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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year endedJune 30, 2008

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number:0-20430

SANTA FE GOLD CORPORATION(Name of small business issuer in its charter)

|Delaware                                 | 84-1094315                
|---------------------------------------- | --------------------------
|(State or other jurisdiction of          | (I.R.S. Employer I.D. No.)
|incorporation or organization)           |                           
|                                         |                           
|1128 Pennsylvania
      NE, Suite 200    |                           
|Albuquerque, NM                          | 87110                     
|(Address of principal executive offices) | (Zip Code)                

Issuer's telephone number: (505) 255-4852

Securities registered pursuant to Section 12(b) of the
Act:NONE

Securities registered pursuant to Section 12(g) of the
Act:Common stock, $.002 par value(Title of class)

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

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

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

Revenues for issuers most recent fiscal year: $-0-

Aggregate market value of stock held by non-affiliates as of
October 3, 2008: $39,637,072

Number of shares of the issuers common stock outstanding as of
October 3, 2008: 75,904,760

Documents incorporated by reference: None

Transitional Small Business Disclosure Format: Yes [  
]     No [X]

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**CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS**

This
annual report on Form 10-KSB or incorporated by reference may contain certain
forward-looking statements as such term is defined by the Securities and
Exchange Commission in its rules, regulations and releases, which represent the
registrants expectations or beliefs, including but not limited to, statements
concerning the registrants operations, economic performance, financial
condition, growth and acquisition strategies, investments, and future
operational plans. For this purpose, any statements contained herein that are
not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, words such as
may, will, expect, believe, anticipate, intent, could, estimate,
might, plan, predict or continue or the negative or other variations
thereof or comparable terminology are intended to identify forward-looking
statements. This information may involve known and unknown risks, uncertainties
and other factors which may cause our actual results, performance or
achievements to be materially different from the future results, performance or
achievements expressed or implied by any forward-looking statements.

This
annual report contains forward-looking statements, many assuming that the
Company secures adequate financing and is able to continue as a going concern,
including statements regarding, among other things, (a) our projected sales and
profitability, (b) our growth strategies, (c) anticipated trends in our
industry, (d) our future financing plans, (e) our anticipated needs for working
capital, (f) unfavorable weather conditions, (g) the lack of commercial
acceptance of our product or by-products, (h) changes in environmental laws, (i)
problems regarding availability of materials and equipment, (j) failure of
equipment to process or operate in accordance with specifications, including
expected throughput, which could prevent the production of commercially viable
output, (k) our lack of necessary financial resources to complete development of
our projects, successfully market our products and fund our other capital
commitments and (l) our ability to seek out and acquire high quality gold,
silver and/or copper properties. These statements may be found under
Managements Discussion and Analysis or Plan of Operations and Business, as
well as in this annual report generally. Actual events or results may differ
materially from those discussed in forward-looking statements as a result of
various factors, including, without limitation, the risks outlined under Risk
Factors and matters described in this annual report generally. In light of
these risks and uncertainties, there can be no assurance that the
forward-looking statements contained in this annual report will in fact occur.
In addition to the information expressly required to be included in this annual
report, we will provide such further material information, if any, as may be
necessary to make the required statements, in light of the circumstances under
which they are made, not misleading.

These
risks and uncertainties and other factors include, but are not limited to, those
set forth under ITEM 6  Risk Factors. All subsequent written and oral
forward-looking statements attributable to the company or to persons acting on
our behalf are expressly qualified in their entirety by these cautionary
statements. Except as required by federal securities laws, we do not intend to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.

Given
these risks and uncertainties, readers are cautioned not to place undue reliance
on our forward-looking statements.

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PART I

**ITEM
1.**                     
**DESCRIPTION OF BUSINESS**

Background

Santa
Fe Gold Corporation (the Company, our or we) is a U.S. mining company,
incorporated in 1991 in the state of Delaware. Our general business strategy is
to acquire and develop mining properties amenable to low cost production.
Presently, we have four projects: Our Summit silver-gold and Ortiz gold projects
located in New Mexico, and our Black Canyon mica and Planet micaceous iron oxide
projects located in Arizona. We are focused on financing efforts to: (1) place
into production our Summit silver-gold property, (2) conduct further studies on
our Ortiz gold project, (3) fund the reopening and enhancement of our Black
Canyon mica project, and (4) acquire high quality gold, silver and/or copper
properties. Information about the Company, including a posting of the most
recent financial reports, can be viewed on our web site at www.santafegoldcorp.com.

In
May 2006, we acquired all of the outstanding shares of The Lordsburg Mining
Company (Lordsburg Mining), which owns the Summit silver-gold project. In
December 2007, Lordsburg Mining located additional unpatented mining claims near
the Summit property, and in June 2008, acquired additional equipment and real
property near the town of Lordsburg, NM. The Summit project consists of the
Summit property of 117 acres of patented mining claims and approximately 740
acres of unpatented mining claims in Grant County, southwestern New Mexico; the
Banner mill site and adjacent property, located approximately 57 miles south of
the Summit property, totaling approximately 1,500 acres of wholly owned and
leased patented and unpatented mining claims near Lordsburg, Hidalgo County, New
Mexico; mining and operating permits related to the Summit property and the
Banner mill site property; and mineral processing equipment consisting of a
crushing and screening plant, a ball mill and a 400 ton-per-day flotation plant.
Our strategic objective is to develop the Summit project. The Summit mining and
processing operation will involve underground mining of mineralized material
from the Summit mining claims at a rate of about 400 tons per day and trucking
of the mined material 57 miles to the Banner mill site where metallurgical
processing will take place. At the Banner site, processing will be accomplished
through conventional crushing, grinding and selective flotation to yield a bulk
sulfide concentrate containing the recoverable precious metals. This concentrate
will be marketed to a smelter or to a third-party precious metals processing
plant. In April 2007, we received results of a preliminary feasibility study
carried out by an independent geological engineering firm that concluded that
development of the Summit deposit would be economically viable. Capital cost was
estimated as $13.4 million and the development schedule was estimated as 12
months. On the basis of the results of the study, we determined to proceed to
secure the capital necessary for development, and on December 21, 2007, we
entered into definitive agreements regarding the private placement of senior
secured convertible debentures and common stock purchase warrants to a single
investor for an aggregate purchase price of $13,500,000. The net proceeds will
be used primarily for development of the Summit project. The debentures and
warrants will be issued in accordance with a pre-determined funding schedule
corresponding to the projects anticipated construction requirements during
2008. We began construction activities in February, 2008, and expect that
development will require a minimum of 12 months before production can begin. As
of October 3, 2008, we have received $8,850,000 of the $13,500,000 of available
funds from the Summit development financing.

In
August 2004, we acquired exclusive rights for exploration, development and
mining of gold and other minerals on 57,267 acres (approximately 90 square
miles) of the Ortiz Mine Grant in Santa Fe County, New Mexico. In November 2007,
we relinquished 14,970 acres and retained under lease 42,297 acres (66 square
miles). In December 2005, we received the results of an independent scoping
study of the Carache and Lucas gold deposits. The study assessed various
processing options for development and provided estimations of capital and
operating costs for each option. It also included an economic analysis complete
with sensitivities on gold price, capital and operating costs. The report
concluded that the financial results indicate a favorable gold project employing
high pressure grinding rolls with gravity recovery and contract mining. The
financial model estimated that production could total 925,036 ounces of gold
over 10 years at an average estimated operating cost of $230 per ounce of gold
recovered. The capital cost, assuming contract mining, was estimated as $38.2
million. The report also stated that upside

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exists in estimations of mineralized material in both contained
ounces and grade. Based on these results, we have proceeded to examine
additional mining and processing options in an attempt to further improve the
projects economics. Over the next 12 months we intend to further explore and
evaluate mining and processing alternatives. Also, we intend, in conjunction
with this work, to conduct an assessment of permitting and environmental issues.
Although work on the Ortiz gold property has yielded encouraging results with
respect to potential economic viability, substantial additional feasibility work
and expenditures are required to demonstrate economic viability. We currently
have not established proven or probable reserves on the Ortiz gold property.

In
1999, we acquired the Black Canyon mica project. The project includes a crushing
and concentrating plant and 76 unpatented mining claims at Black Canyon, 30
miles north of Phoenix, Arizona. Until November 2006, the project also included
a mica processing plant situated in Glendale, Arizona. In November 2002, due to
economic constraints, we suspended crushing and concentrating activities at our
Black Canyon mica mine. After the suspension of operations, limited production,
marketing and sales continued through 2005 at our Glendale mica processing
facility using inventoried mica. In January 2007, we removed the mica processing
equipment from the Glendale plant and placed it into storage. In the first half
of 2008, we disassembled the crushing and concentrating plant at the Black
Canyon mine and placed the major items of equipment into storage. We intend to
seek a joint venture partner to contribute the approximately $8.0 million
required to fund the re-establishment of the mining operation, relocation of the
mica processing equipment and re-opening and enhancement of the Black Canyon
mica project, or alternatively, intend to divest of the project.

In
September 2000, we acquired exclusive rights for exploration, development and
mining of micaceous iron oxide (MIO) and other minerals on the Planet property
located in La Paz County, Arizona. The property consists of 31 patented mining
claims totaling 523 acres. MIO is an uncommon flake-like form of crystalline
hematite (Fe2O3) valued for the anti-corrosive properties it contributes to
coatings formulated to protect structural steelwork.

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

The
Company has incurred a net (loss) of ($4,256,092) and earned net income of
$345,979 for the years ended June 30, 2008 and 2007, respectively. The Company
has a total accumulated (deficit) of $(47,237,864) and a negative working
capital of $(722,505) at June 30, 2008. To continue as a going concern, we are
dependent on the achievement of profitable production from our Summit
silver-gold project and/or continued fund raising. However, we have received no
commitment from any party to provide additional capital and there is no
assurance that such funding will be available when needed, or if available, that
we would find its terms to be favorable or acceptable.

Recent Developments

On
June 30, 2008, Lordsburg Mining Company purchased from St. Cloud Mining Company,
a New Mexico corporation, for a price of $841,500, mineral processing equipment
and real property situated adjacent to our Banner mill site located south of
Lordsburg, New Mexico. The equipment included in the purchase constitutes
important components for our Banner mill processing facility, notably a portable
crushing and screening plant and a feeding and conveying system. The real
property included in the purchase consists of 70 patented and 5 unpatented
mining claims, and assignments of mineral leases covering 17 patented and 6
unpatented mining claims. These mining claims and mineral leases, together with
the patented mining claims Lordsburg Mining already owns in the area of the
Banner mill site, cover approximately 1,500 acres (2.3 square miles) and
comprise the core of the Virginia Mining District. Historical production of
copper, gold and silver from the district has been substantial. Lordsburg Mining
has assumed certain potential environmental obligations in connection with the
real property, including those related to reclamation of old workings, should
such obligations arise in the future. The purchase price of $841,500 was
allocated as to $631,500 for the equipment and $210,000 for

4

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the patented and unpatented mining claims and leases. The funds
for the purchase were sourced from the $13.5 million Summit development
financing completed in December 2007.

On
June 5, 2008, we agreed to exercise our option to purchase the Planet MIO
property, consisting of thirty-one patented mining claims totaling 523 acres in
La Paz County, Arizona. We originally leased the property in 2000 from New
Planet Copper Mining Company under the terms of a Lease with Option to Purchase.
We agreed to exercise our purchase option in connection with settlement of an
action we commenced in March 2007 seeking to confirm that the lease remained in
good standing. The purchase price is $250,000, and will be paid with interest
over a term of four years. We also are obligated to pay a 5% royalty on any
future production.

On
June 2, 2008, April 30, 2008, January 10, 2008, and January 9, 2008, we
completed the placement of Additional Investment Rights aggregating $643,614
with two institutional investors. The notes have a term of 17 months and bear
interest at 7% per annum. In connection with the transaction, we issued a five
year warrant for each $2.00 invested, each warrant giving the note holder the
right to purchase common stock at a price of $1.00 per share. An aggregate of
321,807 warrants were issued under the notes.

On
February 1, 2008, we completed the private placement of a 10% Convertible Senior
subordinated Note of $237,143 with an accredited investor and issued a note and
related warrants under terms and conditions the same as for the private
placements completed October 31, 2007. In connection with the transaction, the
Company issued a five year warrant for each $2.50 invested, for a total of
94,858 warrants, each warrant giving the note holder the right to purchase one
share of common stock at a price of $1.25 per share.

On
  December 21, 2007, we entered into a definitive agreement for the placement
  with a single investor of a 7% Senior Secured Convertible Debenture in the amount
  of $13,500,000. Proceeds from the debenture will be issued in accordance with
  a pre-determined funding schedule and the term of the debenture is 60 months.
  At the option of the holder of the convertible debentures, the outstanding principal
  and accrued interest is convertible any time into Santa Fe Golds common
  stock at a conversion price of $1.00 per share, and is automatically converted
  if the reported weighted average closing sales price of the stock exceeds $2.50
  per share for 10 consecutive trading days. In connection with the transaction,
  for every $2.00 of the original principal amount of the debenture, the investor
  will receive a warrant to purchase one share of common stock at a price of $1.00.
  The warrants are exercisable from July 1, 2010, to December 31, 2014. On December
  27, 2007, we received the initial advance under the agreement of $350,000. On
  January 15, 2008, we received the second advance of $1,500,000, and on each
  of April 15, 2008, and July 15, 2008, we received advances of $3,500,000, for
  a total of $8,850,000. At October 3, 2008, we have issued an aggregate of 4,425,000
  warrants under the debentures.

On
October 31, 2007, we completed the placement of 10% Convertible Senior
Subordinated Notes in the amount of $450,000. The notes were placed with three
accredited investors in the amount of $150,000 each. The notes have a term of 60
months and bear interest at 10% per annum. In connection with the transaction,
we issued a five year warrant for each $2.50 invested, each warrant giving the
note holder the right to purchase common stock at a price of $1.25 per share. An
aggregate of 180,000 warrants were issued under the notes.

At
our Annual Meeting held on July 24, 2007, our stockholders approved proposals to
amendment our Certificate of Incorporation, as amended; to change our name,
formerly Azco Mining Inc., to Santa Fe Gold Corporation; and to increase our
authorized common stock from 100,000,000 to 200,000,000 shares. Stockholders
also approved the election of three directors, approved our 2007 Equity
Incentive Plan, and ratified the appointment of Stark Winter Schenkein &
Co., LLP as our independent auditors for the fiscal year ending June 30, 2007.

In
connection with payments of notes to institutional investors related to
$3,500,000 of private placement financing completed in 2006 (see below), we
issued 6,259,798 shares of common stock as payment of interest and principal
under the notes in satisfaction of payments due from February 1, 2007, through
October 1, 2007. We paid the remaining principal and interest under the

5

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notes in cash, for the payments due November 1, 2007, through
January 1, 2008. As of January 1, 2008, all principal and interest amounts due
under the notes were paid. On March 20, 2006, we completed a private placement
of senior secured convertible notes, additional investment rights and warrants
to five institutional investors for an aggregate purchase price of $2,500,000.
We received net proceeds of approximately $2,267,500 after deducting fees and
expenses. The convertible notes had a term of 17 months and were to amortize
over 12 months beginning on September 1, 2006. Interest on the principal amount
outstanding accrued at a rate of 7% per annum. The Company could pay principal
and accrued interest in cash or, at the Companys option, in shares of its
common stock. If we elected to pay principal and interest in shares of our
common stock, the value of each share of common stock would be equal to ninety
percent (90%) of the average of the ten (10) lowest daily volume weighted
average prices of our common stock during the twenty (20) trading days
immediately preceding the date of payment. The holder of each convertible note,
at the holders option, could convert the note into our common stock at a
conversion price of $1.58 per share. We also granted additional investment
rights to the investors, giving each the right for 12 months to purchase, under
the same terms, an additional convertible note for 50% of the amount initially
purchased. We also issued warrants to the note holders, giving the right for a
period of 5 years to purchase in the aggregate 791,141 shares of our common
stock at a price of $1.58 per share. In connection with the transaction, we were
required within 60 days of the closing to file a registration statement with the
Securities and Exchange Commission and within 150 days to cause the registration
statement to be declared effective.

On
September 6, 2006, we amended the terms of the private placement of the senior
secured convertible notes that were issued on March 21, 2006. The common stock
warrants and Additional Investment Rights held by the investors were also
amended. Under the terms of the amendment, the maturity of the convertible notes
was deferred from August 31, 2007, to January 1, 2008. The convertible notes
amortized over 12 equal monthly installments and the date of the first
installment was extended from September 1, 2006, to February 1, 2007. Interest
on the principal amount outstanding remained at the rate of 7% per annum and
accrued from February 1, 2007. Interest was payable on the last day of each
calendar quarter, beginning on March 31, 2007. The price at which the holder of
each convertible note could convert the principal and accrued interest amount
outstanding under each note into shares of the Companys common stock was
reduced from $1.58 to $1.00 per share. We could pay principal and accrued
interest in cash or, at our option, in shares of our common stock under the same
terms and conditions as provided for in the March 20, 2006, agreement. In
connection with the amendment, the investors agreed to purchase in the aggregate
an additional $1,000,000 of notes under the amended terms, bringing the total
outstanding principal, including interest and liquidated damages, due under the
notes to $3,781,662. The amendment revised the date by which we were required to
file a registration statement with the Securities and Exchange Commission to
within 60 days after the date of the amendment and revised the date by which we
were required to cause the registration statement to be declared effective to
within 150 days after the date of the amendment.

In
connection with the amendment and additional purchase of notes, we issued
additional common stock warrants, increasing the number of warrants held by the
investors to 1,890,300, extended the expiration date of those warrants to
September 6, 2011, and reduced the exercise price of the warrants from $1.58 to
$1.00 per share of common stock.

We
also granted to the investors Additional Investment Rights, increasing the
Rights held by the investors, so that they may purchase up to an additional
$1,890,830 of convertible notes, under the same terms and conditions as the
amended notes. The Additional Investment Rights are exercisable for a period of
12 months following the date of a registration statement. Upon exercise of the
Additional Investment Rights, the holders will also receive 945,416 warrants to
purchase common stock. The conversion price of the notes issuable on exercise of
the Additional Investment Rights and the price of the warrants issuable under
the Additional Investment Rights was reduced from $1.58 to $1.00 per share of
common stock.

On
February 23, 2007, we agreed with the investors to amend the terms of the
private placement of senior secured convertible notes, additional investment
rights and warrants issued March 21, 2006, and

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September 6, 2006. Under terms of the amendment, the date by
which we were required to file a registration statement with the Securities and
Exchange Commission was extended from November 5, 2006, until April 30, 2007,
and the date by which such registration statement was required to be declared
effective was extended from February 4, 2007, until July 31, 2007. The investors
agreed to forgo all liquidated damages and penalties related to the previous
deadlines. We agreed to seek stockholder approval for an increase in our
authorized capital, from the authorized limit of 100 million shares, to 200
million shares, and, if necessary, to file additional registration statements.
In connection with the amendment, we issued 1,750,000 warrants, giving note
holders the right to purchase common stock at a price of $1.25 per share for a
period of five years. The amendment also provided for the Company to pay the
February 1, 2007, and March 1, 2007, monthly installments in common stock
without being subject to Equity Conditions of the Note Agreements, at a reduced
conversion price of $0.80 per share rather than the Agreement price of $1.00 per
share. On March 26, 2007, we filed the required registration statement, which
was declared effective on July 20, 2007. On July 24, 2007, our shareholders
approved the increased limit of our authorized capital to 200 million shares.

Products  Mica and Feldspathic Sand

***Revenues***

During
fiscal years 2008 and 2007, our Black Canyon operation was unable to produce
plastic pellets due to a lack of working capital. In fiscal 2008, we sold no
plastic pellets or mica. In 2007, our sales were $7,201. We have no inventoried
mica available for mica customers, while we seek financing to resume
production.

We
produced and sold no feldspathic sand, a by-product of mica production, during
fiscal years 2008 or 2007.

**Competition**

Many
companies are engaged in the exploration and development of mineral properties.
We are at a disadvantage with respect to those competitors whose technical staff
and financial resources exceed ours. Our lack of revenues and limited financial
resources further hinder our ability to acquire additional mineral interests.

Employees and Consultants

As
of June 30, 2008, we had five full-time employees, one of whom serves as our
President and Chief Executive Officer. These individuals devote a majority of
their business time to our affairs. We engage consultants and independent
contractors in connection with financial accounting and the exploration and
development of our mining properties.

Office Facilities

Our
corporate offices are located in Albuquerque, New Mexico. We lease offices at
1128 Pennsylvania NE, Suite 200, Albuquerque, New Mexico 87110, totaling
approximately 2,300 square feet. We believe this space is adequate for our needs
for the foreseeable future.

Employment Agreements

On
October 7, 2003, we entered into employment and change of control agreements
with our President and Chief Executive Officer. The employment agreement
describes, among other things, the officers duties, compensation levels and
benefits. The agreement provides for annual salary of $180,000 adjusted by the
CPI. The term of the agreement is from October 16, 2003, through and including
October 15, 2006, and then automatically extends through October 15, 2008, and
thereafter on a yearly basis unless terminated on 90 days prior notice. The
change of control agreement provides that if there is a change of control of the
Company and the officer leaves our

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employment, for reason other than discharge for cause, death,
or disability, within six months after such change of control, the officer shall
receive a lump sum cash payment of 299% of the base amount as defined in IRC
Section 280G (b) (3), subject to certain limitations of the Internal Revenue
Code. In addition, the officer will continue to be covered by our medical,
health, life and dental plans for 24 months after such cessation of employment.
In connection with the employment agreement, we granted 4,000,000 options to
purchase our common stock at an exercise price of $0.11 per share, the closing
price on the date of grant. The options vested as to 1,000,000 shares on October
16, 2003, and as to additional 1,000,000 share increments over successive
six-monthly periods.

Carrying Value of Assets

As
of June 30, 2008, the Company carried its long-lived assets at the following
values:

Mineral properties
    $
    579,000Property, plant and equipment, net
    
    3,137,329Idle plant and equipment, net
    
    1,311,500Total
    $
    5,027,829


**ITEM
2.**                     
**DESCRIPTION OF PROPERTIES**

Summit Silver-Gold Project

***Overview***

In
May 2006, for cash consideration of $1,300,000, we acquired all of the
outstanding shares of The Lordsburg Mining Company (Lordsburg Mining), a New
Mexico corporation, from Imagin Minerals Inc., a privately-held industrial
minerals company. We own and operate Lordsburg Mining as a wholly-owned
subsidiary. Lordsburg Minings primary assets are the Summit silver-gold
property, which consists of approximately 117 acres of patented mining claims
and 740 acres of unpatented mining claims in Grant County, southwestern New
Mexico; the Banner mill site property, located approximately 57 miles south of
the Summit property, consisting of approximately 1,500 acres of wholly owned and
leased patented and unpatented mining claims near Lordsburg, Hidalgo County, New
Mexico; mining and operating permits related to the Summit property and the
Lordsburg mill site property; and mineral processing equipment consisting of a
crushing and screening plant, a ball mill and a 400 ton-per-day flotation
plant.

Our
strategic objective is to develop the Summit project. In April 2007, we received
results of an engineering study that concluded the Summit deposit would form the
basis of an economically viable underground mining operation. On the basis of
the results of the study, we determined to proceed to secure the capital
necessary for development, and on December 21, 2007, we entered into definitive
agreements regarding the private placement of senior secured convertible
debentures and common stock purchase warrants to a single investor for an
aggregate purchase price of $13,500,000. The net proceeds are to be used
primarily for development of the Summit project. The debentures and warrants are
to be issued in accordance with a pre-determined funding schedule corresponding
to the projects anticipated construction requirements during 2008. Construction
of the Banner mill was initiated in February 2008, with an anticipated
construction period of a minimum of 12 months.

The
Summit mining and processing operation, currently under development, is planned
to involve underground mining of mineralized material from the Summit property
at a rate of 400 tons per day (120,000 tons per year) and trucking of the mined
material 57 miles to the Banner mill site where metallurgical processing will
take place. At the Banner site, processing will be accomplished through

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conventional crushing, grinding and selective flotation to
yield a bulk sulfide concentrate containing the recoverable precious metals.
This concentrate is planned to be marketed to a smelter or to a third-party
precious metals processing plant.

***Location
and Access***

The
Summit silver-gold property is located in a rugged and isolated setting in Grant
County, southwestern New Mexico, near the Arizona state line. The property lies
within the Steeple Rock Mining District, which has recorded notable historic
production of gold, silver, base metals and fluorspar from several mines,
currently inoperative, including Carlisle, East Camp and Norman King.

The
property is accessible by paved and gravel road approximately 15 miles northeast
from Arizona State Highway 75 N and the town of Duncan, Arizona. Electric power
is not available on or near the property and would need to be generated on-site
in connection with any mining operation. Water for limited usage is available on
and near the property.

The
terrain of the property is rugged, with steep canyons and ridges. Elevations
range from 4,500 feet to 6,200 feet above sea level. The Summit siliceous
mineralized structure forms a prominent northwesterly trending ridge.

The
Banner mill site lies 57 miles to the south of the Summit property near the town
of Lordsburg, Hidalgo County, New Mexico. Lordsburg is connected to Duncan,
Arizona via US Highway 70. The Banner mill site is accessible from Lordsburg by
a 4-mile paved road. Utilities on site include water and electric power. The
Lordsburg area is well supported by transportation services including trucking
and rail services, and by a wide range of fabrication, construction and other
support services. We anticipate that the labor force required for any plant
operation could be sourced locally.

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Figure X.1 Claim Boundary Map



10

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***Mineral
Title***

Our
holdings at the Summit silver-gold property in Grant County, New Mexico consist
of 10 patented federal mining claims totaling approximately 117 acres and 62
unpatented federal mining claims totaling approximately 740 acres. Our holdings
at and adjacent to the Banner mill site in Hidalgo County, New Mexico consist of
86 wholly-owned patented federal mining claims, 5 wholly-owned unpatented mining
claims, 17 leased patented mining claims and 6 leased unpatented mining claims,
aggregating approximately 1,500 acres. All wholly-owned claims are held in the
name of Lordsburg Mining. The unpatented mining claims are located on public
land and held pursuant to the General Mining Law of 1872. We fully own the
mining rights and believe the claims are in good standing in accordance with the
mining laws of the United States.

In
order to maintain our claims in good standing, for our patented mining claims we
must pay annual property taxes to Grant and Hidalgo Counties, and for our
unpatented mining claims we must pay annual assessment fees to the Bureau of
Land Management and record the payment of rental fees with Grant and Hidalgo
Counties. We are current on property taxes related to our patented claims.
Annual assessment and recording costs for our unpatented claims total
approximately $9,500. We have paid the required fees for the 2008 and 2009
assessment years (September 1, 2007 through August 31, 2009).

The
Summit property is subject to underlying net smelter return royalties capped at
$4,000,000 and to a net-proceeds interest on sales of unbeneficiated mineralized
rock with an end price of $2,400,000. The Summit acquisition is subject to a
property identification agreement between us and our President and Chief
Executive Officer. See CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

***History**
of Mining and Exploration*

The
Summit silver-gold property lies within the Steeple Rock district, which is one
of the historic mining areas in the southwest United States. The former mines
produced gold, silver and base metals from underground mining of epithermal vein
systems. Prospecting activity dates back to before 1860. The first recorded
production was from the Carlisle property, which operated from 1880-1897. A
number of other mines including the Norman King and Billali also opened up
during the 1880s but ceased operation by the turn of the century. Following
this early production, the district was largely dormant until the 1930s-mid
1940s when several mines operated. Subsequently sporadic small-scale operations
continued until the 1990s on various deposits including the Summit, Center,
Mount Royal and Carlisle deposits.

The
US Bureau of Mines estimated that between 1880 and 1986 the Steeple Rock
district produced at least 148,000 ounces of gold, 3.3 million ounces of silver,
1.2 million pounds of copper, and 5 million pounds of lead and 4 million pounds
of zinc. In addition, there was unrecorded precious and base metal production as
part of silica flux shipments. Some 6,500 tons of fluorspar also were produced.

In
the late 1970s, Summit Minerals Inc. is reported to have shipped about 30,000
tons of mineralized material from the Summit property to ASARCOs El Paso
smelter as direct shipping silica flux grading 0.102 ounces per ton gold and
4.95 ounces per ton silver.

Exploration
work estimated to have cost in excess of $8 million was carried out on the
Summit silver-gold property from 1984-1992. This work included drilling totaling
104,700 feet on the Summit and adjacent structures, of which 78,000 feet was
directed to the Summit structure. In 1984-85, Inspiration Mines Inc. reportedly
spent about $1.5 million conducting underground development, shallow core
drilling and sampling and mapping. In 1988-89, Novagold Resources Inc.
reportedly expended approximately $2 million in surface and airborne geophysical
surveys, underground mapping and sampling, and core drilling. Novagolds
drilling identified a significant block of mineralized material in the Summit
vein. From 1989-1992, Biron Bay Resources Ltd., in joint venture with Novagold,
conducted extensive exploration, drilled 88 core holes, and reportedly spent
over $5 million extending and improving the level of confidence in the
mineralized material at the Summit and in defining exploration potential in
adjacent and outlying vein structures.

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***Geology
and Mineralization***

The
Steeple Rock district contains numerous structurally controlled epithermal vein
systems. The veins are controlled by conjugate fault systems that cut a thick
pile of Tertiary volcanic rocks of intermediate composition. The deposits are
localized along structurally controlled, hydrothermally altered zones cutting
the volcanic host rocks. The dominant structures trend northwesterly and dip
steeply. Secondary veins trend easterly and north-northwesterly. The veins can
be traced for distances of up to several miles along strike and have widths that
range up to 100 feet or more.

The
epithermal veins have formed as open-space filling by a mixture of quartz,
carbonate minerals and wallrock fragments and show evidence of multiple episodes
of brecciation and re-cementation. Gold occurs as fine free grains or as
electrum. Silver is found as argentite or in sulfosalts. Base metal sulfides
including chalcopyrite, sphalerite and galena are common in certain deposits but
rare in others. Gangue minerals usually consist of quartz, pyrite, calcite,
barite and fluorite. Alteration of the volcanic country rocks adjacent to the
veins commonly consists of sericitization, argillization and silicification.

The
principal vein structure on the Summit silver-gold property is the Summit
structure, which can be traced for 3,000 feet from southeast to northwest. The
Billali structure forms a farther 2,000 foot continuation of the Summit
structure in a northwesterly direction across an east-west fault. The Summit and
Billali structures dip steeply to the northeast. These structures form segments
of the East Camp Fault, which constitutes the main ore control in this part of
the Steeple Rock district. The core drilling carried out from 1984-1992 tested
both the Summit and Billali vein structures. Of the two, results from the Summit
structure were the more promising with respect to vein continuity and economic
potential.

The
Summit mineralized vein occurs within a wide, structurally controlled zone of
hydrothermally altered volcanic rocks. Silver and gold mineralization is
epithermal in style and consists of silver sulfides and electrum or native gold
along with lesser pyrite, sphalerite and chalcopyrite. Precious metals contents,
which are relatively low at the surface, increase significantly with depth for
several hundred feet, apparently a reflection of vertical mineral zoning within
the deposit. Below 1,000-1,500 feet, the precious metals contents appear to
decrease although little deeper drilling was carried out. The main block of
mineralized material, which occurs along the footwall of the structure, has been
shown by extensive drilling to trend northwesterly about 1,500 feet in strike
length and to extend 1,000 feet down dip. The true width of mineralization
across the footwall mineralized zone ranges from 6 feet to over 50 feet and
averages 10-15 feet.

***Ore
Reserve***

In
July 2008, Chapman, Wood and Griswold, Inc. (CWG), an independent geological
engineering firm, reviewed the reserve/resource classification of Summit
mineralization and concluded that a portion of the mineralized material can be
elevated to the category of Probable Reserve under the SECs Industry Guide 7.
At a cutoff grade of 0.175 ounces of gold-equivalent per ton, CWG estimated the
in-place, diluted Probable Reserve, for the main footwall zone, to be 531,509
tons grading 0.129 ounces of gold per ton and 8.62 ounces of silver per ton.

***Metallurgical
Testing***

Conventional
processing including crushing, grinding and milling of Summit mineralized
material to produce a bulk sulfide flotation concentrate containing the
recoverable precious metals has been evaluated and tested at bench scale. Based
upon preliminary bench scale flotation tests, we believe that a precious metals
recovery of approximately 80-86% with a concentration ratio of 70 to 1 is
reasonably achievable. We believe that the concentrate could be treated to
produce a dore product or alternatively, it could be marketed to a smelter or to
a third-party precious metals processing operation for final extraction of gold
and silver.

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***Mineral
Processing Equipment***

With
the purchase of Lordsburg Mining in May 2006, we acquired an inactive 400
ton-per-day flotation plant, including ball mill and ancillary equipment.
Subsequently, in June 2008, we purchased crushing, screening and conveying
equipment. In order to utilize the flotation plant for mineral processing, we
have transported it from its previous location near Winston, Sierra County, New
Mexicio, and are in the process of refurbishing it as necessary and erecting it
at the Banner mill site in Hidalgo County. In addition to the processing
equipment already acquired, we plan to acquire and install other necessary
equipment.

***Permits***

We
hold existing operating permits for the Summit property and the Banner mill
site. The New Mexico Mining and Minerals Division issued these permits to
Lordsburg Mining pursuant to the New Mexico Mining Act. When modified and
revised as necessary, these and other permits for which we have applied or will
apply could facilitate the commencement of mining at the Summit property and
resumption of mineral processing operations at the Banner mill site.

Permit
No. GR001ME at the Summit mine allows operation of a minimal impact mine. As
surface disturbance expands, it will be necessary to modify the permit and to
post financial assurance for reclamation. Pursuant to the current permit, we are
authorized to begin underground mining operations at any time, assuming an
on-site processing plant is not required.

Permit
No. H1001RE at the Banner mill site is for an existing mining operation and
authorizes us to conduct mining and reclamation operations according to the
conditions stipulated in the permit. All proposed mining disturbances are
required to be addressed under a closeout plan and to be secured by financial
assurance. We have applied for modification and revision of the permit to allow
resumption of flotation milling, construction of a tailings impoundment and
discharge of tailings. We also have applied or will apply for other necessary
permits, including air quality permits for the Banner mill and Summit mine. We
anticipate approval for these permits will require a minimum of several months
to obtain, however there can be no assurance that approval will be obtained in a
timely manner, if at all.

***Preliminary
Feasibility Study***

In
April 2007, we received results of an engineering study carried out by the
independent geological engineering firm of Chapman, Wood and Griswold, Inc., of
Albuquerque, New Mexico. CWG concluded that the Summit deposit would form the
basis of an economically viable underground mining operation.

CWG
  used an estimation of minable mineralized material for their study of 758,000
  tons grading 10.28 ounces of silver per ton and 0.143 ounces of gold per ton
  in the main footwall zone. This estimation was adopted from a previous estimation
  carried out by St. Cloud Mining Co., and represents in-place, diluted, minable
  mineralization with a minimum six-foot horizontal width, based on results of
  assays from core holes and samples of underground workings. All high assay values
  were cut to 45.0 ounces of silver and 0.45 ounces of gold per ton. The CWG report
  was prepared in accordance with different standards than those prescribed by
  rules of the SEC. The SEC only permits the disclosure of proven or probable
  reserves.

The
Summit mining and processing operation would involve underground mining of
mineralized material from the Summit property at a rate of 400 tons per day
(120,000 tons per year) and trucking of the mined material 57 miles to the
Banner mill site where metallurgical processing would take place. At the Banner
site processing would be accomplished through conventional crushing, grinding
and selective flotation to yield a high-grade bulk sulfide concentrate
containing the recoverable precious metals. The concentrate would be marketed to
one of the areas copper smelters or to a third-party precious metals processing
plant.

CWG
prepared a mine design that employs rubber-tired equipment to gain access to the
minable mineralization through two declines, one on each end of the deposit,
which would be driven from existing

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headings to and along the mineralized structure to a connecting
point in the central part of the deposit. Further development of the deposit
would continue by extending a decline to the lower limits of mineralization.
Sufficient longhole drilling and trial extraction methods would be done to
further plan the operation.

At
gold and silver prices of $500 and $10 respectively, CWG estimated Summit
revenues over an initial seven-year mine life would total approximately $96
million, and pre-tax net income would total approximately $34 million. At higher
gold and silver prices of $650 and $13 per ounce respectively, CWG estimated
revenues would increase to approximately $130 million, pre-tax net income would
exceed $70 million, and payback of capital would be achieved in 18 months after
the commencement of production. The Company has in excess of $40 million in tax
loss carry-forwards to shelter federal income tax otherwise payable. Direct
operating costs, assuming that mine development and ore production would employ
contract mining, were estimated as $76.65 per ton of ore milled. The total
capital cost to bring the mine into production was estimated as $13.5 million,
inclusive of mine development, mill construction, bonding requirements, and
project management and working capital. CWG estimated the project could be
developed and brought into production in a twelve-month time frame.

***Potential
Expansion of Proposed Initial Operation***

Establishment
  of the proposed mining operation at Summit potentially would allow the Company
  to further expand the current base of mineralized material at the Summit deposit
  and to develop other properties in the Steeple Rock mining district. The Banner
  flotation mill at Lordsburg also might generate mining and processing opportunities
  from our ground holdings adjacent to the Banner mill site in the Virginia Mining
  district and/or from surrounding mining districts, several of which historically
  have yielded substantial production of base and precious metals.

***Development
Activities***

We
believe that the Summit project holds promising potential for production and in
December 2007 entered into definitive agreements securing the $13.5 million in
capital necessary for project development. We began construction activities in
February 2008 and expect a minimum of 12 months will be required for
construction and execution of the major elements of the mining and processing
plan described above. Work related to the proposed Lordsburg milling operation
includes additional metallurgical testing to characterize Summit mineralized
material; optimization of a metallurgical treatment process; completion of
permitting of the planned milling operation; and relocation of our flotation
plant to Lordsburg and acquisition and installation of all necessary processing
equipment. We also will need to finalize major contracts, including trucking of
ore from the Summit mine to the Banner mill site, and sales of concentrates.

Ortiz Gold Project

***Overview***

In
August 2004, we acquired exclusive rights for exploration, development and
mining of gold and other minerals on 57,267 acres (approximately 90 square
miles) of the Ortiz Mine Grant in Santa Fe County, New Mexico. In November 2007,
we relinquished 14,970 acres and retained under lease 42,297 acres (66 square
miles). In December 2005, we received the results of an independent scoping
study of the Carache and Lucas gold deposits. The study assessed various
processing options for development and provided estimations of capital and
operating costs for each option. It also included an economic analysis complete
with sensitivities on gold price, capital and operating costs. The report
concluded that the financial results indicate a favorable gold project employing
high pressure grinding rolls with gravity recovery and contract mining. The
financial model showed production would total 925,036 ounces of gold over 10
years at an average estimated operating cost of $230 per ounce of gold
recovered. The capital cost, assuming contract mining, was estimated as $38.2
million. The report also stated that considerable upside exists in estimations
of mineralized material in both contained ounces and grade.

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Based
on these results, we are proceeding to further examine mining and processing
options and plan to continue this work over the next 12 months. We also intend
to conduct an assessment of permitting and environmental issues. We have
budgeted $500,000 for the planned work. Although a preliminary scoping study
carried out on the Ortiz gold property yielded promising results with respect to
potential economic viability, substantial additional feasibility work and
expenditures are required before development could begin. We currently have not
established proven or probable reserves on the Ortiz gold property.

***Location
and Access***

The
Ortiz Mine Grant, over which we hold a lease on the mineral estate underlying
42,297 acres (66 square miles) of segregated surface estate, is located 30 miles
by road northeast of Albuquerque, in Townships 12, 13 and 14 North, Ranges 7 and
8 East, N.M.P.M., Santa Fe County, New Mexico. The villages of Golden, Madrid
and Cerrillos, with a combined population of less than 1,000 people, lie in and
adjacent to the Grant. Paved New Mexico Highway 14 traverses the western portion
of the Grant. The main line of the Santa Fe Railway crosses the northeastern
corner of the Grant. A network of unimproved ranch roads provides access to the
various land holdings. High-voltage electric power lines cross the southern part
of the Grant.

Terrain
in the Grant is hilly to mountainous, with elevations ranging from 6,000 feet in
the valleys to nearly 9,000 feet in the Ortiz Mountains. Annual participation
averages 12 inches. Vegetation is sparse but varied as is typical of the high
deserts of the Southwest.

The
Grant is largely undeveloped and population is sparse. The land is utilized
mainly for cattle grazing. Other activities include limited subdivision
development in the northern part of the Grant, and mine reclamation work at the
former Gold Field Ortiz (Cunningham Hill) mine site.

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Figure X.2 Claim Boundary Map



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***Mineral
Title***

On
August 1, 2004, we entered into an option and lease agreement with Ortiz Mines,
Inc., a Missouri corporation, whereby we acquired exclusive rights for
exploration, development and mining of gold, silver, copper and other minerals
on 57,267 acres (approximately 90 square miles) of the Ortiz Mine Grant in Santa
Fe County, New Mexico. In November 2007, we relinquished 14,970 acres and
retained under lease 42,297 acres (66 square miles). We paid an initial sum of
$20,000 for a six-month option, and on February 1, 2005, paid the additional sum
of $30,000 in order to exercise the option and enter into the lease and also to
satisfy the obligation of the first years lease payment. On February 1, 2006,
we paid $71,184 for the second years lease payment (through January 31, 2007).
On February 1, 2007, we paid $100,218 for the third year's lease payment through
January 31, 2008. On February 1, 2008, we paid $126,891 for the fourth years
lease payment through January 31, 2009. The lease provides for an initial term
of seven years (12 years in certain circumstances), continuing year-to-year
thereafter for so long as we are producing gold or other leased minerals in
commercial quantities and otherwise are performing our obligations under the
lease. Among other terms, the lease provides for annual lease payments that
escalate per acre of ground we retain under lease; a sliding-scale production
royalty varying from 3% to 5% depending on the price of gold; the requirement
that we comply with governmental permitting and other regulations; and other
terms common in mining leases of this type. The Ortiz gold project is subject to
a property identification agreement between us and our President and Chief
Executive Officer. See CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

***History
of Mining and Exploration***

Prospecting and mining of gold and silver in the Ortiz area dates to the
arrival of the first European (Spanish) settlers in 1598. Significant gold
production from Ortiz placers dates to 1821. By 1832 several veins and low-grade
gold deposits had been discovered. In 1833 the Ortiz Land Grant, an area about
10.7 miles square centered on the Ortiz gold vein, was registered and possession
given by the First Alcade of the City of Santa Fe. By the early 1840s, mining
at the small underground Ortiz Mine had ceased. In the late 1800s and early
1900s, sporadic attempts at commercial mining of lode and placer gold deposits
were unsuccessful due to lack of water and/or low grades. Total pre-1980 mine
production has been estimated as about 100,000 ounces of gold.

The
entire Grant was validated by the United States in 1860 under the terms of the
Treaty of Guadalupe Hidalgo. The owners received fee simple title to the surface
and minerals and the area became known as the Ortiz Mine Grant. Subsequently the
Grant changed hands and the surface was sold subject to reservation of the
mineral estate. In 1959 the mineral-interest owners and associates formed Ortiz
Mines, Inc. for the purpose of promoting and marketing the mineral estate.

In
1973, Consolidated Gold Fields leased the eastern portion of the Grant from
Ortiz Mines, Inc. and developed and mined the Cunningham Hill deposit (Ortiz
Mine). In the period 1980-1986, Gold Fields produced approximately 250,000
ounces of gold from an open-pit, heap-leach operation.

From
1972 through the early 1990s, several companies operating under lease with
Ortiz Mines, Inc. carried out exploration and pre-development activities in the
western portion of the Grant. These companies included Conoco, Inc., LAC
Minerals (USA), Inc. and the LAC-Pegasus Joint Venture. Expenditures by these
groups are estimated to have exceeded $40 million. Drilling resulted in the
identification of several deposits estimated to contain in the aggregate
approximately 2 million ounces of gold.

The
LAC-Pegasus Joint Venture carried out the majority of the work in the western
portion of the Grant, from 1989-1992. The Joint Venture focused on two deposits
in the southwestern part of the Grant, namely the Carache Canyon (Carache) and
Lucas Canyon (Lucas) deposits. These two deposits were the subject of 386,000
feet of core and reverse-circulation drilling, metallurgical testing and
pre-feasibility studies carried out by the LAC-Pegasus Joint Venture and by
consulting firms and contractors engaged by the Joint Venture.

Independent
Mining Consultants, Inc. (IMC), an independent geological engineering firm,
was engaged by the LAC-Pegasus Joint Venture to audit estimations of the
quantities and grades of in-place

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mineralized material at the Carache and Lucas deposits and to
prepare conceptual open pit mine plans based on a gold price of $385 per ounce.
In 1992, IMC estimated the Carache gold deposit, within the boundaries of a
conceptual open pit, to contain mineralized material of 11.8 million tons
grading 0.060 ounces of gold per ton, for 706,700 ounces of contained gold. IMC
estimated the Lucas gold-copper deposit, within the boundaries of a conceptual
open pit, to contain mineralized material of 7.6 million tons grading 0.043
ounces of gold per ton and 0.22% copper, for 325,600 ounces of contained gold
and 33,440,000 pounds of contained copper.

A
1990 pre-feasibility study produced by the LAC-Pegasus Joint Venture concluded
that at gold prices of $325 per ounce or higher, economics would be positive for
open-pit, heap-leach mining of the approximately 1.0 million ounces of gold
contained in the Carache and Lucas conceptual pits. The study also concluded
that the project had upside potential to increase both the quantity and grade of
contained gold mineralization. However, the study listed several areas that must
be addressed before a production decision could be made, chief among them
permitting to be carried out, water rights to be obtained and bulk sampling to
be completed.

In
1989, the LAC-Pegasus Joint Venture started a decline adit into the Carache
deposit for the purpose of bulk sampling and to provide drilling access for
shallow and deep exploration targets. However, after advancing 1719 feet the
decline was halted due to a temporary water inflow coupled with regulatory
issues. In the face of a declining gold price, mining development of the Carache
or Lucas deposits did not proceed, and the project ultimately was cancelled and
the lease returned to Ortiz Mines, Inc. Subsequently, no additional exploration
was carried out and the property remained dormant until we leased it in August
2004.

***Geology
and Mineralization***

The
90 square-mile Ortiz Mine Grant is underlain by mid-Tertiary monzonite and
latite porphyry stocks, plugs, dikes and sills that have intruded Paleozoic to
early-Tertiary sedimentary rocks. The intrusive rocks are part of the Ortiz
Porphyry Belt, which comprises from north to south, the Cerrillos Hills, the
Ortiz Mountains, the San Pedro Mountains, and South Mountain. Structurally, the
Grant straddles the Tijeras-Canoncito fault system, a northeast trending zone of
fault-bounded horsts and grabens. This fault zone is a segment of a deep-seated
crustal break that has been active intermittently since Precambrian time and has
provided a zone of weakness for the emplacement of granitic magmas and
associated mineralization. Late-stage volcanism resulted in the formation of
breccia pipes and zones of intense fracturing that provided access for
hydrothermal fluids carrying gold, silver, tungsten, molybdenum and base
metals.

The Ortiz Porphyry Belt exhibits
a number of styles of mineralization that occur in a variety of geologic
settings:

- Gold-tungsten mineralization in a breccia pipe at Cunningham Hill adjacent
  to a volcanic vent, the Ortiz diatreme.
- Gold mineralization associated with a collapse breccia at Carache Canyon.
- Copper and gold disseminated in stockworks and fractures in monzonite at
  the Cunningham Gulch (gold) and Cerrillos (copper-gold) deposits (bulk tonnage
  low-grade porphyry-type deposits).
- Copper  gold skarns in calcareous rocks at Lucas Canyon and San Pedro.
- Lead  zinc  silver veins at the Cash Entry and other old mines north of
  Cerrillos.
- Lead  zinc  silver pipe-like mantos in limestone at the Carnahan mine,
  San Pedro area.
- Molybdenite in stockworks and fractures in the San Lazarus monzonite
  stock, San Pedro area.
- Placer gold deposits on Cunningham Mesa, on the northern pediment of the
  San Pedro Mountains, and in most of the arroyos draining the Ortiz and San
  Pedro Mountains.

At
the Carache gold deposit, relatively coarse-grained free gold is contained in
open space fractures developed in four gently dipping andesite porphyry sills
and a sandstone unit around the

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collapsed margins of a breccia pipe. At the Lucas gold-copper deposit, mineralization occurs in garnet skarn developed in a limestone unit, the outcropping portion of which forms a dip slope at the surface.

We believe that the Ortiz Mine Grant holds significant potential for additional discoveries, and several partially tested prospects have been identified, three of which have been shown by drilling to contain
respectively 60,000, 60,000 and 105,000 ounces of gold. About half the Ortiz Mine Grant is covered by Quaternary gravels derived from the outwash of adjacent mountains. Exploration targets may also exist beneath the gravel cover.

Scoping Study of the Carache and Lucas Gold Deposits

In October 2005, we commissioned Mineral Advisory Group, LLC (MAG) of Tucson, Arizona, an independent geological engineering firm, to carry out an engineering review and scoping study of the Carache and
Lucas gold deposits, utilizing as a technical base the information generated by the LAC-Pegasus Joint Venture in 1989-1991. MAGs study, which was completed in December 2005, assessed various processing options for development and provided
estimations of capital and operating costs for each option. It also included an economic analysis complete with sensitivities on gold price, capital and operating costs. The MAG report was prepared in accordance with different standards than those
prescribed by rules of the SEC. The SEC only permits the disclosure of proven or probable reserves, which in turn, require the preparation of a feasibility study demonstrating the economic feasibility of mining and processing the mineralized
material. We have not received a feasibility study with regard to our Ortiz property. We currently have not established proven or probable reserves on the Ortiz property.

The processing options MAG analyzed included heap leaching, ball milling/gravity concentration, and high pressure grinding rolls/gravity concentration (HPGR option). The optimum processing route was
identified as the HPGR option. The HPGR option was estimated to be able to achieve a gold recovery of 90% employing simple gravity concentration while minimizing capital and operating costs. As compared to heap leaching (the processing route
previously advanced by the LAC-Pegasus Joint Venture), the HPGR option also potentially would have advantages with respect to environmental disturbance and permitting in that the area of surface disturbance would be smaller, chemicals would not be
required in processing and there would be less water usage.

Based on pre-1990 drilling estimations by the LAC-Pegasus Joint Venture, mineralized material from the two deposits totals 29.1 million tons averaging 0.035 ounces of gold per ton at a cut-off grade of 0.01 ounces per
ton, containing 1,027,818 ounces of gold, within the boundaries of two conceptual pits previously designed by the LAC-Pegasus Joint Venture using a gold price of $385 per ounce. MAGs scoping study assumed this material would be mined at
the rate of 3 million tons per year. The average stripping ratio (waste-to-mineralized material) was calculated as 2.6: 1.

MAGs financial model estimated production would total 925,036 ounces of gold over 10 years at an average estimated operating cost of $230 per ounce of gold recovered. The capital cost, assuming contract
mining, was estimated as $38.2 million.

At a gold price of $450 per ounce, MAGs financial model estimated net operating pre-tax cash flow (after deductions for refining charges, royalty payments and depreciation) would total $139.5 million over
the assumed mines ten-year life, and estimated the IRR would be 33.8% . At a gold price of $500 per ounce, net operating pre-tax cash flow was estimated to increase to $180.9 million. At a gold price of $625 per ounce, net
operating pre-tax cash flow would increase to $284 million. Sensitivity analyses showed that a variation in gold price is the dominant factor affecting the financial indicators, IRR and NPV.

MAGs report concluded, The financial conclusions drawn from this study indicate a very favorable project employing High Pressure Grinding Rolls with gravity recovery and contract mining. The report
also stated that upside exists in estimations of mineralized material in both contained ounces of gold and grade, as had been concluded previously by the LAC-Pegasus Joint Venture.

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***Permitting***

Mining
and processing operations at the Ortiz gold property would require permits from
the state and federal governments and also would be subject to county
regulations. We have not applied for or obtained such permits. We may be unable
to obtain such permits in a timely manner, on reasonable terms, or at all. If we
cannot obtain or maintain the necessary permits, or if there is a delay in
receiving such permits, any timetable and business plan for development and
mining of the Ortiz gold property could be adversely affected.

***Work
Program***

As
the next step in our evaluation of the mining potential of the Carache and Lucas
deposits, we plan to conduct additional studies in an attempt to further enhance
the projects economics. The work is anticipated to include redesign of the
conceptual open pits employing higher (current) gold prices, and determination
of the effect of using a higher cut-off grade in the mine plan. Improvements to
be assessed, if any, would be in a greater total number of ounces of gold
contained, in an increase of the average grade processed, and in a decrease in
the operating cost per ounce of gold produced.

Over
the next 12 months, we plan to continue assessment of mining and processing
options for the Carache and Lucas deposits with the objective of formulating an
optimized development and operating plan. We also intend to begin an assessment
of permitting and environmental issues, which will be important for successful
mining development. We expect this work to form a sound position upon which to
formulate plans and budgets for advancement of the Carache and Lucas gold
deposits.

We
also plan to continue evaluation of the large 66 square mile area under lease
for its exploration potential for new discoveries of gold and copper deposits.
In this regard, we will continue to utilize the large quantity of existing
geological, geochemical, geophysical and drilling data.

We have budgeted
  $500,000 for the work to be carried out over the next 12 months.

Black Canyon Mica Project

***Overview***

In
1999 we acquired the Black Canyon mica project from Arizona Mica Properties,
Inc., a private Arizona corporation. In 2001 and 2002, we constructed a crushing
and concentrating plant at the Black Canyon mine site north of Phoenix, Arizona,
and a mica grinding and processing facility in Glendale, Arizona. The mine
operated with limited throughput for several months in 2002. In November 2002,
due to under-capitalization and economic constraints, we suspended crushing and
concentrating activities at the Black Canyon mica mine. After the suspension of
operations, limited production, marketing and sales continued through 2005 at
the Glendale mica processing facility using inventoried mica. In November 2006,
we sold all of our ownership interests in our Glendale, Arizona location. The
sale included approximately five acres of land, a 5,000 sq. ft. office building
and an 18,000 sq. ft. mill building. Under the terms of the sale, we retained
ownership of the mica processing equipment installed in the mill building. In
January 2007, we removed the mica processing equipment from the Glendale plant
and placed it into storage. In the first half of 2008, we disassembled the
crushing and concentrating plant at the Black Canyon mine and placed the major
items of equipment into storage. We intend to seek a joint venture partner to
contribute the approximately $8.0 million required to fund the re-establishment
of the mining operation, relocation of the mica processing equipment and
re-opening and enhancement of the Black Canyon mica project, or alternatively,
intend to divest of the project.

20

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***Location
and Access***

The
Black Canyon mine is located 30 miles north of Phoenix, Arizona, and 3.5 miles
west-southwest of Black Canyon City. It can be reached via U.S. Interstate 17,
which connects Phoenix with Flagstaff, and by a connecting dirt road for the
last eight miles. The Glendale processing plant was located in an industrial
area on the west side of Phoenix, Arizona, 47 miles to the south of the mine
site.

21

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Figure X.3 Claim Boundary Map



22

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***Mineral
Title***

Our
property holdings at and around the Black Canyon mine consist of 67 federal
unpatented mining claims in Yavapai County, Arizona and 9 federal unpatented
mill site claims in Maricopa County, Arizona, which in total cover approximately
1,385 acres. The claims are located on public land and held pursuant to the
General Mining Law of 1872. We fully own the mining rights and believe the
claims are in good standing in accordance with the mining laws of the United
States.

Additional
details of our claims are as follows: In Yavapai County, the claims are Spencer
Nos. 1-43, 77, 79, 122-127, 146-153, 155, 157, 184, and 186-190, located in
Sections 12, 13, 14, 23 and 24, Township 8N Range 1E and Sections 6, 7 and 8,
T8N R2E, and recorded by the Bureau of Land Management on 2/25/1999 and by
Yavapai County on 2/26/1999. In Maricopa County, the claims are Mica Mill Site
Nos. 12, 14, 16, and 19-24, located in Sections 27 and 28, T8N R2E, and recorded
by the Bureau of Land Management on 9/17/1999 and by Maricopa County on
9/20/1999.

In
order to maintain our claims in good standing, we must pay annual assessment
fees to the Bureau of Land Management and record the payment of rental fees with
Yavapai and Maricopa Counties. Annual assessment and recording costs total
approximately $10,000. We have paid the required fees for the 2008 and 2009
assessment years (September 1, 2007 through August 31, 2009).

***Mining
and Processing Facilities***

The
Black Canyon project formerly consisted of two integrated operating facilities.
The mine site west-southwest of Black Canyon City contains the ore reserves. The
crusher, the concentrator and the feldspathic sand plant were located at the
mine site. These facilities depended on diesel generators for power. Our plans
called for mining to be carried out by conventional open pit methods. The ore
would be trucked from the pit and delivered to a nearby stockpile located
adjacent to the crusher and concentrator. Mica flakes would be separated from
the pegmatite host rock in a process that involves multi-stage crushing and
screening to -3/16 size. Mica would be concentrated from the crushed material
utilizing air classifiers. The resulting concentrate, containing 95% mica, would
be trucked to the processing plant for further processing.

In
the mica concentrating process at the mine site, the majority of the crushed
host rock, which otherwise would be discarded as waste, would be converted into
feldspathic sand for sale into the local Phoenix market. Processing of the
feldspathic sand would involve screening and magnetic separation to yield sand
fractions of various sizes. The sand products would be either bagged for
shipment or trucked in bulk to customers.

During
2002-2004, we processed mica concentrate at the 5-acre Glendale plant and office
site on the west side of Phoenix. The processing was designed to achieve the
desired product sizes and meet the quality requirements of the market place. The
plant was housed in an 18,000 square foot steel framed building, where equipment
was installed for wet grinding, dewatering, drying, and air classification and
bagging. The final products were placed into 50-pound bags or into 1000-pound
supersacks ready for shipment to customers.

Operations
at the mine site were suspended in November 2002. The mica processing equipment
was removed from the Glendale plant in January 2007, and the crushing and
concentrating equipment was removed from the Black Canyon mine in June 2008. We
are seeking a joint venture partner to contribute new funding in the amount of
$8.0 million to re-establish the crushing and concentrating facilities at the
Black Canyon mine site, install the mica processing equipment at a new location
and upgrade and expand the mining and processing facilities in order to reach
planned capacity, and to provide working capital. These expansions are required
in order to achieve the higher throughput necessary for sustained economic
operation. Alternatively, we are seeking to sell the project.

***Permits***

In
1999, we obtained approval for the Black Canyon Plan of Operations from the
Bureau of Land Management and the State of Arizona. An Environmental Assessment,
Clean Water Act Permit and Air Quality Procedures were all approved. An Aquifer
Protection Permit was not required because processing

23

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operations at the mine site did not propose the use of water.
These permits are no longer in current standing and would have to be renewed or
new permits obtained in order for the project to resume production.

***Geology
and Mineralization***

The
mica deposits occur as pegmatite dikes cutting Precambrian schist and granite.
These dikes are steeply dipping tabular bodies, continuous along strike and with
depth. The main pegmatite dikes are hosted by the schist and have a
northeasterly trend parallel to the structural grain of the schist. Because the
light colored pegmatite dikes are more resistant to weathering than is the
enclosing schist, the dikes stand out at the surface as elongated light colored
ridges relatively easy to discern and to map geologically.

In
the area of the drilled ore reserves, a concentration of pegmatite occurs as a
dike swarm and as massive irregular bodies of pegmatite. An associated major
structure, the Central Pit fault, appears to have created a zone of dilation
that provided open space for intrusion of the pegmatite. Drilling has identified
seven individual dikes that range from approximately 4 feet to over 20 feet in
thickness. At the surface, massive pegmatite crops out over a width exceeding 50
feet.

The
minerals of potential economic value are all found associated with the pegmatite
dikes, and consist of muscovite mica, feldspar and silica. Muscovite mica, the
principal commodity, constitutes a major accessory mineral of the pegmatite
dikes and is ubiquitous in the pegmatite. Based on visual estimates of drill
core, the content of muscovite in the pegmatite ranges from 5% to 35%. The
muscovite is light to whitish green in color and occurs as discrete,
coarse-grained inclusions as well as fine-grained disseminations in the
pegmatite. Feldspar and silica, by-products of the proposed mining operation,
make up most of the remaining component minerals of the pegmatite on about a 1:1
ratio.

***Ore
Reserve***

In
1998 and 1999, we drilled 41 inclined core holes and collected 59 samples of
pegmatite exposed on the surface, at two central locations. The drill holes and
surface samples were spaced approximately 50 feet apart. The holes ranged from
200 to 600 feet in length, and drilling totaled 13,070 feet. The drilling
covered only a small portion of the zones of outcropping mica-bearing rocks
mapped on our mining claims.

Mintec
Inc., an independent geological engineering firm, analyzed our drilling and
sampling results, designed the mining plan and calculated ore reserves. In-place
mining reserves for the pit design were calculated as 2,399,500 tons of proven
ore grading 7.54% mica and 1,527,200 tons of probable ore grading 7.37% mica,
for total reserves of 3,926,680 tons of ore grading 7.48% mica, at a cutoff
grade of 2.47% mica. Approximately 60% of the mica contained in these reserves
is expected to be recoverable after losses due to mining and beneficiation.

***Mica***

Ourmineral reserves contain high quality muscovite or white mica. Mica is
a mineral characterized by crystals that can be easily split into thin elastic
sheets and is valued for its unique combination of chemical, physical,
electrical, thermal and mechanical properties. Muscovite exhibits perfect
cleavage, flexibility and elasticity, infusibility, low thermal and electrical
conductivity, high dielectric strength, light weight, good insulating
characteristics, and is stable when exposed to moisture, light and high
temperatures. Because of these properties, muscovite has found widespread
application in plastics, automotive coatings, cosmetics, paints, catalysis and
composite formulations. We plan, once adequate financing is obtained, to produce
10,000 tons (20 million pounds) annually of premium wet-ground mica and intend
to penetrate existing markets and to establish our own markets in plastics,
cosmetics and ultra-micronized applications.

In
fiscal year 2008, we had no sales. In 2007, sales totaled $7,201. Previously, we
sold mica, on a

24

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limited basis, to customers in the plastics and cosmetics
industries and for other specialized applications. In addition, other potential
consumer conducted trial tests of our mica products. Our inventory was largely
depleted in fiscal 2006.

***Feldspathic
Sand***

Our
feldspathic sand was produced as a by-product of mica concentration and was
screened and sized for sale into the Phoenix construction and recreational
markets. Products included golf course bunker sand and sand used in stucco,
mortar and other specialized construction applications. We plan, once joint
venture financing is obtained, to produce 180,000 tons of feldspathic sand
products annually.

Sand
producers in California and Nevada supply sand to the Phoenix manufactured sand
market. Because the material has to be trucked long distances in order to reach
Phoenix, trucking costs are significant and constitute a substantial proportion
of the final selling price. We believe that the location of our Black Canyon
mine only 30 miles from Phoenix may provide us with a transportation cost
advantage over competitors who import sand into Arizona.

We
have sold no feldspathic sand since 2003, when we sold our inventory to
customers in the Phoenix area.

***Work
Program***

Over
the next 12 months, we plan to seek a joint venture partner to contribute $8.0
million in new funding necessary to advance the Black Canyon mica project to
full production. The new funding would be used to re-establish crushing and
concentrating facilities at the Black Canyon mine, install the mica processing
equipment at a new location and upgrade and expand the mining and processing
facilities in order to reach planned capacity and to provide working capital.
These expansions are required in order to achieve the higher throughput
necessary for sustained economic operation. If funding were to become available,
we estimate positive cash flow could be achieved in approximately twelve months.
As an alternative to arranging the $8.0 million of new funding required for
production, we are seeking to divest of the project.

Planet Micaceous Iron Oxide (MIO) Project

***Overview***

The
Planet property consists of thirty-one patented mining claims totaling 523 acres
located in western Arizona. In September 2002, we leased the Planet property for
its potential to produce micaceous iron oxide (MIO). MIO is an uncommon
flake-like form of crystalline hematite (Fe2O3) valued for the anti-corrosive
properties it contributes to coatings formulated to protect structural
steelwork.

We
believe the results of work to date indicate the Planet property contains a MIO
deposit significant in grade and tonnage. The deposit appears to have
characteristics favorable for the production of MIO from open pit mining.
Preliminary metallurgical work suggests that with upgrading, a quality MIO
product can be produced. For these reasons, we believe the project appears to
exhibit potential for eventual production. As is characteristic of industrial
mineral operations, marketing would play a critical role in the success of any
new MIO operation and is identified as an important factor for successful
development. We plan to continue pre-feasibility assessment of the Planet
project.

***Location
and Access***

The
Planet property is located in the northwest corner of La Paz County, west
central Arizona. It lies just south of the Bill Williams River twelve miles
above its junction with the Colorado River. The property is reached by road,
either via the Swansea gravel road, twenty-eight miles north from the town of
Bouse; or via the Osborne Well paved and gravel road, twenty-five miles east
from the town of Parker.

25

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The
topography of the property is rugged, with hills 100 to 500 feet high cut by
numerous steep-sided canyons. Average elevation is 800 feet. The desert climate
is typical of western Arizona, hot and dry in summer but mild in winter.
Vegetation is sparse and confined mainly to the bottoms of the larger drainages.

The
project is well served by existing infrastructure for both construction and
operation. All-weather roads connect the Planet property to the town of Parker,
situated on the Colorado River with a population of about 4,000. Highways
connect Parker to two east-west interstate trucking routes, I-10 and I-40,
respectively 35 miles to the south and 60 miles to the north. Parker also is
served by the Arizona & California Railroad, which is part of the national
rail system.

Electric
power, water and other infrastructure are readily available at industrial sites
in Parker. Fabrication and construction services, and a wide range of commercial
and support services also are available in Parker and other nearby communities.
We believe the labor force required for any plant operation could be sourced
locally.

26

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Figure X.4 Claim Boundary Map



27

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***Mineral
Title***

The
property consists of thirty-one patented mining claims totaling 523 acres,
comprising an area 3,600 feet wide by 8,000 feet long. We leased the property in
September 2000 from the underlying owner, New Planet Copper Mining Company, for
its potential to produce MIO. The lease gave us exclusive rights for a period of
20 years to explore, develop and mine MIO, copper, gold and other minerals.
Terms of the lease included monthly payments of $1,500; an option to purchase
the property for $250,000; and a production royalty of 5%.

In
March 2007, we commenced an action in the Superior Court of the State of Arizona
against New Planet Copper Mining Company, seeking to confirm that our lease
remained in good standing. On June 5, 2008, we reached a settlement agreement
and agreed to exercise our option to purchase the property. The purchase price
of $250,000, as specified under the terms of the 2000 lease agreement, may be
paid with interest over a term of four years. There also is provision for a 5%
royalty to be paid on any future production.. See LEGAL PROCEEDINGS.

***History
of Mining and Exploration***

The
Planet deposit was worked for its copper value from 1863 until l884, and then
intermittently through the early 1900s. Several shafts were sunk and 8,000 feet
of underground workings were developed. High-grade copper ore was extracted and
shipped to Swansea, Wales, and to San Francisco. The last mining activity took
place between 1915 and 1918 when all remaining high-grade ore was mined and
shipped. In total, the property produced approximately 50,000 tons of ore
grading 10% copper.

Between
1942 and 1944, the U. S. Bureau of Mines investigated the quantity and quality
of mineralized material containing iron oxide at the Planet deposit. This work
was conducted as part of the wartime evaluation of potential domestic sources of
strategic minerals, including sources of iron ore for the steel industry. The
Bureau carried out geologic mapping and sampling, and conducted drilling
programs utilizing both churn and diamond drilling methods. The information that
resulted from this work was compiled and recorded in Report of Investigations
3982, Exploration of the New Planet Iron Deposit. We believe that the
information is reliable and of good quality. In 1945, it was used by the Bureau
to calculate the tonnage and grade of mineralized material containing iron oxide
at the Planet deposit.

***Work
Program***

Work
completed by the Company and Metallica Ventures LLC included recovery and
surveying of the U. S. Bureau of Mines drill holes from 1942-1944; aerial
photography and production of orthophotographs and topographic base maps;
compilation of a comprehensive digital database and construction of a
computerized block model incorporating all geological, geochemical and assay
data; estimations of tonnage and grades of mineralized material containing iron
oxide; design of conceptual open pits; preliminary metallurgical testing of MIO
material; studies of MIO markets; and conduct of scoping studies to assess the
projects potential for production.

We
plan to continue pre-feasibility assessment of the Planet project.

***Geology
and Mineralization***

At
the Planet deposit, MIO deposits associated with a mid-Tertiary, flat-lying,
regional detachment fault are found in the Triassic Buckskin Formation. Rocks in
the upper plate above the fault are composed of schist, limestone, hydrothermal
carbonate and quartzite. Lower-plate rocks are gneisses. The upper and lower
plates are separated by fault breccias up to 60 feet thick. The main mineralized
bodies at the Planet deposit are found in the lower part of the upper plate,
adjacent to and above the detachment fault. They occur as tabular replacements
of hydrothermal carbonate, limestone and schist. The overall trend of the
mineralized bodies is north fifty-five degrees east, and the plunge is eight to
nine degrees to the southwest. Individual bodies dip ten to twenty degrees to
the northwest.

The
mineralized bodies form discontinuous lenses, irregular bodies and veins that
individually are as much as 700 feet long, 250 feet wide, and 50 feet thick.
Mineralized material consists dominantly of

28

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specularite and massive hematite with some limonite, malachite,
azurite, chrysocolla, and minor pyrite, chalcopyrite, bornite, gold, and silver.
Associated minerals include quartz and calcite. The mineralized material is
silicified and very hard at the surface and to a depth of ten feet, but
underground it is soft and powdery.

The
U. S. Bureau of Mines and the Company each has estimated the quantities and
grades of mineralized material containing iron oxide at the Planet deposit. In
1945, the Bureau of Mines estimated the deposit contained 1.4 million tons
averaging 60 percent iron (85.8% Fe2O3). The Bureau based this estimation on
work it had carried out during 1942-1944, including drilling of twelve churn
holes aggregating 3,742 feet, and ten diamond holes totaling 569 feet; and
mapping, surveying, and sampling of surface outcrops and underground
workings.

Our
new, more detailed estimations employed computerized analytical methods and
construction of a block model. We estimated that a total of 1.4 million tons of
mineralized material grading 44.4% iron would be contained in three conceptually
designed open pits. In carrying out our study, we compiled a comprehensive
digital database incorporating relevant information from all sources. The
database relied heavily on the information available from the Bureau of Mines,
including geologic and assay data from drill holes, and results of surface and
underground channel sampling. The database contained new survey information that
tied the locations of drill holes and underground workings to accurate
topographic maps generated from aerial photographs.

The
SEC only permits the disclosure of proven or probable reserves, which in turn,
require the preparation of a feasibility study demonstrating the economic
feasibility of mining and processing the mineralized material. We have not
received a feasibility study with regard to our Planet property. We currently
have not established proven or probable reserves on the Planet property.

***Conceptual
Mining and Processing Plan***

As
presently conceived, the Planet mining and processing operation would involve
open-pit mining of MIO mineralized material, primary crushing of the material at
the mine site, and trucking of the crushed material twenty-five miles to a
processing plant to be located at an industrial site near Parker. At the plant
site, metallurgical processing would be straightforward, and based on results
from preliminarily metallurgical testing, would include grinding,
classification, selective flotation or other method of separating the MIO, and
filtration and drying to yield recovery of MIO and red iron oxide, a secondary
product. A stockpile of mineralized material sufficient for plant operation
would be maintained at the plant site. Because only small tonnages of material
would need to be mined during the early years of operation, we believe mining
and related activities would be carried out most efficiently on a periodic,
campaign basis utilizing outside contractors. The project is well situated with
respect to development infrastructure and transportation networks. MIO
mineralized material is non-toxic and we see no significant environmental issues
that would hinder development.

***Micaceous
Iron Oxide***

MIO
is an uncommon flake-like form of crystalline hematite (Fe2O3) valued for the
anti-corrosive properties it contributes to coatings formulated to protect
structural steelwork. MIO improves UV stability, adhesion, surface tolerance and
abrasion resistance, and significantly increases coating life. It also has the
advantage of being non-toxic to the environment. In Europe and Asia, MIO is the
most important barrier pigment used to protect structural steelwork from
corrosion. For many years it has been employed with outstanding success on
bridges, oilrigs, transmission towers, pipelines, storage tanks, industrial
plants and structural steelwork of all descriptions. The Eiffel Tower and Sydney
Harbor Bridge are two examples.

Based
on limited available market data, world production of MIO is estimated to be
20,000-30,000 tons (40-60 million lbs) annually, of which Europe and Asia
consume over eighty percent. Prices are quoted in the range $0.40 -$.60 per
pound for top quality material. Commercial deposits of high quality MIO are
geologically rare. One supplier from underground mines in Austria has dominated
the

29

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world market for many years; however, production from that
source has been declining. Elsewhere around the world, production comes from
only a handful of suppliers, operating on a small scale and, we believe, at high
production costs.

The
United States uses only a relatively small amount of MIO pigment as compared to
other regions of the world. We believe that lack of a domestic source of MIO has
forced U. S. paint manufacturers to depend on imports and has restricted market
expansion. The Planet project, if developed, would establish a domestic source
of MIO pigment.

**ITEM
3.**                     
**LEGAL PROCEEDINGS**

On
March 21, 2007, we commenced an action in the Superior Court of the State of
Arizona against New Planet Copper Mining Company (New Planet), from whom we
leased our Planet micaceous iron oxide property, seeking to confirm that our
lease remained in good standing. Our action against New Planet was in response
to a notice of termination of the lease, which followed our refusal to reimburse
costs of insurance premiums that New Planet alleged it incurred over two years
previously. We believed we were not obligated under the lease to reimburse such
premiums and therefore that New Planets termination of the lease was improper.
On June 5, 2008, we reached a settlement agreement with New Planet, whereby the
parties settled all outstanding issues. In connection with the settlement
agreement, we agreed to exercise our option to purchase the Planet property
pursuant to the terms of the Lease with Option to Purchase executed in September
2000. The purchase price of $250,000 will be paid with interest over a term of
four years. There also is provision for a 5% royalty to be paid on any future
production.

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

None.

PART II

|ITEM 5. | MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER
      MATTERS AND SMALL BUSINESS ISSUER PURCHASE OF EQUITY SECURITIES
|------- | -------------------------------------------------------------------------------------------------------------------

In
August 2006, we became compliant in the filing of our annual and quarterly
financial statements and our stock resumed trading on the Over-the-Counter
Bulletin Board (OTCBB). We were delinquent in the filing of our financial
statements for the year ended June 30, 2006, and on November 22, 2006, we began
trading on the Pink Sheets. On February 20, 2007, we became current in our
financial filings and on March 21, 2007, our stock resumed trading on the OTCBB.

As
of October 3, there were 75,904,760 common shares outstanding.

The
following table summarizes the high and low closing sales price per share of our
common stock as quoted on the Pink Sheets and the Over-the-Counter Bulletin
Board for the periods indicated. Quotations represent prices between dealers, do
not include retail markups, markdowns or commissions, and do not necessarily
represent prices at which actual transactions were effected.

30

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Quarter ended
      Pink Sheets
      OTCBB(U.S. $)
      (U.S. $)2006
      HIGH
      LOW
      HIGH
      LOW09/30/06
      $1.40
      $0.92
      $1.10
      $0.7812/31/06
      $1.40
      $0.99
      $1.03
      $0.692007
      HIGH
      LOW
      HIGH
      LOW3/31/07
      $1.32
      $0.95
      $1.00
      $0.926/30/07
      -
      -
      0.94
      0.449/30/07
      -
      -
      0.58
      0.2412/31/07
      -
      -
      $0.79
      $0.402008
      HIGH
      LOW
      HIGH
      LOW3/31/08
      -
      -
      $0.97
      $0.636/30/08
      -
      -
      $0.92
      $0.63


Transfer Agent

Colonial Stock Transfer Co. is the transfer agent for our common stock. The
principal office of Colonial Stock Transfer Co. is located at 66 Exchange Place,
Salt Lake City, Utah 84111 and its telephone number is (801) 355-5740.

Holders of Common Equity

As
of October 3, 2008 we had 784 holders of record of common stock.

Dividends

We
have never declared or paid dividends on our common stock. Payment of future
dividends, if any, will be at the discretion of our board of directors after
taking into account various factors, including the terms of any credit
arrangements, our financial condition, operating results, current and
anticipated cash needs and plans for expansion.

Recent Sales and Issuances of Common Stock and Securities

On
October 31, 2007, we completed the placement of 10% Convertible Senior
Subordinated Notes in the amount of $450,000. The notes were placed with three
accredited investors in the amount of $150,000 each. The notes have a term of 60
months and bear interest at 10% per annum. In connection with the transaction,
we issued a five year warrant for each $2.50 invested, each warrant giving the
note holder the right to purchase common stock at a price of $1.25 per share. An
aggregate of 180,000 warrants were issued under the notes.

On
  December 21, 2007, we entered into a definitive agreement for the placement
  with a single investor of a 7% Senior Secured Convertible Debenture in the amount
  of $13,500,000. Proceeds from the debenture will be issued in accordance with
  a pre-determined funding schedule and the term of the debenture is 60 months.
  At the option of the holder of the convertible debentures, the outstanding principal
  and accrued interest is convertible any time into Santa Fe Golds common
  stock at a conversion price of $1.00 per share, and is automatically converted
  if the reported weighted average closing sales price of the stock exceeds $2.50
  per share for 10 consecutive trading days. In connection with the transaction,
  for every $2.00 of the original principal amount of the debenture, the investor
  will receive a warrant to purchase one share of common stock at a price of $1.00.
  The warrants are exercisable from July 1, 2010, to December 31, 2014. On December
  27, 2007, we received the initial advance under the agreement of $350,000. On
  January 15, 2008, we received the second advance of $1,500,000, and on each
  of April 15, 2008, and July 15, 2008, we received advances of $3,500,000, for
  a total of $8,850,000. At October 3, 2008, we have issued an aggregate of 4,425,000
  warrants under the debentures.

31

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On
February 1, 2008, we completed the private placement of a 10% Convertible Senior
subordinated Note of $237,143 with an accredited investor and issued a note and
related warrants under terms and conditions the same as for the private
placements completed October 31, 2007. In connection with the transaction, the
Company issued a five year warrant for each $2.50 invested, for a total of
94,858 warrants, each warrant giving the note holder the right to purchase one
share of common stock at a price of $1.25 per share.

On
June 2, 2008, April 30, 2008, January 10, 2008, and January 9, 2008, we
completed the placement of Additional Investment Rights aggregating $643,614
with two institutional investors. The notes have a term of 17 months and bear
interest at 7% per annum. In connection with the transaction, we issued a five
year warrant for each $2.00 invested, each warrant giving the note holder the
right to purchase common stock at a price of $1.00 per share. An aggregate of
321,807 warrants were issued under the notes.

On
July 25, 2007, pursuant to the Companys compensation policy pertaining to
outside directors, we granted five (5) year options to purchase 100,000 shares
of common stock to an a director. The option exercise price is $0.46 per share,
the closing price on the date of grant, and the options have a vesting period of
one year from the date of grant.

On
December 13, 2007, the board of directors granted pursuant to our compensation
policy pertaining to outside directors, five year options to purchase 75,000
shares of common stock to each of two directors, and also granted 100,000 five
year options to an employee who is the son of the President and Chief Executive
Officer. The options are exercisable at $0.55 per share, the closing price on
the date of the grant, and vest on June 30, 2008.

On
March 24, 2008, we granted a five (5) year option to purchase 100,000 shares of
common stock to an employee. The option exercise price is $0.73 per share, the
closing price on the date of grant, and the options have a vesting period of six
months from the date of grant.

On
May 1, 2008, we granted a five (5) year option to purchase 100,000 shares of
common stock to an employee. The option exercise price is $0.79 per share, the
closing price on the date of grant, and the options have a vesting period of six
months from the date of grant.

On
June 25, 2008, the board of directors granted awards of 500,000 shares of
restricted stock to an officer and 200,000 shares of restricted stock to an
employee. The shares will vest on December 31, 2008, and are subject to
forfeiture contingent on attainment of certain performance objectives related to
construction of the Summit project.

On
July 22, 2008, we granted a five (5) year option to purchase 100,000 shares of
common stock to an employee. The option exercise price is $0.83 per share, the
closing price on the date of grant, and the options have a vesting period of six
months from the date of grant.

On
September 30, 2008, a director exercised an option to purchase 500,000 shares of
common stock at $0.11 per share on a cashless basis. Under the cashless basis
exercise, 431,250 shares were issued.

With
respect to the issuance of unregistered securities referenced above, all
transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933 (the 1933 Act), and Regulation D promulgated under the
1933 Act. In each instance, the purchaser had access to sufficient information
regarding the Company so as to make an informed investment decision. More
specifically, we had a reasonable basis to believe that each purchaser was an
accredited investor as defined in Regulation D of the 1933 Act and otherwise
had the requisite sophistication to make an investment in our securities.

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**ITEM
6.**                     
**MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS**

Overview

We
have received no substantial revenue from the production of gold or other metals
since our inception, and historically have relied on equity and debt financings
to finance our ongoing operations. Our operations generated a net (loss) of
$(4,256,092) for the year ended June 30, 2008, and a net income of $345,979 for
the year ended June 30, 2007. In order to fund operations in the fiscal years
ending June 30, 2008 and 2007, we relied on proceeds from the sale of equipment
aggregating $39,500 for the two years, private placement sales of convertible
notes in October 2007 and February 2008 aggregating $687,143, proceeds from the
exercise of Additional Investment Rights in January, April and June 2008
aggregating $643,614, the private placement sale in December 2007 of senior
secured convertible debentures of $13,500,000, of which an aggregate of
$5,350,000 was received in fiscal 2008, and in fiscal 2007 the private placement
sale of senior secured convertible notes aggregating $1.0 million.

The
net proceeds of the private placement of senior secured convertible notes
completed in fiscal 2007 were used, in part, to deploy our business plan for the
Summit project, and for working capital. The net proceeds of the private
placement of the senior secured convertible debentures completed in December
2007 are being used primarily to fund the development of the Summit mine and
processing facilities. The remainder of the proceeds of the 2008 and 2007
financings is being utilized as general working capital.

The
results of operations for the fiscal years ended June 30, 2008 and 2007 reflect
under-capitalization of our Black Canyon mica project, which project requires
additional funding to be able to resume production and to achieve sustained
profitable operation. We expect results of operations similar to those in 2008
and 2007 to continue in the foreseeable future, and do not expect them to change
significantly until such time as production commences at our Summit mine and/or
additional capital and/or debt facilities are secured.

We
are dependent on additional financing to continue our exploration efforts in the
future and if warranted, to develop and commence mining operations. While we
have no current plans or arrangements for this additional capital requirement,
we anticipate that we will be seeking additional equity financings in the
future.

We
anticipate a need for at least $5.5 million over the next 36 months in order to
satisfy past commitments, pay corporate overhead costs and initiate an
exploration program as discussed under the Liquidity and Capital Resources
section of this report. If we fail to procure adequate funding on acceptable
terms, we may be required to reduce or eliminate substantially all business
activities until such time as funding can be secured on a basis acceptable to
us.

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

We
have a total accumulated deficit of $(47,237,864) at June 30, 2008. To continue
as a going concern, we are dependent on continued fund raising. However, we have
no commitment from any party to provide additional capital and there is no
assurance that such funding will be available when needed, or if available, that
its terms will be favorable or acceptable to us.

Results of Operations

Fiscal Year Ended June 30, 2008, Compared to Fiscal Year
Ended June 30, 2007

Sales

Sales
decreased to $-0- in fiscal 2008 from $7,201 in fiscal 2007 due primarily to
cessation of sales of mica-filled plastic pellets in fiscal 2008. The mica sold
in 2007 was sourced from inventory. No revenue was generated from the sale of
feldspathic sand in fiscals 2008 or 2007, due to the curtailment of

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operations at our crushing and concentrating facilities at the
Black Canyon mine in November 2002. We have no inventoried mica available for
sale and have discontinued processing and sale of mica into the cosmetic and
reinforced plastic industries, while we seek financing to resume production.

If
and when financing is procured and production resumes, we expect that it will
require 12 months or more time in order for us to introduce our mica and
feldspathic sand products into the markets and to build a customer base
necessary for sustained sales and profitable operation. Although we anticipate
being able to sell dual products of mica and feldspathic sand, we have not yet
sold significant quantities of these products and have not entered into sales
contracts. There are numerous factors beyond our control that could affect
markets for both mica and feldspathic sand. The profitability of any future
operation could be adversely affected if we do not achieve the selling prices or
sales volumes targeted for our products. See also RISK FACTORS.

Expenses

Production,
exploration and mining costs decreased in fiscal 2008 to $245,621 from $345,227
in fiscal 2007. This decrease of $99,606 in fiscal 2008 is mainly attributable
to costs incurred on the Summit site, which were capitalized to
construction-in-progress beginning January 2008. Based upon the engineering
study for the Summit property, financing was arranged and we deployed our plan
for the development of the Summit mine and Banner mill near Lordsburg, New
Mexico.

General
and administrative decreased to $1,336,880 for the fiscal year 2008, from
$1,360,828 for the fiscal year 2007, a decrease of $23,948. The decrease in the
current fiscal year is mainly attributable to decreases in rent expense of
$135,980; accounting and legal fees of $84,791; financing costs of $59,156;
consulting of $108,875; and per diem costs of $50,150. These decreases were
mainly offset by increases in the current fiscal year in non-recurring
dismantling and relocation costs of the Black Canyon mica plant aggregating
$261,295; travel and related costs of $33,440; costs associated with the
corporate annual shareholder meeting of $35,234; payroll burden relating to
additional administration personnel of $60,400; and director fees of
$20,000.

General
and administrative stock compensation increased to $216,413 for the fiscal year
ended 2008, from $68,208 for the comparative fiscal year ended 2007, an increase
of $148,205. The increase is attributable to amortized costs associated with
options issued to directors and an employee that are being amortized over the
vesting period.

Other
Income and Expense

Other
income and (expenses) for the fiscal year 2008 were $(2,447,624) as compared to
$2,132,471 for fiscal 2007. The increase in other expenses incurred in the
current fiscal year of $(4,580,095) is mainly attributable to decreased income
from a gain on settlement of a financing lease of $2,870,369; a decrease in
interest income of $24,276; a decrease in relief of debt of $558,925; and a
decrease in gain on derivative instruments liability of $2,496,533. During the
current fiscal year, loss on disposal of assets increased $120,000 and interest
expense increased $193,402, consisting mainly of interest recognized on debt
conversion of the senior secured convertible debt. This decrease in income for
the current fiscal year was mainly offset by a decrease in accretion of
discounts on notes payable and financing lease liability aggregating
$1,678,041.

Gain
(loss) on Derivative Financial Instruments

We
recognized a (loss) on derivative instruments liability of $(272,418) for fiscal
year 2008, as compared to a gain of 2,224,115 for the prior fiscal comparable
year 2007. The non-cash (loss) arose from adjustments to record the derivative
financial instruments at fair values in accordance with current accounting
standards. The derivative financial instruments arose in connection with a
financing lease and senior secured convertible notes. Otherwise, we generally do
not use derivative financial instruments for other purposes, such as hedging
cash flow or fair-value risks. The increase in the derivative (loss) in fiscal
2008 is mainly attributable to changes in the market price of our common stock,
which is a

34

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component of the calculation model, and to the issuance of
additional warrants resulting in derivative treatment. We use the Black-Scholes
option pricing model to estimate the fair value of this derivative. Because
Black-Scholes uses the Companys stock price, changes in the stock price will
result in volatility in the earnings in future periods as the Company continues
to reflect the derivative financial instruments at fair values.

Gain
on Settlement of Financing Lease Liability

The
November 2006 transaction with Muzz Investments, LLC for the sale of our 60%
ownership interests in real estate and buildings at our Glendale, Arizona
location resulted in a recognized gain of $2,870,369, net of costs associated
with the transaction, in our fiscal year ended 2007.

Liquidity and Capital Resources; Plan of Operation

As
of June 30, 2008, we had cash and cash equivalents of $3,255,754 as compared to
$639,852 at June 30, 2007. As of June 30, 2008, we had a working capital deficit
of $(722,505), which is mainly attributable to the current portion of our
derivative instrument liabilities of $2,884,189.

On
December 21, 2007, we entered into a definitive agreement for the placement with
a single investor of senior secured convertible debentures in the amount of
$13,500,000. Proceeds from the debentures are being used primarily for the
development of the Summit project. The debentures are being issued in accordance
with a pre-determined funding schedule and the term of the debentures is 60
months. In fiscal 2008, we received advances aggregating $5,350,000 under the
agreement, and on July 15, 2008, received an additional $3,500,000.

In
fiscal 2008, we completed the placement of Additional Investment Rights
aggregating $643,614 with two institutional investors, and completed the sale of
convertible notes totaling $687,143 to four accredited investors.

On
March 21, 2006, we completed a private placement of senior secured convertible
notes, additional investment rights and warrants to institutional investors for
an aggregate purchase price of $2,500,000. On September 6, 2006, we amended the
senior secured convertible notes, additional investment rights and warrants and
received additional funding of $1,000,000. We incurred fees and expenses of
$100,000 associated with the amendment. The placement of the convertible notes
enabled us to complete the Lordsburg Mining Company acquisition for cash of $1.3
million.

In
recent years we have not generated any significant revenues from operations and
have incurred significant operating losses. At June 30, 2008, we have an
accumulated (deficit) of $(47,237,864). Our consolidated financial statements
have been prepared on a going concern basis, which contemplates the realization
of assets and satisfaction of liabilities in the normal course of business. Our
primary source of funds provided during our fiscal year 2008 was from the sale
of convertible notes. We anticipate that our operations through fiscal 2009 will
be funded from the balance of proceeds from these placements; sale of our
securities; and possibly through the exercise of certain options and warrants.
While we believe we will be able to finance our continuing activities, there is
no assurance of success in this regard or in our ability to obtain continued
financing through capital markets, joint ventures, or other acceptable
arrangements. If our plans are not successful, operations and liquidity may be
adversely impacted. In the event that we are unable to obtain additional
required capital, we may be forced to reduce our exploration and operating
expenditures or to cease development operations altogether.

We
have developed a plan to place the Company on an improved financial footing.
Important elements of the plan include maintaining currency in the filing of our
annual and quarterly financial reports, continuing to raise interim funding to
provide for deployment of operations on our various property sites, and
development of our Summit property and commencement of production. During the
quarter ended December 31, 2007, we secured the funding we believe is sufficient
to place our Summit property into production. If we are able to continue to
secure additional interim financing on acceptable terms, we believe we will be
in a position to deploy our business plan on mining operations.

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We
are continuing to seek funding to advance our business plan and strategies. We
require funding to meet our corporate commitments, to continue feasibility
studies on our mineral properties, to initiate exploration programs, and to
arrange a joint venture for development and restart of our Black Canyon mica
mine. We project the need for a minimum of $5.5 million working capital during
the next 36 months, estimated as follows:

Exploration programs and feasibility
      studies
    
    2,500,000Corporate overhead and related expenses
    
    3,000,000Total funding requirements
    $
    5,500,000


This
projection assumes that we will be able to service our current debt and lease
commitments whereby interest, principal and lease payments will be paid from
future project revenues or with equity financial instruments.

Critical Accounting Policies and Estimates

Our
discussion and analysis of our financial condition and results of operations is
based on the Companys financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses for each period.
Critical accounting policies are defined, as policies that management believes
are the most important to the portrayal of our financial condition and results
of operations. These policies may require us to make difficult, subjective or
complex judgments, commonly about the effects of matters that are inherently
uncertain.

Our
significant accounting policies are described in the audited consolidated
financial statements and notes thereto included in Note 2. We believe our most
critical accounting policies relate to asset retirement obligations, impairment
of assets, depreciation of plant and equipment, and derivative instrument
liabilities.

Asset
Retirement Obligations

The
Company accounts for reclamation costs under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 143, Accounting for Asset
Retirement Obligations (SFAS No. 143). SFAS No. 143 addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs.
Specifically, the Statement requires that retirement obligations be recognized
when they are incurred and displayed as liabilities with the initial measurement
being at the present value of estimated third party costs. In addition, the
asset retirement cost is capitalized as part of the assets carrying value and
subsequently allocated to expense over the assets useful lives.

The
asset retirement costs associated with the Black Canyon mine consist of
reclamation of disturbed property as well as the disposal and dismantling of
related property and equipment.

As
of June 30, 2008, the Company, pursuant to regulatory requirements, maintained
the following restricted assets associated with reclamation costs for the Black
Canyon property: $50,000 held on deposit on behalf of the Arizona State
Treasurer in a one-year automatically renewable short-term investment; and
$128,658 held on deposit on behalf of the U.S. Bureau of Land Management. Both
of the amounts will be held until all conditions of the reclamation agreement
have been fulfilled.

A
roll forward of our asset retirement obligation through June 30, 2008, is as
follows:

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Balance at June 30, 2006
    $
    70,309Accretion for the year ended June 30, 2007
    
    5,000Accretion for the year ended June 30, 2008
    
    5,000Balance, June 30, 2008
    $
    80,309


******     ******Revenue Recognition

We
recognize the sale of product when an agreement of sale exists, product delivery
has occurred, title has transferred to the customer and collection is reasonably
assured. The price received is based upon terms of the contract.

******     ******Depreciation

Land,
buildings, plant, equipment and vehicles are carried at cost. Replacements,
maintenance and repairs that do not improve or extend the life of the respective
assets are expensed as incurred. Major renewals and improvements are
capitalized. Upon retirement, sale or other disposition, the cost and
accumulated depreciation are eliminated and the gain or loss is included in
other income or expense on the statement of operations.

We
expense exploration costs as incurred, but capitalize costs directly
attributable to the acquisition of mineral properties, pending determination as
to their commercial feasibility.

******     ******Derivative Instruments

We
do not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks.

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

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

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

The
classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is reassessed at the end of each
reporting period. If reclassification is required, the fair value of the
derivative instrument, as of the determination date, is reclassified. Any
previous charges or credits to income for changes in the fair value of the
derivative instrument are not reversed. Derivative instrument liabilities are
classified in the balance sheet as current or non-current based on whether or
not net-cash settlement of the derivative instrument could be required within 12
months of the balance sheet date.

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Recent Accounting Pronouncements

In
June 2008, the FASB issued FASB Staff Position FSP No. EITF 03-6-1,
Determining Whether Instruments Granted in Share-based Payment Transactions
are Participating Securities. FSP No. EITF 03-6-1 states that unvested
share-based payment awards that contain non-forfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of EPS pursuant to the two-class method.
FSP No. EITF 03-6-1 is effective for financial statements issued for fiscal
years beginning after December 15, 2008. All prior-period EPS data presented
shall be adjusted retrospectively (including interim financial statements,
summaries of earnings, and selected financial data) to conform to the provisions
of FSP No. EITF 03-6-1. Early application is not permitted. The Company is
evaluating the impact of FSP No. EITF 03-6-1.

In
May 2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1,
"Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion (Including Partial Cash Settlement)" ("FSP APB 14-1"). FSP APB
14-1 requires the issuer of certain convertible debt instruments that may be
settled in cash (or other assets) on conversion to separately account for the
liability (debt) and equity (conversion option) components of the instrument in
a manner that reflects the issuer's non-convertible debt borrowing rate. FSP APB
14-1 is effective for fiscal years beginning after December 15, 2008 on a
retroactive basis. We are currently evaluating the potential impact, if any, of
the adoption of FSP APB 14-1 on our consolidated financial position, results of
operations or cash flows.

In
May 2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 162,
The Hierarchy of Generally Accepted Accounting Principles. SFAS 162
identifies the sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial statements that are
presented in conformity with generally accepted accounting principles. SFAS 162
is effective 60 days following the Security Exchange Commissions (SEC)
approval of the Public Company Accounting Oversight Board amendments to remove
the hierarchy of generally accepted accounting principles from the auditing
standards. The Company does not expect the adoption of SFAS 162 to impact our
results of operations, financial position or cash flows.

In
March 2008, the FASB issued SFAS 161, Disclosures about Derivative
Instruments and Hedging Activities  an amendment of FASB Statement No. 133
(SFAS 161). SFAS 161 requires enhanced disclosures regarding derivatives and
hedging activities, including: (a) the manner in which an entity uses derivative
instruments; (b) the manner in which derivative instruments and related hedged
items are accounted for under Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities; and (c) the
effect of derivative instruments and related hedged items on an entitys
financial position, financial performance, and cash flows. SFAS 161 is effective
for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008. As SFAS 161 relates specifically to disclosures, it
will have no impact on the Companys results of operations, financial position
or cash flows.

In
December 2007, the FASB issued SFAS 141(R), Business Combinations
(SFAS 141(R)). SFAS 141(R) establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, the goodwill acquired, and any
non-controlling interest in the acquiree. This statement also establishes
disclosure requirements to enable the evaluation of the nature and financial
effect of the business combination. SFAS 141(R) is effective for fiscal years
beginning after December 15, 2008. The Company is evaluating the effect that the
adoption of SFAS 141(R) will have on its results of operations, financial
position, and cash flows.

In
December 2007, the FASB issued SFAS 160, Non-controlling Interests in
Consolidated Financial Statementsan amendment of ARB No. 51 (SFAS 160).
SFAS 160 amends ARB 51 to establish accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a non-controlling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. SFAS 160 is effective for fiscal years
beginning on or after December 15, 2008. The Company does not expect the
adoption of SFAS 160 to impact its results of operations, financial position or
cash flows.

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

Off-Balance Sheet Arrangements

******     ******During the year ended June 30, 2008, we did not engage in any off
balance sheet arrangements as defined in item 303(c) of the SECs Regulation
S-B.

Risk Factors

This
report, including managements discussion and analysis or plan of operations,
contains forward looking statements that may be materially affected by numerous
risk factors, including those summarized below:

Risk Factors Related to Our Business and Operations

We
are dependent upon production of precious metals and industrial minerals from a
limited number of properties, have incurred substantial losses since our
inception in 1991, and may never be profitable.

Since
our inception in 1991, we have not been profitable. As of June 30, 2008, our
total accumulated (deficit) was approximately $(47.1) million. To become
profitable, we must identify mineralization and establish reserves, and then
either develop properties ourselves or locate and enter into agreements with
third party operators. It could be years before we receive any revenues from
industrial mineral or precious metals production. We may suffer significant
additional losses in the future and may never be profitable. There can be no
assurance we will receive revenue from operations in the foreseeable future, if
at all. Even if we do achieve profitability, we may not be able to sustain or
increase profitability on a quarterly or annual basis.

We
ceased mining operations at our Black Canyon mica property in 2002 after
unsuccessful attempts to begin profitable operations. We have established only
limited probable reserves at our Summit silver-gold property, and have not
established proven or probable reserves at our Ortiz gold property or at our
Planet micaceous iron property. If we are unable to economically produce mica
and feldspathic sand from our Black Canyon mica property or silver or gold from
our Summit or Ortiz properties, we will be forced to identify and invest
substantial sums in one or more additional properties. Such properties may not
be available to us on favorable terms or at all. Because of the numerous risks
and uncertainties associated with exploration and development of mining
properties, we are unable to predict the extent of any future losses or when we
will become profitable, if at all.

We
will require significant additional capital to continue our exploration
activities, and, if warranted, to develop mining operations.

We
will require significant additional funding for geological and geochemical
analysis, metallurgical testing, and, if warranted, feasibility studies with
regard to the results of our exploration. We may not benefit from such
investments if we are unable to identify a commercial ore deposit. If we are
successful in identifying reserves, we will require significant additional
capital to establish a mine and construct a mill and other facilities necessary
to mine those reserves. That funding, in turn, will depend upon a number of
factors, including the state of the national and worldwide economy and the price
of gold and other metals. We may not be successful in obtaining the required
financing for these or other purposes, which would adversely affect our ability
to continue operating. Failure to obtain such additional financing could result
in delay or indefinite postponement of further exploration and the possible,
partial or total loss of our potential interest in certain properties.

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Our
industry is highly competitive, attractive mineral lands are scarce, and we may
not be able to obtain quality properties.

We compete with many companies in the mining business, including large,
established mining companies with substantial capabilities, personnel and
financial resources far greater than our own. In addition, there is a limited
supply of desirable mineral properties available for acquisition in the United
States and in other areas where we may conduct exploration activities. For these
reasons, we may be at a competitive disadvantage in acquiring mineral
properties. Competition in the industry is not limited to the acquisition of
mineral properties but also extends to the technical expertise to operate such
properties and the financial ability to fund such properties. Our inability to
compete with other companies in these areas could have a material adverse effect
on our results of operation and business.

The
feasibility of mining our Summit silver-gold property or our Ortiz gold property
has not been established, meaning that we have not completed engineering,
permitting or other work necessary to determine if it is commercially feasible
to develop these properties.

We
  currently have established only limited probable reserves on the Summit silver-gold
  property and have not established proven or probable reserves on the Ortiz gold
  property. A reserve, as defined by regulation of the SEC, is that
  part of a mineral deposit that can be economically and legally extracted or
  produced at the time of the reserve determination. A reserve requires a feasibility
  study demonstrating with reasonable certainty that the deposit can be economically
  and legally extracted and produced. We have not received feasibility studies
  nor obtained necessary operating permits with regard to the Ortiz gold property.
  As a result, we have no reserves at the Ortiz gold property. At the Summit silver-gold
  property, a qualified independent engineering firm has completed a pre-feasibility
  study that concluded there would be minimal risk in proceeding to development
  and mining on the basis of estimates of mineralized material.

Although
  preliminary scoping studies carried out on the Summit silver-gold and Ortiz
  gold properties have yielded promising results with respect to potential economic
  viability, substantial additional feasibility work and expenditures are required
  to demonstrate economic viability. The mineralized materials identified to date
  on these properties have not and may never demonstrate economic viability. The
  feasibility of mining has not been, and may never be, established. Whether a
  mineral deposit can be commercially viable depends upon a number of factors,
  including the particular attributes of the deposit, including size, grade and
  proximity to infrastructure; metal prices, which can be highly variable; and
  government regulations, including environmental and reclamation obligations.
  If we are unable to establish some or all of our mineralized material as proven
  or probable reserves in sufficient quantities to justify commercial operations,
  we may not be able to raise sufficient capital to develop a mine. If we are
  unable to establish such reserves, the market value of our securities may decline.

******     ***Fluctuating gold and silver prices could negatively impact our business
plan***

******The potential for profitability of gold and silver mining operations
  at our Summit silver-gold property and at our Ortiz gold property and the values
  of these properties are directly related to the market prices of gold and silver.
  The prices of gold and silver may also have a significant influence on the market
  price of our common stock. In the event that we obtain positive feasibility
  results and progress to a point where a commercial production decision can be
  made, our decision to put a mine into production and to commit the funds necessary
  for that purpose must be made long before any revenue from production would
  be received. A decrease in the price of gold or silver at any time during future
  development or mining may prevent our properties from being economically mined
  or result in the impairment of assets as a result of lower gold or silver prices.
  The prices of gold and silver are affected by numerous factors beyond our control,
  including inflation, fluctuation of the United States dollar and foreign currencies,
  global and regional demand, the purchase or sale of gold by central banks, and
  the political and economic conditions of major gold producing countries throughout
  the world. During the last five years, the average annual market price of gold
  has progressively increased from $363 per ounce to $695 per ounce, as shown
  in the table below:

40

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Average Annual Market Price of Gold, 2001-2006

2003
    
    2004
    
    2005
    
    2006
    
    2007$      363
    
    $    
       410
    
    $    
       445
    
    $    
       603
    
    $    
       695


Although,
if we identify commercially recoverable reserves on the Summit silver-gold
property or on the Ortiz gold property, it may be possible for us to protect
against future gold and silver price fluctuations through hedging programs, the
volatility of metal prices represents a substantial risk that is impossible to
completely eliminate by planning or technical expertise. In the event gold or
silver prices decline and remain low for prolonged periods of time, we might be
unable to develop our Summit silver-gold property or our Ortiz gold property or
produce any revenue.

Any
proposal for commercial mining operations at our Summit silver-gold property or
at our Ortiz gold property would be subject to permitting requirements that
could cause us to delay, suspend or terminate our development plans.

Mining
and processing operations at the Summit silver-gold property or at the Ortiz
gold property would require permits from the state and federal governments. We
may be unable to obtain such permits in a timely manner, on reasonable terms, or
at all. If we cannot obtain or maintain the necessary permits, or if there is a
delay in receiving such permits, our timetable and business plan for development
and mining of one or both of these properties could be adversely affected. For
our Summit silver-gold property, this risk is mitigated in that we already have
in hand two of the important permits for mining and processing, which we believe
may be able to be modified and revised as required to begin operations.

We
may not be able to obtain an adequate supply of water to complete desired
development and mining of our Summit silver-gold property or of our Ortiz gold
property.

For
successful development, we will need to obtain the rights for a sufficient
amount of water to service the mining and processing operation. Our lease with
Ortiz Mines, Inc. gives us all rights that Ortiz Mines, Inc. may have to
initiate and use water and water rights in connection with the property,
including among others the right to drill, pump, divert, transport and use water
from wells, containment areas and drainages. However there can be no assurance
we will be able to exercise our rights under the lease agreement or obtain
access to the amount of water needed to operate a mine at the property. For our
Summit silver-gold property, this risk is mitigated in that sufficient water for
mining purposes can be purchased and trucked to the Summit property; and
sufficient water is available for processing purposes on our Lordsburg mill site
property, for which water we have usage rights.

We
may be at risk of losing title to our Ortiz gold property lease if we fail to
perform our obligations.

Under
the terms of our lease with Ortiz Mines, Inc., we are required to meet certain
obligations as is common in a mineral lease of this type. Among other
requirements, we must begin mineral production by February 2112 (February 2117
in certain circumstances), make annual payments that escalate per acre of ground
we retain under lease, pay a sliding-scale production royalty based on the price
of gold and comply with all governmental permitting and other regulations. If we
fail to make payments in a timely manner or to perform our other obligations as
required under the lease, we are at risk that the lease could be cancelled.

***The
reserve estimations at our Summit and Black Canyon properties are
imprecise.***

Although we have relied on expert
independent consultants to calculate the reserve estimations disclosed in our
reports, such estimations are necessarily imprecise because they depend upon the
judgment of the individuals who review the geological and engineering
information and upon statistical inferences drawn from only limited drilling and
sampling. If the Summit or Black Canyon mining operation were to encounter
mineralization or geologic conditions different from those predicted, reserve

41

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estimations might have to be adjusted and mining plans altered.
Changes to the planned operations could adversely affect forecast costs and
profitability.

***The
future prices of mica and feldspathic sand are uncertain.***

According
to published information, mica prices have varied over the past several years,
and the outlook for future mica prices is unclear. Manufactured sand prices in
the Phoenix area generally have fluctuated over the past several years, with
demand driven by the state of the housing, construction, and recreational
markets. There are numerous factors beyond our control that could affect markets
for both mica and feldspathic sand. No assurance can be given as to future
prices or demand for our products. Any decline in prices could have a material
adverse effect on project economics..

***The
market is uncertain for Black Canyon mica and feldspathic sand products.***

We
plan to sell mica nationally into the cosmetics and plastics markets, and to
sell feldspathic sand locally into the Phoenix, Arizona construction and
recreational markets. However, we have not yet sold significant quantities of
these products and have not entered into sales contracts. The profitability of
our operations could be adversely affected if we do not achieve the selling
prices or sales volumes currently targeted for our products. The markets are
affected by numerous factors beyond our control. For example, it is possible
that new sources of supply from other domestic plants or imports could create an
imbalance in the markets, depressing prices and causing a decrease in demand for
our products. Any such factors could adversely impact our ability to sell our
products, the prices we receive for our products and our profitability.

Titles
to unpatented claims can be uncertain, and we are at risk of loss of ownership
of our Black Canyon mica property and a portion of our Summit and Lordsburg
properties.

Our
property holdings at and around the Black Canyon mine and a portion of our
holdings at our Summit and Lordsburg properties consist of unpatented mining
claims and unpatented mill site claims located on public land and held pursuant
to the General Mining Law of 1872. The validity of such unpatented mining claims
may be subject to title defects and may be contested. Because a substantial
portion of all mineral exploration, development and mining in the United States
occurs on unpatented mining claims, this uncertainty is inherent in the mining
industry. We have not obtained a title opinion on our entire property, with the
attendant risk that title to some claims, particularly title to undeveloped
property, may be defective. Although we believe that our claims are in good
standing and held according to industry practice, we remain at risk that the
mining claims may be forfeited either to the United States or to rival private
claimants due to failure to comply with statutory requirements as to location
and maintenance of the claims or challenges as to whether a discovery of a
valuable mineral exists on every claim.

In
recent years the United States Congress has considered amendments to the General
Mining Law of 1872, some of which would lower the value of unpatented mining
claims by restricting activities and imposing additional user fees or production
royalties. If enacted, these legislative changes could have an adverse impact on
the operation of the Black Canyon mine.

***The
development and completion of our properties entail significant risks.***

The
development of mineral deposits involves significant risks that even the best
evaluation, experience and knowledge cannot eliminate. The economic feasibility
of our mining properties is based upon a number of factors, including
estimations of reserves and mineralized material, extraction and process
recoveries, engineering, capital and operating costs, future production rates
and future prices of gold, silver, copper, mica, feldspathic sand and micaceous
iron oxide.

42

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Our
properties have no significant operating history upon which to base estimates of
operating costs and capital requirements.

As
a result, estimations of mineralized material and reserves, mining and process
recoveries and operating costs must be based to a large extent upon the
interpretation of geologic data obtained from drill holes, and upon scoping and
feasibility estimates that derive forecasts of operating costs from anticipated
tonnages and grades of mineralized material and reserves to be mined and
processed, the configuration of the mineralized deposits, expected recovery
rates of minerals, comparable facility and equipment costs, and climatic
conditions and other factors. Commonly in new projects, actual construction
costs, operating costs and economic returns differ materially from those
initially estimated. Accordingly, there can be no assurance that our properties
can be developed within the time frames or at the costs anticipated, or that any
forecasted operating results can be achieved.

The
nature of mineral exploration and production activities involves a high degree
of risk and the possibility of uninsured losses that could materially and
adversely affect our operations.

Exploration
for minerals is highly speculative and involves greater risk than many other
businesses. Most exploration programs fail to result in the discovery of
economic mineralization. Our exploration and mining efforts are subject to the
operating hazards and risks common to the industry, such as:

- economically insufficient mineralized materials
- fluctuations in production cost that may make mining uneconomical;
- labor disputes;
- unanticipated variations in grade and other geologic problems;
- environmental hazards;
- water conditions;
- difficult surface or underground conditions;
- industrial accidents;
- metallurgical and other processing problems;
- mechanical and equipment performance problems;
- failure of pit walls or dams;
- unusual or unexpected formations;
- personal injury, fire, flooding, cave-ins and landslides; and
- decrease in reserves due to lower metal prices.

Any
of these risks can adversely affect the feasibility of development of our
properties, production quantities and rates, and costs and expenditures. We
currently have no insurance to guard against any of these risks. If we determine
that capitalized costs associated with any of our mineral properties are likely
not to be recovered, a write-down of our investment would be necessary. All of
these factors may result in unrecoverable losses or cause us to incur potential
liabilities, which could have a material adverse effect on our financial
position.

Our
ongoing operations, including past mining activities, are subject to
environmental risks that could expose us to significant liability and delay,
suspension or termination of our operations.

All
phases of our operations will be subject to federal, state and local
environmental regulation. These regulations mandate, among other things, the
maintenance of air and water quality standards and land reclamation. They also
set forth limitations on the generation, transportation, storage and disposal of
solid and hazardous waste. Environmental legislation is evolving in a manner
which will require stricter standards and enforcement, increased fines and
penalties for non-compliance, more stringent environmental assessments of
proposed projects, and a heightened degree of responsibility for companies and
their officers, directors and employees. Future changes in environmental
regulation, if any, may adversely affect our operations, make our operations
prohibitively expensive, or prohibit them altogether. Environmental hazards may
exist on the Black Canyon mica property, the Summit silver-gold property, the
Lordsburg property, the Ortiz gold property, and the Planet micaceous iron oxide
property and on properties in which we may hold interests in the future that are
unknown to us at the present. Failure to comply with applicable environmental
laws, regulations and permitting requirements may result in

43

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enforcement actions, including orders issued by regulatory or
judicial authorities, causing operations to cease or be curtailed, and may
include corrective measures requiring capital expenditures, installation of
additional equipment, or remedial actions.

***Production,
if any, at our projects may involve the use of hazardous
materials.***

Should
these materials leak or otherwise be discharged from their containment systems,
then we may become subject to liability for hazards. We have not purchased
insurance for environmental risks including potential liability for pollution or
other hazards as a result of the disposal of waste products occurring from
exploration and production, as it is not generally available at a reasonable
price.

In
addition to environmental regulations, we are subject to a wide variety of laws
and regulations directly and indirectly relating to mining that often change and
could adversely affect our business.

We
are subject to extensive United States federal, state and local laws and
regulations related to mine prospecting, development, transportation,
production, exports, taxes, labor standards, occupational health and safety,
waste disposal, protection and remediation of the environment, mine safety,
hazardous materials, toxic substances and other matters. These laws and
regulation frequently change. New laws and regulations or more stringent
enforcement of existing ones could have a material adverse impact on us, causing
a delay or reduction in production, increasing costs and preventing an expansion
of mining activities.

We
depend on a limited number of personnel and the loss of any of these individuals
could adversely affect our business.

We
are highly dependent on six persons, namely Mr. Olson, our chairman; Mr. Carson,
our president and chief executive officer and principal financial officer; Mr.
Martinez, our controller; Mr. Freeman, general manager of our Summit project;
Mr. Lowery, mill superintendent; and Mr. Griffith, mine superintendent. We rely
heavily on these six individuals for the conduct of our business, and the loss
of any of them could significantly and adversely affect our business. In that
event, we would be forced to identify and retain a suitable replacement, which
we may not be able to accomplish on terms acceptable to us. We have no life
insurance on the life of any officer.

Our
Chief Executive Officer may face a conflict of interest relating to the
acquisition of mineral properties by the Company.

We
have an agreement with Mr. Carson, which pre-dates his joining the Company as an
officer and director, under which he identified properties that constitute
potential acquisition targets. Although Mr. Carson has no pre-existing interest
in the targeted properties, under the agreement he stands to gain if we acquire
an identified property and either place it into production or sell it. This
arrangement gives rise to potential conflicts of interest with regard to whether
or not we should acquire a targeted property and the price we agree to pay for
the property. While we have sought to mitigate the risk inherent in the
arrangement with Mr. Carson by careful evaluation by the Board of Directors of
any proposed transaction, this step may not be sufficient to eliminate the risk
entirely. Acquisitions of the Summit silver-gold property and Ortiz gold
property are subject to the property identification agreement with Mr. Carson.

Delaware
law and our Articles of Incorporation may protect our directors from certain
types of lawsuits. Delaware law provides that our directors will not be liable
to our stockholders or to us for monetary damages for all but certain types of
conduct as directors of the Company.

Our
Articles of Incorporation permit us to indemnify our directors and officers
against all damages incurred in connection with our business to the fullest
extent provided or allowed by law. The exculpation provisions may have the
effect of preventing stockholders from recovering damages against our directors
caused by their negligence, poor judgment or other circumstances. The
indemnification

44

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provisions may require us to use our limited assets to defend
our directors and officers against claims, including claims arising out of their
negligence, poor judgment, or other circumstances.

Risks Related to our Common Stock

The sale of our common stock by selling stockholders may depress the price
of our common stock due to the limited trading market that exists.

We
filed a registration statement with the SEC to permit the public sale of
securities sold by us in private placements in March and September 2006. That
action will result in a significant number of additional shares of our common
stock available for sale in the public market. Due to a number of factors,
including the lack of listing of our common stock on a national securities
exchange, the trading volume in our common stock has historically been limited.
Trading volume over the last 3 months has averaged approximately 71,000 shares
per day. As a result, the sale of a significant amount of common stock by the
selling shareholders may depress the price of our common stock and the price of
our common stock may decline.

Completion
of one or more new acquisitions could result in the issuance of a significant
amount of additional common stock, which may depress the trading price of our
common stock.

While
no formal offer has been made, or agreement reached, in connection with
acquisition of one or more additional mineral properties, conceptually,
completion of such acquisitions could result in the issuance of a significant
amount of common stock. Such issuance could depress the trading price of our
common stock.

***Our
stock price may be volatile and as a result you could lose all or part of your
investment.***

In
addition to volatility associated with OTC securities in general, the value of
your investment could decline due to the impact of any of the following factors
upon the market price of our common stock:

- changes in the worldwide prices for gold or silver;
- disappointing results from our exploration or development efforts;
- failure to meet our revenue or profit goals or operating budget;
- decline in demand for our common stock;
- downward revisions in securities analysts estimates or changes in general
  market conditions;
- technological innovations by competitors or in competing technologies;
- investor perception of our industry or our prospects; and
- general economic trends.

In
addition, stock markets have experienced extreme price and volume fluctuations
and the market prices of securities generally have been highly volatile. These
fluctuations commonly are unrelated to operating performance of a company and
may adversely affect the market price of our common stock. As a result,
investors may be unable to resell their shares at a fair price.

A
small number of existing shareholders own a significant portion of our common
stock, which could limit your ability to influence the outcome of any
shareholder vote.

Our
executive officers and directors, together with our two largest shareholders,
beneficially own in excess of 40% of our common stock as of the date of this
report. Under our Articles of Incorporation and Delaware law, the vote of a
majority of the shares outstanding is generally required to approve most
shareholder action. As a result, these individuals and entities will be able to
influence the outcome of shareholder votes for the foreseeable future, including
votes concerning the election of directors, amendments to our Articles of
Incorporation or proposed mergers or other significant corporate
transactions.

45

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We
have never paid dividends on our common stock and we do not anticipate paying
any in the foreseeable future.

We
have not paid dividends on our common stock to date, and we may not be in a
position to pay dividends in the foreseeable future. Our ability to pay
dividends will depend on our ability to successfully develop one or more
properties and generate revenue from operations. Further, our initial earnings,
if any, will likely be retained to finance our growth. Any future dividends will
depend upon our earnings, our then-existing financial requirements and other
factors and will be at the discretion of our Board of Directors.

**ITEM
7.**                     
**FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

The
response to this item is submitted as a separate section at the end of this
report beginning on page F-1 of this Form 10-KSB.

**ITEM
8.**                     
**CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS**

None.

**ITEM
8a.**                    **CONTROLS
AND PROCEDURES**

We
maintain disclosure controls and procedures (as defined in Rules 13a-15(d) and
15d-15(e) under the Securities and Exchange Act of 1934, as amended (the
Exchange Act)) that are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms. Under the
supervision of, and the participation of our management, our Chief Executive
Officer has conducted an evaluation of our disclosure controls and procedures as
of June 30, 2008. Based on this evaluation, our Chief Executive Officer has
concluded that our disclosure controls and procedures are effective in alerting
him on a timely basis to material information required to be disclosed in our
periodic reports.

During
the fiscal year ended June 30, 2008, there were no changes in the Companys
internal controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.

PART III

**ITEM
9.**                     
**DIRECTORS AND EXECUTIVE OFFICERS**

The
Companys present directors and officers as well as those who served during
fiscal 2008 are as follows:

|Name              |  | Age |  | Position                                                                 |  | Date Elected                                                                                 
|----------------- |  | --- |  | ------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------
|                  |  |     |  |                                                                          |  |                                                                                              
|Lawrence G. Olson |  | 70  |  | Chairman of the
      Board Former President and Chief Executive Officer |  | 1999 / served as President and
  Chief Executive Officer from October 2000 to October 7, 2003
|                  |  |     |  |                                                                          |  |                                                                                              
|W. Pierce Carson  |  | 65  |  | President, Chief
      Executive Officer and Director                    |  | October 7, 2003                                                                              
|                  |  |     |  |                                                                          |  |                                                                                              
|John E. Frost     |  | 84  |  | Director                                                                 |  | May 7, 2007                                                                                  

46

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The
directors and officers have held their principal occupations as set out above
during at least the last five years, except as described below:

Lawrence
G. Olson, age 70, Chairman, became a director in March 1999 in
connection with the acquisition of Arizona Mica. He has held the position of
Chairman since October 2000, and also formerly held the positions of President
and Chief Executive Officer from October 2000 until October 2003. Mr. Olson has
owned and operated his own business, Olson Precast of Arizona Inc., since 1973.
Mr. Olson received a B.S. Degree in Civil Engineering from the University of
Southern California.

W.
Pierce Carson, age 65,was named President and Chief Executive
Officer and a director in October 2003, following a consulting assignment with
us. Dr. Carson has 35 years of international mining experience and has managed
the discovery, financing, development and operation of precious metals, base
metals and industrial mineral properties in the United States, Australia and
other countries. From 1981 to 2000, he worked for Nord Pacific Limited and Nord
Resources Corporation in senior management capacities, including president and
chief executive officer. Prior to 1981, he managed exploration programs for
Exxon Minerals Company and Kennecott Copper Company. Dr. Carson holds a
Bachelors Degree in Geology from Princeton University and MS and PhD Degrees in
Economic Geology from Stanford University.

John
E. (Jack) Frost, age 84,joined our board of directors in May
2007. Dr. Frost has over 50 years of international mining experience in a wide
range of metallic and non-metallic minerals and has been closely involved in the
discovery and/or acquisition of more than 40 mineral deposits. Since 1986, Dr.
Frost has served as principal of Frost Minerals International, Inc., a provider
of management and consulting services to the mining industry. From 1967 until
1986, he worked for Exxon Minerals Company and its affiliates in a number of
senior management capacities, including president of Exxon Minerals
International. His responsibilities at Exxon Minerals included establishing and
managing Exxon Minerals domestic and international minerals exploration
programs. Prior to 1967, he managed exploration and mining activities for Duval
Corporation and Philippine Iron Mines. Dr. Frost holds a B.S. Degree in Mining
Engineering, an M.S. Degree in Geology and a Ph.D. in Geology, all from Stanford
University.

Board Meetings and Committees

During
fiscal 2008, our board met three times and took action by unanimous consent
three times. All of our directors attended at least 75% of the meetings of our
board and its assigned committees during 2008. We strongly encourage our
directors to attend annual meetings, but we do not have a formal policy
regarding attendance.

Our
entire board considers all major decisions concerning our business. Our board
has also established committees so that certain matters can be addressed in more
depth than may be possible at a full board meeting. Our boards current standing
committees are as follows, with the X denoting the members of the
committee:

Name
    Nominating and Corporate
      Governance Committee
    Audit Committee
    Compensation
      CommitteeEmployee Directors:W. Pierce Carson
    X(1)Non-Employee Directors:Lawrence G. Olson
    X
    X(1)
    XJohn E. Frost
    X
    X
    X(1)





47

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Our
board has adopted a charter for each committee. The charters are available on
our website at www.santafegoldcorp.com. The information contained on our
website is not, and should not be considered, a part of this financial
statement. The information below sets out the current members of each of our
board committees and summarizes the functions of each of the committees.

Nominating and Corporate Governance Committee

The
primary purposes of the committee are:

- identifying individuals qualified to become directors;
- monitoring the implementation of our corporate governance guidelines; and
- overseeing the evaluation of our management and our board.

The
committee currently consists of Messrs. Carson, Olson and Frost, with Mr. Carson
serving as chairman. We do not anticipate any significant change in the
composition of the committee prior to our next annual meeting of stockholders.

The
committee was constituted in May 2007, and did not meet during fiscal 2008.

The
committee is responsible for identifying individuals qualified to become
directors and for evaluating potential or suggested director nominees.

The
committee plans to perform a preliminary evaluation of potential candidates
primarily based on the need to fill any vacancies on our board, the need to
expand the size of our board and the need to obtain representation in key market
areas. Once a potential candidate is identified that fills a specific need, the
committee plans to perform a full evaluation of the potential candidate. This
evaluation will include reviewing the potential candidates background
information, relevant experience, willingness to serve, independence and
integrity. In connection with this evaluation, the committee may interview the
candidate in person or by telephone. After completing its evaluation, the
committee will make a recommendation to the full board as to the persons who
should be nominated by our board. Our board determines the nominees after
considering the recommendations and a report of the committee.

To
date, the committee has not paid a fee to any third party to assist in the
process of identifying or evaluating director candidates.

Audit Committee

The
primary purposes of the committee are:

- assisting our board in fulfilling its oversight responsibilities by
  reviewing the financial information to be provided to stockholders and others;
- overseeing and evaluating our system of internal controls established by
  management; and
- supervising the audit and financial reporting process (including direct
  responsibility for the appointment, compensation and oversight of the
  independent auditors engaged to perform the annual audit and quarterly reviews
  with respect to our financial statements).

The
committee will also prepare a report each year in conformity with the rules of
the SEC for inclusion in our annual proxy statement.

48

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The
committee currently consists of Messrs. Olson and Frost, with Mr. Olson serving
as chairman. We do not anticipate any significant change in the composition of
the committee prior to our next annual meeting of stockholders. Mr. Frost is
independent under the NASDAQ listing standards and applicable SEC rules. Mr.
Frost may not be an audit committee financial expert as defined by the rules
promulgated by the SEC. Mr. Olson may not meet prescribed independence standards
nor satisfy the criteria for an audit committee financial expert under Item
401(e) of Regulation S-B of the rules of the Securities and Exchange Commission.
Each Audit Committee member is able to read and understand fundamental financial
statements, including our consolidated balance sheet, consolidated statement of
operations and consolidated statement of cash flows.

Until
the appointment of Mr. Frost to the Audit Committee in May 2007, the Audit
Committee was comprised solely of Mr. Olson. The Audit Committee met twice
during fiscal 2008.

Compensation Committee

The
primary purposes of the committee are:

- reviewing and approving annually the corporate goals and objectives
  relevant to our chief executive officer, other executive officers and our
  board;
- evaluating the performance of our chief executive officer, other executive
  officers and our board in light of these goals and objectives; and
- recommending the compensation levels for our chief executive officer, other
  executive officers and our board.

The
committee also prepares a report each year in conformity with the rules of the
SEC for inclusion in our annual proxy statement.

The
committee currently consists of Messrs. Olson and Frost, with Mr. Frost serving
as chairman. We do not anticipate any significant change in the composition of
the committee prior to our next annual meeting of stockholders. Mr. Frost is
independent under the NASDAQ listing standards and applicable SEC rules. Mr.
Olson may not meet prescribed independence standards

The
committee was constituted in May 2007, and met once during fiscal 2008.

The
committee has the sole authority to oversee the administration of compensation
programs applicable to our executive officers and directors. Executive
compensation will be reviewed at least annually by the committee. Director
compensation is reviewed periodically by the committee as its members deem
appropriate. The committee may delegate some or all of its authority to
subcommittees when it deems appropriate.

Compensation Committee Interlocks and Insider Participation

None
of the members of our Compensation Committee is an officer or employee of the
Company. None of our executive officers serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving on our board of directors or Compensation Committee.

Compliance with Section 16(a) of The Securities Exchange Act
of 1934

Based
solely on our review of the copies of such forms we received, or written
representations from certain reporting persons, we believe that, during the
fiscal year ended June 30, 2008, our officers, directors and greater than ten
percent beneficial owners complied with all applicable filing requirements.

49

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Code of Business Conduct

Our board has adopted a code of business conduct that is applicable to all
members of our board, our executive officers and our employees. We have posted
our code of business conduct on our website at www.santafegoldcorp.com.

Code of Ethics for CEO and Senior Financial Officers

Effective
June 15, 2006, we adopted a Code of Ethics for CEO and Senior Financial Officers
that applies to our CEO and all officers. This code was filed as an exhibit to
our Annual Report on Form 10-KSB for the year ended June 30, 2006. The code
summarizes the legal, ethical and regulatory standards that we must follow and
is a reminder to our directors and officers of the seriousness of that
commitment. Compliance with this code and high standards of business conduct is
mandatory for each of our officers. As adopted, our Code of Ethics sets forth
written standards that are designed to deter wrongdoing and to promote:

| | 1) | Honest and ethical conduct, including the ethical
      handling of actual or apparent conflicts of interest between personal and
      professional relationships;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                    
| | 2) | compliance with applicable governmental laws, rules and
      regulations;                                                                                         
| |    |                                                                                                                                                                    
| | 3) | the prompt internal reporting of violations of the Code
      of Ethics to an appropriate person or persons identified in the Code of
      Ethics; and            
| |    |                                                                                                                                                                    
| | 4) | accountability for adherence to the Code of
  Ethics.                                                                                                              

We
will provide a copy of the Code of Ethics to any person without charge, upon
request. Requests can be sent to: Santa Fe Gold Corporation, 1128 Pennsylvania
NE, Suite 200, Albuquerque,NM 87110.

**ITEM
10.**                    **EXECUTIVE
COMPENSATION**

Summary Compensation Table

The
following table summarizes the compensation awarded to, earned by or paid during
the last two fiscal years to Named Executive Officers, including (a) our
principal executive officer; (b) each of our Companys two most highly
compensated executive officers, other than the principal executive officer, who
were serving as executive officers at the end of the financial year ended June
30, 2008, and whose total compensation exceeded $100,000 per year; and (c) up to
two additional individuals for whom disclosure would have been provided under
(b) but for the fact that the individual was not serving as an executive officer
of our Company at the end of the year ended June 30, 2008:

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**Summary Compensation Table**

Name and Principal
      Position
    Year
    Salary ($)
    Bonus ($)
    Stock Awards
      ($)
    Option Awards
      ($)
    Non- Equity Incentive
      Plan Compen- sation ($)
    Non- qualified Deferred
      Compen-sation Earnings ($)
    **All Other** Compen-
      sation ($)
    Total ($)W. Pierce Carson President &
      CEO
    2008 2007
    207,125 194,204
    - -
    320,000(1)-
    - -
    - -
    - -
    - -
    527,125 194,204


|(1) | On June 25, 2008, the board of directors granted to Mr.
      Carson an award of 500,000 shares of restricted common stock under our
      2007 EIP. The shares will vest on December 31, 2008, and are subject to
      forfeiture contingent on attainment of certain performance objectives
      related to construction of the Summit project. The closing price of our
      common stock was $0.64 on the date of grant. The dollar value recognized
      for financial statement reporting purposes was calculated in accordance
      with FAS 123R.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Outstanding Equity Awards as of June 30, 2008

The
  following table summarizes the outstanding equity awards as of June 30, 2008,
  for each of our named executive officers:

Outstanding Equity Awards as of June 30, 2008

Option
        Awards
      Stock
        AwardsName
      Number of Securities
        UnderlyingUnexercised Options (#) Exercisable
      Number of Securities
        **Underlying** UnexercisedOptions
        (#) **Unexercisable**
      Equity Incentive Plan Awards: Number of Securities **Underlying**
        **Unexercised**UnearnedOptions
        (#)
      **Option**
        **Exercise** Price ($)
      Option Expiration Date
      Numberof Shares or Units of StockThat Have
        Not Vested (#)
      Market Valueof **Shares**
        or Units of **Stock**
        That Have Not Vested ($)
      Equity
        Incentive Plan **Awards:**Numberof UnearnedShares,
        Units or Other Rights That
        Have Not Vested (#)
      Equity
        Incentive Plan Awards: **Market**
        **or Payout** Value of **Unearned**
        Shares, Units or Other Rights
        That **Have Not**Vested ($)(1)W. 
        Pierce 
        Carson
      2,000,000 
        2,000,000 
        4,000,000
      N/A 
        N/A 
        N/A
      N/A 
        N/A 
        N/A
      0.10 
        0.10 
        0.11
      4/19/2009 
        7/22/2009 
        10/16/2013
      N/A
      N/A
      500,000
      435,000


|(1) | Based on the closing price of the Companys common stock
      of $0.87 per share as quoted on the OTCBB on June 30,
  2008.
|--- | ----------------------------------------------------------------------------------------------------------------------------

Compensation of Directors

The
  following table summarizes the compensation of our Companys directors
  for the fiscal year ended June 30, 2008:

51

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Compensation of Directors

Name(1)
      Fees Earned or Paid in
      Cash ($)
      Stock Awards ($)
      Option Awards
      ($)(2)
      Non-Equity Incentive Plan
      Compen- sation ($)
      Non- qualified Deferred
      Compen- sation Earnings ($)
      All Other Compen- sation
      ($)
      Total ($)Lawrence G. Olson
    10,000
    -
    33,486
    -
    -
    -
    43,486John E. Frost
    10,000
    -
    71,489
    -
    -
    -
    71,489


(1)      W. Pierce Carson, a
member of our board of directors, is a Named Executive Officer and did not
receive any compensation as a director that has not been disclosed in the
summary compensation table above.

(2)      This column represents
the fair value of the options awarded in fiscal 2008 in accordance with SFAS
123R.

Effective
May 2007, we adopted a new policy for compensation of non-employee independent
directors. Each of our non-employee independent directors receives a $2,000
quarterly retainer, plus $1,000for each full-day board meeting, and
$500for each telephonic meeting, committee meeting or less than full day
meeting attended. In addition, upon first being appointed or elected to the
board, each independent director receives a grant of options to purchase 100,000
shares of common stock which vest twelve months after the date of grant, and on
January 1st of each year, each independent director receives a grant of options
to purchase 75,000shares of common stock which vest six months after the
date of grant. All options are granted at an exercise price equal to the fair
market value of the stock on the date of grant. All options granted to
non-employee independent directors, unless earlier terminated, or exercised,
expire five years after the grant date. All directors are reimbursed for
out-of-pocket expenses incurred in connection with attendance at board meetings
and committee meetings.

Previous
to May 2007, our policy was to pay our outside, non-officer directors a fee of
$1,500 per month. Due to financial constraints, no such fees were paid or
accrued from August 2002 until May 2007. We also reimbursed our directors for
reasonable expenses incurred in attending meetings of the board of directors.

During fiscal years 2008 and 2007, non-officer directors received no consulting
fees separate and distinct from directors fees as a result of actual services
rendered above and beyond those typical of a non-officer director. Total
director fees were $20,000 for the year ended June 30, 2008.

Employment Agreements

In
October 2003, we entered into employment and change of control agreements with
our President and Chief Executive Officer. The employment agreement describes
among other things the officers duties, compensation levels and benefits. The
agreement provides for annual salary of $180,000 adjusted by the CPI. The term
of the agreement is from October 16, 2003, through and including October 15,
2006, and then automatically extends through October 15, 2008, and thereafter
year to year unless terminated on 90 days prior notice. The change of control
agreement provides that if there is a change of control of the Company and the
officer leaves the employment of the Company, for whatever reason (other than
discharge for cause, death, or disability) within six months after such change
of control, the officer shall receive a lump sum cash payment of 299% of the
base amount as defined in IRC Section 280G (b) (3), subject to certain
limitations of the Internal Revenue Code. In addition, the officer will continue
to be covered by our medical, health, life and dental plans for 24 months after
such cessation of employment. In connection with the employment agreement, we
granted 4,000,000 options at an exercise price of $0.11 per share, the closing
price on the date of grant. The options vested as to 1,000,000 shares on October
16, 2003, and as to additional 1,000,000 share increments over successive
six-monthly periods. The officer was provided a per diem living and travel

52

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allowance of $4,015 per month while based at our headquarter
location in Glendale, Arizona, which per diem was discontinued in April 2007
upon our relocation to Albuquerque, New Mexico.

In
December 1999, we entered into a change of control agreement with our Chairman.
The agreement provides for a lump sum cash payment in the amount not to exceed
$100,000 in the event of change in control and resignation from the Board.

Equity Compensation Plans

The
following table contains information regarding our Equity Compensation Plans as
of June 30, 2008:

Plan Category
      Number of securities to be
      issued upon exercise of outstanding options,
      warrants and rights (a)
      Weighted average exercise
      price of outstanding options, warrants and rights
      (b)
      Number of securities remaining available for
      future issuance under equity compensation plans
      (excluding securities reflected in column (a))
      (c)2007 Equity compensation plan approved by security
      holders
    1,250,000(1)
    $0.61(2)
    6,750,0001989 Equity compensation plan approved by security
      holders
    2,100,000
    $0.14
    N/AEquity compensation plan not approved by security
      holders(3)
    7,500,000
    $0.11
    N/A


|(1) | Includes an aggregate of 700,000 shares of stock granted
      as restricted stock awards to an officer and to an employee.                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                         
|(2) | The restricted stock awards are disregarded for the
      purposes of calculating the weighted average exercise price of outstanding
      options.                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                         
|(3) | Includes certain options granted to an executive officer
      pursuant to an employment agreement described in more detail under the
      caption Employment Agreements, and certain options granted to an officer
      and to directors independent of the 1989 Stock Option Plan and prior to
      the adoption of the 2007 EIP.

**2007
Equity Incentive Plan**

At
our Annual Meeting on July 24, 2007, the stockholders approved the 2007 Equity
Incentive Plan ("2007 EIP"). The 2007 EIP became effective on July 25, 2007, and
will terminate on July 24, 2017. A maximum of 8,000,000 shares of common stock
are reserved for the grant of non-qualified stock options, incentive stock
options, restricted stock awards and other stock awards under the 2007 EIP. The
2007 EIP replaces our 1989 Stock Option Plan, which terminated on April 30,
2007. The full text of the 2007 EIP is included in our definitive proxy
statement DEF14A filed with the SEC on May 23, 2007.

The
purpose of the 2007 EIP is to provide the employees, non-employee directors, and
consultants who are selected for participation in the 2007 EIP with added
incentives to continue in the long-term service of the Company and to create in
such persons a more direct interest in the future success of our operations by
relating increases in compensation to increases in stockholder value, so that
the income of the participants in the 2007 EIP is more closely aligned with the
financial interests of our stockholders. The 2007 EIP is also intended to
provide a financial incentive that will enable us to attract,

53

---

retain and motivate the most qualified directors, employees,
and consultants. As of October 3, 2008, one executive officer, two non-employee
independent board members and approximately eighteen other employees and
consultants are eligible to receive grants under the 2007 EIP.

The
Compensation Committee of the board administers the 2007 EIP with respect to
grants to employees, consultants, and non-employee directors. The Committee has
sole discretion to establish rules and procedures for the administration of the
2007 EIP, select the participants from among the eligible employees,
non-employee directors, and consultants, determine the types of awards to be
granted and the number of shares of common stock subject to each award, and set
the terms and conditions of the awards.

**1989
Stock Option Plan**

We
have a Stock Option Plan (the 1989 Plan) effective July 24, 1989, as amended,
for the granting of options to purchase common stock. The 1989 Plan terminated
on April 30, 2007. Although, due to its termination on April 30, 2007, we cannot
make any further grants under the 1989 Plan, options granted and outstanding
under the 1989 Plan will remain outstanding until they are exercised or expire
by their terms. Under the 1989 Plan, the Board of Directors could grant options
to key personnel and others as it deemed appropriate provided the number of
options did not exceed 5,950,424. As of June 30, 2008, there were 2,100,000
options outstanding under the 1989 Plan. There are no vesting requirements under
the 1989 Plan. The options are exercisable over a maximum term of five years.

**ITEM
11.**                    **SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS**

The
following table sets forth, as of October 3, 2008, certain information regarding
beneficial ownership of our common stock by: (i) each person known by us to be
the beneficial owner of more than 5% of our outstanding common stock; (ii) each
director and director-nominee; (iii) each named executive officer; and (iv) all
executive officers and directors as a group.

54

---

|                                              |  |                      |  | Common
      Stock Beneficially Owned | 
|--------------------------------------------- |  | -------------------- |  | ------------------------------------- | 
|                                              |  |                      |  |                                       | 
|                                              |  |                      |  |                                       | 
|Name and Address Of Beneficial Owner          |  | Title
      of Class |  | Number
      of Shares                | 
|                                              |  |                      |  |                                       | 
|                                              |  |                      |  |                                       | 
|Christian Mustad                              |  | Common Stock         |  | 5,195,000                             | 
|Bodmenstrasse, Chalet Corcovado               |  |                      |  |                                       | 
|3778 Schoenried                               |  |                      |  |                                       | 
|Switzerland                                   |  |                      |  |                                       | 
|                                              |  |                      |  |                                       | 
|Sulane Holdings, Inc.                         |  | Common Stock         |  | 8,850,000                             | 
|P.O. Box 414                                  |  |                      |  |                                       | 
|CH-1630 Bulle                                 |  |                      |  |                                       | 
|Switzerland                                   |  |                      |  |                                       | 
|                                              |  |                      |  |                                       | 
|Lawrence G. Olson                             |  | Common Stock         |  | 7,433,700                             | 
|3045 S. 35thAvenue                            |  |                      |  |                                       | 
|Phoenix, AZ 85009                             |  |                      |  |                                       | 
|                                              |  |                      |  |                                       | 
|W. Pierce Carson                              |  | Common Stock         |  | 12,750,000                            | 
|33 Camino de AvilaTijeras, NM 87059           |  |                      |  |                                       | 
|                                              |  |                      |  |                                       | 
|John E. Frost                                 |  | Common Stock         |  | 185,000                               | 
|602 Sandy Port                                |  |                      |  |                                       | 
|Houston, TX 77079                             |  |                      |  |                                       | 
|                                              |  |                      |  |                                       | 
|Officers and Directors As a Group (3 Persons) |  | Common
      Stock   |  | 20,368,700                            | 

|(1) | Shares issuable under December 2007 convertible debenture
      financing authorizing Sulane to convert outstanding debt at a conversion
      price of $1.00 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes options issued under the 2007 EIP to acquire
      75,000 shares at an exercise price of $0.55 per share. Includes non- plan
      options to acquire (i) 500,000 shares at an exercise price of $0.11 per
      share and (ii) 1,000,000 shares at an exercise price of $0.10 per
      share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(3) | Includes options issued under the 1989 Stock Option Plan
      to acquire 2,000,000 shares at an exercise price of $0.10 per share.
      Includes non- plan options to acquire (i) 4,000,000 shares at an exercise
      price of $0.11 per share, and (ii) 2,000,000 shares at an exercise price
      of $0.10 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(4) | Includes options to acquire an aggregate of 9,750,000
      shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(5) | Applicable percentage of ownership is based on 75,473,510
      shares of common stock outstanding as of September 26, 2008, together with
      securities exercisable or convertible into shares of common stock within
      60 days of October 3, 2008, for each stockholder. Beneficial ownership is
      determined in accordance with the rules of the Commission and generally
      includes voting or investment power with respect to securities. Shares of
      common stock subject to securities exercisable or convertible into shares
      of common stock that are currently exercisable or exercisable within 60
      days of October 3, 2008, are deemed to be beneficially owned by the person
      holding such options for the purpose of computing the percentage of
      ownership of such person, but are not treated as outstanding for the
      purpose of computing the percentage ownership of any other
  person.

**ITEM
12.**                    **CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS**

In
October 2003, prior to his becoming an officer and director of the Company, we
entered into a confidential property identification agreement with W. Pierce
Carson, our current President and Chief Executive Officer. Under terms of the
agreement, Mr. Carson, on the basis of his prior knowledge, provided a list of
24 specific mineral properties with potential for exploration and development
that might represent attractive acquisition opportunities for us. We agreed to
pay compensation to Mr. Carson in the form of a royalty of 1.0% of the value of
future production, if any, derived from identified properties that we acquire.
In the event an identified property is acquired and subsequently sold, we agreed
to pay Mr. Carson an amount equal to 10.0% of the value of the sale. The Ortiz
gold property acquired in August 2004 and the Summit silver-gold property
acquired in May 2006 are two of the 24 properties identified and are subject to
the property identification agreement (See Note 11 to the Consolidated Financial
Statements).

55

---

On
August 12, 2003, we assigned, for the sum of $5,000, our right, title and
interest in and to our lease with New Planet Copper Mining Company to Metallica
Ventures, LLC, a corporation controlled by Mr. Carson, who at the time of the
assignment was a consultant to us. We retained an option to purchase 25% of the
New Planet lease for an amount equal to 25% of the expenditures on the property
from the date of assignment through the date of the exercise of the option. On
September 22, 2005, Metallica Ventures LLC reassigned to us, for consideration
of $10,000 and the issue of 2,000,000 unregistered shares of our common stock,
its right, title and interest in and to the lease with New Planet Copper Mining
Company.

On
September 15, 2005, we entered into a consulting agreement with an attorney who
is the son of our President and Chief Executive Officer. Terms of the contract
provided for compensation of $4,000 per month and payment of certain expenses
for an initial three-month period. On November 28, 2005, the contract was
extended for a six-month period, after which the contract extended on a
month-to-month basis until terminated by either party. We issued a bonus of
50,000 unregistered shares of common stock in consideration for the contract
extension. On May 2, 2006, the individual was offered and accepted employment at
a salary of $5,000 per month and a monthly per-diem allowance of $1,000. In
connection with employment, we granted 50,000 stock options at an exercise price
of $1.24 per share, which was the closing price on May 2, 2006. On April 25,
2007, we granted the individual 50,000 stock options at an exercise price of
$0.74 per share, and on December 13, 2007, we granted him 100,000 options at an
exercise price of $0.55 per share, which were the closing prices on the dates
granted. In April 2007 the monthly per diem was terminated after the relocation
of the Company to Albuquerque, New Mexico.

In
March 2001, Lawrence G. Olson, our current Chairman and former President and
CEO, jointly with his wife, made an unsecured loan to us in the amount of
$800,000 at an interest rate equal to the prime rate of interest plus one
percentage point. In connection with the loan, Mr. Olson received 5-year
warrants to purchase 300,000 shares of common stock at an exercise price of
$0.70 per share. In October 2001, we restructured the $800,000 loan agreement
with Mr. Olson and the interest rate payable on the loan was adjusted to 12%
annually. In June 2002, the loan was extended an additional year and we entered
into a security agreement with Mr. Olson, whereby our assets secured the loan.
The note became payable in March 2004 after which time it was in default. On
March 15, 2006, Mr. Olson exercised warrants to purchase 300,000 shares of
common stock at $0.70 per share in exchange for a reduction of accrued interest
and principal on the note payable to him, aggregating $210,000. Mr. Olson agreed
to reduce the principal by $50,000 and to extend the $750,000 note payable for a
period of 18 months, until September 15, 2007.

On
November 15, 2006, Mr. Olson exercised stock options to purchase 1,000,000
shares of common stock at $0.10 per share and 1,000,000 shares of common stock
at $0.11 per share, in exchange for payment of accrued interest owed and
reduction of principal on the note payable, aggregating $210,000. In addition,
Mr. Olson agreed to contribute to capital the remaining unpaid principal on the
note of $600,000. In connection with the contribution to capital, we granted a
25% net proceeds royalty in the Black Canyon mica claims, toward an end
settlement of $600,000.

On
September 30, 2008, a director exercised an option to purchase 500,000 shares of
common stock at $0.11 per share on a cashless basis. Under the cashless basis
exercise, 431,250 shares were issued.

56

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ITEM 13.                    
  EXHIBITS

|Exhibit |  |                                                                                                                                                                                             |  |                                                                                                                                                                                          
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     |  | Description                                                                                                                                                                                 |  | Location                                                                                                                                                                                 
|2.1     |  | Agreement and Plan of Merger of Arizona Mica Properties,
      Inc. into Sanchez Mining, Inc., a wholly-owned subsidiary of Registrant,
      dated as of March 9, 1999                     |  | Incorporated by reference to Exhibit 1 to Registrants
      8-K dated March 9, 1999, as filed with the SEC on March 24, 1999                                                            
|        |  |                                                                                                                                                                                             |  |                                                                                                                                                                                          
|3.1     |  | Registrants Certificate of Incorporation dated August 8,
      1991                                                                                                                        |  | Incorporated by reference to Exhibit 3.1 to the
      Registrants Registration Statement on Form S-4 (File No. 33-45162)                                                                
|        |  |                                                                                                                                                                                             |  |                                                                                                                                                                                          
|3.2     |  | Articles of Amendment to the Certificate of Incorporation
      dated December 5, 1991                                                                                                      |  | Incorporated by reference to Exhibit 3.2 to the
      Registrants Registration Statement on Form S-4 (File No. 33-45162)                                                                
|        |  |                                                                                                                                                                                             |  |                                                                                                                                                                                          
|3.3     |  | Registrants Amended By-laws                                                                                                                                                                |  | Incorporated by reference to Exhibit 3.3 to the
      Registrants Registration Statement on Form S-4 (File No. 33-45162)                                                                
|        |  |                                                                                                                                                                                             |  |                                                                                                                                                                                          
|4.1     |  | Specimen stock certificate                                                                                                                                                                  |  | Incorporated by reference to Exhibit 1 to the
      Registrants Registration Statement on Form 8-A as filed with the SEC on
      July 21, 1992                                         
|        |  |                                                                                                                                                                                             |  |                                                                                                                                                                                          
|4.2     |  | Rights Agreement dated July 19, 1995 between the
      Registrant and Montreal Trust Company of Canada                                                                                      |  | Incorporated by reference to Exhibit 3.4 to the
      Registrants Annual Report on Form 10-K/A for the fiscal year ended June
      30, 1995                                            
|        |  |                                                                                                                                                                                             |  |                                                                                                                                                                                          
|10.1    |  | Agreements for Piedras Verdes property                                                                                                                                                      |  | Incorporated by reference to Exhibit 10.10 to the
      Registrants Registration Statement on Form S-4 (File No. 33-45162)                                                              
|        |  |                                                                                                                                                                                             |  |                                                                                                                                                                                          
|10.2    |  | Purchase Agreement dated July 27, 1995 between the
      Registrant, Sanchez and Phelps Dodge                                                                                               |  | Incorporated by reference to Exhibit 10.20 to the
      Registrants Annual Report on Form 10- K/A for the fiscal year ended June
      30, 1995                                         
|        |  |                                                                                                                                                                                             |  |                                                                                                                                                                                          
|10.3    |  | Memorandum of Agreement dated June 7, 1996, by and among
      West Africa Gold & Exploration Ltd., Eagle River International
      Limited, Lion Mining Finance Limited and the Registrant |  | Incorporated by reference to Exhibit 10.10 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1996 as filed with the SEC on September 30, 1996
|        |  |                                                                                                                                                                                             |  |                                                                                                                                                                                          
|10.4    |  | Stock Option Plan                                                                                                                                                                           |  | Incorporated by reference to Exhibit A to Registrants
      DEF 14A as filed with the SEC on March 5, 1997                                                                              
|        |  |                                                                                                                                                                                             |  |                                                                                                                                                                                          
|10.5    |  | Memorandum of Agreement/Eagle River International Ltd.                                                                                                                                      |  | Incorporated by reference to Exhibit 10.13 to
      Registrants Annual Report on Form 10-K for the year ended June 30, 1997,
      as filed with the SEC on September 30, 1997          
|        |  |                                                                                                                                                                                             |  |                                                                                                                                                                                          
|10.6    |  | Management Agreements dated February 1, 1998 between the
      Registrant, Alan Lindsay and Associates, Ltd. and ARH Management Ltd.                                                        |  | Incorporated by reference to Exhibit 10.8 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1998 as filed with the SEC on September 30, 1998 

57

---

|Exhibit |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     |  | Description                                                                                                                                                                                                                                  |  | Location                                                                                                                                                                                 
|10.7    |  | Management Agreements dated August 15, 1994, by and
      between the Registrant and both of Alan P. Lindsay, Anthony R. Harvey;
      Management Agreement dated November 19, 1996, by and between the
      Registrant and Ryan A. Modesto |  | Incorporated by reference to Exhibit 10.15 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1998 as filed with the SEC on September 30, 1998
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.8    |  | Directors Agreement dated August 15, 1994, by and
      between the Registrant and Paul A. Hodges                                                                                                                                           |  | Incorporated by reference to Exhibit 10.16 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1998 as filed with the SEC on September 30, 1998
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.9    |  | Shareholders & Operators Agreement dated December
      19, 1995, by and among PD Cobre Del Mayo, Inc., the Registrant and Cobre
      Del Mayo, SA de CV                                                                                   |  | Incorporated by reference to Exhibit 10.17 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1998 as filed with the SEC on September 30, 1998
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.10   |  | Right of First Refusal Agreement dated June 18, 1998 by
      and among the Registrant, Seville Mineral Developments SA de CV and Minera
      Cortez Resources Ltd.                                                                         |  | Incorporated by reference to Exhibit 10.12 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1998 as filed with the SEC on September 30, 1998
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.11   |  | Mineral Property Option Agreement dated July, 1998, by
      and between the Registrant and Minera Cortez Resources Ltd.                                                                                                                     |  | Incorporated by reference to Exhibit 10.13 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1998 as filed with the SEC on September 30, 1998
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.12   |  | Shareholders Agreement by and among Registrant, Sanou
      Mining Corporation, West African Gold & Exploration, S.A. and Randgold
      Resources Ltd.                                                                                     |  | Incorporated by reference to Exhibit 10.5 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1999 as filed with the SEC on September 29, 1999 
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.13   |  | Mineral Property Option Agreement dated May 20, 1999, by
      and between the Registrant and Minera Cortez Resources Ltd.                                                                                                                   |  | Incorporated by reference to Exhibit 10.16 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1999 as filed with the SEC on September 29, 1999
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.14   |  | Agreement in Principal dated August 9, 1999 between the
      Registrant, Thomas Ford and Calgem, Inc.                                                                                                                                       |  | Incorporated by reference to Exhibit 10.17 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1999 as filed with the SEC on September 29, 1999
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.15   |  | Non-Revolving Credit Line Agreement dated March 14, 2001,
      by and between the Registrant and Lawrence G. Olson                                                                                                                          |  | Incorporated by reference to Exhibit 10.16 to
      Registrants 10-K as filed with the SEC on October 15, 2001                                                                          
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.16   |  | Settlement Agreement and Release by and among the
      Registrant, Anthony Harvey, ARH Management, Ltd., Alan Lindsay and Alan
      Lindsay and Associates, Ltd.                                                                           |  | Incorporated by reference to Exhibit 99 to the
      Registrants 8-K as filed with the SEC on July 25, 2002                                                                             
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.17   |  | $5,000,000 Equity Line of Credit Agreement, by and
      between the Registrant and Cornell Capital Partners, LP dated June 19,
      2002                                                                                                   |  | Incorporated by reference to Exhibit 10.17 to
      Registrants 10-K as filed with the SEC on September 27, 2002                                                                        
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.18   |  | Registration Rights Agreement by and between the
      Registrant and Cornell Capital Partners, LP dated June 19, 2000                                                                                                                       |  | Incorporated by reference to Exhibit 10.18 to
      Registrants 10-K as filed with the SEC on September 27, 2002                                                                        

58

---

|Exhibit |  |                                                                                                                                                    |  |                                                                                                                               
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------
|No.     |  | Description                                                                                                                                        |  | Location                                                                                                                      
|10.19   |  | Escrow Agreement by and among the Registrant, Cornell
      Capital Partners, LP, Wachovia, NA and Butler Gonzales LLP, dated June 19,
      2002. |  | Incorporated by reference to Exhibit 10.19 to
      Registrants 10-K as filed with the SEC on September 27, 2002             
|        |  |                                                                                                                                                    |  |                                                                                                                               
|10.20   |  | Placement Agent Agreement by and between the Registrant
      and Westrock Advisors, Inc. dated June 19, 2002.                                     |  | Incorporated by reference to Exhibit 10.20 to
      Registrants 10-K as filed with the SEC on September 27, 2002             
|        |  |                                                                                                                                                    |  |                                                                                                                               
|10.21   |  | $150,000 Subscription Agreement between the Registrant
      and Floyd R. Bleak dated August 13, 2001                                              |  | Incorporated by reference to Exhibit 10.21 to
      Registrants 10-K as filed with the SEC on September 27, 2002             
|        |  |                                                                                                                                                    |  |                                                                                                                               
|10.22   |  | 300,000 share Stock Loan Agreement between the Registrant
      and Floyd R. Bleak dated October 11, 2001                                          |  | Incorporated by reference to Exhibit 10.22 to
      Registrants 10-K as filed with the SEC on September 27, 2002             
|        |  |                                                                                                                                                    |  |                                                                                                                               
|10.23   |  | $200,000 Loan Agreement between the Registrant and Patty
      J. Ryan dated August 27, 2001                                                       |  | Incorporated by reference to Exhibit 10.23 to
      Registrants 10-K as filed with the SEC on September 27, 2002             
|        |  |                                                                                                                                                    |  |                                                                                                                               
|10.24   |  | $200,000 Loan agreement between the Registrant and Luis
      Barrenchea dated September 4, 2001                                                   |  | Incorporated by reference to Exhibit 10.24 to
      Registrants 10-K as filed with the SEC on September 27, 2002             
|        |  |                                                                                                                                                    |  |                                                                                                                               
|10.25   |  | Amendment to March 15, 2001 $800,000 Loan Agreement
      between the Registrant and Lawrence G. Olson dated October 12. 2001                      |  | Incorporated by reference to Exhibit 10.25 to
      Registrants 10-K as filed with the SEC on September 27, 2002             
|        |  |                                                                                                                                                    |  |                                                                                                                               
|10.26   |  | $100,000 Loan agreement between the Registrant and Luis
      Barrenchea dated October 19, 2001                                                    |  | Incorporated by reference to Exhibit 10.26 to
      Registrants 10-K as filed with the SEC on September 27, 2002             
|        |  |                                                                                                                                                    |  |                                                                                                                               
|10.27   |  | $100,000 Loan agreement between the Registrant and Luis
      Barrenchea dated December 4, 2001                                                    |  | Incorporated by reference to Exhibit 10.27 to
      Registrants 10-K as filed with the SEC on September 27, 2002             
|        |  |                                                                                                                                                    |  |                                                                                                                               
|10.28   |  | $3,000,000 Purchase Agreement between the Registrant and
      Muzz Investments, LLC dated January 17, 2002                                        |  | Incorporated by reference to Exhibit 10.28 to
      Registrants 10-K as filed with the SEC on September 27, 2002             
|        |  |                                                                                                                                                    |  |                                                                                                                               
|10.29   |  | Lease Agreement between the Registrant and Muzz
      Investments, LLC dated January 17, 2002                                                      |  | Incorporated by reference to Exhibit 10.29 to
      Registrants 10-K as filed with the SEC on September 27, 2002             
|        |  |                                                                                                                                                    |  |                                                                                                                               
|10.30   |  | Amendment No. 2 to Loan Agreement dated March 15, 2001
      for $800,000 between the Registrant and Lawrence G. Olson dated June 28,
      2002   |  | Incorporated by reference to Exhibit 10.30 to
      Registrants 10-K as filed with the SEC on September 27, 2002             
|        |  |                                                                                                                                                    |  |                                                                                                                               
|10.31   |  | Directors Agreements dated April 26, 2002, by and
      between the Registrant and Stanley A. Ratzlaff and M. William Lightner                    |  | Incorporated by reference to Exhibit 10.31 to
      Registrants 10-K as filed with the SEC on September 27, 2002             
|        |  |                                                                                                                                                    |  |                                                                                                                               
|10.32   |  | Settlement Agreement dated July 9, 2002 by and between
      the Registrant and Anthony Harvey and Alan Lindsay                                    |  | Incorporated by reference to Exhibit 1 to Registrants
      8-K dated July 11, 2002, as filed with the SEC on July 25, 2002  
|        |  |                                                                                                                                                    |  |                                                                                                                               
|10.34   |  | Stock Purchase Agreement dated April 10, 2003 by and
      between the Registrant and Frontera Cobre del Mayo, Inc.                                |  | Incorporated by reference to Exhibit 1 to Registrants
      8-K dated April 10, 2003, as filed with the SEC on April 25, 2003

59

---

|Exhibit |  |                                                                                                                                      |  |                                                                                                                                                                                                      
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     |  | Description                                                                                                                          |  | Location                                                                                                                                                                                             
|        |  |                                                                                                                                      |  |                                                                                                                                                                                                      
|10.35   |  | Settlement Agreement dated June 22, 2003 by and between
      the Registrant and Anthony Harvey and Alan Lindsay                     |  | Incorporated by reference to Exhibit 10.35 to
      Registrants 10-K/A as filed with the SEC on May 18, 2005                                                                                        
|        |  |                                                                                                                                      |  |                                                                                                                                                                                                      
|10.36   |  | Amendment to $200,000 Loan agreement between the
      Registrant and Luis Barrenchea dated September 4, 2002                        |  | Incorporated by reference to Exhibit 10.36 to
      Registrants 10-K/A as filed with the SEC on May 18, 2005                                                                                        
|        |  |                                                                                                                                      |  |                                                                                                                                                                                                      
|10.37   |  | Amendment to $100,000 Loan agreement between the
      Registrant and Luis Barrenchea dated October 19, 2002                         |  | Incorporated by reference to Exhibit 10.37 to
      Registrants 10-K/A as filed with the SEC on May 18, 2005                                                                                        
|        |  |                                                                                                                                      |  |                                                                                                                                                                                                      
|10.38   |  | Amendment to $100,000 Loan agreement between the
      Registrant and Luis Barrenchea dated December 3, 2003                         |  | Incorporated by reference to Exhibit 10.38 to
      Registrants 10-K/A as filed with the SEC on May 18, 2005                                                                                        
|        |  |                                                                                                                                      |  |                                                                                                                                                                                                      
|10.39   |  | Employment Agreement between the Registrant and W. Pierce
      Carson dated October 7, 2003                                         |  | Incorporated by reference to Exhibit 10.39 to
      Registrants 10-KSB as filed with the SEC on December 28, 2005                                                                                   
|        |  |                                                                                                                                      |  |                                                                                                                                                                                                      
|10.40   |  | Change of Control Agreement between the Registrant and W.
      Pierce Carson dated October 7, 2003                                  |  | Incorporated by reference to Exhibit 10.40 to
      Registrants 10-KSB as filed with the SEC on December 28, 2005                                                                                   
|        |  |                                                                                                                                      |  |                                                                                                                                                                                                      
|10.41   |  | Property Identification Agreement between the Registrant
      and W. Pierce Carson dated October 6, 2003                            |  | Incorporated by reference to Exhibit 10.41 to
      Registrants 10-KSB as filed with the SEC on December 28, 2005                                                                                   
|        |  |                                                                                                                                      |  |                                                                                                                                                                                                      
|10.42   |  | Assignment and Assumption of Planet Lease Agreement
      between the Registrant and Metallica Ventures LLC dated August 12, 2003    |  | Incorporated by reference to Exhibit 10.42 to
      Registrants 10-KSB as filed with the SEC on December 28, 2005                                                                                   
|        |  |                                                                                                                                      |  |                                                                                                                                                                                                      
|10.43   |  | Option Agreement between the Registrant and Metallica
      Ventures LLC dated August 12, 2003                                       |  | Incorporated by reference to Exhibit 10.43 to
      Registrants 10-KSB as filed with the SEC on December 28, 2005                                                                                   
|        |  |                                                                                                                                      |  |                                                                                                                                                                                                      
|10.44   |  | Assignment and Assumption of Planet Lease Agreement
      between the Registrant and Metallica Ventures LLC dated September 22, 2005 |  | Incorporated by reference to Exhibit 10.44 to
      Registrants 10-KSB as filed with the SEC on December 28, 2005                                                                                   
|        |  |                                                                                                                                      |  |                                                                                                                                                                                                      
|10.45   |  | Letter Agreement between the Registrant and Metallica
      Ventures LLC dated September 22, 2005                                    |  | Incorporated by reference to Exhibit 10.45 to
      Registrants 10-KSB as filed with the SEC on December 28, 2005                                                                                   
|        |  |                                                                                                                                      |  |                                                                                                                                                                                                      
|10.46   |  | Securities Purchase Agreement dated March 21, 2006 by and
      between the Registrant and Purchasers                                |  | Incorporated by reference to Exhibits 4.1-4.5 and Exhibit
      99.1 to Registrants 8-K dated March 21, 2006, as filed with the SEC on
      March 23, 2006                                         
|        |  |                                                                                                                                      |  |                                                                                                                                                                                                      
|10.47   |  | Share Sale Agreement dated May 4, 2006, by and between
      the Registrant and Imagin Minerals, Inc. and St. Cloud Mining Company   |  | Incorporated by reference to Exhibit 10.1 and Exhibit
      99.1 to Registrants 8-K dated May 4, 2006, as filed with the SEC on May
      10, 2006                                                  
|        |  |                                                                                                                                      |  |                                                                                                                                                                                                      
|10.48   |  | Amended Securities Purchase Agreement dated September 6,
      2006, by and between the Registrant and Purchasers                    |  | Incorporated by reference to Exhibits 4.1-4.4 and Exhibit
      99.1 to Registrants 8-K dated September 6, 2006, as filed with the SEC on
      September 8, 2006, and amended on September 15, 2006

60

---

|Exhibit |  |                                                                                                                                  |  |                                                                                                                                                                                                 
|------- |  | -------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     |  | Description                                                                                                                      |  | Location                                                                                                                                                                                        
|        |  |                                                                                                                                  |  |                                                                                                                                                                                                 
|10.49   |  | Real Property
        Purchase Agreement effective October 31, 2006, by and between Registrant
        and Muzz Investments, LLC |  | Incorporated
        by reference to Exhibits 10.1 and 10.2 and Exhibit 99.1 to Registrants
        8-K dated November 3, 2006, as filed with the SEC on November 6, 2006                      
|        |  |                                                                                                                                  |  |                                                                                                                                                                                                 
|10.50   |  | Amended Securities
        Purchase Agreement dated February 23, 2007, by and between the Registrant
        and Purchasers      |  | Incorporated
        by reference to Exhibits 4.1-4.3 and Exhibit 99.1 to Registrants
        8-K dated February 23, 2007, as filed with the SEC on February 26, 2007                          
|        |  |                                                                                                                                  |  |                                                                                                                                                                                                 
|10.51   |  | Registrants
        2007 Equity Incentive Plan, effective July 25, 2007, approved by security
        holders on July 24, 2007  |  | Incorporated
        by reference to Registrants DEF14Adated June 18, 2007, as filed
        with the SEC on May 23, 2007                                                                      
|        |  |                                                                                                                                  |  |                                                                                                                                                                                                 
|10.52   |  | Senior subordinated
        Promissory Note dated October 31, 2007, by and between Registrant and
        Purchasers             |  | Incorporated
        by reference to Exhibits 4.1- 4.3 and Exhibit 99.1 to Registrants
        8-K dated October 31, 2007, as filed with the SEC on November 1, 2007                           
|        |  |                                                                                                                                  |  |                                                                                                                                                                                                 
|10.53   |  | Securities Purchase
        Agreement dated December 21, 2007, by and between Registrant and Purchaser                           |  | Incorporated
        by reference to Exhibits 4.1- 4.5 and Exhibit 99.1 to Registrants
        8-K dated December 21, 2007, as filed with the SEC on December 26, 2007                         
|        |  |                                                                                                                                  |  |                                                                                                                                                                                                 
|10.54   |  | Settlement Agreement
        dated June 5, 2008, by and between Registrant and New Planet Copper Mining
        Company          |  | Incorporated
        by reference to Exhibit 99.1 to Registrants 8-K dated June 5, 2008
        , as filed with the SEC on June 10, 2008                                                       
|        |  |                                                                                                                                  |  |                                                                                                                                                                                                 
|10.55   |  | Purchase and
        Sale Agreement dated June 30, 2008, by and between Registrant and St.
        Cloud Mining Company          |  | Incorporated
        by reference to Exhibits 10.55 and 99.1 to Registrants 8-K dated
        June 30, 2008, as filed with the SEC on July 1, 2008                                             
|        |  |                                                                                                                                  |  |                                                                                                                                                                                                 
|14.1    |  | Code of Ethics
        for CEO and Senior Financial Officers adopted June 15, 2006                                               |  | Incorporated
        by reference to Exhibit 14.1 to Registrants 10-KSB for the period ending
        June 30, 2006, dated February 14, 2007, as filed with the SEC on February
        16, 2007
|        |  |                                                                                                                                  |  |                                                                                                                                                                                                 
|21.1    |  | Subsidiaries
        of the Registrant                                                                                           |  | Incorporated
        by reference to Exhibit 21.1 to the Registrants Registration Statement
        on Form SB-2 as filed with the SEC on March 26, 2007, and amended on June
        26, 2007.
|        |  |                                                                                                                                  |  |                                                                                                                                                                                                 
|31.1    |  | Certification
        of Principal Executive Officer and Chief Financial Officer pursuant to
        Rule 13a-14(a)/15d-14(a)    |  | Provided
        herewith                                                                                                                                                                       
|        |  |                                                                                                                                  |  |                                                                                                                                                                                                 
|32.1    |  | Certification
        of Principal Executive Officer and Chief Financial Officer pursuant to
        18 U.S.C. Section 1350      |  | Provided
        herewith                                                                                                                                                                       

61

---

**ITEM
14.**                    **PRINCIPAL ACCOUNTING FEES AND SERVICE**

The
following table discloses the fees for professional services provided by Stark
Winter Schenkein & Co., LLP for the 2008 and 2007 fiscal years respectively:

2008
    
    
    2007Audit Fees (1)
    $
    61,790
    
    $
    103,406Tax Fees (2)
    
    20,000
    
    
    -0-$
    81,790
    
    $
    103,419


|(1) | Includes services rendered for audit of the Companys
      consolidated financial statements, review of quarterly financial
      information, filing of SB-2 in fiscal 2007 and assistance and issuance of
      consents associated with SEC filings.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                         
|(2) | Relates to services rendered for tax advice and
      compliance services.                                                                                                                                                                              

62

---

SANTA FE GOLD CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2008 and for the Years Ended 
  June 30, 2008
  and 2007

---

SANTE FE GOLD CORPORATION

TABLE OF CONTENTS





|REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  | F-3             
|-------------------------------------------------------------- | ----------------
|                                                               |                 
|FINANCIAL STATEMENTS:                                          |                 
|                                                               |                 
|Consolidated
      Balance Sheet                               | F-4             
|                                                               |                 
|Consolidated
      Statements of Operations                    | F-5             
|                                                               |                 
|Consolidated
      Statement of Stockholders' (Deficit) Equity | F-6             
|                                                               |                 
|Consolidated
      Statements of Cash Flows                    | F-7             
|                                                               |                 
|Notes
      to the Consolidated Financial Statements           | F-9
      - F-27

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Shareholders and Board of Directors 
  Santa Fe Gold
  Corporation

We have audited the accompanying consolidated balance sheet of
  Santa Fe Gold Corporation as of June 30, 2008, and the related consolidated
  statements of operations, stockholders' (deficit) equity, and cash flows for the
  years ended June 30, 2008 and 2007. These consolidated financial statements are
  the responsibility of the Company'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 the audits to obtain reasonable assurance about
  whether the financial statements are free of material misstatement. An audit
  includes examining, on a test basis, evidence supporting the amounts and
  disclosures in the financial statements. An audit also includes assessing the
  accounting principles used and significant estimates by management, as well as
  evaluating the overall financial statement presentation. We believe that our
  audits provide a reasonable basis for our opinion.

The accompanying financial statements have been prepared
  assuming that the Company will continue as a going concern. As discussed in Note
  2 to the consolidated financial statements, the Company has suffered recurring
  losses from operations, has no current source of operating revenues, has a
  working capital deficit and needs to secure financing to remain a going concern.
  These factors raise substantial doubt about the Company's ability to continue as
  a going concern. The financial statements do not include any adjustments that
  might result from the outcome of this uncertainty.

In our opinion, the consolidated financial statements referred
  to above present fairly, in all material respects, the financial position of
  Santa Fe Gold Corporation, as of June 30, 2008, and the results of its
  operations, and its cash flows for the years ended June 30, 2008 and 2007, in
  conformity with accounting principles generally accepted in the United States of
  America.

/s/ Stark Winter Schenkein & Co., LLP

Denver, Colorado 
  October 1, 2008

---

SANTA FE GOLD CORPORATION 
  CONSOLIDATED BALANCE
  SHEETJUNE 30, 2008

|ASSETS                                                                                      |  
|------------------------------------------------------------------------------------------- | -
|CURRENT ASSETS:                                                                             |  
|Cash and cash equivalents                                                                   | $
|Interest
      receivable                                                                   |  
|Prepaid expenses                                                                            |  
|Total Current Assets                                                                        |  
|MINERAL PROPERTIES                                                                          |  
|                                                                                            |  
|PROPERTY, PLANT AND EQUIPMENT, net                                                          |  
|OTHER ASSETS:                                                                               |  
|Idle equipment, net                                                                         |  
|Restricted cash                                                                             |  
|Deferred finance costs                                                                      |  
|Deposit                                                                                     |  
|Total Other Assets                                                                          |  
|                                                                                            |  
|                                                                                            | $
|                                                                                            |  
|LIABILITIES AND STOCKHOLDERS'
      (DEFICIT)                                               |  
|CURRENT LIABILITIES:                                                                        |  
|Accounts payable                                                                            | $
|Accrued
      liabilities                                                                   |  
|Line of credit                                                                              |  
|Derivative
      instrument liabilities                                                     |  
|Current portion note payable                                                                |  
|Current portion
      senior secured convertible notes payable, net of discount of $491,603 |  
|Accrued interest payable                                                                    |  
|Total Current Liabilities                                                                   |  
|LONG TERM LIABILITIES:                                                                      |  
|Senior secured
      convertible notes payable, net of discount of $2,637,191               |  
|Derivative instrument
      liabilities                                                     |  
|Note payable                                                                                |  
|Asset retirement obligation                                                                 |  
|Total Liabilities                                                                           |  
|STOCKHOLDERS' (DEFICIT):                                                                    |  
|Common stock,
      $.002 par value, 200,000,000 shares authorized                          |  
|and 75,473,510 shares issued and outstanding                                                |  
|Additional paid
      in capital                                                            |  
|Deferred stock compensation                                                                 |  
|Accumulated
      (deficit)                                                                 |  
|Total Stockholders' (Deficit)                                                               |  
|                                                                                            | $

The accompanying notes are an integral part of the consolidated
  financial statements. 
  F-4

---

SANTA FE GOLD CORPORATION 
  CONSOLIDATED STATEMENTS OF
  OPERATIONS 
  FOR THE YEARS ENDED JUNE 30, 2008 AND 2007

|                                                                            |   | 2008       |   |   | 2007       |  
|--------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|SALES                                                                       | $ | -          |   | $ | 7,201      |  
|                                                                            |   |            |   |   |            |  
|OPERATING COSTS AND EXPENSES:                                               |   |            |   |   |            |  
|Exploration and mining costs                                                |   | 245,621    |   |   | 345,227    |  
|General and
      administrative                                            |   | 1,336,880  |   |   | 1,360,828  |  
|General and administrative -
      stock compensation                       |   | 216,413    |   |   | 68,208     |  
|Depreciation and
      amortization                                         |   | 4,554      |   |   | 14,430     |  
|Accretion of asset retirement
      obligation                              |   | 5,000      |   |   | 5,000      |  
|                                                                            |   | 1,808,468  |   |   | 1,793,693  |  
|                                                                            |   |            |   |   |            |  
|(LOSS) FROM OPERATIONS                                                      |   | (1,808,468 | ) |   | (1,786,492 | )
|                                                                            |   |            |   |   |            |  
|OTHER INCOME (EXPENSE):                                                     |   |            |   |   |            |  
|(Loss) on disposal of assets                                                |   | (127,500   | ) |   | (7,500     | )
|Gain on
      settlement of financing lease liability                       |   | -          |   |   | 2,870,369  |  
|Interest income                                                             |   | 28,886     |   |   | 53,162     |  
|Miscellaneous
      income                                                  |   | 11,155     |   |   | 4,735      |  
|Foreign currency translation
      (loss)                                   |   | (2,998     | ) |   | (1,947     | )
|(Loss) gain on
      derivative instrument liabilities                      |   | (272,418   | ) |   | 2,224,115  |  
|Relief of debt                                                              |   | 24,062     |   |   | 582,987    |  
|Accretion of
      discounts on notes payable and financing lease liability |   | (1,092,431 | ) |   | (2,770,472 | )
|Interest expense                                                            |   | (1,016,380 | ) |   | (822,978   | )
|                                                                            |   | (2,447,624 | ) |   | 2,132,471  |  
|                                                                            |   |            |   |   |            |  
|(LOSS) INCOME BEFORE PROVISION FOR INCOME
      TAXES                       |   | (4,256,092 | ) |   | 345,979    |  
|                                                                            |   |            |   |   |            |  
|PROVISION FOR INCOME TAXES                                                  |   | -          |   |   | -          |  
|                                                                            |   |            |   |   |            |  
|NET (LOSS) INCOME                                                           | $ | (4,256,092 | ) | $ | 345,979    |  
|                                                                            |   |            |   |   |            |  
|(Loss) Income per Share:                                                    |   |            |   |   |            |  
|Basic                                                                       | $ | (0.06      | ) | $ | 0.01       |  
|                                                                            |   |            |   |   |            |  
|Diluted                                                                     | $ | (0.06      | ) | $ | 0.00       |  
|                                                                            |   |            |   |   |            |  
|Weighted Average Common Shares Outstanding:                                 |   |            |   |   |            |  
|Basic                                                                       |   | 74,260,393 |   |   | 67,441,641 |  
|                                                                            |   |            |   |   |            |  
|Diluted                                                                     |   | 74,260,393 |   |   | 75,243,252 |  

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

---

SANTAFE GOLDCORPORATIONCONSOLIDATEDSTATEMENTOFSTOCKHOLDERS'(DEFICIT)EQUITYFOR
    THEYEARSENDEDJUNE 30, 2008 AND 2007

|                                                                          |                    |  |   |         |  |   | Additional |  |   |              |   |   |             |   |   |            |  
|------------------------------------------------------------------------- | ------------------ |  | - | ------- |  | - | ---------- |  | - | ------------ | - | - | ----------- | - | - | ---------- | -
|                                                                          | Common
      Stock |  |   | Paid-in |  |   | Deferred   |  |   | Accumulated  |   |   |             |  
|                                                                          | Shares             |  |   | Amount  |  |   | Capital    |  |   | Compensation |   |   | (Deficit)   |   |   | Total      |  
|                                                                          |                    |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|Balance, June 30, 2006                                                    | 63,963,712         |  | $ | 127,928 |  | $ | 37,731,448 |  | $ | (55,396      | ) | $ | (43,327,751 | ) | $ | (5,523,771 | )
|Shares issued for warrants in settlement of financing                     |                    |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|lease liability                                                           | 2,550,000          |  |   | 5,100   |  |   | 1,269,900  |  |   | -            |   |   | -           |   |   | 1,275,000  |  
|Shares issued for warrants on settlement of note                          |                    |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|payable and accrued interest, related party                               | 2,000,000          |  |   | 4,000   |  |   | 806,000    |  |   | -            |   |   | -           |   |   | 810,000    |  
|Termination of derivative on sale of property underlying                  |                    |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|financing lease                                                           | -                  |  |   | -       |  |   | 638,537    |  |   | -            |   |   | -           |   |   | 638,537    |  
|Shares issued for senior secured notes payable principal conversion       | 2,048,408          |  |   | 4,096   |  |   | 1,886,740  |  |   |              |   |   | -           |   |   | 1,890,836  |  
|Shares issued for senior secured notes payable
      interest conversion  | 520,166            |  |   | 1,041   |  |   | 530,724    |  |   |              |   |   |             |   |   | 531,765    |  
|Recognized deferred warrant compensation                                  | -                  |  |   | -       |  |   | -          |  |   | 37,704       |   |   | -           |   |   | 37,704     |  
|Costs associated with issuance of options
      for services              | -                  |  |   | -       |  |   | 30,505     |  |   | -            |   |   | -           |   |   | 30,505     |  
|Net income                                                                | -                  |  |   | -       |  |   | -          |  |   | -            |   |   | 345,979     |   |   | 345,979    |  
|                                                                          |                    |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|Balance, June 30, 2007                                                    | 71,082,286         |  |   | 142,165 |  |   | 42,893,854 |  |   | (17,692      | ) |   | (42,981,772 | ) |   | 36,555     |  
|Shares issued for senior secured notes payable
      principal conversion | 945,420            |  |   | 1,890   |  |   | 943,530    |  |   | -            |   |   | -           |   |   | 945,420    |  
|Shares issued for senior secured notes payable interest conversion        | 2,745,804          |  |   | 5,493   |  |   | 971,673    |  |   | -            |   |   | -           |   |   | 977,166    |  
|Recognized deferred warrant compensation                                  | -                  |  |   | -       |  |   | -          |  |   | 17,692       |   |   | -           |   |   | 17,692     |  
|Costs associated with issuance of options for services                    | -                  |  |   | -       |  |   | 198,721    |  |   | -            |   |   | -           |   |   | 198,721    |  
|Beneficial conversion feature on senior secured
      notes payable       | -                  |  |   | -       |  |   | 849,737    |  |   | -            |   |   | -           |   |   | 849,737    |  
|Issuance of stock grants                                                  | 700,000            |  |   | 1,400   |  |   | 446,600    |  |   | (448,000     | ) |   | -           |   |   | -          |  
|Net (loss)                                                                | -                  |  |   | -       |  |   | -          |  |   | -            |   |   | (4,256,092  | ) |   | (4,256,092 | )
|                                                                          |                    |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|Balance, June 30, 2008                                                    | 75,473,510         |  | $ | 150,948 |  | $ | 46,304,115 |  | $ | (448,000     | ) | $ | (47,237,864 | ) | $ | (1,230,801 | )

The accompanying notes are an integral part of the consolidated
  financial statements. 
  F-6

---

SANTA FE GOLD CORPORATION 
  CONSOLIDATED STATEMENTS OF CASH
  FLOWS 
  FOR THE YEARS ENDED JUNE 30, 2008 AND 2007

|                                                                             |   | 2008       |   |   | 2007       |  
|---------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|CASH FLOWS FROM OPERATING ACTIVITIES:                                        |   |            |   |   |            |  
|Net (loss) income                                                            | $ | (4,256,092 | ) | $ | 345,979    |  
|Adjustments to reconcile net (loss) income to net cash                       |   |            |   |   |            |  
|(used in) operating
      activities:                                        |   |            |   |   |            |  
|Depreciation and amortization                                                |   | 4,554      |   |   | 14,430     |  
|Stock compensation and other non-cash expenses                               |   | 216,413    |   |   | 68,208     |  
|Stock issued for interest                                                    |   | 948,389    |   |   | 531,765    |  
|Gain on settlement of financing lease liability                              |   | -          |   |   | (2,870,369 | )
|Accretion of discount on financing
      leasing liability and notes payable |   | 1,092,431  |   |   | 2,770,472  |  
|Accretion of asset retirement obligation                                     |   | 5,000      |   |   | 5,000      |  
|Loss on sale of assets                                                       |   | 127,500    |   |   | 7,500      |  
|Relief of debt                                                               |   | (24,062    | ) |   | (582,987   | )
|Foreign currency translation  loss                                           |   | 2,998      |   |   | 1,947      |  
|(Gain) loss on derivative instrument liabilities                             |   | 272,418    |   |   | (2,224,115 | )
|Amortization of deferred finance costs                                       |   | 103,172    |   |   | -          |  
|Net change in current
      assets and liabilities:                          |   |            |   |   |            |  
|Interest receivable                                                          |   | (1,424     | ) |   | -          |  
|Prepaid expenses                                                             |   | (3,258     | ) |   | 247,118    |  
|Deposits                                                                     |   | 1,341      |   |   | (2,683     | )
|Accounts payable and accrued liabilities                                     |   | 580,020    |   |   | (100,590   | )
|Accrued interest payable - related party                                     |   | -          |   |   | 33,750     |  
|Accrued interest payable                                                     |   | 154,666    |   |   | 63,782     |  
|Accrued lease payments                                                       |   | -          |   |   | 180,000    |  
|Net Cash (Used in) Operating Activities                                      |   | (775,934   | ) |   | (1,510,793 | )
|                                                                             |   |            |   |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                        |   |            |   |   |            |  
|Increase
      to restricted cash                                            |   | (3,890     | ) |   | -          |  
|Proceeds from sale of
      property and equipment                           |   | -          |   |   | 39,500     |  
|Purchase
      of property, plant and equipment                              |   | (716,432   | ) |   | (16,702    | )
|Increase to construction
      in progress                                   |   | (1,118,988 | ) |   | -          |  
|Purchase
      of mineral property                                           |   | (210,000   | ) |   | -          |  
|Net Cash (Used in) Provided by Investing Activities                          |   | (2,049,310 | ) |   | 22,798     |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                        |   |            |   |   |            |  
|Proceeds from convertible
      debentures notes                             |   | 6,680,757  |   |   | 1,000,000  |  
|Payments
      on line of credit                                             |   | (24,200    | ) |   | (37,545    | )
|Deferred finance costs                                                       |   | (270,000   | ) |   | (100,000   | )
|Payments
      on convertible debenture notes                                |   | (945,411   | ) |   | -          |  
|Net Cash Provided by Financing Activities                                    |   | 5,441,146  |   |   | 862,455    |  
|INCREASE (DECREASE) IN CASH AND CASH
      EQUIVALENTS                       |   | 2,615,902  |   |   | (625,540   | )
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                 |   | 639,852    |   |   | 1,265,392  |  
|CASH AND CASH EQUIVALENTS, END OF YEAR                                       | $ | 3,255,754  |   | $ | 639,852    |  

The accompanying notes are an integral part of the consolidated
  financial statements. 
  F-7

---

SANTA FE GOLD CORPORATION 
  CONSOLIDATED STATEMENTS OF CASH
  FLOWS 
  FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 
  (Continued)

|                                                                                                               |   | 2008    |  |   | 2007      | 
|-------------------------------------------------------------------------------------------------------------- | - | ------- |  | - | --------- | 
|                                                                                                               |   |         |  |   |           | 
|SUPPLEMENTAL CASH FLOW INFORMATION:                                                                            |   |         |  |   |           | 
|                                                                                                               |   |         |  |   |           | 
|Cash paid
      for interest                                                                                   | $ | 67,991  |  | $ | -         | 
|                                                                                                               |   |         |  |   |           | 
|Cash paid
      for income taxes                                                                               | $ | -       |  | $ | -         | 
|                                                                                                               |   |         |  |   |           | 
|SUPPLEMENTAL DISCLOSURE OF NON-CASH
      INVESTING AND FINANCING ACTIVITIES:                                  |   |         |  |   |           | 
|                                                                                                               |   |         |  |   |           | 
|Stock
      issued for warrants in settlement of financing lease liability                                     | $ | -       |  | $ | 1,275,000 | 
|                                                                                                               |   |         |  |   |           | 
|Stock
      issued for conversion of accrued interest                                                          | $ | 28,777  |  | $ | -         | 
|                                                                                                               |   |         |  |   |           | 
|Stock
      issued for conversion of senior secured convertible notes and notes
      payable, related parties | $ | 945,420 |  | $ | 2,700,836 | 
|                                                                                                               |   |         |  |   |           | 
|Mineral
      property purchased with note payable                                                             | $ | 250,000 |  | $ | -         | 
|                                                                                                               |   |         |  |   |           | 
|Termination of derivative on sale of property underlying financing
      lease                                 | $ | -       |  | $ | 638,537   | 
|                                                                                                               |   |         |  |   |           | 
|Stock
      grants issued                                                                                      | $ | 448,000 |  | $ | -         | 

The accompanying notes are an integral part of the consolidated
  financial statements. 
  F-8

---

SANTA FE GOLD CORPORATIONNOTES TO THE
    CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2008

NOTE 1 NATURE OF OPERATIONS

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

In
  November 2002, the Company ceased crushing and concentration activities at its
  Black Canyon project due to economic constraints. Limited marketing and sales
  continued during 2003-2005 at its Glendale mica processing facility. The Company
  is seeking a joint-venture partner to help finance and operate the project or to
  sell the project in its entirety.

In
  May 2006, for a cash price of $1.3 million, the Company acquired 100% of the
  shares of The Lordsburg Mining Company (Lordsburg Mining), a New Mexico
  corporation. With the acquisition of Lordsburg Mining, the Company acquired the
  Summit project, consisting of approximately 117.6 acres of patented and
  approximately 520 acres of unpatented mining claims in Grant County, New Mexico;
  approximately 257 acres of patented mining claims in Hidalgo County, New Mexico;
  and milling equipment including a ball mill and floatation plant in Sierra
  County, New Mexico.

On
  June 30, 2008, Lordsburg Mining purchased from St. Cloud Mining Company, a New
  Mexico corporation, for a price of $841,500, mineral processing equipment and
  real property situated adjacent to the Banner mill site located south of
  Lordsburg, New Mexico. The equipment included in the purchase constitutes
  important components for the Banner mill processing facility, notably a portable
  crushing and screening plant and a feeding and conveying system. The real
  property included in the purchase consists of 70 patented and 5 unpatented
  mining claims, and assignments of mineral leases covering 17 patented and 6
  unpatented mining claims. These mining claims and mineral leases, together with
  the patented mining claims Lordsburg Mining already owned in the area of the
  Banner mill site, cover approximately 1,500 acres (2.3 square miles) and
  comprise the core of the Virginia Mining District. Historical production of
  copper, gold and silver from the district has been substantial. Lordsburg Mining
  assumed certain potential environmental obligations in connection with the real
  property, including those related to reclamation of old workings, should such
  obligations arise in the future. The purchase price of $841,500 was allocated as
  to $631,500 for the equipment and $210,000 for the patented and unpatented
  mining claims and leases. The funds for the purchase were sourced from the $13.5
  million financing completed in December 2007.

The
  Company is currently developing the Summit mine in Grant County and constructing
  processing facilities at the Banner mill site in Hidalgo County, and anticipates
  entering into the production stage during the first calendar quarter of
  2009.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Going Concern

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

The Company has incurred a net loss of $(4,256,092) for the fiscal year ended June 30, 2008, and has a total accumulated deficit of $(47,237,864) and a working capital deficit of $(722,505) at June 30, 2008.  In addition, the Company has no significant revenue-generating operations. To continue as a going concern, the Company is dependent on continued fund raising for project development and payment of general and administration expenses.  However, the Company has no commitment from any party to provide additional working capital and there is no assurance that such funding will be available when needed, or if available, that its terms will be favorable or acceptable to the Company.

F-9

---

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

Principles of Consolidation

The
  consolidated financial statements include the accounts of the Company and its
  wholly-owned subsidiaries Azco Mica, Inc., a Delaware corporation, and The
  Lordsburg Mining Company, a New Mexico corporation. All significant
  inter-company accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

The
  Company considers all liquid investments purchased with an initial maturity of
  three months or less to be cash equivalents. The Company maintains its cash in
  bank deposit accounts which, at times, may exceed federally insured limits. The
  Company has not experienced any losses in such accounts. The Company believes it
  is not exposed to any significant credit risk on cash balances.

Property, Plant and Equipment

Land,
  buildings, plant and vehicles are carried at cost. Replacements, maintenance and
  repairs that do not improve or extend the life of the respective assets are
  expensed as incurred. Major renewals and improvements are capitalized. Upon
  retirement, sale or other disposition, the cost and accumulated amortization are
  eliminated and the gain or loss is included in operations. Property and
  equipment consists of land, mining equipment and buildings, which are recorded
  at cost. The buildings are depreciated using the straight-line method over the
  estimated useful lives of 15 to 39 years. Autos are depreciated using the
  straight-line method over the estimated useful life of 5 years. The Lordsburg
  Mining equipment will be depreciated over 8 years using the straight-line method
  when moved and deployed into production processing at the Hidalgo County site.

As of June 30, 2007, the Company obtained an independent appraisal of certain equipment. The appraisal indicated a net realizable value of approximately $1,541,500.  During the year ended June 30, 2008, the Company transferred idle equipment at an appraisal value of $105,000 to the Banner mill site and upon the dismantling of the Black Canyon mica site, wrote off idle equipment with a net book value of $125,000. The remaining balance of this equipment has been classified as idle equipment.

Mineral Exploration Costs

Mineral
  exploration costs are expensed as incurred. When it is determined that a mineral
  property can be economically developed as a result of establishing reserves,
  subsequent costs incurred prospectively to develop the property are capitalized
  as incurred and are amortized using the Units of Production method
  over the estimated life of the ore body based on estimated recoverable ounces
  in proven and probable reserves.

Derivative Financial Instruments

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

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

Derivative
  financial instruments are initially measured at their fair value. For derivative
  financial instruments that are accounted for as liabilities, the derivative
  instrument is initially recorded at its fair value and is then re-valued at each
  reporting date, with changes in the fair value reported as charges or credits to
  income. For warrant-based derivative financial instruments, the Company uses the
  Black-Scholes option pricing model to value the derivative instruments. To the
  extent that

F-10

---

the initial fair values of the freestanding and/or bifurcated derivative instrument liabilities exceed the total proceeds received, an immediate charge to income is recognized, in order to initially record the derivative instrument liabilities at
  their fair value.

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

The
  classification of derivative instruments, including whether such instruments
  should be recorded as liabilities or as equity, is reassessed at the end of
  each reporting period. If reclassification is required, the fair value of the
  derivative instrument, as of the determination date, is reclassified. Any previous
  charges or credits to income for changes in the fair value of the derivative
  instrument are not reversed. Derivative instrument liabilities are classified
  in the balance sheet as current or non-current based on whether or not net-cash
  settlement of the derivative instrument could be required within 12 months of
  the balance sheet date.

Reclamation Costs

The
  Company accounts for reclamation costs under the provisions of Statement of
  Financial Accounting Standards ("SFAS") No. 143, Accounting for Asset
  Retirement Obligations (SFAS No. 143). SFAS No. 143 addresses financial
  accounting and reporting for obligations associated with the retirement of tangible
  long-lived assets and the associated asset retirement costs. Specifically, the
  Statement requires that retirement obligations be recognized when they are incurred
  and displayed as liabilities with the initial measurement being at the present
  value of estimated third party costs. In addition, the asset retirement cost
  is capitalized as part of the assets carrying value and subsequently allocated
  to expense over the assets useful lives. The Company reviews the amount
  of the asset retirement obligation on an annual basis. As of June 30, 2008,
  $80,309 was accrued for reclamation on the ground site work at the Mica
  project. The asset retirement obligation associated with the Mica project consists
  of reclamation of disturbed property. The Company estimates the costs will not
  exceed the amounts accrued.

The
  Companys asset retirement obligation through June 30, 2008, is as follows:

|Balance at June 30, 2006                           | $ | 70,309
|-------------------------------------------------- | - | ------
|Accretion expense for the year ended June 30, 2007 |   | 5,000 
|Accretion expense for the year ended June 30, 2008 |   | 5,000 
|Balance at June 30, 2008                           | $ | 80,309

Revenue Recognition

The
  Company recognizes the sale of the product when an agreement of sale exists,
  product delivery has occurred, title has transferred to the customer and collectibility
  is reasonably assured. The price received is based upon terms of the contract.

Income Taxes

The
  Company accounts for income taxes in accordance with SFAS No. 109, Accounting
    for Income Taxes, and FASB Interpretation No. 48, Accounting
      for Uncertainty in Income Taxes- an interpretation of FASB Statement
        No. 109 ("FIN 48"). SFAS No. 109 requires the Company to recognize deferred
  tax assets and liabilities for the expected future tax consequences of events
  that have been recognized in the Companys financial statements or tax
  returns. Under this method, deferred tax assets and liabilities are determined
  based on the difference between the financial statements carrying amounts and
  tax basis of assets and liabilities using enacted tax rates in effect in the
  years in which the differences are expected to reverse. FIN 48 describes a recognition
  threshold and measurement attribute for the recognition and measurement of tax
  positions taken or expected to be taken in a tax return and also provides guidance
  on derecognition, classification, interest and penalties, accounting in interim
  periods, disclosure and transition.

Net (Loss) Per Share

SFAS
  No. 128, "Earnings per Share," requires dual presentation of basic and
  diluted earnings or loss per share (EPS) with a reconciliation of
  the numerator and denominator of the basic EPS computation to the numerator
  and denominator of the

F-11

---

diluted EPS computation. Diluted EPS reflects the potential
  dilution that could occur if securities or other contracts to issue common stock
  were exercised or converted into common stock or resulted in the issuance of
  common stock that then shared in the earnings of the entity. Basic loss per
  common share is computed based on weighted average shares outstanding and
  excludes any potential dilution from stock options, warrants and other common
  stock equivalents and is computed by dividing loss available to common
  shareholders by the weighted average number of common shares outstanding for the
  period. Diluted net loss per common share reflects potential dilution. These
  dilutive securities are not considered in the calculation, as the impact of the
  potential shares would be to decrease loss per share.

The
  following table reconciles the numerator and denominator used in the
  calculations of basic and diluted earnings per share (EPS) for the year ended
  June 30, 2008 and 2007:

2008
      
      
      2007Numerators:Numerator for basic EPS, net (loss) income
      $
      (4,256,092
      )
      $
      345,979Numerator for diluted EPS:Net earnings
      
      
      
      $
      345,979Interest on senior secured convertible
        notes payable
      
      
      
      
      3,432,562Derivative income
      
      
      
      
      (2,224,115
      )Income available for diluted EPS
      
      N/A
      
      $
      1,554,426Denominators:Denominator for basic EPS, weighted-averagecommon shares outstanding
      
      74,260,393
      
      
      67,441,641Potentially dilutive shares resulting from stockoptions and warrants
      
      
      
      
      4,110,387Senior secured notes converted to shares
      
      
      
      
      3,691,224Denominator for diluted EPS
      
      N/A
      
      
      75,243,252


Stock-Based Compensation

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

Effective
  July 1, 2006, the Company adopted the provisions of SFAS No. 123R, Under SFAS
  123R, Share-based Payment, whereby share-based compensation cost is
  measured at the grant date, based on the estimated fair value of the award, and
  is recognized as expense over the requisite vesting period. The Company
  determines the option value on the date of grant using the Black-Scholes option
  pricing model. The Company adopted the provisions of SFAS 123R using a modified
  prospective application. Under this method, compensation cost is recognized for
  all share-based payments granted, modified or settled after the date of
  adoption, as well as for any unvested awards that were granted prior to the date
  of adoption. The Company had no compensation cost relating to unvested portion
  of awards granted prior to the date of adoption to recognize at the time of
  adoption. Stock-based compensation costs recognized for the years ended June 30,
  2008 and 2007 amounted to $216,413 and $68,208, respectively.

Estimates

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

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

F-12

---

Fair Value of Financial Instruments

The
  carrying values of cash and cash equivalents, restricted cash, accounts payable
  and accrued liabilities, and the line of credit approximated their related fair
  values as of June 30, 2008, due to the relatively short-term nature of these
  instruments. The carrying value of the Companys convertible debentures
  and note payable approximates the fair value based on the terms at which the
  Company could obtain similar financing and the short term nature of these instruments.

Restricted Cash

As
  part of the reclamation deposit required for the Black Canyon mica property, the
  Company has restricted cash of $178,658, comprised of $50,000 held on deposit
  for the Arizona State Treasurer in a one-year automatically renewable short-term
  investment; and $128,658 held as collateral against an irrevocable letter of
  credit of the same amount to the U.S. Bureau of Land Management (BLM). Both of
  the amounts will be held until all terms and conditions of the reclamation
  agreement have been fulfilled or a satisfactory replacement bond has been
  accepted. The Company during the year ended June 30, 2008, deposited $3,890 with
  the New Mexico Energy Minerals and Natural Resources Department. At June 30,
  2008, the Company has total restricted cash aggregating $182,548.

Reclassifications

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

Recent Accounting Pronouncements

In
  June 2008, the FASB issued FASB Staff Position FSP No. EITF 03-6-1,
  Determining Whether Instruments Granted in Share-based Payment Transactions
    are Participating Securities.FSP No. EITF 03-6-1 states that unvested
  share-based payment awards that contain non-forfeitable rights to dividends or
  dividend equivalents (whether paid or unpaid) are participating securities and
  shall be included in the computation of EPS pursuant to the two-class method.
  FSP No. EITF 03-6-1 is effective for financial statements issued for fiscal
  years beginning after December 15, 2008. All prior-period EPS data presented
  shall be adjusted retrospectively (including interim financial statements,
  summaries of earnings, and selected financial data) to conform to the provisions
  of FSP No. EITF 03-6-1. Early application is not permitted. The Company is
  evaluating the impact of FSP No. EITF 03-6-1.

In
  May 2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1
  "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
    Conversion (Including Partial Cash Settlement)" ("FSP APB 14-1"). FSP APB
  14-1 requires the issuer of certain convertible debt instruments that may be
  settled in cash (or other assets) on conversion to separately account for the
  liability (debt) and equity (conversion option) components of the instrument in
  a manner that reflects the issuer's non-convertible debt borrowing rate. FSP APB
  14-1 is effective for fiscal years beginning after December 15, 2008 on a
  retroactive basis. The Company currently is evaluating the potential impact, if
  any, of the adoption of FSP APB 14-1 on its consolidated financial position,
  results of operations or cash flows.

In
  May 2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 162
  The Hierarchy of Generally Accepted Accounting Principles. SFAS 162
  identifies the sources of accounting principles and the framework for selecting
  the principles to be used in the preparation of financial statements that are
  presented in conformity with generally accepted accounting principles. SFAS 162
  is effective 60 days following the Security Exchange Commissions (SEC)
  approval of the Public Company Accounting Oversight Board amendments to remove
  the hierarchy of generally accepted accounting principles from the auditing
  standards. The Company does not expect the adoption of SFAS 162 to impact its
  results of operations, financial position or cash flows.

In
  March 2008, the FASB issued SFAS 161, Disclosures about Derivative
    Instruments and Hedging Activities  an amendment of FASB Statement No. 133
  (SFAS 161). SFAS 161 requires enhanced disclosures regarding derivatives and
  hedging activities, including: (a) the manner in which an entity uses derivative
  instruments; (b) the manner in which derivative instruments and related hedged
  items are accounted for under Statement of Financial Accounting Standards No.
  133, Accounting for Derivative Instruments and Hedging Activities; and (c) the
  effect of derivative instruments and related hedged items on an entitys
  financial position, financial performance, and cash flows. SFAS 161 is effective
  for financial statements issued for fiscal years and interim periods beginning
  after November 15, 2008. As SFAS 161 relates specifically to disclosures, it
  will have no impact on the Companys results of operations, financial position
  or cash flows.

F-13

---

In
  December 2007, the FASB issued SFAS 141(R), Business Combinations
  (SFAS 141(R)). SFAS 141(R) establishes principles and requirements for how an
  acquirer recognizes and measures in its financial statements the identifiable
  assets acquired, the liabilities assumed, the goodwill acquired, and any
  non-controlling interest in the acquiree. This statement also establishes
  disclosure requirements to enable the evaluation of the nature and financial
  effect of the business combination. SFAS 141(R) is effective for fiscal years
  beginning after December 15, 2008. The Company is in the process of evaluating
  the effect that the adoption of SFAS 141(R) will have on its results of
  operations, financial position, and cash flows.

In
  December 2007, the FASB issued SFAS 160, Non-controlling Interests in
    Consolidated Financial Statementsan amendment of ARB No. 51 (SFAS 160).
  SFAS 160 amends ARB 51 to establish accounting and reporting standards for the
  non-controlling interest in a subsidiary and for the deconsolidation of a
  subsidiary. It clarifies that a non-controlling interest in a subsidiary is an
  ownership interest in the consolidated entity that should be reported as equity
  in the consolidated financial statements. SFAS 160 is effective for fiscal years
  beginning on or after December 15, 2008. The Company does not expect the
  adoption of SFAS 160 to impact its results of operations, financial position or
  cash flows.

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

NOTE 3  MINERAL PROPERTIES

Mineral
  properties were comprised of acquisition costs related to the properties in New
  Mexico and Arizona, as shown below as of June 30, 2008:

Summit property, Grant County, NM
      $
      119,000Banner property, Hidalgo County, NM
      
      210,000New Planet property, La Paz County, AZ
      
      250,000$
      579,000


NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

Property
  and equipment consist of the following at June 30, 2008:

Leasehold improvements
      $
      1,645Office furniture and equipment
      
      13,844Land
      
      163,000Mine processing equipment and buildings
      
      1,722,458Construction in progress
      
      1,126,988Capitalized interest
      
      95,190Automotive
      
      35,8683,158,993Less: Accumulated depreciation
      
      (21,664
      )$
      3,137,329


Depreciation
  expense for the years ended June 30, 2008 and 2007 were $4,554 and $14,430,
  respectively.

The
  Company is in the process of constructing the Banner mill operation near
  Lordsburg, New Mexico. The Company is also in the process of completing the site
  developments at the Summit mine in Grant County and in preparation of production
  in the first quarter of 2009. The estimated cost of the total project is
  $13,500,000.

The
  following table shows the carrying value of equipment, which is idle at June
  30, 2008. The carrying value is based upon a third party appraisal obtained
  as of the year ended June 30, 2007:

Mica processing equipment
      $
      1,669,339Black Canyon mine equipment
      
      2,227,0903,896,429Less: Allowance for impairment and depreciation
      
      (2,584,929
      )$
      1,311,500


F-14

---

NOTE 5 - DERIVATIVE INSTRUMENT LIABILITIES

On
  March 20, 2006, the Company completed a private placement of senior secured
  convertible notes, additional investment rights and warrants to institutional
  investors for an aggregate purchase price of $2,500,000. These notes were
  evaluated using Emerging Issues Task Force (EITF) issue No. 00-19, Accounting
  for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
  Companys Own Stock (EITF 00-19) and it was determined that the warrants,
  embedded conversion and interest components and additional investment rights
  should be accounted for as derivative instrument liabilities. Accordingly, they
  are to be marked to market each reporting period, with the corresponding
  non-cash gain or loss reflected in the Companys current period statement of
  operations.

On
  September 6, 2006, the Company amended the terms of the private placement of the
  senior secured convertible notes that were issued on March 20, 2006. The common
  stock warrants and additional investment rights held by the investors were also
  amended. In connection with the amendment, the investors agreed to purchase in
  the aggregate an additional $1,000,000 of notes under the amended terms,
  bringing the total outstanding principal, including interest and liquidated
  damages, due under the notes to $3,781,662. This principal amount plus interest
  was repaid in full in December 2007.

The
  Company uses the Black-Scholes option pricing model to value options, warrants,
  imbedded conversion option components and additional investment rights that are
  recorded as derivative liabilities. The fair values calculated on the original
  placement of senior secured convertible notes were re-computed for the amended
  terms of the placement agreement for the increased principal amount of the
  convertible notes and the cost of reducing the conversion price of the existing
  convertible notes, warrants and additional investment rights from $1.58 to
  $1.00. The aggregate fair values exceeded the additional proceeds received and
  $2,400,000 was recognized as a charge to loss on derivative liabilities in the
  period ended September 30, 2006. The initial convertible notes had no carrying
  value and the modifications made to the notes resulted in no additional carrying
  value, as the fair value of the derivative instruments issued exceeded the
  proceeds received. As of the date of the amendment, the Company re-computed the
  effective interest rate on the convertible notes to accrete the carrying value
  of the notes to their redemption dates, based on the revised repayment schedule
  and amounts.

On
  February 23, 2007, the Company agreed with the institutional investors to amend
  the terms of the private placement of senior secured convertible notes,
  additional investment rights and warrants issued March 20, 2006 and September 6,
  2006. Under terms of this Amendment 2, the date by which the Company was
  required to file a registration statement with the Securities and Exchange
  Commission was extended from November 5, 2006, until April 30, 2007 (filed March
  23, 2007), and the date by which such registration statement was required to be
  declared effective, was extended from February 4, 2007, until July 31, 2007. The
  investors agreed to forgo all liquidated damages and penalties related to the
  previous deadlines. The Company agreed to seek stockholder approval for an
  increase in the Companys authorized capital, from the authorized limit of 100
  million shares, to 200 million shares, and, if necessary, to file additional
  registration statements. In connection with the amendment, the Company issued
  1,750,000 warrants, giving note holders the right to purchase common stock at a
  price of $1.25 per share for a period of five years. The fair value of the
  derivative instruments liability for these warrants at the time of issuance was
  determined to be $1,773,013 with the following assumptions: (1) risk free
  interest rate of 4.67%, (2) remaining contractual life of 5 years, (3) expected
  stock price volatility of 115.5%, and (4) expected dividend yield of zero.

On
  December 21, 2007, the warrant exercise price of $1.25 per share on the
  1,750,000 warrants was reduced to $1.00 under the terms and conditions of the
  warrant with the reduction resulting from the placement of a 7% Senior Secured
  Convertible Debenture with attached warrants at an exercise price of $1.00 per
  share. The original warrant also contained an anti-dilution provision and the
  warrants were increased by 437,500 to 2,187,500. The fair value of the
  derivative instruments liability for these warrants was recalculated at the time
  of the price reduction and warrant increase which is further described
  below.

On
  October 30, 2007, the Company completed the placement of 10% Convertible Senior
  Subordinated Notes in the amount of $450,000. The notes were placed with three
  accredited investors in the amount of $150,000 each. The notes have a term of 60
  months and bear interest at 10% per annum. In connection with the transaction,
  the Company issued a five year

F-15

---

warrant for each $2.50 invested, each warrant giving the note
  holder the right to purchase common stock at a price of $1.25 per share. An
  aggregate of 180,000 warrants were issued under the notes.

On
  December 21, 2007, the Company entered into a definitive agreement for the
  placement with a single investor of a 7% Senior Secured Convertible Debenture in
  the amount of $13,500,000. Proceeds from the debenture will be issued in
  accordance with a pre-determined funding schedule and the term of the debenture
  is 60 months. In connection with the transaction, for every $2.00 of the
  original principal amount of the debenture, the investor will receive a warrant
  to purchase one share of common stock at a price of $1.00. The warrants are
  exercisable from July 1, 2010, to December 31, 2014. On December 27, 2007, the
  Company received the initial advance under the agreement of $350,000 and issued
  175,000 warrants relating to the advance.

The
  fair value of the derivative instruments liability for these warrants issued
  under the placements at the time of issuance in the October 2007, and December
  2007, transactions was determined to be $163,627 with the following assumptions:
  (1) risk free interest rate of 3.50% to 4.05%, (2) remaining contractual life of
  5 and 7 years, (3) expected stock price volatility of 113.889% to 118.299%, and
  (4) expected dividend yield of zero. This derivative instruments liability was
  recorded as a discount to the convertible notes at the time of the transaction.

On
  January 9, 2008 and January 10, 2008, the Company completed the placement of
  Additional Investment Rights aggregating $225,000 with two institutional
  investors. The notes have a term of 17 months and bear interest at 7% per annum.
  In connection with the transaction, the Company issued a five year warrant for
  each $2.00 invested, each warrant giving the note holder the right to purchase
  common stock at a price of $1.00 per share. An aggregate of 112,500 warrants
  were issued under the notes. The notes also have an embedded convertible option
  for principal and interest.

On
  January 15, 2008, the Company received the second advance of $1,500,000 and
  issued 750,000 warrants relating to the advance as provided for under the terms
  and conditions of the $13,500,000 7% Senior Secured Convertible Debenture
  entered into on December 21, 2007.

On
  February 1, 2008, the Company completed the private placement of a 10%
  Convertible Senior subordinated Note of $237,143 with an accredited investor and
  issued a note and related warrants under terms and conditions the same as for
  the private placements completed October 31, 2007. In connection with the
  transaction, the Company issued a five year warrant for each $2.50 invested, for
  a total of 94,858 warrants, each warrant giving the note holder the right to
  purchase one share of common stock at a price of $1.25 per share.

The
  fair value of the derivative instruments liability for these warrants and
  embedded convertible options issued under the placements at the time of issuance
  in the January 2008, and February 2008, transactions was determined to be
  $771,323 with the following assumptions: (1) risk free interest rate of 2.46% to
  3.3%, (2) remaining contractual life of 1.5 and 7 years, (3) expected stock
  price volatility of 112.428% to 112.737%, and (4) expected dividend yield of
  zero. This derivative instruments liability was recorded as a discount to the
  convertible notes at the time of the transaction.

On
  April 15, 2008, the Company received the third advance of $3,500,000 and issued
  1,750,000 warrants relating to the advance as provided for under the terms and
  conditions of the $13,500,000 7% Senior Secured Convertible Debenture entered
  into on December 21, 2007.

On
  April 30, 2008, and June 2, 2008, the Company completed the placement of
  Additional Investment Rights aggregating $418,614 with an institutional
  investor. The notes have a term of 17 months and bear interest at 7% per annum.
  In connection with the transaction, the Company issued a five year warrant for
  each $2.00 invested, each warrant giving the note holder the right to purchase
  common stock at a price of $1.00 per share. An aggregate of 209,307 warrants
  were issued under the notes. The notes also have an embedded convertible option
  for principal and interest.

The
  fair value of the derivative instruments liability for these warrants and
  embedded convertible options issued under the placements at the time of issuance
  in the April 2008 and June 2008 transactions was determined to be $1,447,716
  with the following assumptions: (1) risk free interest rate of 2.29% to 3.28%,
  (2) remaining contractual life of 1.42 to 6.72 years, (3) expected stock price
  volatility of 105.893% to 106.552%, and (4) expected dividend yield of zero.
  This derivative instruments liability was recorded as a discount to the
  convertible notes at the time of the transaction.

F-16

---

The
  fair value of the derivative instruments liability at June 30, 2007, was
  determined to be $2,402,970 with the following assumptions: (1) risk free
  interest rate of 4.91% to 4.93%, (2) remaining contractual life between 0.50 to
  4.65 years, (3) expected stock price volatility of 115.602%, and (4) expected
  dividend yield of zero. The fair market value of the derivative instruments
  liability at June 30, 2008, was determined to be $5,058,054 with the following
  assumptions: (1) risk free interest rate of 1.9% to 3.61%, (2) remaining
  contractual life between 0 .19 to 6.5 years, (3) expected stock price volatility
  of 103.613%, and (4) expected dividend yield of zero. Based upon the change in
  fair value, the Company has recorded a non-cash loss on derivative instruments
  for the year ended June 30, 2008, of $(272,418) and a corresponding increase in
  the derivative instruments liability. The impact of EITF 00-19 on the financial
  statements as of and through June 30, 2008, was as follows:

| |                                                                                |   | Derivative      |  |   | Derivative      |           |   | Derivative Gain |  
| | ------------------------------------------------------------------------------ | - | --------------- |  | - | --------------- | --------- | - | --------------- | -
| |                                                                                |   | Liability as of |  |   | Liability as of |           |   | (Loss) Through  |  
| |                                                                                |   | June 30, 2007   |  |   | June 30, 2008   |           |   | June 30, 2008   |  
| | Convertible Debentures:                                                        |   |                 |  |   |                 |           |   |                 |  
| | Compound Embedded Derivatives                                                  | $ | 353,534         |  | $ | 236,662         |           | $ | 116,872         |  
| | Additional Investment Rights                                                   |   | 552,996         |  |   | 204,471         |           |   | 348,525         |  
| | Purchase Agreement Warrants                                                    |   | 775,120         |  |   | 3,337,285       |           |   | (2,562,165      | )
| | Amendment 2 Warrants                                                           |   | 721,320         |  |   | 1,279,636       |           |   | (558,316        | )
| | Totals                                                                         | $ | 2,402,970       |  | $ | 5,058,054       |           |   | (2,655,084      | )
| |                                                                                |   |                 |  |   |                 |           |   |                 |  
| | Amount allocated to convertible note discounts
      at transaction inception: |   |                 |  |   |                 | 2,382,666 |  
| |                                                                                |   |                 |  |   |                 |           | $ | (272,418        | )

NOTE 6  SENIOR SECURED CONVERTIBLE NOTES PAYABLE

On
  September 6, 2006, the Company amended the terms of the private placement of
  the senior secured convertible notes that were issued on March 21, 2006. The
  common stock warrants and Additional Investment Rights held by the investors
  were also amended. Under the terms of the amendment, the maturity of the senior
  secured convertible notes was deferred from August 31, 2007, to January 1, 2008.
  The senior secured convertible notes amortized over 12 equal monthly installments
  and the date of the first installment was extended from September 1, 2006, to
  February 1, 2007. Interest on the principal amount outstanding remained at the
  rate of 7% per annum and began to accrue from February 1, 2007. Interest was
  payable on the last day of each calendar quarter, beginning on March 31, 2007.
  The price at which the holder of each senior secured convertible note could
  convert the principal and accrued interest amount outstanding under each note
  into shares of the Companys common stock was reduced from $1.58 to $1.00
  per share. The Company could pay principal and accrued interest in cash or,
  at the Companys option, in shares of its common stock under the same terms
  and conditions as provided for in the March 20, 2006, agreement. In connection
  with the amendment, the investors agreed to purchase in the aggregate an additional
  $1,000,000 of notes under the amended terms, bringing the total outstanding
  principal, including interest and liquidated damages, due under the notes to
  $3,781,662. The amendment provided for a revised filing date by which the Company
  must file a registration statement with the Securities and Exchange Commission,
  to within 60 days after the date of the amendment, and a revised date by which
  the Company must cause the registration to be declared effective, to within
  150 days after the date of the amendment.

In
  connection with the amendment and additional purchase of notes, the Company
  issued additional common stock warrants, increasing the number of warrants held
  by the investors to 1,890,300, extended the expiration date of the warrants to
  September 6, 2011, and reduced the exercise price of the warrants from $1.58 to
  $1.00.

The
  Company also granted to the investors Additional Investment Rights, increasing
  the Additional Investment Rights held by the investors, so that they could
  purchase up to a total of $1,890,830 of senior secured convertible notes, under
  the same terms and conditions as the amended notes. The Additional Investment
  Rights were exercisable for a period of 12 months following the date of a
  registration statement. Upon exercise of the Additional Investment Rights, the
  holders also would receive 945,416 warrants to purchase common stock. The
  conversion price of the notes and the exercise price of the warrants issuable on
  exercise of the Additional Investment Rights were reduced from $1.58 to $1.00.

Under
  the agreed terms, the convertible notes had a term of 17 months and amortized
  over 12 months in 12 equal monthly installments beginning on February 1, 2007.
  Interest on the $3,781,662 principal amount outstanding accrued at a rate of
  seven percent (7%) per annum. The Company could pay principal and accrued
  interest in cash

F-17

---

or, at the Companys option, in shares of common stock. If the
  Company elected to pay principal and interest in shares of common stock, the
  value of each share of common stock was equal to ninety percent (90%) of the
  average of the ten (10) lowest daily volume weighted average prices of the
  Companys common stock during the twenty (20) trading days immediately preceding
  the date of payment. At the option of each holder of the convertible notes, the
  principal amount outstanding under the notes was convertible at any time after
  the closing of the private placement into shares of our common stock at a
  conversion price of $1.00 per share.

The
  Company issued 2,048,048 shares of common stock as payment of principal aggregating
  $1,890,836 and 520,166 shares of common stock as payment of interest aggregating
  $531,765 under the convertible notes in satisfaction of payments due from February
  1, 2007, through June 30, 2007. During the period July 1, 2007 to December 31,
  2007, the Company paid on the convertible debenture notes, principal installments
  aggregating $1,890,831, with the issuance of 945,420 shares of the Company’s
  common stock at a value of $945,420 and cash payments of $945,411. Interest
  payments aggregating $988,507 were paid with the issuance of 2,745,804 shares
  of the Company’s common stock and cash of $11,341. All principal and interest
  amounts due under the notes have been paid.

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

In
  connection with the October 30, 2007, placement, on February 1, 2008, the
  Company received an additional $237,143 from an accredited investor and issued a
  note and related warrants under the same terms and conditions. In connection
  with the transaction, the Company issued a five year warrant for each $2.50
  invested, for a total of 94,858 warrants, each warrant giving the note holder
  the right to purchase one share of common stock at a price of $1.25 per
  share.

On
  December 21, 2007, the Company entered into definitive agreements for the
  placement with a single investor of a 7% Senior Secured Convertible Debenture in
  the amount of $13,500,000. Proceeds from the debenture will be issued in
  accordance with a pre-determined funding schedule related to the Summit
  projects anticipated construction requirements during 2008. The term of the
  debenture is 60 months, at the end of which time all remaining principal and
  interest shall be due. The debenture bears interest at the rate of 7% per annum.
  Interest will be accrued until June 30, 2009. Interest on the outstanding
  principal balance will then be payable in quarterly installments commencing on
  July 1, 2009. Interest may be paid in cash or stock at the investors election.
  If paid in stock, the number of shares will be calculated using the average of
  the daily volume weighted average sales prices of the common stock for the
  twenty (20) trading days immediately preceding the payment date. The entire
  amount of principal and any unpaid interest will be due December 31, 2012,
  subject to the investors right to require the Company after 36 and 48 months to
  apply up to 30% of the Summit projects positive cash flow toward retirement of
  the debenture. The debenture is secured by a mortgage on the Summit real
  property and a security interest in Summit personal property. The investor may
  at any time convert unpaid principal and interest into shares of our common
  stock at the rate of $1.00 per share. The debenture will be automatically
  converted into common stock if the weighted average closing sales price of the
  stock exceeds $2.50 per share for 10 consecutive trading days. Beginning January
  1, 2011, the Company may redeem the entire outstanding amount of the debenture,
  including principal and outstanding interest, subject to the investors right to
  convert the debenture into shares of common stock. In connection with the
  transaction, for every $2.00 of the original principal amount of the debenture,
  the investor will receive a warrant to purchase one share of common stock at a
  price of $1.00. The warrants are exercisable from July 1, 2010, to December 31,
  2014. On December 27, 2007, the Company received the initial advance under the
  agreement of $350,000. The Company received the second and third advances of
  $1,500,000 and $3,500,000, respectively, under the agreement on January 15,
  2008, and on April 15, 2008, respectively. As of June 30, 2008, the Company has
  received total advances under the agreement of $5,350,000 and the Company has
  issued an aggregate of 2,675,000 warrants under the debenture advances. The
  Company paid an account

F-18

---

management fee of 2% ($270,000) in connection with the
  transaction in January 2008, after the second advance under the agreement was
  received.

On
  January 9, 2008, January 10, 2008, April 30, 2008 and June 2, 2008 the Company
  completed the placement of Additional Investment Rights aggregating $643,614
  with two institutional investors. The notes have a term of 17 months and bear
  interest at 7% per annum. In connection with the transaction, the Company issued
  a five year warrant for each $2.00 invested, each warrant giving the note holder
  the right to purchase common stock at a price of $1.00 per share. An aggregate
  of 321,807 warrants were issued under the notes. The Company can pay principal
  and accrued interest in cash or, at the Companys option, in shares of common
  stock. If the Company elects to pay principal and interest in shares of common
  stock, the value of each share of common stock will be equal to ninety percent
  (90%) of the average of the ten (10) lowest daily volume weighted average prices
  of the Companys common stock during the twenty (20) trading days immediately
  preceding the date of payment. At the option of each holder of the convertible
  notes, the principal amount outstanding under the notes is convertible at any
  time after the closing of the private placement into shares of our common stock
  at a conversion price of $1.00 per share.

The
  components of the senior secured convertible notes payable are as follows as of
  June 30, 2008:

|                                  |   | Principal |  |   | Unamortized |   |   |           | 
|--------------------------------- | - | --------- |  | - | ----------- | - | - | --------- | 
|                                  |   | Amount    |  |   | Discount    |   |   | Net       | 
|                                  |   |           |  |   |             |   |   |           | 
|Current portion of long-term debt | $ | 502,528   |  | $ | (491,603    | ) | $ | 10,925    | 
|Long-term portion, net of current |   | 6,178,229 |  |   | (2,637,191  | ) |   | 3,541,038 | 
|                                  |   |           |  |   |             |   |   |           | 
|                                  | $ | 6,680,757 |  | $ | (3,128,794  | ) | $ | 3,551,963 | 

Aggregate
  yearly maturities of long term debt based upon payment terms at June 30, 2008,
  are as follows:

2009
      $
      502,5282010
      
      141,0862011
      
      -2012
      
      5,800,0002013
      
      237,143Subtotal
      
      6,680,757Less: unamortized original issue discount
      
      (3,128,794
      )$
      3,551,963
      )


As
  of June 30, 2008, accrued interest payable on the senior secured convertible
  notes aggregated $154,666.

NOTE 7  NOTE PAYABLE

On
  June 5, 2008, the Company agreed to exercise the option to purchase the Planet
  MIO property, consisting of thirty-one patented mining claims totaling 523 acres
  in La Paz County, Arizona. The Company originally leased the property in 2000
  from New Planet Copper Mining Company under the terms of a Lease with Option
  to Purchase. The Company agreed to exercise the purchase option in connection
  with settlement of an action the Company commenced in March 2007 seeking to
  confirm that the lease remained in good standing. The purchase price is $250,000.
  The Company signed a promissory note for $200,000 with interest payable at 10%
  per annum from the date of closing of the transaction. The provisions of the
  note call for a $50,000 payment at the signing of the note, which occurred in
  August 2008, and $50,000 annual principal and interest payments on the four
  subsequent anniversary dates of the note. The agreement also provides for a
  5% royalty to be paid on any future production from the property. Accordingly,
  $50,000 is recorded as current and $200,000 is recorded as noncurrent.

NOTE 8SALE OF REAL PROPERTY AND SETTLEMENT
  OF FINANCING LEASE LIABILITY

On
  November 3, 2006, the Company concluded a Real Property Purchase Agreement with
  Muzz Investments, LLC (Muzz) for the sale of the Company's 60% ownership
  interests in real estate and buildings at its Glendale, Arizona location. The
  sale included approximately five acres of land, a 5,000 sq. ft. office building
  and an 18,000

F-19

---

sq. ft. mill building. Under the Agreement, the Company
  retained ownership of its mica processing equipment installed in the mill
  building. The equipment was removed and transported to a storage site for future
  use. The equipment is included in idle equipment in the accompanying financial
  statements. As part of the transaction, the Company also agreed to provide for
  the exercise of 2,550,000 warrants granted to Muzz in 2002 and to issue
  2,550,000 unregistered shares of its common stock to Muzz. In consideration for
  the Companys entry into the Real Property Purchase Agreement and the issue of
  the unregistered stock in settlement of the Muzz warrants, Muzz agreed to
  terminate the 2002 financing lease agreement and to cancel all of the
  outstanding financial obligations under the lease.

The
  Muzz transaction eliminated liabilities aggregating approximately $5,575,000,
  consisting of debt obligations related to the lease aggregating approximately
  $4,936,500 and a derivative financial liability associated with the Muzz
  warrants of approximately $638,500 that was reclassified to equity; removed a
  net book value of property and equipment of approximately $533,000 and deferred
  lease costs of $86,100; and, in connection with the exercise of the 2,550,000
  Muzz warrants, resulted in an equity entry of $1,275,000.The Company recognized
  a gain on the transaction of $2,870,369, net of costs of approximately $171,911
  associated with the transaction.

NOTE 9 - NOTES PAYABLE, RELATED PARTY

In
  March 2001, the Company received an unsecured loan of $800,000 from a director,
  due March 15, 2004, as amended and secured by an interest in all of the
  Companys accounts receivable, inventory, equipment and real property. On March
  15, 2006, the director agreed to extend the delinquent note for a period of 18
  months, until September 15, 2007, with an annual interest rate of 12%. On March
  15, 2006, the Company issued 300,000 shares of restricted common stock for the
  exercise of warrants at $0.70 per share to the director in exchange for payment
  of accrued interest owed on the note payable amounting to $160,000 at the time
  of the exercise and a reduction of principal on the note payable of $50,000.

On
  November 15, 2006, this director exercised options to purchase 2,000,000 shares
  of common stock at $0.10 per share, in exchange for payment of accrued interest
  owed of $60,000 and reduction of principal on the note payable of $150,000 to
  the director, aggregating $210,000. In addition, the director agreed to
  contribute to capital the remaining unpaid principal on the note of
  $600,000.

In
  connection with the directors contribution of capital described above, the
  Company granted the director a 25% net proceeds royalty interest in 67
  unpatented mining claims located in Yavapai County, toward an end settlement of
  $600,000.

NOTE 10 - LINE OF CREDIT

In
  January 2003, the Company obtained an Equity Line of Credit (ELOC). The ELOC
  accrued interest at 24% per year and was due March 17, 2003. In April 2007, the
  Company settled the amount owed. As of the date of settlement, a balance of
  $73,145 plus accrued interest of $70,881 was owed and the Company recognized a
  relief of debt on the settlement aggregating $69,026.

In
  April 2007, the Company negotiated a non-interest bearing settlement of $75,000
  in connection with liabilities related to the ELOC, payable in an initial
  installment of $35,000 and monthly payments of $2,200 commencing in May 2007
  until paid in full. The unpaid balance at June 30, 2008, was $11,400.

NOTE 11 - CONTINGENCIES AND COMMITMENTS

Royalty Agreement

The
  Company, in connection with a directors contribution of capital in November
  2006, granted the director a 25% net proceeds royalty interest in 67 unpatented
  mining claims located in Yavapai County, Arizona, toward an end settlement of
  $600,000.

F-20

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Office Lease

Effective
  March 1, 2007, the Company entered into a lease for office space in Albuquerque,
  New Mexico, for a period of three years. The lease provides for the following
  minimum rental payments:

Fiscal year ending:June
        30, 2009
      $
      33,492June
        30, 2010
      
      22,770Total
      $
      56,262


Total
  rental expense was $44,020 and $192,831 for fiscal years 2008 and 2007,
  respectively.

Employment Agreements

On
  October 7, 2003, the Company entered into employment and change of control
  agreements with its President and Chief Executive Officer. The employment
  agreement describes, among other things, the officers duties, compensation
  levels and benefits. The agreement provided for annual salary of $180,000
  adjusted by the CPI. The term of the agreement is from October 16, 2003, through
  and including October 15, 2006, and then automatically extends through October
  15, 2008, and thereafter on a yearly basis unless terminated on 90 days prior
  notice. The change of control agreement provides that if there is a change of
  control of the Company and the officer leaves the employment of the Company, for
  reason other than discharge for cause, death, or disability, within six months
  after such change of control, the officer shall receive a lump sum cash payment
  of 299% of the base amount as defined in IRC Section 280G (b) (3), subject to
  certain limitations of the Internal Revenue Code. In addition, the officer will
  continue to be covered by the Companys medical, health, life and dental plans
  for 24 months after such cessation of employment. The officer was provided a per
  diem living and travel allowance of $4,015 per month while based at the
  Companys headquarter location in Glendale, AZ, which per diem was discontinued
  in April 2007 upon the Companys relocation to Albuquerque, NM.

Property Identification Agreement

On
  October 6, 2003, the Company entered into a confidential property identification
  agreement with its current President and Chief Executive Officer, prior to his
  becoming an officer and director of the Company. Under terms of the agreement,
  the current officer, on the basis of his prior knowledge, provided a list of 24
  specific mineral properties with potential for exploration and development that
  might represent attractive acquisition opportunities for the Company. The
  Company agreed to pay compensation to the current officer in the form of a
  royalty of 1.0% of the value of future production, if any, derived from
  identified properties that the Company acquires. In the event an identified
  property is acquired and subsequently sold, the Company agreed to pay the
  current officer an amount equal to 10.0% of the value of the sale. The Ortiz
  gold property that was acquired in August 2004 and the Summit silver- gold
  project are two of the 24 properties identified and are subject to the property
  identification agreement.

New Planet Project Royalty Agreement

Under
  the June 5, 2008, exercise of the option to purchase the Planet MIO property, as
  part of the agreement, the Company is obligated to pay a 5% royalty on any
  future production from the property.

Ortiz Gold Project

On
  August 1, 2004, the Company entered into an option and lease agreement with
  Ortiz Mines, Inc., a New Mexico corporation, whereby the Company acquired
  exclusive rights for exploration, development and mining of gold and other
  minerals on 57,267 acres (approximately 90 square miles) of the Ortiz Mine Grant
  in Santa Fe County, New Mexico. On November 1, 2007, the Company relinquished
  14,970 acres and retained under lease 42,297 acres (66 square miles). The
  Company paid an initial sum of $20,000 for a six-month option, and on February
  1, 2005, paid the additional sum of $30,000 in order to exercise the option and
  enter into the lease and also to satisfy the obligation of the first years
  lease payment. On February 1, 2006, the Company paid $71,184 for the second
  years lease payment (through January 31, 2007). On February 1, 2007, the
  Company paid the amount due of $100,218 through January 31, 2008, and on January
  25, 2008, paid the amount due of $126,891 through January 2009. The lease
  provides for an initial term of seven years (12 years in certain circumstances),
  continuing year-to-

F-21

---

year thereafter for so long as the Company is producing gold or
  other leased minerals in commercial quantities and otherwise is performing its
  obligations under the lease. Among other terms, the lease provides for annual
  lease payments that escalate per acre of ground the Company retains under lease;
  a sliding-scale production royalty varying from 3% to 5% depending on the price
  of gold; the requirement that the Company comply with governmental permitting
  and other regulations; and other terms common in mining leases of this type. The
  Ortiz gold project is subject to the property identification agreement between
  the Company and its President and Chief Executive Officer.

The
  minimum and maximum future payments due on this lease are as follows for the
  next five years and thereafter:

Payment Due
      Minimum Due
      MaximumDate
      ($)
      Due
        ($)Feb 1, 2009
      42,934
      148,040Feb 1, 2010
      30,000
      126,891Feb 1, 2011 forward
      30,000
      126,891


Summit Silver-Gold Project

The
  Summit project is subject to two underlying royalties and a net proceeds
  interest as follows: (1) a 7.5% royalty on net smelter returns toward an end
  price of $1,250,000; (2) a 5% royalty on net smelter returns toward an end price
  of $4,000,000 less any amount paid under the royalty described in (1); and (3) a
  net proceeds interest of 5% of net proceeds from sales of unbeneficiated
  mineralized rock until such time as the royalties described in (1) and (2) have
  been satisfied, and 10% of such net proceeds thereafter toward an end price of
  $2,400,000. The Company is obligated to pay quarterly minimum royalty payments
  aggregating $1,808 under the aforementioned (1) underlying royalty
  agreement.

Title to Mineral Properties

Although
  the Company has taken steps, consistent with industry standards, to verify title
  to mineral properties in which it has an interest, these procedures do not
  guarantee the Companys title. Such properties may be subject to prior
  agreements or transfers and title may be affected by undetected defects.

NOTE 12 - STOCKHOLDERS (DEFICIT)

Issuances of Common Stock

On
  November 3, 2006, as part of Real Property Purchase Agreement (the Agreement)
  with Muzz, the Company agreed to the exercise of 2,550,000 warrants granted to
  Muzz in 2002 and to issue 2,550,000 unregistered shares of its common stock to
  Muzz at the warrant exercise price of $0.50 per share for a total value of
  $1,275,000. As part of the Agreement, Muzz agreed to terminate the 2002
  financing lease agreement and to cancel all of the outstanding financial
  obligations under the lease.

On
  November 15, 2006, a director exercised options to purchase 1,000,000 shares of
  common stock at $0.10 per share and 1,000,000 shares of common stock at $0.11
  per share, in exchange for payment of accrued interest owed and reduction of
  principal on the note payable to the director, aggregating $210,000. In
  addition, the director agreed to contribute to capital the remaining unpaid
  principal on the note of $600,000.

During
  the period March 10, 2007, to June 30, 2007, the Company paid on the senior
  secured convertible notes, principal installments aggregating $1,890,836 with
  the issuance of 2,048,408 shares of the Companys common stock, and interest
  payments aggregating $531,765 with the issuance of 520,166 shares of the
  Companys common stock.

During
  the period July 1, 2007, to December 31, 2007, the Company paid on the senior
  secured convertible notes, principal installments aggregating $945,420 with the
  issuance of 945,420 shares of the Companys common stock, and interest payments
  aggregating $977,166 with the issuance of 2,745,804 shares of the Companys
  common stock.

F-22

---

On
  June 25, 2008, the board of directors granted stock awards of 500,000 shares of
  restricted stock to an officer and 200,000 shares of restricted stock to an
  employee. The shares will vest on December 31, 2008, and are subject to
  forfeiture contingent on attainment of certain performance objectives related to
  construction of the Summit project. The shares were valued at $0.64 per share,
  the closing price on the date of the grants, and the aggregate value of $448,000
  has been recorded as deferred stock compensation.

Warrants

In
  connection with the private placement of the senior secured convertible notes,
  the Company issued warrants for 75,001 shares of common stock as part of the
  financial advisory fee associated with the transaction. The warrants have an
  exercise price of $1.58 and a term of three years. The warrants were valued at
  $67,266 using the Black-Scholes option pricing model using a volatility of
  111.95%, risk free interest rate of 4.62% and an expected life of 3.0 years. At
  June 30, 2007, $17,692 of this amount was classified as deferred compensation,
  and the $17,692 has been recorded as general and administrative stock
  compensation expense at June 30, 2008.

On
  September 6, 2006, the Company amended the terms of the March 21, 2006 private
  placement of senior secured convertible notes. In connection with the amendment,
  the Company issued 1,099,159 additional common stock warrants, extended the
  expiration date of the warrants to September 6, 2011, and reduced the exercise
  price from $1.58 to $1.00.

On
  November 3, 2006, as part of Real Property Purchase Agreement (the Agreement)
  with Muzz, the Company agreed to the exercise of 2,550,000 warrants granted to
  Muzz in 2002 and to issue 2,550,000 unregistered shares of its common stock to
  Muzz at the warrant exercise price of $0.50 per share for a total value of
  $1,275,000. As part of the Agreement, Muzz agreed to terminate the 2002
  financing lease agreement and to cancel all of the outstanding financial
  obligations under the lease.

On
  February 23, 2007, the Company issued 1,750,000 warrants in connection with an
  amendment to the senior secured convertible notes, giving note holders the right
  to purchase common stock at a price of $1.25 per share for a period of five
  years.

On
  October 31, 2007, in connection with the issuance of 10% Convertible Senior
  Subordinated Notes aggregating $450,000, the Company issued a five year warrant
  for each $2.50 invested, for a total of 180,000 warrants, each warrant giving
  the note holder the right to purchase one share of common stock at a price of
  $1.25 per share.

On
  December 21, 2007, the warrant exercise price of $1.25 per share on 1,750,000
  warrants was reduced to $1.00 under the terms and conditions of the warrant with
  the reduction resulting from the placement of a 7% Senior Secured Convertible
  Debenture with attached warrants at an exercise price of $1.00 per share. The
  original warrant contained an anti-dilution provision and the warrants were
  increased by 437,500 to 2,187,500.

On
  December 21, 2007, in connection with a scheduled advance of $350,000 on the 7%
  Senior Secured Convertible Debenture, the Company issued 175,000 warrants, each
  warrant giving the note holder the right to purchase one share of common stock
  at a price of $1.00 per share. The warrants are exercisable from July 1, 2010, to
  December 31, 2014.

On
  January 9, 2008, and January 10, 2008, in connection with the exercise of
  Additional Investment Rights, the Company issued 112,500 five year warrants
  giving the right to purchase common stock at a price of $1.00 per share.

On
  January 15, 2008, in connection with a scheduled advance of $1,500,000 on the 7%
  Senior Secured Convertible Debenture, the Company issued 750,000 warrants, each
  warrant giving the note holder the right to purchase one share of common stock
  at a price of $1.00 per share. The warrants are exercisable from July 1, 2010, to
  December 31, 2014.

On
  February 1, 2008, in connection with the issuance of a 10% Convertible Senior
  Subordinated Note for $237,143, the Company issued a five year warrant for each
  $2.50 invested, for a total of 94,858 warrants, each warrant giving the note
  holder the right to purchase one share of common stock at a price of $1.25 per
  share.

F-23

---

On
  April 15, 2008, in connection with a scheduled advance of $3,500,000 on the 7%
  Senior Secured Convertible Debenture, the Company issued 1,750,000 warrants,
  each warrant giving the note holder the right to purchase one share of common
  stock at a price of $1.00 per share. The warrants are exercisable from July 1,
  2010 to December 31, 2014.

On
  April 30, 2008, and June 2, 2008, in connection with the exercise of Additional
  Investment Rights, the Company issued 209,307 five year warrants giving the
  right to purchase common stock at a price of $1.00 per share.

Stock Options and the 2007 Equity Incentive Plan

At
  the Companys Annual Meeting on July 24, 2007, the stockholders approved the
  2007 Equity Incentive Plan ("2007 EIP"). The 2007 EIP became effective on July
  25, 2007, and will terminate on July 24, 2017. A maximum of 8,000,000 shares of
  common stock are reserved for the grant of non-qualified stock options,
  incentive stock options, restricted stock awards and other stock awards under
  the 2007 EIP. The 2007 EIP replaces the Companys 1989 Stock Option Plan, which
  terminated on April 30, 2007.

The
  purpose of the 2007 EIP is to provide the employees, non-employee directors, and
  consultants who are selected for participation in the 2007 EIP with added
  incentives to continue in the long-term service of the Company and to create in
  such persons a more direct interest in the future success of the Companys
  operations by relating increases in compensation to increases in stockholder
  value, so that the income of the participants in the 2007 EIP is more closely
  aligned with the financial interests of the Companys stockholders. The 2007 EIP
  is also intended to provide a financial incentive that will enable the Company
  to attract, retain and motivate the most qualified directors, employees, and
  consultants.

On July 25, 2007, the Company granted a five (5) year option to purchase 100,000 shares of common stock to a director. The option exercise price is $0.46 per share, the closing price on the date of grant and the options have a vesting period of one year from the date of grant. The options were valued at $38,003 using the Black-Scholes option pricing model and will be expensed over the vesting period. The options were valued using a volatility of 114.622%, a risk free interest rate of 4.8%, an expected life of 5.0 years and zero quarterly dividends. During the year ended June 30, 2008, the $38,003 was recognized as general and administrative stock compensation expense.

On
  December 13, 2007, the Board of Directors granted pursuant to the Companys
  compensation policy pertaining to outside directors, five year options to
  purchase 75,000 shares of common stock to each of two directors, and also
  granted 100,000 five year options to an employee who is the son the President
  and Chief Executive Officer. The options are exercisable at $0.55, the closing
  price on the date of the grant and vest on June 30, 2008. The options were
  valued at $111,619 using the Black-Scholes option pricing model. The options
  were valued using a volatility of 113.286%, a risk free interest rate of 3.45%,
  an expected life of 5.0 years and zero. General and administrative stock
  compensation expense was recorded for the year ended June 30, 2008, amounting to
  $111,619.

On
  March 24, 2008, the Company granted a five (5) year option to purchase 100,000
  shares of common stock to an employee. The option exercise price is $0.73 per
  share, the closing price on the date of grant and the options have a vesting
  period of six months from the date of grant. The options were valued at $57,048
  using the Black-Scholes option pricing model and will be expensed over the
  vesting period. The options were valued using a volatility of 106.552%, a risk
  free interest rate of 2.64%, an expected life of 5.0 years and zero quarterly
  dividends. General and administrative stock compensation expense of $28,524 was
  recorded for the year ended June 30, 2008.

On
  May 1, 2008, the Company granted a five (5) year option to purchase 100,000
  shares of common stock to an employee. The option exercise price is $0.79 per
  share, the closing price on the date of grant and the options have a vesting
  period of six months from the date of grant. The options were valued at $61,724
  using the Black-Scholes option pricing model and will be expensed over the
  vesting period. The options were valued using a volatility of 105.944%, a risk
  free interest rate of 3.06%, an expected life of 5.0 years and zero quarterly
  dividends. General and administrative stock compensation expense of $20,575 was
  recorded for the year ended June 30, 2008.

On
  June 25, 2008, the Board of Directors granted awards of 500,000 shares of
  restricted stock to an officer and 200,000 shares of restricted stock to an
  employee. The shares will vest on December 31, 2008, and are subject to
  forfeiture contingent on attainment of certain performance objectives related to
  construction of the Summit project. The

F-24

---

stock grants were valued at $448,000 using the closing price on
  the date of the grant of $0.64 per share. The grant amount was recorded as
  deferred stock compensation at June, 30, 2008, and will be expensed over the
  six-month vesting period beginning July1, 2008.

In
  addition to options under the 1989 Stock Option Plan and 2007 EIP, the Company
  previously issued non-plan options outside of these plans, exercisable over
  various terms up to a maximum of ten years.

On
  October 7, 2003, the Company granted five (5) year options to a director to
  purchase an aggregate of 1,500,000 shares of common stock at $0.11 per share,
  the market price of the stock on the date of the grant. On the grant date,
  750,000 of the options vested and 250,000 of the remaining options vested every
  six months from the date of grant. The options were valued at $105,000 using the
  Black-Scholes option pricing model and were amortized to expense over the term
  of the vesting. The options were valued using a volatility of 102.64%, risk free
  interest rate of 3.00% and an expected life of 3.5 years. On the same date, the
  Company granted ten (10) year options to the President, CEO, and director to
  purchase 4,000,000 shares of common stock at $0.11 per share, the market price
  of the stock on the date of the grant. On the grant date, 1,000,000 of the
  options vested and 1,000,000 of the remaining options vested every six months
  from the date of grant. Using the Black-Scholes option pricing model with a
  volatility of 102.64%, risk free interest rate of 3.00% and an expected life of
  5.0 years, the options were valued at $280,000 and were amortized to expense
  over the term of the vesting.

On
  April 8, 2004, the Company granted five (5) year options to a director and to
  the President, CEO and director, to purchase an aggregate of 3,000,000 shares of
  common stock at $0.10 per share, the market price of the stock on the date of
  the grant. The options vested on the date of grant. The options were valued at
  $210,000 using the Black-Scholes option pricing model and were expensed in the
  period granted. The options were valued using a volatility of 107.33%, risk free
  interest rate of 2.50% and an expected life of 3.0 years.

On
  July 22, 2004, the Company granted a total of 3,000,000 stock options at an
  exercise price of $0.10 per share, the market price of the stock on the date of
  grant, to the chairman of the Board of Directors and to the President and CEO of
  the Company. The options have a term of five years and vested on the date of
  grant. The fair value of the option grants were valued at $210,000 as of the
  date of grant utilizing the Black-Scholes option pricing model with the
  following average assumptions: expected life of options of 3 years, volatility
  of 106%, risk-free interest rate of 2.5%, and 0% dividend yield. The options
  were expensed in the period granted.

On
  May 2, 2006, the Company granted a five (5) year option to purchase 50,000
  shares of common stock to an employee, who is the son of the Companys President
  and Chief Executive Officer, in connection with an employment agreement. The
  option exercise price is $1.24 per share, the closing price on the date of grant
  and the options vested on the date of grant. The options were valued at $50,971
  using the Black-Scholes option pricing model. The options were valued using a
  volatility of 114.027%, a risk free interest rate of 5.1%, an expected life of
  5.0 years and zero quarterly dividends.

On
  November 15, 2006, a director exercised options to purchase 2,000,000 shares of
  common stock at $0.10 per share, in exchange for payment of accrued interest
  owed of $60,000 and reduction of principal on the note payable of $150,000 to
  the director, aggregating $210,000. In addition, the director agreed to
  contribute to capital the remaining unpaid principal on the note of $600,000.

On
  April 25, 2007, the Company granted a five (5) year option to purchase 50,000
  shares of common stock to an employee, who is the son of the Companys President
  and Chief Executive Officer. The option exercise price is $0.74 per share, the
  closing price on the date of grant and the options vested on the date of grant.
  The options were valued at $30,505 using the Black-Scholes option pricing model
  and were expensed in the period granted. The options were valued using a
  volatility of 115.475%, a risk free interest rate of 4.51%, an expected life of
  5.0 years and zero quarterly dividends.

Stock
  option and warrant activity, both within the 1989 Stock Option Plan and 2007 EIP
  and outside of these plans, for the years ended June 30, 2008 and 2007 are as
  follows:

F-25

---

| |                              |  | Stock
      Options |   |  | Stock
      Warrants | 
| | ---------------------------- |  | ------------------- | - |  | -------------------- | 
| |                              |  |                     |   |  | Weighted             | 
| |                              |  |                     |   |  | Average              | 
| |                              |  | Shares              |   |  | Price                | 
| |                              |  |                     |   |  |                      | 
| | Outstanding at June 30, 2006 |  | 11,550,000          |   |  | $0.11                | 
| | Granted                      |  | 50,000              |   |  | $0.74                | 
| | Canceled                     |  | ---                 |   |  | ---                  | 
| | Expired                      |  | ---                 |   |  | ---                  | 
| | Exercised                    |  | (2,000,000          | ) |  | $0.105               | 
| | Outstanding at June 30, 2007 |  | 9,600,000           |   |  | $0.11                | 
| | Granted                      |  | 550,000             |   |  | $0.61                | 
| | Canceled                     |  | ---                 |   |  | ---                  | 
| | Expired                      |  | ---                 |   |  | ---                  | 
| | Exercised                    |  | ---                 |   |  | ---                  | 
| | Outstanding at June 30, 2008 |  | 10,150,000          |   |  | $0.141               | 

Stock
  options and warrants  exercisable at June 30, 2008, are as
  follows:

|Exercisable Options |  | Exercisable Warrants
|------------------- |  | --------------------
|                    |  |                     
|                    |  |                     
|                    |  |                     
|Exercise            |  |                     
|Price               |  |                     
|Range               |  | Number              
|$0.10               |  | 5,000,000           
|$0.11               |  | 4,500,000           
|$1.24               |  | 50,000              
|$0.74               |  | 50,000              
|$0.46               |  | 100,000             
|$0.55               |  | 250,000             
|                    |  | 9,950,000           

NOTE 13 - INCOMETAXES

The
  income tax benefit differs from the amount computed by applying the U.S. federal
  income tax rate of 34% to net (loss) before taxes for the fiscal years ended
  June 30:

2008
      
      
      2007Tax (expense) benefit at the federalstatutory rate
      $
      1,446,918
      
      $
      (117,633
      )State tax(expense) benefit
      
      296,533
      
      
      (24,108
      )Expiration of state operating
        losses
      
      (541,596
      )
      
      (435,956
      )Decrease (increase) in valuation allowance
      
      (1,201,855
      )
      
      577,697Income tax expense
      $
      ---
      
      $
      ---


The
  components of the deferred tax asset and deferred tax liability at June 30, 2008
  are as follows:

Deferred Tax AssetFederal net operating loss carry forwards
      $
      14,078,777State net operating loss carry
        forwards
      
      1,302,951Valuation allowance
      
      (15,381,728
      )Net deferred tax asset
      $
      ---


F-26

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At
  June 30, 2008, the Company had net operating loss carry forwards for Arizona
  income tax purposes of approximately $18.7 million (2007- $22.2 million). These
  losses expire in varying amounts through June 30, 2013.

At June 30, 2008, the Company had net operating loss carry forwards for federal income tax purposes of approximately $41.4 million (2007 - $37.2 million).  These losses expire between June 30, 2019 and June 30, 2028. The principal differences between net operating losses for income tax purposes and book purposes result from stock compensation and impairment amounts.

NOTE 14 - RELIEF OF DEBT

During
  the year ended June 30, 2008, the Company wrote off accounts payable resulting
  in relief of debt of $24,062. During the year ended June 30, 2007, in addition
  to the settlement on the line of credit of $69,026 described in Note 9, the
  Company wrote off accounts payable and accrued compensation liabilities
  aggregating $513,961 that extended beyond the Statute of Limitations for
  collectability from approximately 1 to 3 years.

NOTE 15  SUBSEQUENT EVENTS

On
  July 15, 2008, under the terms of 7% Senior Secured Convertible Debenture dated
  December 21, 2007, the Company received the fourth advance under the agreement
  of $3,500,000 and issued 1,750,000 warrants relating to the advance. The
  warrants were valued at $1,184,521 using the Black-Scholes option pricing model
  using a volatility of 103.613%, a risk free interest rate of 3.43%, an expected
  life of 6.5 years and zero quarterly dividends. This convertible debenture was
  determined to have a beneficial conversion feature of $589,521 based upon the
  effective computed conversion price, which was charged to the note discount and
  credited to Additional Paid In Capital. The warrants resulted in an aggregated
  note discount of $1,774,042.

On
  July 22, 2008, the Company granted a five (5) year option to purchase 100,000
  shares of common stock to an employee. The option exercise price is $0.83 per
  share, the closing price on the date of grant and the options have a vesting
  period of six months from the date of grant. The options were valued at $64,247
  using the Black-Scholes option pricing model and will be expensed over the
  vesting period. The options were valued using a volatility of 103.613%, a risk
  free interest rate of 3.48%, an expected life of 5.0 years and zero quarterly
  dividends.

On
  September 30, 2008, a director exercised an option to purchase 500,000 shares of
  common stock at $0.11 per share on a cashless basis. Under the cashless basis
  exercise, 431,250 shares were issued.

F-27

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SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the small business issuer has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on October 10, 2008.

SANTA FE GOLD CORPORATION

By: /s/ W. Pierce
CarsonName: W. Pierce Carson Title:   President and Chief
Executive Officer

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the small business issuer in the
capacities indicated on October 10, 2008.

|SIGNATURE                  | TITLE                                
|-------------------------- | -------------------------------------
|                           |                                      
|/s/Lawrence G.
      Olson | Chairman of the Board                
|Lawrence G. Olson          |                                      
|                           |                                      
|/s/W. Pierce
      Carson  | President and Chief Executive Officer
|W. Pierce Carson           | (Principal Executive Officer)        
|                           |                                      
|/s/W. Pierce
      Carson  | Chief Financial Officer              
|W. Pierce Carson           | (Principal Financial Officer)        
|                           |                                      
|/s/John E.
      Frost     | Director                             
|John E. Frost              |                                      

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