                                    
Stock issued for cash, February 2008   2,631,595    2,632    47,368    -    -    -    50,000 
                                    
Net loss   -    -    -    -    (95,656)   -    (95,656)
                                    
Balance, June 30, 2008   121,052,721    121,052    (13,552)   -    (125,805)   -    (18,305)
                                    
Net loss   -    -    -    -    (67,905)   -    (67,905)
                                    
Balance, June 30, 2009   121,052,721    121,052    (13,552)   -    (193,710)   -    (86,210)
                                    
Cancellation of shares in connection with merger   (71,052,626)   (71,052)   71,052    -    -    -    - 
                                    
Stock issued for cash:                                   
Stock and warrants in offered 2009 Unit Offering and First 2010 Offering, less offering costs of $410,680   18,000,000    18,000    2,265,139    -    -    -    2,283,139 
                                    
Stock based compensation:                                   
Stock issued to chief executive officer for services   1,500,000    1,500    3,300    -    -    -    4,800 
Stock issued to a consultant for services   1,125,000    1,125    805,125    -    -    -    806,250 
Stock options issued to consultant for services   -    -    114,783    -    -    -    114,783 
Amortization of stock-based compensation expense   -    -    84,614    -    -    -    84,614 
Fair value of stock contributed by CEO to employees and director for services   -    -    129,500    -    -    -    129,500 
                                    
Stock issued for property acquisitions:                                   
Stock issued for March 2010 acquisition of mineral rights   4,000,000    4,000    3,636,000    -    -    -    3,640,000 
                                    
Net loss   -    -    -    -    (16,048,682)   -    (16,048,682)
                                    
Balance, June 30, 2010   74,625,095    74,625    7,095,961    -    (16,242,392)   -    (9,071,806)
                                    
Stock issued for cash:                                   
Stock and warrants offered  in First 2010 Unit Offering, less offering costs of $51,991   2,160,000    2,160    248,901    -    -    -    251,061 
Stock and warrants offered  in Second 2010 Unit Offering, no offering costs   4,000,000    4,000    44,639    -    -    -    48,639 
Stock and warrants offered  in Third 2010 Unit Offering, less offering costs of $223,088   11,666,663    11,667    757,473    -    -    -    769,140 
Stock and warrants offered  in 2011 Offering, less offering costs totaling $737,271   23,920,071    23,920    3,554,723    -    -    -    3,578,643 
Stock issued for cash upon exercise of Double Options   3,800,000    3,800    186,200    -    -    -    190,000 
Exercise of $0.05 per share D Warrants for cash   2,000,000    2,000    98,000    -    -    -    100,000 
Cashless exercise of $0.05 per share D warrants   515,254    515    -    -    -    -    515 
Exercise of $0.15 per share E Warrants for cash   7,623,336    7,624    1,135,926    -    -    -    1,143,550 
                                    
Stock-based compensation:                                   
Stock issued to MIZ, a related party, pursuant to vesting of restricted stock units   500,000    500    (500)   -    -    -    - 
Stock issued to MIZ, a related party for salary and bonus under Employment Service Agreement   736,842    737    281,763    -    -    -    282,500 
Stock issued for services   2,728,310    2,728    1,027,871    -    -    -    1,030,599 
Amortization of stock-based compensation   -    -    777,963    -    -    -    777,963 
Stock issued for Investment Agreement with investor   1,638,349    1,638    382,830    -    -    -    384,468 
                                    
Stock issued to settle liabilities:                                   
Stock issued for Lacus settlement   500,000    500    192,000    -    -    -    192,500 
Stock issued for settlement with Puna Lithium   6,000,000    6,000    1,914,000    -    -    -    1,920,000 
                                    
Equity impact of derivative liability warrants and debt:                                   
Fair value of D warrants reclassified from derivative liability to equity upon exercise   -    -    2,582,116    -    -    -    2,582,116 
Fair value of E warrants reclassified from derivative liability to equity upon exercise   -    -    2,022,430    -    -    -    2,022,430 
Beneficial conversion of convertible debt issued May 2011   -    -    368,000    -    -    -    368,000 
                                    
Stock issued for property acquisitions:                                   
Stock issued for August 2010 acquisition of mineral rights   10,000,000    10,000    3,890,000    -    -    -    3,900,000 
Stock issued for acquisition of May 2011 mineral rights   127,500,000    127,500    31,747,500    -    -    -    31,875,000 
                                    
Consolidation of Maricunga non-controlling interest   -    -    -    -    -    25,496,000    25,496,000 
                                    
Net loss   -    -    -    -    (19,219,382)   -    (19,219,382)
                                    
Balance, June 30, 2011   279,913,920    279,914    58,307,796    -    (35,461,774)   25,496,000    48,621,936 
                                    
Stock issued for cash:                                   
Stock and warrants offered  to POSCO, less offering costs of $685,944   38,095,300    38,095    3,495,996    -    -    -    3,534,091 
Exercise of $0.05 per share D Warrants for cash   4,200,000    4,200    205,800    -    -    -    210,000 
Equity impact of derivative liability warrants and debt:                                   
Fair value of D warrants reclassified from derivative liability to equity upon exercise   -    -    590,462    -    -    -    590,462 
Beneficial conversion of convertible debt waiver agreement   -    -    330,019    -    -    -    330,019 
                                    
Stock based compensation:                                   
Amortization of stock-based compensation   -    -    514,380    -    -    -    514,380 
Stock issued to MIZ, a related party, pursuant to vesting of restricted stock units   300,000    300    (300)   -    -    -    - 
Common stock issued for services   1,273,333    1,274    133,926    -    -    -    135,200 
                                    
Foreign currency translation adjustments   -    -    -    83,563    -    -    83,563 
                                    
Net loss        -    -    -    (2,312,071)   (2,375,407)   (4,687,478)
                                    
Balance, June 30, 2012   323,782,553   $323,783   $63,578,079   $83,563   $(37,773,845)  $23,120,593   $49,332,173 

 

See accompanying notes to the consolidated financial statements.

 

F-5
 

 

Li3 ENERGY, INC.

(An Exploration Stage Company)

Consolidated Statements of Cash Flows

 

           June 24, 2005 
   Year   Year   (Inception) 
   Ended   Ended   through 
   June 30,   June 30,   June 30, 
   2012   2011   2012 
Cash flows from operating activities               
Net loss  $(4,687,478)  $(19,219,382)  $(40,149,252)
Adjustments to reconcile net loss to net cash        used in operating activities:               
Depreciation   51,560    3,946    71,060 
Mineral rights impairment expense   300,000    4,120,000    9,138,785 
Loss on settlements, net   -    1,497,500    1,497,500 
Inventory impairment   -    -    1,469 
Stock-based compensation   649,580    2,668,520    4,458,047 
Loss on debt extinguishment   841,752    -    841,752 
Change in fair value of derivative liabilities - warrant instruments   (10,780,342)   6,116,147    1,559,352 
Warrant modification expense   -    1,068,320    1,068,320 
Zero coupon interest accretion and amortization of debt               
 discount on convertible notes   995,059    372,764    1,367,823 
Amortization of deferred financing costs   36,875    29,500    66,375 
Loss on foreign currency transactions   14,142         14,142 
Changes in operating assets and liabilities:               
Increase in inventory   -    -    (1,469)
Decrease (increase) in prepaid expenses and advances   33,295    14,667    (8,514)
Increase in other assets   (10,650)   -    (10,650)
Increase (decrease) in accounts payable   2,055,939    (397,108)   2,315,931 
Increase (decrease) in accounts payable - related parties   (6,246)   100,315    104,740 
Increase in accrued expenses   562,707    29,988    1,575,245 
Increase in accrued registration rights penalties   518,243    -    518,243 
Net cash used in operating activities   (9,425,564)   (3,594,823)   (15,571,101)
                
Cash flows from investing activities               
Acquisition of mineral rights   -    (6,550,000)   (7,968,785)
Acquisition of equipment   (226,780)   -    (236,280)
Payments for leasehold improvements   -    -    (10,000)
Net cash used in investing activities   (226,780)   (6,550,000)   (8,215,065)
                
Cash flows from financing activities               
Proceeds from zero coupon convertible debt offering   -    1,500,000    1,500,000 
Payment of deferred financing costs   -    (75,000)   (75,000)
Payment of waiver fee for convertible debt   (30,000)   -    (30,000)
Proceeds from notes payable   1,150,000    -    1,245,000 
Proceeds from issuance of common stock, net   7,314,069    7,935,828    19,446,717 
Proceeds from exercise of warrants   210,000    1,433,575    1,643,575 
Net cash provided by financing activities   8,644,069    10,794,403    23,730,292 
                
Effect of exchange rate changes on cash   83,563    -    83,563 
                
Net increase (decrease) in cash   (924,712)   649,580    27,689 
                
Cash at beginning of the year   952,401    302,821    - 
                
Cash at end of the year  $27,689   $952,401   $27,689 
                
Supplemental disclosure of cash flow information:               
Cash paid during the period for:               
Income taxes  $-   $