---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-K

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

For the fiscal year ended June 30, 2010

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

For the transition period from _______ to_______

Commission file number 001-12974

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

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

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

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)

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

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

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

Indicate by checkmark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.

|Large accelerated filer [   ] | Accelerated
      filer               
        [X]
|----------------------------- | --------------------------------------------------
|Non-accelerated filer   [   ] | Smaller reporting company [  
  ]                 

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

The aggregate market value of the Common Stock of Santa Fe Gold
Corporation held by non-affiliates as of the last business day of the
registrants most recently completed second fiscal quarter was $84,745,941.

As of September 27, 2010, there were 93,062,510 shares of common
stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:None.

1

---

TABLE OF CONTENTS

|            |                                                                                                      | Page
|----------- | ---------------------------------------------------------------------------------------------------- | ----
|            |                                                                                                      |     
|            | PART I                                                                                               |     
|            |                                                                                                      |     
|ITEM 1:     | BUSINESS                                                                                             | 4   
|ITEM 1A:    | RISK FACTORS                                                                                         | 7   
|ITEM 1B:    | UNRESOLVED STAFF COMMENTS                                                                            | 13  
|ITEM 2:     | PROPERTIES                                                                                           | 13  
|ITEM 3:     | LEGAL PROCEEDINGS                                                                                    | 34  
|ITEM 4:     | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                  | 35  
|            |                                                                                                      |     
|            | PART II                                                                                              |     
|            |                                                                                                      |     
|ITEM 5:     | MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
      PURCHASES OF EQUITY SECURITIES       | 35  
|ITEM 6:     | SELECTED FINANCIAL DATA                                                                              | 37  
|ITEM 7:     | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATION           | 37  
|ITEM 7A:    | QUANITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                            | 46  
|ITEM 8:     | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                          | 47  
|ITEM 9:     | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND FINANCIAL DISCLOSURE           | 47  
|ITEM 9A(T): | CONTROLS AND PROCEDURES                                                                              | 47  
|ITEM 9B:    | OTHER INFORMATION                                                                                    | 47  
|            |                                                                                                      |     
|            | PART III                                                                                             |     
|            |                                                                                                      |     
|ITEM 10:    | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE                                              | 48  
|ITEM 11:    | EXECUTIVE AND DIRECTOR COMPENSATION                                                                  | 51  
|ITEM 12:    | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
      AND RELATED STOCKHOLDER MATTERS | 53  
|ITEM 13:    | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE                      | 55  
|ITEM 14:    | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                               | 56  
|            |                                                                                                      |     
|            | PART IV                                                                                              |     
|            |                                                                                                      |     
|ITEM 15:    | EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                              | 57  
|            |                                                                                                      |     
|SIGNATURES  | 62                                                                                                  

ADDITIONAL INFORMATION

Descriptions of
agreements or other documents contained in this report are intended as summaries
and are not necessarily complete. Please refer to the agreements or other
documents filed or incorporated herein by reference as exhibits. Please see the
exhibit index at the end of this report for a complete list of those
exhibits.

2

---

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

This
annual report on Form 10-K 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 1A. 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.

3

---

PART I

**ITEM
1.**       **BUSINESS**

History and Organization

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. SeeItem 2. Propertiesfor more
information about our properties.We have constructed a mill and are
developing an underground mine at our Summit silver-gold project, which
successfully started up in 2010. We expect commercial production to be achieved
in 2011. Information about the Company, including a link to our most recent
financial reports filed with the Securities and Exchange Commission (SEC), can
be viewed on our website at www.santafegoldcorp.com.

From
July 1, 2006 through the current date, we completed private placements of our
common stock, and notes convertible into our common stock, for amounts
aggregating $2,856,757. Additionally, in December 2007, we raised capital
pursuant to a private placement of convertible debentures aggregating
$13,500,000. In September 2009, we entered into a gold sale agreement with an
investor that included an upfront payment of $4,000,000. In January 2010, we
raised $10,000,000 through a registered direct offering pursuant to an S-3
Registration Statement. We used the majority of the funds raised to acquire and
construct the Summit mine and Banner mill and for working capital. We anticipate
using the remainder of the $10 million raised in January 2010 to continue these
efforts. SeeItem 7. Managements Discussion and Analysis of
Financial Condition and Results of Operationfor more information.

Construction
of the Summit mine and related Banner mill was the focus of our activities in
2010. 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 construction schedule was estimated to
require 12 months. In December 2007, we arranged a financing of $13.5 million by
way of a private placement of senior secured convertible debentures. We began
construction activities during the first quarter of 2008, including development
of the Summit mine and construction of the Banner mill. Underground mine
development is on-going. Construction of the Banner mill was completed in Q2
2009 except for the tailings disposal impoundment, for which in October 2009 we
received a conditional permit that allowed construction to proceed. Construction
of the tailings disposal impoundment was completed in Q1 2010. Commencement of
processing operations at the Banner mill began on March 25, 2010. Commissioning
of the mill proceeded satisfactorily and in July 2010, we expanded mill
operations to two shifts per day, five days a week. Sales of ore as silica flux
commenced in Q2 2010 and sales of precious metals flotation concentrates began
in Q3 2010. We plan to ramp up production from the Summit mine and increase
throughput at the Banner mill, and expect the Summit project to achieve
commercial production in 2011. As of June 30, 2010, we have approximately $48.4
million in federal tax loss carry-forwards to shelter federal income tax
otherwise payable.

Our
principal executive offices are located at 1128 Pennsylvania NE, Suite 200,
Albuquerque, New Mexico 87110, and our telephone number is (505) 255-4852. Our
Summit operations in southwestern New Mexico are conducted through our
wholly-owned subsidiary, The Lordsburg Mining Company. Our mica operations in
Arizona are conducted through our wholly- owned subsidiary, Azco Mica Inc. Our
activity in Mexico is conducted through our wholly-owned subsidiary, Minera
Sandia, S.A. de C.V. Administration of the September 2009 gold sale agreement is
conducted through our wholly-owned Barbados subsidiary, Santa Fe Gold (Barbados)
Corporation.

Please
refer to page 30 of this report for a glossary of certain terms used herein.

Recent Developments

On September 24, 2010, we entered into a non-binding Memorandum of Understanding with Columbus Silver Corporation (TSXV: CSC) (“Columbus Silver”) pursuant to which we will acquire all of the outstanding shares of common stock of Columbus Silver in exchange for shares of our common stock.  The contemplated exchange ratio is one share of our common stock for every 5.82515 shares of Columbus Silver’s common stock.  It is contemplated that we will issue a total of 8,787,527 shares in the transaction, which is valued at approximately $9.93 million. Following completion of the transaction, it is estimated that we will be owned 91.37% by current Company shareholders and 8.63% by Columbus Silver shareholders. The combination with Columbus Silver is a notable step forward in our objective to become a significant North American precious metals producer.

The Memorandum of Understanding contemplates a business combination by way of a Plan of Arrangement, which is subject to Canadian court approval.  In addition, the proposed transactions are subject to the final approval of the boards of directors of Santa Fe Gold and Columbus Silver, stock exchange and regulatory approvals, and Columbus Silver shareholder approval. On September 27, 2010, in relation to the transaction with Columbus Silver, we filed a Current Report on Form 8-K

4

---

On
  September 13, 2010, we announced the Company has shipped an initial 20 tons of
  precious metals concentrate to a European smelter. At current metal prices, the
  shipment contains approximately $425,000 in gold and silver. We will be
  paid for the gold and silver less customary smelter charges.

On
September 1, 2010, we announced the Company will supply an additional 3,000 to
6,000 tons of trial siliceous flux material to a smelter in Arizona. We
previously provided the smelter with 3,000 tons of similar material earlier in
the year. The flux material will be processed for precious metals recovery. We will be paid for the contained silver and gold less customary charges.
The siliceous flux constitutes ore from the Summit mine upgraded in silica and
precious metals contents through crushing and screening.

On
August 26, 2010,  we announced the Company has contracted with another Arizona
smelter to supply a trial shipment of 1,000 tons of siliceous flux material. The
flux material will be processed for precious metals recovery. We will
be paid for the contained silver and gold less customary charges. The siliceous
flux constitutes a beneficiated product of ore from the Summit mine upgraded in
silica and precious metals contents through crushing and screening.

On
January 20, 2010 we entered into definitive agreements with 23 institutional
investors to purchase $10 million of securities in a registered direct offering.
We received net proceeds of $9,375,000 after deducting placement agent fees and
other offering expenses. The securities were offered pursuant to an effective
S-3 Registration Statement. The company sold to the investors an aggregate of
7,692,310 shares of its common stock, and warrants to purchase up to 3,846,155
additional shares of common stock. Each unit, consisting of one share of common
stock and one-half of a warrant to purchase a share of common stock, was sold
for a purchase price of $1.30. The warrants to purchase additional shares are
exercisable at an exercise price of $1.70 per share and have a term of 5
years.

On September 11, 2009, we entered into a definitive gold sale agreement with Sandstorm Resources Ltd. (TSX-V: SSL) (“Sandstorm”) to sell a portion of the life-of-mine gold production (but not silver production) from our Summit silver-gold mine. Under the agreement we received an upfront cash deposit of $4.0 million, plus we will receive ongoing production payments equal to the lesser of $400 per ounce or the prevailing market price, for each ounce of gold delivered pursuant to the agreement for the life of the mine. Gold production subject to the agreement includes 50% of the first 10,000 ounces of gold produced, and 22% of the gold thereafter. The amount of payable gold can be reduced from 22% to 15% provided that within 36 months the Summit mine reaches certain performance levels in any consecutive 12 month period, in compliance with prefeasibility estimates, including 1) the rate of ore mined and processed must average 400 tons per day or more, and 2) payable gold production must exceed 11,500 ounces during such consecutive 12 month period. Sandstorm made an initial payment of $500,000 and on October 7, 2009 paid the remaining $3,500,000 balance of the upfront cash deposit. We will receive credit against the $4,000.000 upfront cash deposit for the difference between the market price and $400 per ounce for those gold deliveries where the prevailing market price exceeds $400 per ounce.  These credits will be recognized as revenue, in addition to the ongoing production payments received for gold delivered pursuant to the agreement. In certain circumstances, including failure to meet minimum production rates, interruption in production due to permitting issues and customary events of default, the agreement may be terminated. In such event, we may be required to return to Sandstorm the upfront cash deposit of $4.0 million less a credit for gold delivered up to the date of that event, which is determined using the difference between the market price and $400 per ounce for gold deliveries where the prevailing market price exceeded $400 per ounce.

On
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 were used primarily for the
development of the Summit project. The debentures were issued in accordance with
a pre-determined funding schedule. The term of the debentures is 60 months. In
fiscal 2008, we received advances aggregating $5,350,000 under the agreement,
and in fiscal 2009 received advances aggregating $8,150,000, bringing the total
received to $13,500,000.

Effective
June 30, 2009, we agreed with the investor to convert the aggregate accrued
interest of $974,360 due June 30, 2009 under the convertible debentures, into
974,360 shares of the Companys common stock. We also agreed that aggregate
accrued interest on the outstanding principal amounts of the debentures for the
quarters ending September 30, 2009 and December 31, 2009, shall be paid in
shares of the Companys common stock, to be valued at one dollar ($1.00) per
share at the time of payment and issuance. Beginning in 2010, we have paid
accrued quarterly interest in cash.

On
June 13, 2009, we entered into a purchase option contract on the Pilar gold
property consisting of two mineral exploitation concessions covering 240 acres
located 165 kilometers east-southeast of Hermosillo, State of Sonora, Mexico. In
March 2010, we relinquished our interest in this property before the March 13,
2010 payments were due, after receiving disappointing results from an extensive
program of trenching and surface sampling. Our wholly owned Mexican subsidiary,
Minera Sandia S.A. de C.V., entered into the purchase option contract with Minera de Suaqui Grande, S. de R.L. de C.V.

5

---

The
contract provided for option payments of $1,000 upon signing, $99,000 on March
13, 2010, and $125,000 on March 13, 2011. The last payment of $1,307,000 was due
March 13, 2012, and would have completed the purchase. In connection with the
acquisition, we agreed to issue 117,000 restricted shares of common stock to
Minera de Suaqui Grande, S. de R.L. de C.V. under the terms of a consulting
agreement, and agreed to pay creditors $11,150 in cash and 17,400 shares of
restricted common stock valued at $19,836. We also agreed to pay finders fees
of $15,000 in cash and 25,000 shares of restricted common stock valued at
$28,500, and to match option and purchase payments when they became due by
payments either in cash or in restricted common stock. We were not required to
pay a production royalty under the agreements.

Competitive Business Conditions

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 our own. Our lack of revenues and limited
financial resources further hinder our ability to acquire and develop mineral
interests.

Government Regulations and Permits

In connection
  with mining, milling and exploration activities, we are subject to extensive
  federal, state and local laws and regulations governing the protection of the
  environment, including laws and regulations relating to protection of air and
  water quality, hazardous waste management and mine reclamation as well as the
  protection of endangered or threatened species.

At
the Summit mine and Banner mill, we are continuing permitting activities as
construction and development progress. On October 2, 2009 we received a Permit
to Construct and Operate the Banner Mill Tailings Dam from the NM Office of the
State Engineer (OSE). This permit allowed us to construct a tailings disposal
impoundment and commence discharge of mill tailings.

Concurrent
with the tailings disposal permit, New Mexico requires a Discharge Permit from
the NM Environmental Department and a Reclamation Permit from Mining and
Minerals Division under the NM Mining Act of 1993. Both of these permits have
been issued, and financial assurance for future reclamation has been
established.

Safety
of our employees is regulated by the Mine Safety and Health Administration
(MSHA), a federal agency, and by the NM Office of the State Mine Inspector. We
are continuing development of the Summit underground mine, and regulation
require secondary escape routes, exhaust ventilation, wireless communications,
and underground refuge and emergency rescue capabilities. Work on these issues
is underway and is being coordinated with the regulatory agencies.

With
respect to the permits required for the Summit project mentioned above, as well
as permits for the Ortiz project and for our other projects, 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 these properties could be adversely affected. SeeItem IA.
Risk Factorsfor more information.

Employees

We
currently have 36 full-time employees, including our executive officer, head
office support staff and Lordsburg management and operating personnel. We also
engage consultants and independent contractors in connection with financial
accounting, construction, and 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.

6

---

**ITEM 1A.**     **RISK FACTORS**

This
report, including Managements Discussion and Analysis of Financial Condition
and Results of Operation, 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, 2010, our
total accumulated deficit was approximately $55.1 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 significant 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 significant 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 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.

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.

7

---

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. Subsequently, we have established probable reserves. However, the
pre-feasibility stage estimate carries significant risks associated with factors
including but not limited to the following:

- The limited amount of drilling completed to date. The Summit deposit is
  defined by only 78,000 feet of drilling in 88 drill holes. These holes are
  spaced to intersect the mineralized zone up to 200 feet apart, a drilling
  density insufficient for detailed mine planning in this style of epithermal
  precious metals deposit. As a result, mine plans are preliminary in nature and
  details must be developed in conjunction with underground development.
- Process and metallurgical testing has been limited to small pilot plant and
  bench scale testing. This causes uncertainty in metallurgical recovery and
  operating factors when scaling up to the full sized commercial plant. Although
  operating results to date at the Banner mill indicate that the mill will
  perform satisfactorily, additional fine tuning is necessary in order to
  optimize recovery of precious metals.
- Samples collected for metallurgical testing were selected from drill core
  from various parts of the Summit deposit and from samples taken from old
  underground workings located in the upper part of the deposit. Because of the
  small number and size of samples available for metallurgical testing,
  metallurgical results may not accurately characterize the deposit as a whole.
- The project has no significant operating history upon which to base
  estimates of operating costs and capital requirements. As a result,
  estimations of mineralized material, mining and process recoveries and
  operating costs have been based to a large extent upon the interpretation of
  geologic data from drill holes, and upon pre-feasibility estimates that derive
  forecasts of operating costs from anticipated tonnages and grades of
  mineralized material to be mined and processed, the configuration of the
  deposit, expected recovery rates of gold and silver from the mineralized
  material, comparable facility and equipment costs, and climatic conditions and
  other factors. Estimates of operating costs and capital requirements are
  preliminary estimates only.
- 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 the Summit mine or Banner mill can
  be brought into operation within the time frame or at the cost anticipated by
  the Company, or that the forecasted operating results can be achieved.

Although
preliminary feasibility 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.

8

---

***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 $445 per ounce to $972 per ounce, as shown
  in the table below:

Average Annual Market Price of Gold, 2005-20092005
      
      2006
      
      2007
      
      2008
      
      2009$ 445
      
      $603
      
      $695
      
      $872
      
      $972


Although
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 continue with development
of our Summit silver-gold property or to develop our Ortiz gold property or
produce any significant 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.

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 2015 (February 2022
in certain circumstances), make annual payments, 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.

9

---

***The
reserve estimations at our Summit property 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 mining operation were to
encounter mineralization or geologic conditions different from those predicted,
reserve 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, which in recent years has undergone a dramatic decline. 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
products, if any, that could be produced from our Black Canyon mica project. Any
decline in prices could have a material adverse effect on project economics.

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 the Black Canyon mica property 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
our operations.

***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.

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.

10

---

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

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 regulations. 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
that 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 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.

11

---

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 seven persons, namely Mr. Olson, our chairman; Mr.
Pierce Carson, our president and chief executive officer and principal financial
officer; Mr. Martinez, our controller; Mr. Ryan Carson, manager of legal
affairs; Mr. Moore, general manager of our Summit project; Mr. Freeman, senior
consultant; and Mr. Floyd, mill superintendent. We rely heavily on these seven
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 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.

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 55,000 shares per day. As a result, the sale of a significant
amount of common stock by 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.

Acquisition
of one or more additional mineral properties, conceptually, could result in the
issuance of a significant amount of common stock. Such issuance could depress
the trading price of our common stock.

12

---

***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 approximately 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.

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 1B.**     **UNRESOLVED
  STAFF COMMENTS**

None.

**ITEM
2.**       **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 underground Summit
silver-gold mine and related property consisting of 117 acres of patented mining
claims and 740 acres of unpatented mining claims in Grant County, southwestern
New Mexico; and the Banner mill, including mineral processing equipment
consisting of a crushing and screening plant, a ball mill and a 400 ton-per-day
flotation plant, and related property consisting of approximately 1,500 acres of
wholly owned and leased patented and unpatented mining claims, located
approximately 57 miles south of the Summit mine near Lordsburg, Hidalgo County,
New Mexico;

13

---

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 in December 2007 arranged for financing of $13.5
million by way of a private placement of senior secured convertible debentures.
In September 2009, we entered into a gold sale agreement with an investor that
included an upfront payment of $4,000,000 in return for sale of a portion of
future gold production at a preferential price. In January 2010, we raised $10
million through a registered direct offering pursuant to an S-3 Registration
Statement. We used the majority of the funds raised to acquire and construct the
Summit mine and Banner mill and for working capital.

Construction
of the Banner mill and development of the Summit mine were initiated in Q1 2008,
with an anticipated construction period of a minimum of twelve months. The
Summit mine development is on-going. Construction of the Banner mill was
completed in Q2 2009, except for the tailings dam and impoundment, for which in
October 2009 we received a conditional permit allowing construction to proceed.
Construction of the tailings disposal impoundment was completed in Q1 2010. We
commenced processing operations at the Banner mill on March 25, 2010, and in
July 2010 expanded milling operations to two shifts per day, five days per week.
Sales of ore as silica flux commenced in Q2 2010 and sales of precious metals
flotation concentrates began in Q3 2010. We plan to ramp up production from the
Summit mine during the remainder of 2010 and expect to achieve commercial
production in 2011.

The
Summit mining and processing operation involves underground mining of silver and
gold ore from the Summit mine and trucking of the ore 57 miles to the Banner
mill site where metallurgical processing takes place. At full production, mining
is planned to be carried out at a rate of 400 tons per day (120,000 tons per
year). At the Banner site, processing is accomplished through 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.

Since
start-up in March 2010, the mill has demonstrated the ability to produce a high
value silver-gold concentrate that averages around 600 ounces per ton silver and
10 ounces per ton gold. We have established trial sales of the concentrate to
one smelter and plan to sell concentrate to other smelters as well. We also have
shipped trial quantities of beneficiated Summit ore to two Arizona smelters as
siliceous flux material, with the objective of reaching agreements on long term
contracts. Any sales of siliceous flux material will be in addition to sales of
concentrate produced at the Banner mill.

***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 is generated on-site in connection
with the Summit 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. The labor force required for the plant operation can be
sourced locally.

14

---

Figure X.1

Claim Boundary Map [click for larger version]



15

---

***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 $10,500. We have paid the required fees for the 2010 and 2011
assessment years (September 1, 2009 through August 31, 2011).

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.SeeItem 13. 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 $8.0 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 $5.0 million extending and improving the level of confidence in the
mineralized material at the Summit vein and in defining exploration potential in
adjacent and outlying vein structures.

16

---

***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
October 2009, Chapman, Wood and Griswold, Inc. (CWG), an independent
geological engineering firm, completed a Technical Report on the Summit project
compliant with Canadas National Instrument 43-101 Standards of Disclosure for
Mineral Projects. Based on the work carried out for that report, in February
2010, CWG concluded that a portion of the mineralization in the footwall zone
could be classified as a Probable Reserve under the SECs Industry Guide 7, as
follows:

Probable Reserve (Footwall Zone)Tons
      
      
      Grade (oz/ton)(1)
      
      
      Contained ouncesAu
      
      
      Ag
      
      
      Au
      
      
      AgInplace, diluted(2)(3)
      
      686,750
      
      
      0.143
      
      
      10.78
      
      
      98,205
      
      
      7,403,165Minable @ 90% extraction
      
      618,075
      
      
      0.143
      
      
      10.78
      
      
      88,385
      
      
      6,662,848Ounces in conc. at 80% rec.
      
      
      
      
      
      
      
      
      
      
      70,708
      
      
      5,330,279


|(1) | Assays cut to 0.45 oz Au/t and 45.0 oz Ag/ton                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------
|(2) | Diluted with 1.0 foot at grade on each wall. Minimum
      6.0-foot horizontal width.                                                    
|(3) | Cutoff grade 0.16 oz Au equivalent per ton, using a 60:1
      gold-silver price ratio and equivalent recoveries for gold and
    silver.

17

---

***Mineralized
  Material***

During
the evaluation of the Summit Mine mineral resource base, CWG noted significant
quantities of mineralized material that cannot be classified as Reserves, as
follows:

Tons
      
      
      Grade (oz/ton)Au
      
      
      Ag1.
      Single-hole, isolated blocks
        within the footwall zone; inplace, diluted.
      
      
      71,380
      
      
      0.144
      
      
      5.442.
      Mineralization peripheral to the Probable Reserve
        in the footwall zone; inplace, diluted.
      
      
      370,000
      
      
      0.067
      
      
      4.193.
      Mineralization in a hangingwall
        section of the structure; inplace, undiluted at a 5-foot minimum horizontal
        width.
      
      
      196,000
      
      
      0.092
      
      
      3.80


CWG
stated this mineralized material has the potential to be upgraded to Reserve
status at current metal prices (approximately $1000 and $16 per ounce for gold
and silver, respectively) following further definition by drilling and/or
underground development.

***Project
  Economic Estimate***

Using
capital and operating costs from CWGs October 2009 Technical Report, and based
on the Probable Reserves stated above, three-year (2007-2009) historic average
gold and silver prices respectively of $846.57 and $14.34 per ounce,
metallurgical recovery of 85 percent, and after payment of royalties and
allowing for payments under a gold sale agreement, estimated Summit revenues
over a six year mine life would total approximately $146 million and pre-tax net
income would total approximately $77 million. Payback of capital would be
achieved in 19 months after the commencement of production. The Company has
approximately $48.4 million in federal tax loss carry-forwards to shelter
federal income tax otherwise payable. Direct operating costs were estimated as
$84.50 per ton of ore milled. The capital cost to bring the mine into production
was estimated as $15.1 million, inclusive of mine development, mill
construction, bonding requirements, and project management and working capital.

***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.

***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
transported it from its previous location near Winston, Sierra County, New
Mexico, refurbished it as necessary and erected it at the Banner mill site in
Hidalgo County. In addition to the processing equipment acquired in 2006, we
also acquired and installed other necessary equipment.

***Permits***

With
the purchase of Lordsburg Mining in 2006, we acquired 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. We have modified and revised these permits as necessary to begin operations as necessary to facilitate the
commencement of mining at the Summit property and resumption of mineral
processing operations at the Banner mill site.

18

---

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
have begun underground mining operations.

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. Our modification and revision of the permit allows resumption of
flotation milling, construction of a tailings impoundment and discharge of
tailings. We also have obtained or will apply for other necessary permits,
including air quality permits for the Banner mill and Summit mine. The major
permits required to begin operations have been granted, however we anticipate
that other permits for which we may apply will require a minimum of several
months to obtain, and 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 2007
  report was prepared in accordance with standards different 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 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 conventional crushing, grinding and
selective flotation to yield a high-grade bulk sulfide concentrate containing
the recoverable precious metals. The concentrate will 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 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.

***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***

In
December 2007 we arranged for the $13.5 million in capital necessary for project
development. We began construction activities in Q1 2008 and estimated a minimum
of 12 months would be required for construction and execution of the major
elements of the mining and processing plan described above.

19

---

At
the Summit mine, a seven hundred foot long 12 x 12 decline ramp intersected
the predicted mineralized body in February 2009. Since then, we have proceeded
to drive two development headings in the main mineralized structure, one an
incline to the southeast planned to intersect old workings and to serve as a
secondary escape and a source of additional ventilation, and the other a decline
to the northwest toward additional mineralized bodies identified in previous
drilling. The southeastern heading achieved its objectives in October 2009. The
northwestern heading encountered the southern extensions of the predicted
mineralized bodies in August 2009. Several thousand feet of underground
development has been accomplished and work is proceeding on several headings.
Stope development and test mining of ore bodies is underway, with the objective
of ramping up production to the full production rate of 400 tons per day during
2011. Assays of mineralized bodies encountered to date show variable silver and
gold values, with occasional very high grades encountered, as is to be expected
from this style of epithermal mineralization. Assay results when averaged are
consistent with the grades expected from previous estimates. The better grade
material encountered in mine development activities is segregated at the mine
and trucked to the Lordsburg mill site. Development operations are proceeding on
the basis of two 10-hour shifts five days a week.

At
the Banner mill, construction was essentially completed in Q2 2009, except for
the tailings disposal impoundment. We experienced a delay in obtaining a permit
necessary for construction of the tailings disposal impoundment. In October 2009
we obtained a conditional permit allowing us to begin construction of the
tailings disposal impoundment. Construction of the impoundment was completed in
Q1 2010. Processing operations at the Banner mill commenced on March 25, 2010.
Commissioning of the mill proceeded satisfactorily and operations were expanded
to two shifts per day, five days per week beginning in July 2010. Sales of ore
as silica flux commenced in Q2 2010 and sales of precious metals flotation
concentrates began in Q3 2010. Ramp-up of mill throughput is planned to occur
over a period of the next several months in conjunction with increased output
from the Summit mine. We expect that the Summit project will achieve commercial
production in 2011.

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. The report concluded that the financial results
indicate a favorable gold project employing high pressure grinding rolls with
gravity recovery and contract mining. The report also stated that considerable
upside exists in estimations of mineralized material in both contained ounces
and grade.

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. 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.

20

---

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.

Figure X.2

Claim Boundary Map [click for larger version]



21

---

***Mineral
  Title***

On
August 1, 2004, we entered into an option and lease agreement with Ortiz Mines,
Inc., a New Mexico 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. Since February 1,
2006, we have paid annual lease payments, the last payment of $126,891 in
January 2010 satisfying the lease payment through January 31, 2011. On May 1,
2010, we agreed with Ortiz Mines, Inc., to amend the terms of the lease. Under
the amended terms, the lease provides for an extension of the initial term from
seven to ten years (17 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 amended lease provides for annual lease payments
of $130,000; 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. SeeItem 13.  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 gold mineralization in several deposits.

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 gold
mineralization in 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 mineralized material at the Carache and Lucas
deposits and to prepare conceptual open pit mine plans. 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. 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.

22

---

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
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 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 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 mineralized material. 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. 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.

23

---

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 gold recovery 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, within the boundaries
of two conceptual pits previously designed by the LAC-Pegasus Joint Venture.
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
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.

***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***

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 began construction of
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. In 2002, we commissioned the processing facilities at the mine site and
in Glendale, operated for several months on a test basis and achieved limited
production and commercial sales. However, design capacity of the processing
facilities was not achieved due to undercapitalization. In November 2002, after
unsuccessful attempts to raise the additional capital necessary to expand plant
capacity in order to reach design capacity and to provide working capital, 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.

24

---

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 $10.0 million estimated to be
required to fund an updated feasibility study, 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.

***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.

Figure X.3

Claim Boundary Map 
[click for larger version]



25

---

***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 $11,000. We have paid the required fees for the 2010 and 2011
assessment years (September 1, 2009 through August 31, 2011).

***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 mineralized
material. 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 mineralized material 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 due to undercapitalization. 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 $10.0 million estimated to be required to fund an
updated feasibility study, 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 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.

26

---

***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 mineralization, 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.

***Estimation
  of Mineralized Material***

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 an estimation of
mineralized material. In-place mineralized material for the pit design was
calculated as 2,399,500 tons of material grading 7.54% mica and 1,527,200 tons
of additional material grading 7.37% mica, for total mineralized material of
3,926,680 tons grading 7.48% mica, at a cutoff grade of 2.47% mica.
Approximately 60% of the mica contained in this mineralized material is expected
to be recoverable after losses due to mining and beneficiation.

***Mica***

Ourmineralized material contains 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 believe, once adequate financing is obtained, that
the project has the potential to produce 10,000 tons (20 million pounds)
annually of premium wet-ground mica. For the project to be successful, we would
need to penetrate existing markets and to establish our own markets in plastics,
cosmetics and ultra-micronized applications.

We
have had no mica sales since 2007, when sales totaled $7,201. Previously, we
sold mica, on a limited basis, to customers in the plastics and cosmetics
industries and for other specialized applications. In addition, other potential
consumers conducted trial tests of our mica products. Our inventory was largely
depleted in fiscal 2006.

27

---

***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. Once joint venture
financing is obtained, we believe the project could 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 the
estimated $10.0 million in new funding necessary to advance the Black Canyon
mica project to full production. The new funding would be used to fund an
updated feasibility study, 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. As an alternative to arranging the $10.0 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), and in June 2008
exercised our option to purchase the property. 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. 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.

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.

28

---

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.

Figure X.4

Claim Boundary Map 
[click for larger version]



29

---

***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. We paid an initial purchase payment
  of $50,000 in August 2008, a payment of $69,650 in September 2009 and a payment
  of $63,094 in August 2010. There also is provision for a 5% royalty to be paid
  on any future production.

***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
we completed 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 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.

30

---

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 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.

31

---

**Lordsburg
Exploration Project**

In June 2010 we commenced an exploration program on our extensive
  ground holdings in the Lordsburg (Virginia) Mining District, where we control
  approximately 1,500 acres of prospective ground, the majority of which is comprised
  of patented mining claims that we own, and the remainder patented and unpatented
  mining claims that we lease. To date we have completed an aerial mapping survey
  covering 30 square miles and are carrying out data compilation and detailed
  geologic mapping and sampling. We plan to follow these activities by geophysical
  surveys and drilling of prospective targets. The work already has been successful
  in identifying several attractive exploration targets, and more are expected.
  Recorded historic production from the Lordsburg Mining District, at todays
  metal prices, has exceeded $1.0 billion in gold, silver and copper. The majority
  of this historic production came from mines on ground that we now control. We
  are conducting the Lordsburg exploration program pursuant to our long term strategy
  of finding sources of ore to augment ore from the Summit silver-gold mine, in
  order to fully utilize the excess capacity of the Banner mill.

**Pilar Gold Project**

In
June 2009, we entered into a purchase option contract on the Pilar gold property
consisting of two mineral exploitation concessions located 165 kilometers
east-southeast of Hermosillo, State of Sonora, Mexico. In February, 2010, we
received disappointing results from an extensive trenching and sampling program
on the property. On the basis of the results, we determined to relinquish our
interest in the property and did so prior to the option payments otherwise due
March 13, 2010.

Minera
Sandia S.A. de C.V., the Companys wholly owned subsidiary, entered into the
option purchase contract with Minera de Suaqui Grande, S. de R.L. de C.V. The
Pilar property consists of the La Sonora and Guadalupana exploitation
concessions, which cover 100 hectares (240 acres). The contract provided for
option payments of $1,000 upon signing, $99,000 on March 13, 2010, and $125,000
on March 13, 2011. The last payment of $1,307,000, to complete the purchase, was
due March 13, 2012. In connection with the acquisition, we entered into a
consulting agreement with Minera de Sauqui Grande, S. de R.L. de C.V. wherein we
agreed to issue 117,000 restricted shares of common stock. We also entered into
a finders agreement wherein we agreed to pay creditors $11,150 in cash and
17,400 in restricted common stock. We also agreed to pay finders fees of
$15,000 in cash and 25,000 in restricted common stock, and to match option and
purchase payments when they became due by payments either in cash or in
restricted common stock. We were not required to pay a production royalty under
the agreements.

Glossary

|Alluvium      | Unconsolidated gravel, sand, silt and clay deposited by
      streams.                                                       
|------------- | -----------------------------------------------------------------------------------------------------------------------------
|              |                                                                                                                              
|Andesite      | A common fine-grained continental lava containing sodium
  feldspar, no quartz and associated with mountain-making processes.
|              |                                                                                                                              
|Argentite     | Silver sulfide mineral, a common source of silver.                                                                           
|              |                                                                                                                              
|Argillization | Alteration of feldspars to form clay minerals, especially
      in wall rocks adjacent to mineral veins.                     
|              |                                                                                                                              
|Azurite       | Blue hydrous copper carbonate mineral formed in oxide
      zone of copper deposit.                                          
|              |                                                                                                                              
|Barite        | Barium sulfate mineral, the main source of barium.                                                                           
|              |                                                                                                                              
|Bornite       | Copper-iron sulfide mineral, an important source of
      copper.                                                            
|              |                                                                                                                              
|Breccia       | Rock composed of broken rock fragments, found in
      sedimentary or volcanic environments.                                 
|              |                                                                                                                              
|Calcite       | Calcium carbonate mineral, the main constituent of
      limestone and marble.                                               
|              |                                                                                                                              
|Chalcopyrite  | Copper-iron sulfide mineral, an important source of
      copper.                                                            
|              |                                                                                                                              
|Diatreme      | Volcanic pipe containing milled breccia that was formed
  by explosive gaseous venting and upward transport of material.     

32

---

|Dike                         | Tabular discordant intrusive rock.                                                                                                                                                                                                                                                                                                       
|---------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                             |                                                                                                                                                                                                                                                                                                                                          
|Dip                          | Acute vertical angle that a rock surface makes with a
    horizontal plane. Direction of dip is always perpendicular to strike.                                                                                                                                                                                                          
|                             |                                                                                                                                                                                                                                                                                                                                          
|Electrum                     | Alloy of silver and gold.                                                                                                                                                                                                                                                                                                                
|                             |                                                                                                                                                                                                                                                                                                                                          
|Epithermal                   | Refers to hydrothermal mineral deposit formed within a
      few thousand feet of surface at relatively low temperature and pressure,
      commonly a vein.                                                                                                                                                                             
|                             |                                                                                                                                                                                                                                                                                                                                          
|Fault                        | A break in the rocks along which movement has occurred.                                                                                                                                                                                                                                                                                  
|                             |                                                                                                                                                                                                                                                                                                                                          
|Feldspar                     | Common alumino-silicate mineral containing sodium,
      potassium and/or calcium, formed in igneous environment and constituting
      over 60% of the Earths crust.                                                                                                                                                                   
|                             |                                                                                                                                                                                                                                                                                                                                          
|Feldspathic sand             | Sand containing feldspar and quartz.                                                                                                                                                                                                                                                                                                     
|                             |                                                                                                                                                                                                                                                                                                                                          
|Flotation                    | Metallurgical process that begins concentration of
      economic minerals from gangue.                                                                                                                                                                                                                                                  
|                             |                                                                                                                                                                                                                                                                                                                                          
|Fluorite                     | Calcium fluoride mineral, also called fluorspar.                                                                                                                                                                                                                                                                                         
|                             |                                                                                                                                                                                                                                                                                                                                          
|Galena                       | Lead sulfide mineral, the main source of lead.                                                                                                                                                                                                                                                                                           
|                             |                                                                                                                                                                                                                                                                                                                                          
|Gangue                       | Valueless material accompanying economic minerals in a
      mineral deposit.                                                                                                                                                                                                                                                            
|                             |                                                                                                                                                                                                                                                                                                                                          
|Garnet                       | Silicate mineral formed at high temperature and found in
      metamorphic rock and in skarn near the contact zone of igneous intrusive
      rocks.                                                                                                                                                                                     
|                             |                                                                                                                                                                                                                                                                                                                                          
|Gneiss                       | Metamorphic rock exhibiting compositional banding formed
      at depth in a high temperature and pressure environment.                                                                                                                                                                                                                  
|                             |                                                                                                                                                                                                                                                                                                                                          
|Granite                      | Common coarse-grained igneous rock composed of light
      colored minerals including quartz and feldspar.                                                                                                                                                                                                                               
|                             |                                                                                                                                                                                                                                                                                                                                          
|Heap leaching                | A process used for the recovery of precious metals and
      copper from low-grade ores. Crushed material is laid on an impervious pad
      and uniformly leached by the percolation of the leach liquor trickling
      through the beds by gravity to ponds. The metals are recovered by
      conventional methods from the solution.
|                             |                                                                                                                                                                                                                                                                                                                                          
|Hematite                     | Iron (ferrous) oxide mineral.                                                                                                                                                                                                                                                                                                            
|                             |                                                                                                                                                                                                                                                                                                                                          
|Hydrothermal                 | Relating to or produced by extremely hot water.                                                                                                                                                                                                                                                                                          
|                             |                                                                                                                                                                                                                                                                                                                                          
|Igneous                      | Refers to a rock or mineral that solidified from magma,
      i.e., molten material.                                                                                                                                                                                                                                                     
|                             |                                                                                                                                                                                                                                                                                                                                          
|Lava                         | Rock formed as a result of cooling and solidification of
      magma (molten rock) poured out on the earths surface.                                                                                                                                                                                                                    
|                             |                                                                                                                                                                                                                                                                                                                                          
|Malachite                    | Green hydrous copper carbonate mineral formed in the
      oxide zone of copper deposit.                                                                                                                                                                                                                                                 
|                             |                                                                                                                                                                                                                                                                                                                                          
|Manto                        | Tabular or pipe-like mineral deposit formed by selective
      replacement commonly of limestone beds by mineralizing solutions
      introduced along faults.                                                                                                                                                                           
|                             |                                                                                                                                                                                                                                                                                                                                          
|Metamorphic                  | Refers to rock changed in texture and composition by high
      temperature and/or pressure deep beneath the surface.                                                                                                                                                                                                                    
|                             |                                                                                                                                                                                                                                                                                                                                          
|Mica                         | Group of phyllosilicate minerals, common variety
      muscovite, with perfect basal (micaceous) cleavage yielding tough, elastic
      flakes and sheets; colorless, white, yellow, green, brown, or black;
      common in igneous, metamorphic, and sedimentary rocks.                                                                
|                             |                                                                                                                                                                                                                                                                                                                                          
|Micaceous Iron Oxide (MIO) | Platy variety of specularite used in coatings to protect
      structural steelwork from corrosion.                                                                                                                                                                                                                                      
|                             |                                                                                                                                                                                                                                                                                                                                          
|Mineralized                  | Material added by hydrothermal solutions, principally in
      the form of mineral deposits. Often refers to the presence of a mineral of
      economic interest in the rock.                                                                                                                                                           
|                             |                                                                                                                                                                                                                                                                                                                                          
|Molybdenite                  | Molydenum sulfide mineral, the main source of molybdenum                                                                                                                                                                                                                                                                                 
|                             |                                                                                                                                                                                                                                                                                                                                          
|Monzonite                    | Coarse-grained igneous rock containing quartz and
      composed of approximately equal amounts of sodium and potassium feldspars.                                                                                                                                                                                                       

33

---

|Net Smelter Return | An interest in a mining property held by the vendor on
      the net revenues generated from the sale of metal produced from the mine.                                                                    
|------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                   |                                                                                                                                                                                                           
|Ore                | Mineral of economic value that can be extracted
      profitably and legally.                                                                                                                             
|                   |                                                                                                                                                                                                           
|Oxidation          | The conversion of sulfide minerals to oxide minerals
      through weathering at or near the earths surface.                                                                                             
|                   |                                                                                                                                                                                                           
|Paleozoic          | The era of geologic time when fish, insects, amphibians,
      reptiles, and land plants first appeared, about 600 million to 230 million
      years ago.                                                
|                   |                                                                                                                                                                                                           
|Pegmatite          | Very coarse-grained igneous rock containing quartz,
      feldspar and mica, usually found as irregular dikes, lenses or veins, esp.
      at the margins of granites.                                    
|                   |                                                                                                                                                                                                           
|Placer             | Deposit of sand or gravel containing concentrations of
      valuable minerals, typically gold.                                                                                                           
|                   |                                                                                                                                                                                                           
|Plunge             | The vertical angle between a horizontal plane and the
      line of maximum elongation of a linear geologic feature.                                                                                      
|                   |                                                                                                                                                                                                           
|Porphyry           | Igneous rock exhibiting a characteristic texture
      reflecting relatively large feldspar phenocrysts in a fine-grained
      groundmass.                                                               
|                   |                                                                                                                                                                                                           
|Precambrian        | All geologic time before the beginning of the Paleozoic.
      It encompasses about 90% of geologic time (4600-590 million years ago).                                                                   
|                   |                                                                                                                                                                                                           
|Pyrite             | Iron sulfide mineral.                                                                                                                                                                                     
|                   |                                                                                                                                                                                                           
|Quaternary         | A period of geologic time from about 2 million years ago
      until the present.                                                                                                                         
|                   |                                                                                                                                                                                                           
|Schist             | Metamorphic rock exhibiting strong cleavage due to
      alignment of fibrous or platy minerals.                                                                                                          
|                   |                                                                                                                                                                                                           
|Sericitization     | Replacement of rock by sericitic muscovite due to
      hydrothermal activity.                                                                                                                            
|                   |                                                                                                                                                                                                           
|Silicification     | Introduction of or replacement by silica.                                                                                                                                                                 
|                   |                                                                                                                                                                                                           
|Skarn              | Characteristic high-temperature calc-silicate mineral
      assemblage formed in calcareous rocks near the contact zone of igneous
      intrusion.                                                       
|                   |                                                                                                                                                                                                           
|Sphalerite         | Zinc sulfide mineral, the main source of zinc.                                                                                                                                                            
|                   |                                                                                                                                                                                                           
|Specularite        | Crystalline form of hematite.                                                                                                                                                                             
|                   |                                                                                                                                                                                                           
|Stratigraphy       | The study of rock strata, especially of their
      distribution, deposition, and age.                                                                                                                    
|                   |                                                                                                                                                                                                           
|Strike             | Direction of line formed by intersection of a rock
      surface with a horizontal plane. Strike is always perpendicular to
      direction of dip.                                                       
|                   |                                                                                                                                                                                                           
|Sulfide            | A mineral compound containing sulfur but no oxygen.                                                                                                                                                       
|                   |                                                                                                                                                                                                           
|Tailings           | Waste product from ground ore.                                                                                                                                                                            
|                   |                                                                                                                                                                                                           
|Tertiary           | The first period of the Cenozoic era during which mammals
      became dominant and modern plants evolved, 65 million to 1.6 million years
      ago.                                                     
|                   |                                                                                                                                                                                                           
|Vein               | A mineral filling of a fault or other fracture in a host
      rock, in tabular or sheetlike form, commonly with associated replacement
      of the host rock; a mineral deposit of this form and origin.
|                   |                                                                                                                                                                                                           
|Volcanism          | Volcanic activity, including the eruption of lava and
      rock fragments and gas explosions.                                                                                                            
|                   |                                                                                                                                                                                                           
|Quartz             | A silicate mineral composed of silicon and oxygen.                                                                                                                                                        
|                   |                                                                                                                                                                                                           
|Quartzite          | Metamorphic rock composed of quartz.                                                                                                                                                                      

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

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

34

---

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

None.

PART II

**ITEM
5.**       **MARKET FOR COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASE OF EQUITY
SECURITIES**

Market Information

Our
common stock trades over-the-counter and is quoted on the OTC Bulletin Board
under the symbol SFEG. The table below sets forth the high and low bid prices
for our common stock as reflected on the OTC Bulletin Board for the last two
fiscal years. 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.

Quarter ended
      OTCBB(U.S. $)2008
      HIGH
      LOW09/30/08
      $0.87
      $0.5612/31/08
      $0.77
      $0.542009
      HIGH
      LOW3/31/09
      $1.34
      $0.606/30/09
      1.35
      1.009/30/09
      1.30
      0.9012/31/09
      $1.74
      $1.072010
      HIGH
      LOW3/31/10
      $1.70
      $0.916/30/10
      $1.08
      $0.77


Holders of Common Equity

As
of September 27, 2010, there were 93,062,510 common shares outstanding, the high
and low sales prices of our common stock on the OTC Bulletin Board were $1.19
and $0.80, respectively, and we had 787 holders of record of our common stock.

Penny Stock Rules

Due
  to the price of our common stock, as well as the fact that we are not listed
  on Nasdaq or a national securities exchange, our stock is characterized as a
  penny stock under applicable securities regulations. Our stock therefore
  is subject to rules adopted by the SEC regulating broker-dealer practices in
  connection with transactions in penny stocks. The broker or dealer proposing
  to effect a transaction in a penny stock must furnish his customer a document
  containing information prescribed by the SEC and obtain from the customer an
  executed acknowledgment of receipt of that document. The broker or dealer must
  also provide the customer with pricing information regarding the security prior
  to the transaction and with the written confirmation of the transaction. The
  broker or dealer must also disclose the aggregate amount of any compensation
  received or receivable by him in connection with such transaction prior to consummating
  the transaction and with the written confirmation of the trade. The broker or
  dealer must also send an account statement to each customer for which he has
  executed a transaction in a penny stock each month in which such security is
  held for the customers account. The existence of these rules may have
  an effect on the price of our stock, and the willingness of certain brokers
  to effect transactions in our stock.

35

---

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.

Dividend Policy

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.

Performance Graph

The
following performance graph and related information shall not be deemed
solicting material or to be filed with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933 or Securities Exchange Act of
1934, each as amended, except to the extent that we specifically incorporate it
by reference in such filing.

The
following graph compares the performance of Santa Fe Gold Corporation with the
performance of the S&P BMI Gold & Precious Metal Index, and a Peer Group
of companies with comparable market capitalizations. The graph represents
monthly index levels derived from compounded daily returns that include all
dividends. The indexes are reweighted daily, using the market capitalization on
the previous trading day. The index level for all series was set to $100.00 on
June 30. 2005.



Recent Sales of Unregistered
Securities

On
July 27, 2009, the Company issued 94,339 shares of common stock at $1.06 per
share in connection with a private placement. As part of the private placement
the Company also issued 47,169 warrants with an exercise price of $1.06 per
share and an expiration of 5 years.

36

---

On
August 6, 2009, the Company issued 100,000 shares of common stock at $1.06 per
share in connection with a private placement. As part of the private placement
the Company also issued 50,000 warrants with an exercise price of $1.06 and an
expiration of 5 years.

On
August 17, 2009, the Company issued 18,868 shares of common stock at $1.06 per
share in connection with a private placement. As part of the private placement
the Company also issued 9,434 warrants with an exercise price of $1.06 per share
and an expiration of 5 years.

**ITEM 6.**     **SELECTED
  FINANCIAL DATA**

The
following selected financial data sets forth our summary historical financial
data as of and for the years ended June 30, 2010, 2009, 2008, 2007 and 2006.
This information was derived from our audited consolidated financial statements
for each period. Our selected historical financial data is qualified in its
entirety by, and should be read in conjunction with, Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations
and the financial statements and the notes thereto included elsewhere in this
report. For additional information relating to our operations, see Item 1.
Business and Item 2. Properties.

|                                                     |   | Year
      Ended June 30, |  
|---------------------------------------------------- | - | ------------------------- | -
|                                                     |   | 2010                      |  
|Operating Data                                       |   |                           |  
|Net loss from operations                             | $ | (3,366,420                | )
|Other income                                         |   | 2,157,066                 |  
|Net income (loss)                                    |   | (1,209,354                | )
|Basic & diluted income (loss) per share              | $ | (0.01                     | )
|Diluted income per share                             | $ | --                        |  
|Weighted average shares - basic                      |   | 87,639,127                |  
|Weighted average shares - diluted                    |   | 87,639,127                |  
|                                                     |   |                           |  
|Balance Sheet Data                                   |   |                           |  
|Cash and cash equivalents                            | $ | 5,540,130                 |  
|Total current assets                                 |   | 5,807,338                 |  
|Property and equipment, net                          |   | 3,790,215                 |  
|Other assets & mineral properties                    |   | 17,803,281                |  
|Total assets                                         | $ | 27,400,834                |  
|                                                     |   |                           |  
|Current liabilities                                  | $ | 11,213,275                |  
|Long-term obligations                                |   | 14,249,216                |  
|Shareholders equity (deficit)                       |   | 1,938,343                 |  
|Total liabilities and shareholders equity (deficit) | $ | 27,400,834                |  

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

Except
for the historical information, the following discussion contains
forward-looking statements that are subject to risks and uncertainties. Readers
are cautioned that the following discussion contains certain forward-looking
statements and should be read in conjunction with the Cautionary Statement On
Forward-Looking Statements appearing at the beginning of this Annual Report. We
caution you not to put undue reliance on any forward-looking statements, which
speak only as of the date of this report. Our actual results or actions may
differ materially from these forward-looking statements for many reasons,
including the risks described in Risk Factors and elsewhere in this annual
report. Our discussion and analysis of our financial condition and results of
operations should be read in conjunction with the Financial Statements of the
Company and notes thereto included elsewhere in the Annual Report. See
Financial Statements. Our actual future results may be materially
different from what we currently expect.

37

---

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
$1,209,354 for the year ended June 30, 2010, and net losses of 5,535,596 and
$4,423,592 for the years ended June 30, 2009 and 2008, respectively. In order to
fund operations in the fiscal years ended June 30, 2010 , 2009 and 2008, we
relied on proceeds from the sale of equipment aggregating $99,584 for the three
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, the private placement sale in June 2009 of common stock of
$300,000, financing of $4,000,000 in September 2009 relating to a gold sale
agreement, and a registered direct sale of equity of $10,000,000 in January
2010.

The
net proceeds of the private placement of senior secured convertible debentures
completed in December 2007 were used primarily to fund the development of the
Summit mine and processing facilities. The remainder of the proceeds of the 2009
and 2008 financings was utilized as general working capital.

In
September 2009, we entered into a sale agreement for a portion of our gold
production from the Summit mine. The agreement provided for an upfront cash
payment of $4.0 million and ongoing production payments equal to the lesser of
$400 per ounce and the prevailing market price, for each ounce of gold delivered
pursuant to the agreement. Proceeds were used for on-going development of the
Summit mine, completion of construction of the Banner mill processing facilities
and working capital.

In
January 2010 we sold $10 million of securities to institutional investors in a
registered direct offering pursuant to an S-3 Registration Statement. We
received net proceeds of $9,375,000 after deducting placement agent fees and
other offering expenses. Proceeds are being used for on-going development of the
Summit mine, acquisition of additional feed sources for expansion of the
Lordsburg mill, advancement of the Ortiz gold project, exploration in the
Lordsburg area and pursuit of acquisition opportunities.

The
results of operations for the fiscal years ended June 30, 2010, 2009 and 2008
reflect under-capitalization of our Summit silver-gold project which requires
additional funding to be able to achieve production and profitability. We expect
results of operations similar to those in 2010 and 2009 to continue in the
foreseeable future, and do not expect them to change significantly until such
time as profitable production is achieved at our Summit mine and/or additional
capital and/or debt facilities are secured. There is significant uncertainty in
our Summit estimates of both future costs and future revenues, and we may
require additional capital resources to complete our plans.

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 $5.0 million over the next 12 months, and $12.0
million over the next 36 months in order to satisfy past commitments, pay
corporate overhead costs, complete Summit development, and fund feasibility
studies and exploration programs 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 $55,129,450 at June 30, 2010. 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.

38

---

Liquidity and Capital Resources; Plan of Operation

As
of June 30, 2010, we had cash and cash equivalents of $5,540,130 as compared to
$509,846 at June 30, 2009. As of June 30, 2010, we had a working capital deficit
of $5,405,937, which is attributable to the current portion of our non-cash
derivative instrument liabilities of $9,843,041.

On
January 20, 2010 we entered into definitive agreements with 23 institutional
investors to purchase $10 million of securities in a registered direct offering.
We received net proceeds of $9,375,000 after deducting placement agent fees and
other offering expenses. The securities were offered pursuant to an effective
S-3 Registration Statement. The Company sold to the investors an aggregate of
7,692,310 shares of its common stock, and warrants to purchase up to 3,846,155
additional shares of common stock. Each unit, consisting of one share of common
stock and one-half of a warrant to purchase a share of common stock, was sold
for a purchase price of $1.30. The warrants to purchase additional shares are
exercisable at an exercise price of $1.70 per share and have a term of 5
years.

On September 11, 2009, we entered into a definitive gold sale agreement with Sandstorm Resources Ltd. (TSX-V: SSL) (“Sandstorm”) to sell a portion of the life-of-mine gold production (but not silver production) from our Summit  silver-gold mine. Under the agreement we received an upfront cash deposit of $4.0 million, plus we will receive ongoing production payments equal to the lesser of $400 per ounce or the prevailing market price, for each ounce of gold delivered pursuant to the agreement for the life of the mine. Gold production subject to the agreement includes 50% of the first 10,000 ounces of gold produced, and 22% of the gold thereafter. The amount of payable gold can be reduced from 22% to 15% provided that within 36 months the Summit mine reaches certain performance levels in any consecutive 12 month period, in compliance with prefeasibility estimates, including 1) the rate of ore mined and processed must average 400 tons per day or more, and 2) payable gold production must exceed 11,500 ounces during such consecutive 12 month period. Sandstorm made an initial payment of $500,000 and on October 7, 2009 paid the remaining $3,500,000 balance of the upfront cash deposit. We will receive credit against the $4,000.000 upfront cash deposit for the difference between the market price and $400 per ounce for those gold deliveries where the prevailing market price exceeds $400 per ounce.  These credits will be recognized as revenue, in addition to the ongoing production payments received for gold delivered pursuant to the agreement. In certain circumstances, including failure to meet minimum production rates, interruption in production due to permitting issues and customary events of default, the agreement may be terminated. In such event, we may be required to return to Sandstorm the upfront cash deposit of $4.0 million less a credit for gold delivered up to the date of that event, which is determined using the difference between the market price and $400 per ounce for gold deliveries where the prevailing market price exceeded $400 per ounce.

On
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 were used primarily for the
development of the Summit project. The debentures were 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 in fiscal 2009 received advances aggregating $8,150,000, bringing the total
received to $13,500,000.

Effective
June 30, 2009, we agreed with the investor to convert the aggregate accrued
interest of $974,360 due June 30, 2009, under the convertible debentures, into
974,360 shares of the Companys common stock. We also agreed that aggregate
accrued interest on the outstanding principal amounts of the debentures for the
quarters ending September 30, 2009 and December 31, 2009, shall be paid in
shares of the Companys common stock, to be valued at one dollar ($1.00) per
share at the time of payment and issuance. Accordingly the Company issued
483,000 shares of its common stock in payment of $483,000 of aggregate accrued
interest for the combined quarters ended September 30, 2009 and December 31,
2009.

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.

In
recent years we have not generated any significant revenues from operations and
have incurred significant operating losses. At June 30, 2010, we have an
accumulated (deficit) of $55,129,450. 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 2010 was from the sale
of equity and from a gold sale agreement. We anticipate that our operations
through fiscal 2011 will be funded from the balance of proceeds from these
financings; sale of our securities; exercise of certain options and warrants;
and/or through project related debt or equity financings or advanced sale of our
products. 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.

39

---

We
have developed a plan to maintain the Company on a strong financial footing.
Important elements of the plan include continued raising of interim funding to
provide for deployment of operations on our various property sites, and final
stage development of our Summit property and the commencement of profitable
production. During the quarters ended December 31, 2007, September 30, 2009 and
March 31, 2010, we secured a substantial portion of the funding necessary to
place our Summit property into production. If we are able to secure additional
required financing on acceptable terms, we believe we will be in a position to
deploy our business plan and to achieve commercial production in 2011.

We
are continuing to seek funding to advance our business plan and strategies. We
require funds to meet our corporate commitments, to complete Summit development,
to continue feasibility studies on our mineral properties, to initiate
exploration programs, and to arrange a joint venture for restart of our Black
Canyon mica mine. We project the need for a minimum of $5.0 million over the
next 12 months, and $12.0 million working capital during the next 36 months,
estimated as follows:

Next 12 Months
    
    
    Next 36 MonthsCompletion of Summit development
    $
    3,000,000
    
    $
    4,000,000Exploration programs and feasibility studies
    
    1,000,000
    
    
    5,000,000Corporate overhead and related expenses
    
    1,000,000
    
    
    3,000,000Total funding requirements
    $
    5,000,000
    
    $
    12,000,000


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.

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.

Results of Operations

Fiscal Year Ended June 30, 2010 Compared to Fiscal Year
Ended June 30, 2009

**Sales**

Sales
increased to $320,145 in fiscal year 2010 from $72,624 in fiscal year 2009, an
increase of $247,521. The increase in sales was comprised of trial flux
shipments of $305,930 and was offset by a decrease in sales of aggregate product
of $58,409.

**Exploration
  and Mine and Mill Start Up Costs**

Exploration
and mine and mill start up costs increased in fiscal year 2010 to $1,004,256
from $641,230 in fiscal year 2009 as the Summit Project, consisting of the
construction of the Banner mill site and development of the Summit mine,
continued to increase activity. The difference of $363,026 in fiscal 2010 is
attributable to increased non-capitalized costs incurred on the Summit project.
Major components of increased costs were labor burden of $91,806; operating
supplies and general expenses of $143,923; utilities of $41,706; repairs and
maintenance of $74,162; property casualty and liability insurance of $48,200;
property taxes of $28,156; and exploration costs of $48,428. Significant
decreased expense components offsetting these increases were relocation costs of
$80,027 and leased equipment of $43,819.

40

---

**General
  and Administrative**

General
and administrative decreased to $2,204,549 in fiscal year 2010, from $2,737,671
for fiscal year 2009, a decrease of $533,122. Major components of the decreased
costs consist of labor burden of $14,282; employee stock compensation of
$415,074; investor relations of $135,682; costs associated with options of
$135,428 and finance costs of $214,135. Major components of increased costs were
office operating costs of $18,052; auditing and related compliance fees of
$84,067; legal costs of $117,116 and consulting fees of $148,948. The increased
auditing and related compliance fees are comprised of approximately $19,000 of
prior year audit fees recognized in fiscal 2010, professional fees approximating
$21,000 relating to derivative work and the implementation of SOX requirements,
and increased audit and 10-K accrued fees of $40,000 due to increased SEC audit
requirements referencing internal control procedures. The increase in legal fees
is a result of multiple financing agreements, including a private placement of
common stock. Consulting fees increased in fiscal 2010 due to the recognition of
the remaining consulting fees in the current year on the abandoned Pilar
Project, aggregating $131,359.

**Stock-Based
  Compensation**

Stock-based
compensation included in General and Administrative in fiscal year 2010
decreased to $717,547 from $1,347,585 in fiscal year 2009, a decrease of
$630,038. The decrease in the current fiscal year is attributable to decreased
costs of stock grants to employees of $415,074; amortized costs associated with
options of $135,428 and amortized costs associated with stock issued for
services aggregating $79,536.

**Depreciation
  and Amortization**

Depreciation
and amortization during the current fiscal year 2010 increased to $477,760 as
compared to $279,012 for the comparable fiscal year 2009, an increase of
$198,748. The increase is directly attributable to the deployment of the Summit
mine project and Banner mill project and related capitalized equipment costs put
into service during fiscal year 2010 and 2009.

**Other
  Income and Expense**

Other
income and (expense) for fiscal year 2010 were $2,157,066 as compared to
$(1,914,870) for fiscal 2009, an increase of $4,071,936. The increase in other
income incurred in the current fiscal year is mainly attributable to decreases
in expenses relating to interest expense of $113,204; accretion of discounts on
notes payable of $376,840 and increased gain on derivative instruments liability
of $3,810,303. These increases in other income were offset by a reduction in
relief of debt of $90,967; and a decrease in interest and miscellaneous income
aggregating $127,208.

**Gain
  (loss) on Derivative Financial Instruments**

We
recognized a gain on derivative instruments liabilities of $3,295,947 for fiscal
year 2010, as compared to a loss of $514,356 for the prior fiscal comparable
year 2009. The non-cash gain 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 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 gain in fiscal 2010 is mainly
attributable to changes in the market price of our common stock, which is a
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 these derivatives. 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.

Fiscal Year Ended June 30, 2009, Compared to Fiscal Year
Ended June 30, 2008

**Sales**

Sales
increased to $72,624 in fiscal 2009 from $-0- in fiscal 2008. Sales were
generated from the limited sales of aggregate product which occurred in the
third and fourth quarter of fiscal year 2009.

41

---

**Exploration
  and Mine and Mill Start Up Costs**

Exploration
and mining costs increased in fiscal 2009 to $641,230 from $245,621 in fiscal
2008 as the Summit project, consisting of the construction of the Banner mill
site and development of the Summit mine, was active for the entire twelve month
period for fiscal 2009. Activity previously commenced in the second half of
fiscal 2008. The difference of $395,609 in fiscal year 2009 is attributable to
increased non-capitalized costs incurred on the Summit project. The increased
costs resulted from increases on land leases of $9,371; leased equipment of
$42,720; repairs and maintenance of $40,864; compensation and payroll burden of
$81,155; vehicle operating costs of $37,378; supplies and general operating
costs of $92,023; insurance of $47,474; relocation costs of $80,027; and fuel of
$16,370. These increases were offset by decreases consulting fees and related
costs aggregating $50,659.

In
January 2008 upon completion of the engineering study for the Summit property,
and placement of the financing of the projects, we deployed our plan for the
development of the Summit mine and Banner mill near Lordsburg, New Mexico. Upon
implementation of the projects, we started capitalizing all qualified costs into
construction in process.

**General
  and Administrative**

General
and administrative increased to $2,737,671 for the fiscal year 2009, from
$1,720,793 for the fiscal year 2008, an increase of $1,016,878. The increase in
the 2009 fiscal year was mainly attributable to increases in rent expense of
$7,472; compensation and payroll burden of $192,007; property taxes of $28,058;
travel and entertainment of $15,413; financing costs of $139,454; recognized
stock-based compensation of $963,672; and office operating costs of $31,002.
These increases were mainly offset by decreases in the 2009 fiscal year in
non-recurring dismantling and relocation costs of the Black Canyon mica plant
aggregating $282,335 and accounting and legal costs of $93,805.

**General
  and Administrative Stock Compensation**

Stock-based
compensation included in General and Administrative in fiscal year 2009
increased to $1,347,585 from $383,913 for the comparative fiscal year ended
2008, an increase of $963,672. The increase was attributable mainly to amortized
costs associated with deferred stock compensation for an officer and another key
employee aggregating $448,000; amortized incentive stock options costs
associated with options issued to numerous employees of $270,342; and amortized
costs associated with stock issued for services aggregating $245,330.

**Depreciation
  and Amortization**

Depreciation
and amortization during the fiscal year 2009 increased to $279,012 as compared
to $4,554 for the comparable fiscal year 2008, an increase of $274,458. The
increase was directly attributable to the deployment of the Summit mine project
and Banner mill project and related capitalized equipment costs put into service
aggregating approximately $2,100,000 during the 2009 fiscal year.

**Other
  Income and Expense**

Other
income and (expense) for fiscal year 2009 were $(1,914,870) as compared to
$(2,447,624) for fiscal 2008, a decrease of $532,754. The decrease in other
expenses incurred in the 2009fiscal year was mainly attributable to decreases in
expenses relating to interest of $799,514, of which $777,682 represented
capitalized interest on our projects in the 2009 fiscal year; a loss on disposal
of assets of $123,522; increases relating to interest and miscellaneous income
aggregating $107,855; and relief of debt of $66,905. These decreases were offset
by increased expenses relating to accretion of discounts on notes payable of
$336,569 and an increase in loss on derivative instruments liability of
$241,938.

42

---

**Gain
  (loss) on Derivative Financial Instruments**

We
recognized a loss on derivative instruments liability of $514,356 for fiscal
year 2009, as compared to a loss of $272,418 for the prior fiscal comparable
year 2008. 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 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 2009 was mainly attributable to changes in the market
price of our common stock, which is a 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 these
derivatives. 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.

Off-Balance Sheet Arrangements

As
of and subsequent to June 30, 2010, we have no off-balance sheet
arrangements.

Critical Accounting Policies

Our
discussion and analysis of our consolidated financial condition and results of
operations is based on the Companys consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these consolidated 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 consolidated 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 consolidated 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, estimates
utilized, impairment of assets, depreciation of plant and equipment, and
derivative instrument liabilities.

***Reclamation
  Costs***

The
Company follows ASC 410, Asset Retirement and Environmental Obligations,
which requires that an asset retirement obligation (ARO) associated with the
retirement of a tangible long-lived asset be recognized as a liability in the
period in which it is incurred and becomes determinable, with an offsetting
increase in the carrying amount of the associated asset. The cost of the
tangible asset, including the initially recognized ARO, is depleted, such that
the cost of the ARO is recognized over the useful life of the asset. The ARO is
recorded at fair value, and accretion expense is recognized over time as the
discounted liability is accreted to its expected settlement value. The fair
value of the ARO is measured using expected future cash flow, discounted at the
Companys credit-adjusted risk-free interest rate. To date, no significant asset
retirement obligation is provided for on the Summit mine site as to the early
stage of production status.

As
of June 30, 2010, the Company has accrued $84,059 for reclamation on the ground
site work at the Black Canyon 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. As of June
30, 2010, 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. A roll
forward of our asset retirement obligation through June 30, 2010, is as follows:

Balance at June 30, 2007
    $
    75,309Accretion for the year ended June 30, 2008
    
    5,000Accretion for the year ended June 30, 2009
    
    3,750Accretion for the year ended June 30, 2010
    
    --Balance, June 30, 2010
    $
    84,059


43

---

Additionally
as of June 30, 2010, the Company maintained restricted assets of $230,716 held
on deposit on behalf of the New Mexico Energy, Minerals and Natural Resources
Department associated with reclamation costs for the Summit property.

For
each of these properties the amounts will be held until all conditions of the
corresponding reclamation agreement have been fulfilled.

***Estimates***

The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the 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.

***Impairment
  of Long-Lived Assets***

The
Company reviews and evaluates long-lived assets for impairment when events or
changes in circumstances indicate the related carrying amounts may not be
recoverable. The assets are subject to impairment consideration under ASC
360-10-35-17, Measurement of an Impairment Loss, if events or
circumstances indicate that their carrying amount might not be recoverable. As
of June 30, 2010, exploration progress is on target with the Companys
exploration and evaluation plan and no events or circumstances have happened to
indicate the related carrying values of the properties may not be recoverable.
When the Company determines that an impairment analysis should be done, the
analysis will be performed using the rules of ASC 930-360-35, Asset
Impairment, and 360-10-15-3 through 15-5, Impairment or Disposal of
Long-Lived Assets.

An
impairment loss is recognized when estimated future cash flows expected to
result from the use of the asset and its eventual disposition is less than its
carrying amount. When impairment is identified, the carrying amount of the asset
is reduced to its estimated fair value. Assets to be disposed of are recorded at
the lower of net book value or fair market value less cost to sell at the date
management commits to a plan of disposal.

***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.

44

---

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.

Recent Accounting Pronouncements

In
February 2010, the Financial Accounting Standards Board (FASB) issued
Accounting Standard Update (ASU) No. 2010-09, Subsequent Events: Amendments
to Certain Recognition and Disclosure Requirements, (ASU 2010-09) which
amends Accounting Standards Codification Topic 855 (ASC 855) to address
certain implementation issues related to an entity's requirement to perform and
disclose subsequent events procedures. The amendments in ASU 2010-09 remove the
requirement for an SEC filer to disclose a date through which subsequent events
have been evaluated in both issued and revised financial statements. The new
guidance became effective for the Company on February 16, 2010 and did not have
an impact on the Companys consolidated financial statements or results of
operations.

In
January 2010, the ASC guidance for fair value measurements and disclosure was
updated to require additional disclosures related to: i) transfers in and out of
level 1 and 2 fair value measurements and ii) enhanced detail in the level 3
reconciliation. The guidance was amended to provide clarity about: i) the level
of disaggregation required for assets and liabilities and ii) the disclosures
required for inputs and valuation techniques used to measure fair value for both
recurring and nonrecurring measurements that fall in either level 2 or level 3.
The updated guidance is effective for the Companys fiscal year beginning July
1, 2010, with the exception of the level 3 disaggregation, which is effective
for the Companys fiscal year beginning July 1, 2011. The Company is evaluating
the potential impact of adopting this guidance on the Companys consolidated
financial position, results of operations and cash flows.

Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) 105-10, Generally Accepted
Accounting Principles  Overall (ASC 105-10). ASC 105-10 establishes the
FASB Accounting Standards Codification(the Codification) as the source
of authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with U.S. GAAP. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. All guidance contained in the Codification carries an equal
level of authority. The Codification superseded all existing non-SEC accounting
and reporting standards. All other non-grandfathered, non-SEC accounting
literature not included in the Codification is non-authoritative. The FASB will
not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts.

45

---

Instead, it will issue Accounting Standards Updates (ASUs). The FASB will not
consider ASUs as authoritative in their own right. ASUs will serve only to
update the Codification, provide background information about the guidance and
provide the bases for conclusions on the change(s) in the Codification.
References made to FASB guidance throughout this document have been updated for
the Codification. The adoption of SFAS 168 did not have a material impact on the
Companys consolidated financial statements.

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 adoption of FSP APB 14-1 had no impact of the on
the consolidated financial position, results of operations 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. The Company adoption of SFAS 141(R) had no
effect on its consolidated results of operations, financial position, and 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.

**ITEM
7A.**     **QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Our
exposure to market risks includes, but is not limited to, the following risks:
changes in interest rates and equity price risks. We do not use derivative
financial instruments as part of an overall strategy to manage market risk.

Interest Rate Risk

We
had $14.5 million and $14.6 million of indebtedness under our credit facilities
at June 30, 2010 and 2009, respectively. The annual interest rates on our credit
facilities for our outstanding senior secured convertible notes is 7.0% on $13.5
million and 10.0% on $450,000. Interest rates on capital leases and other notes
payable range from 5.34 to 10.0% . Additionally, we do not have any investment
in debt instruments other than highly liquid cash equivalents. Accordingly, we
consider our interest rate risk exposure to be insignificant at this time.

Equity Price Risk

We
have in the past sought and will likely in the future seek to acquire additional
funding by sale of common stock and other equity instruments. Movements in the
price of our common stock have been volatile in the past and may also be
volatile in the future. As a result, there is a risk that we may not be able to
sell common stock or other equity at an acceptable price to meet future funding
requirements.

Commodity Price Risk

We
currently have only limited production but expect to produce increasing amounts
of gold and silver in the future. If we increase production and sales, changes
in the price of gold and other minerals could significantly affect our results
of operations and cash flows. We do not presently expect to hedge the sale of
any of our anticipated production.

46

---

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

|Index to Financial Statements:                                                                                       | F-1      
|-------------------------------------------------------------------------------------------------------------------- | ---------
|                                                                                                                     |          
|Report of Independent Registered Public Accounting Firm                                                              | F-2      
|                                                                                                                     |          
|Managements Report on Internal Control over Financial
      Reporting                                               | F-3      
|                                                                                                                     |          
|Consolidated Balance Sheets at June 30, 2009 and 2008                                                                | F-4      
|                                                                                                                     |          
|Consolidated Statements of Operations for the years ended
      June 30, 2009 and 2008                               | F-5      
|                                                                                                                     |          
|Consolidated Statement of Changes in Shareholders Equity
      (Deficit) for the years ended June 30, 2009 and 2008 | F-6      
|                                                                                                                     |          
|Consolidated Statements of Cash Flows for the years ended
      June 30, 2009 and 2008                               | F-7      
|                                                                                                                     |          
|Notes to Consolidated Financial Statements                                                                           | F-9 F-35

**ITEM
9.**       **CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

None.

ITEM 9A(T). CONTROLS AND PROCEDURES

We
maintain disclosure controls and procedures (as defined in Rules 13a-15(d) and
15d-15(e) under the Securities and Exchange Act of 1934, as amended (the
Exchange Act)) that are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms, and that our
disclosure controls and procedures are effective in alerting management on a
timely basis to material information required to be disclosed in our periodic
reports. Under the supervision of, and the participation of our management, our
Chief Executive Officer and Principal Financial Officer, or persons performing
similar functions, has conducted an evaluation of our disclosure controls and
procedures as of June 30, 2010. This evaluation included certain areas in which
we have made, and are continuing to make, changes to improve and enhance
controls. Based on this evaluation, our Chief Executive Officer and Principal
Financial Officer has concluded that our disclosure controls and procedures are
effective in providing reasonable assurance that information required to be
disclosed by us in reports we file with the Securities and Exchange Commission
is recorded, processed, summarized and reported within the time periods
required, and are effective in alerting management on a timely basis to material
information required to be disclosed in our periodic reports.

During
the fiscal year ended June 30, 2010, 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.

**ITEM
9B.**     **OTHER INFORMATION**

None.

47

---







SANTA FE GOLD CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2010 and for the Years EndedJune
30, 2010, 2009 and 2008





---

SANTE FE GOLD CORPORATION

TABLE OF CONTENTS

|REPORT OF INDEPENDENT
      REGISTERED PUBLIC ACCOUNTING FIRM          | F-2       
|---------------------------------------------------------------------- | ----------
|                                                                       |           
|MANAGEMENTS REPORT ON
      INTERNAL CONTROL OVER FINANCIAL REPORTING | 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-35



F-1

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING  FIRM

Board of  Directors and Shareholders
Santa Fe Gold  Corporation
Denver, Colorado

We have audited  the accompanying consolidated balance sheets of Santa Fe Gold Corporation as of  June 30, 2010 and 2009, and the related consolidated statements of operations,  changes in shareholders’ equity (deficit) and cash flows for each of the years  in the three year period ended June 30, 2010.   We also have audited Santa Fe Gold Corporation’s internal control over  financial reporting as of June 30, 2010, based on criteria established in Internal Control – Integrated Frameworkissued  by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).   Santa Fe Gold Corporation’s management  is responsible for these consolidated financial statements, for maintaining  effective internal control over financial reporting, and for its assessment of  the effectiveness of internal control over financial reporting, including in  the accompanying Management’s Report on Internal Control over Financial  Reporting.  Our responsibility is to  express an opinion on these consolidated financial statements and an opinion on  the Company’s internal control over financial reporting 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  consolidated financial statements are free of material misstatement and whether  effective internal control over financial reporting was maintained in all  material respects.  Our audits of the  consolidated financial statements included examining, on a test basis, evidence  supporting the amounts and disclosures in the consolidated financial  statements, assessing the accounting principles used and significant estimates  made by management, and evaluating the overall financial statement  presentation. Our audit of internal control over financial reporting included  obtaining an understanding of internal control over financial reporting,  assessing the risk that a material weakness exists, and testing and evaluating  the design and operating effectiveness of internal control based on the  assessed risk.  Our audits also included  performing such other procedures as we considered necessary in the  circumstances.  We believe that our  audits provide a reasonable basis for our opinions.

A company’s internal control  over financial reporting is a process designed to provide reasonable assurance  regarding the reliability of financial reporting and the preparation of  consolidated financial statements for external purposes in accordance with  generally accepted accounting principles.   A company’s internal control over financial reporting includes those  policies and procedures that:

(1) pertain to  the maintenance of records that, in reasonable detail, accurately and fairly  reflect the transactions and dispositions of the assets of the company; (2)  provide reasonable assurance that transactions are recorded as necessary to  permit preparation of financial statements in accordance with generally  accepted accounting principles, and that receipts and expenditures of the  company are being made only in accordance with authorizations of management and  directors of the company; and (3) provide reasonable assurance regarding  prevention or timely detection of unauthorized acquisition, use, or disposition  of the company’s assets that could have a material effect on the consolidated  financial statements.

Because of its  inherent limitations, internal control over financial reporting may not prevent  or detect misstatements.  Also,  projections of any evaluation of effectiveness to future periods are subject to  the risk that controls may become inadequate because of changes in conditions,  or that the degree of compliance with the policies or procedures may  deteriorate.

The accompanying  consolidated 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 significant 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 consolidated 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 consolidated financial position of Santa Fe Gold  Corporation as of June 30, 2010 and 2009, and the consolidated results of its  operations and its cash flows for each of the years in the three year period  ended June 30, 2010, in conformity with accounting principles generally  accepted in the United States of America.   Also in our opinion, Santa Fe Gold Corporation maintained, in all  material respects, effective internal control over financial reporting as of  June 30, 2010, based on criteria established in Internal Control – Integrated Frameworkissued by the Committee of  Sponsoring Organizations of the Treadway Commission (COSO).

Denver, Colorado 
September  27, 2010

F-2

---

SANTA FE GOLD CORPORATION

MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
  REPORTING

Management of the Company,
  including the Chief Executive Officer and the Chief Financial Officer, is
  responsible for establishing and maintaining adequate internal control over
  financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the
  Securities Exchange Act of 1934, as amended.

Our internal controls were
  designed to provide reasonable assurance as to (i) the reliability of our
  financial reporting; (ii) the reliability of the preparation and presentation of
  the consolidated financial statements for external purposes in accordance with
  accounting principles generally accepted in the United States; and (iii) the
  safeguarding of assets from unauthorized use or disposition.

We conducted an evaluation of the
  effectiveness of our internal control over financial reporting as of June 30,
  2010 based on Internal Control  Integrated Frameworkissued by the
  Committee of Sponsoring Organizations of the Treadway Commission. Through this
  evaluation, we did not identify any material weaknesses in our internal
  controls. There are inherent limitations in the effectiveness of any system of
  internal control over financial reporting; however, based on our evaluation, we
  have concluded that our internal control over financial reporting was effective
  at a reasonable assurance level as of June 30, 2010.

The operating effectiveness of our internal control over
  financial reporting as of June 30, 2010 has been audited by Stark Schenkein,
  LLP, an independent registered public accounting firm, as stated in their
  report, which is included herein.



Date: September 27, 2010

By: /s/ W. Pierce
  Carson
  W. Pierce Carson
  President, Chief Executive Officer,
  and
  Chief Financial Officer



F-3

---

SANTA FE GOLD CORPORATIONCONSOLIDATED BALANCE
    SHEETS

|                                                                                                                                                                                                                                                                                        |   | June
      30, |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------------- | -
|                                                                                                                                                                                                                                                                                        |   | 2010           |  
|**ASSETS**                                                                                                                                                                                                                                                                              |  
|CURRENT ASSETS:                                                                                                                                                                                                                                                                         |   |                |  
|Cash and cash equivalents                                                                                                                                                                                                                                                               | $ | 5,540,130      |  
|Prepaid expenses and other current
      assets                                                                                                                                                                                                                                         |   | 267,208        |  
|Total Current Assets                                                                                                                                                                                                                                                                    |   | 5,807,338      |  
|MINERAL PROPERTIES                                                                                                                                                                                                                                                                      |   | 579,000        |  
|PROPERTY, PLANT AND EQUIPMENT, net                                                                                                                                                                                                                                                      |   | 3,790,215      |  
|OTHER ASSETS:                                                                                                                                                                                                                                                                           |   |                |  
|Construction in
      process                                                                                                                                                                                                                                                           |   | 15,177,362     |  
|Idle equipment, net                                                                                                                                                                                                                                                                     |   | 1,223,528      |  
|Restricted cash                                                                                                                                                                                                                                                                         |   | 410,374        |  
|Deferred financing costs                                                                                                                                                                                                                                                                |   | 413,017        |  
|Total Other Assets                                                                                                                                                                                                                                                                      |   | 17,224,281     |  
|Total Assets                                                                                                                                                                                                                                                                            | $ | 27,400,834     |  
|                                                                                                                                                                                                                                                                                        |   |                |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                                                                                                                                                                                          |  
|CURRENT LIABILITIES:                                                                                                                                                                                                                                                                    |   |                |  
|Accounts payable                                                                                                                                                                                                                                                                        | $ | 458,098        |  
|Accrued liabilities                                                                                                                                                                                                                                                                     |   | 320,566        |  
|Derivative instrument liabilities                                                                                                                                                                                                                                                       |   | 9,894,041      |  
|Current portion,
      notes payable                                                                                                                                                                                                                                                    |   | 138,821        |  
|Current portion, capital leases                                                                                                                                                                                                                                                         |   | 138,117        |  
|Current portion
      senior secured convertible notes payable, net 
                    of
      discount of $-0- and $8,027, respectively                                                                                                                                             |   | -              |  
|Deferred revenue, current portion                                                                                                                                                                                                                                                       |   | 243,107        |  
|Accrued interest
      payable                                                                                                                                                                                                                                                          |   | 20,525         |  
|Total Current Liabilities                                                                                                                                                                                                                                                               |   | 11,213,275     |  
|LONG TERM LIABILITIES:                                                                                                                                                                                                                                                                  |   |                |  
|Senior secured convertible
      notes payable, net of discount of 
                    $3,793,560
      and $4,514,554, respectively                                                                                                                                                   |   | 10,156,440     |  
|Derivative instrument
      liabilities                                                                                                                                                                                                                                                 |   | -              |  
|Notes payable, net of current portion                                                                                                                                                                                                                                                   |   | 122,915        |  
|Capital leases,
      net of current portion                                                                                                                                                                                                                                            |   | 128,909        |  
|Deferred revenue, net of current
      portion                                                                                                                                                                                                                                          |   | 3,756,893      |  
|Asset retirement
      obligation                                                                                                                                                                                                                                                       |   | 84,059         |  
|Total Liabilities                                                                                                                                                                                                                                                                       |   | 25,462,491     |  
|STOCKHOLDERS' EQUITY (DEFICIT):                                                                                                                                                                                                                                                         |   |                |  
|Common stock, $.002
      par value, 200,000,000 shares 
                    authorized;
      93,059,568 and 82,316,112 shares 
                    issued
      and outstanding, respectively; Includes 
                    non-vested shares
      of 765,000 and -0-, respectively |   | 184,590        |  
|Additional paid
      in capital                                                                                                                                                                                                                                                        |   | 56,883,203     |  
|Accumulated (deficit)                                                                                                                                                                                                                                                                   |   | (55,129,450    | )
|Total Stockholders' Equity
      (Deficit)                                                                                                                                                                                                                                              |   | 1,938,343      |  
|                                                                                                                                                                                                                                                                                        | $ | 27,400,834     |  

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, |  
|------------------------------------------------------ | - | ---------------------------------- | -
|                                                       |   | 2010                               |  
|                                                       |   |                                    |  
|SALES                                                  | $ | 320,145                            |  
|                                                       |   |                                    |  
|OPERATING COSTS AND EXPENSES:                          |   |                                    |  
|Costs applicable to sales                              |   | -                                  |  
|Exploration and
      mine and mill start up costs     |   | 1,004,256                          |  
|General and administrative                             |   | 2,204,549                          |  
|Depreciation and
      amortization                    |   | 477,760                            |  
|Accretion of asset retirement obligation               |   | -                                  |  
|                                                       |   | 3,686,565                          |  
|                                                       |   |                                    |  
|LOSS FROM OPERATIONS                                   |   | (3,366,420                         | )
|                                                       |   |                                    |  
|OTHER INCOME (EXPENSE):                                |   |                                    |  
|(Loss) on disposal of assets                           |   | (3,572                             | )
|Interest income                                        |   | 16,410                             |  
|Miscellaneous income                                   |   | 4,278                              |  
|Foreign currency
      translation gain (loss)         |   | (175                               | )
|Gain (loss) on derivative instrument
      liabilities |   | 3,295,947                          |  
|Relief of debt                                         |   | -                                  |  
|Accretion of discounts on notes
      payable          |   | (1,052,160                         | )
|Interest expense                                       |   | (103,662                           | )
|                                                       |   | 2,157,066                          |  
|                                                       |   |                                    |  
|LOSS BEFORE PROVISION FOR INCOME TAXES                 |   | (1,209,354                         | )
|                                                       |   |                                    |  
|PROVISION FOR INCOME TAXES                             |   | -                                  |  
|                                                       |   |                                    |  
|NET LOSS                                               | $ | (1,209,354                         | )
|                                                       |   |                                    |  
|Basic and Diluted Per Share data                       |   |                                    |  
|Net Loss - basic
      and diluted                     | $ | (0.01                              | )
|                                                       |   |                                    |  
|Weighted Average Common Shares Outstanding:            |   |                                    |  
|Basic and diluted                                      |   | 87,639,127                         |  

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

---

SANTAFE GOLDCORPORATIONCONSOLIDATEDSTATEMENTOFSTOCKHOLDERS'(DEFICIT)EQUITYFOR THEYEARSENDEDJUNE 30, 2010, 2009 AND 2008

|                                                                                                        |  |                    |  |   |         |  |   | Additional  |   |   |             |   |   |            |  
|------------------------------------------------------------------------------------------------------- |  | ------------------ |  | - | ------- |  | - | ----------- | - | - | ----------- | - | - | ---------- | -
|                                                                                                        |  | Common
      Stock |  |   | Paid-in |  |   | Accumulated |   |   |             |  
|                                                                                                        |  | Shares             |  |   | Amount  |  |   | Capital     |   |   | (Deficit)   |   |   | Total      |  
|                                                                                                        |  |                    |  |   |         |  |   |             |   |   |             |   |   |            |  
|Balance, June 30, 2007 - Restated                                                                       |  | 71,082,286         |  | $ | 142,165 |  | $ | 42,912,662  |   | $ | (43,018,272 | ) | $ | 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   |  |   | (1,400      | ) |   | -           |   |   | -          |  
|Contribution to capital                                                                                 |  | -                  |  |   | -       |  |   | 167,500     |   |   | -           |   |   | 167,500    |  
|Net loss                                                                                                |  | -                  |  |   | -       |  |   | -           |   |   | (4,423,592  | ) |   | (4,423,592 | )
|                                                                                                        |  |                    |  |   |         |  |   |             |   |   |             |   |   |            |  
|Balance, June 30, 2008                                                                                  |  | 75,473,510         |  |   | 150,948 |  |   | 46,060,115  |   |   | (47,441,864 | ) |   | (1,230,801 | )
|                                                                                                        |  |                    |  |   |         |  |   |             |   |   |             |   |   |            |  
|Shares issued for senior secured notes payable
      principal conversion                               |  | 570,339            |  |   | 1,140   |  |   | 616,628     |   |   | -           |   |   | 617,768    |  
|Shares issued for senior secured notes payable interest
      conversion                                |  | 1,018,938          |  |   | 2,038   |  |   | 1,023,588   |   |   | -           |   |   | 1,025,626  |  
|Shares issued for services                                                                              |  | 789,400            |  |   | 1,578   |  |   | 605,958     |   |   | -           |   |   | 607,536    |  
|Shares issued for cashless exercise of options                                                          |  | 4,180,906          |  |   | 8,362   |  |   | (8,362      | ) |   | -           |   |   | -          |  
|Shares issued for subscription agreements                                                               |  | 283,019            |  |   | 566     |  |   | 299,434     |   |   | -           |   |   | 300,000    |  
|Recognized deferred stock compensation                                                                  |  | -                  |  |   | -       |  |   | 474,986     |   |   | -           |   |   | 474,986    |  
|Costs associated with issuance of options                                                               |  | -                  |  |   | -       |  |   | 469,063     |   |   | -           |   |   | 469,063    |  
|Beneficial conversion feature on senior secured notes payable                                           |  | -                  |  |   | -       |  |   | 589,521     |   |   | -           |   |   | 589,521    |  
|Stock-based compensation for services reference
      shareholder stock loan allocated to prior periods |  |                    |  |   |         |  |   | (204,000    | ) |   | -           |   |   | (204,000   | )
|Net loss                                                                                                |  | -                  |  |   | -       |  |   | -           |   |   | (5,535,596  | ) |   | (5,535,596 | )
|                                                                                                        |  |                    |  |   |         |  |   |             |   |   |             |   |   |            |  
|Balance, June 30, 2009                                                                                  |  | 82,316,112         |  |   | 164,632 |  |   | 49,926,931  |   |   | (52,977,460 | ) |   | (2,885,897 | )
|Cumulative effect of change in accounting
      on derivative financial instruments                     |  | -                  |  |   | -       |  |   | (1,439,258  | ) |   | (942,636    | ) |   | (2,381,894 | )
|Balance, June 30, 2009 - Restated                                                                       |  | 82,316,112         |  |   | 164,632 |  |   | 48,487,673  |   |   | (53,920,096 | ) |   | (5,267,791 | )
|Shares issued for settlement
      of accrued liability                                                 |  | 1,162,500          |  |   | 2,325   |  |   | 197,675     |   |   | -           |   |   | 200,000    |  
|Shares issued for cashless exercise of
      options and warrants                                       |  | 317,877            |  |   | 636     |  |   | (636        | ) |   | -           |   |   | -          |  
|Shares issued for services
      and commissions                                                        |  | 31,343             |  |   | 63      |  |   | 41,435      |   |   | -           |   |   | 41,498     |  
|Shares issued for cash exercise of warrants                                                             |  | 60,000             |  |   | 120     |  |   | 74,880      |   |   | -           |   |   | 75,000     |  
|Shares issued for cash
      proceeds                                                                   |  | 7,905,517          |  |   | 15,812  |  |   | 10,210,191  |   |   | -           |   |   | 10,226,003 |  
|Shares issued for conversion of note payable                                                            |  | 18,219             |  |   | 36      |  |   | 18,183      |   |   | -           |   |   | 18,219     |  
|Shares issued for conversion
      of accrued interest                                                  |  | 483,000            |  |   | 966     |  |   | 482,034     |   |   | -           |   |   | 483,000    |  
|Fees attributable to private placement                                                                  |  | -                  |  |   | -       |  |   | (625,000    | ) |   | -           |   |   | (625,000   | )
|Private placement proceeds
      allocated to warrant derivative liability                              |  | -                  |  |   | -       |  |   | (3,275,067  | ) |   | -           |   |   | (3,275,067 | )
|Stock sale proceeds allocated to warrant
      derivative liability                                     |  | -                  |  |   | -       |  |   | (192,507    | ) |   | -           |   |   | (192,507   | )
|Derivative instrument
      liability at exercise date                                                  |  | -                  |  |   | -       |  |   | 788,293     |   |   | -           |   |   | 788,293    |  
|Recognized deferred stock compensation                                                                  |  | -                  |  |   | -       |  |   | 342,415     |   |   | -           |   |   | 342,415    |  
|Issuance of non-vested stock
      grants                                                               |  | 765,000            |  |   | -       |  |   | -           |   |   | -           |   |   | -          |  
|Costs associated with issuance of options                                                               |  | -                  |  |   | -       |  |   | 333,634     |   |   | -           |   |   | 333,634    |  
|Net loss                                                                                                |  | -                  |  |   | -       |  |   | -           |   |   | (1,209,354  | ) |   | (1,209,354 | )
|                                                                                                        |  |                    |  |   |         |  |   |             |   |   |             |   |   |            |  
|Balance, June 30, 2009                                                                                  |  | 93,059,568         |  | $ | 184,590 |  | $ | 56,883,203  |   | $ | (55,129,450 | ) | $ | 1,938,343  |  

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

---

SANTA FE GOLD CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                             |   | For
      the Years Ended June 30, |  
|-------------------------------------------------------------------------------------------- | - | ---------------------------------- | -
|                                                                                             |   | 2010                               |  
|                                                                                             |   |                                    |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                        |   |                                    |  
|Net loss                                                                                     | $ | (1,209,354                         | )
|                                                                                             |   |                                    |  
|Adjustments to reconcile
      net loss to net cash used 
          in operating activities: |   |                                    |  
|Depreciation                                                                                 |   | 477,760                            |  
|Stock-based compensation                                                                     |   | 717,547                            |  
|Stock
      issued for interest expense                                                      |   | -                                  |  
|Accretion of discount on notes payable                                                       |   | 1,052,160                          |  
|Accretion
      of asset retirement obligation                                               |   | -                                  |  
|Relief of debt                                                                               |   | -                                  |  
|Foreign
      currency translation (gain) loss                                               |   | -                                  |  
|(Gain) Loss on derivative instrument liabilities                                             |   | (3,295,949                         | )
|Gain
      on disposal of assets                                                             |   | 3,572                              |  
|Amortization of deferred financing costs                                                     |   | 89,026                             |  
|Net change in operating assets and liabilities:                                              |   |                                    |  
|Interest receivable                                                                          |   | -                                  |  
|Prepaid
      expenses and other current assets                                              |   | (116,957                           | )
|Deposits                                                                                     |   | -                                  |  
|Accounts
      payable and accrued liabilities                                               |   | (649,991                           | )
|Accrued interest payable                                                                     |   | (4,292                             | )
|Net Cash Used in
      Operating Activities                                                  |   | (2,936,478                         | )
|                                                                                             |   |                                    |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                        |   |                                    |  
|Increase to restricted
      cash                                                            |   | -                                  |  
|Proceeds from disposal of assets                                                             |   | 31,400                             |  
|Purchase of property, plant
      and equipment                                              |   | (402,858                           | )
|Construction in progress                                                                     |   | (4,893,365                         | )
|Purchase of mineral property                                                                 |   | -                                  |  
|Net Cash Used in
      Investing Activities                                                  |   | (5,264,823                         | )
|                                                                                             |   |                                    |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                        |   |                                    |  
|Proceeds from convertible
      notes payable                                                |   | -                                  |  
|Proceeds from issuance of stock                                                              |   | 10,301,003                         |  
|Proceeds from notes payable                                                                  |   | 212,762                            |  
|Proceeds from deferred revenue                                                               |   | 4,000,000                          |  
|Payment of private placement
      fees                                                      |   | (625,000                           | )
|Payments on notes payable                                                                    |   | (238,369                           | )
|Payments on capital leases                                                                   |   | (130,811                           | )
|Payments on line of credit                                                                   |   | -                                  |  
|Payments on convertible
      debenture notes                                                |   | -                                  |  
|Payment of financing costs                                                                   |   | (288,000                           | )
|Net
      Cash Provided by Financing Activities                                              |   | 13,231,585                         |  
|                                                                                             |   |                                    |  
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                             |   | 5,030,284                          |  
|                                                                                             |   |                                    |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                                 |   | 509,846                            |  
|                                                                                             |   |                                    |  
|CASH AND CASH EQUIVALENTS, END OF YEAR                                                       | $ | 5,540,130                          |  

F-7

---

SANTA FE GOLD CORPORATIONCONSOLIDATED STATEMENTS
      OF CASH FLOWS(Continued)

|                                                                              |   | For
      the Years Ended June 30, | 
|----------------------------------------------------------------------------- | - | ---------------------------------- | 
|                                                                              |   | 2010                               | 
|                                                                              |   |                                    | 
|SUPPLEMENTAL CASH FLOW INFORMATION:                                           |   |                                    | 
|                                                                              |   |                                    | 
|Cash paid for interest                                                        | $ | 521,642                            | 
|                                                                              |   |                                    | 
|Cash paid for income taxes                                                    | $ | -                                  | 
|                                                                              |   |                                    | 
|SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
      AND FINANCING ACTIVITIES: |   |                                    | 
|                                                                              |   |                                    | 
|Stock issued for conversion
      of accrued interest                         | $ | 483,000                            | 
|                                                                              |   |                                    | 
|Stock issued for conversion
      of senior secured convertible notes         | $ | -                                  | 
|                                                                              |   |                                    | 
|Stock issued for conversion
      of accrued liability                        | $ | 200,000                            | 
|                                                                              |   |                                    | 
|Stock issued for conversion
      of note payable                             | $ | 18,219                             | 
|                                                                              |   |                                    | 
|Equipment purchased with
      note payable                                   | $ | 16,825                             | 
|                                                                              |   |                                    | 
|Equipment purchased with
      capital leases                                 | $ | -                                  | 
|                                                                              |   |                                    | 
|Mineral property purchased
      with note payable                            | $ | -                                  | 
|                                                                              |   |                                    | 
|Stock grants issued                                                           | $ | 765,000                            | 

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

---

SANTA FE GOLD CORPORATIONNOTES TO THE
    CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2010

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 continuing to seek 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 commenced processing
  operations at the Banner Mill in March 2010. Commissioning of the mill proceeded
  satisfactorily and in July 2010, mill operations were expanded to two shifts per
  day, five days a week. The Company plans to ramp up production from the Summit
  mine and increase throughput at the Banner mill, and expect the Summit project
  will achieve commercial production in 2011.

In June 2009, the Company formed
  a wholly owned Mexican subsidiary, Minera Sandia S.A. de C.V, in order to
  conduct business legally within the country of Mexico, including entering into
  contracts such as the option purchase contract on the Pilar Gold Property
  described below.

On June 13, 2009, the Company’s wholly owned Mexican subsidiary, Minera Sandia S.A. de C.V, entered into an option purchase contract on the Pilar Gold Property consisting of two mineral exploitation concessions located 165 kilometers east-southeast of Hermosillo, Sonora, Mexico.  In March 2010, the company relinquished its interest in this property before the March 13, 2010 payments were due, after receiving disappointing results from an extensive program of trenching and surface sampling. The option contract provided for option payments of $1,000 upon signing, $99,000 on March 13, 2010, and $125,000 on March 13, 2011.  The final payment of $1,307,000 is due March 13, 2012, and would complete the purchase.  In connection with the acquisition, the Company has also agreed to issue 117,000 restricted shares of its common stock and within 60 days paid creditors $11,500 in cash and $17,400 in restricted common stock.  The Company also agreed to pay finder’s fees of $15,000 in cash and 25,000 in restricted common stock, and to match option and purchase payments when they become due by payments in either cash or in restricted common stock. The Company is not required to pay any residual royalty payments under the agreements.

F-9

---

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 an
  operational loss of $(1,209,354) for the fiscal year ended June 30, 2010, and
  has a total accumulated deficit of $(55,129,450) and a working capital deficit
  of $(5,405,937) at June 30, 2010, which includes non-cash derivative instrument
  liabilities aggregating $9,894,041. Currently, 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 until production at the Summit mine site
  ramps up to full production and profitable operations are achieved. The Company
  has no commitment from any party to provide additional working capital and there
  is no assurance that such funding will be available if needed, or if available,
  that its terms will be favorable or acceptable to the Company.

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, The Lordsburg Mining Company, a New
  Mexico corporation, Minera Sandia, S.A. de C.V., a Mexican corporation and Santa
  Fe Gold Barbados Corporation, a Barbados corporation.. All significant
  inter-company accounts and transactions have been eliminated in consolidation.

Restatement and Reclassifications

The June 30, 2008, financial
  statements have been restated to reflect the correction of an error for expenses
  paid by a shareholder on the Companys behalf. The result of this correction was
  an increase in general and administrative expenses and net loss in the amount of
  $167,500 for the year ended June 30, 2008, and an increase in additional paid in
  capital and accumulated deficit of $204,000 at June 30, 2008. There was no
  effect on earnings per share. During the year ended June 30, 2009, the Company
  repaid the shareholder in full with the issuance of 380,000 shares of restricted
  common stock and a fair market value of $442,700. The difference between the
  value of stock issued and amounts expensed for the transactions in prior years
  totaling $238,700 was expensed to investor relations during the year ended June
  30, 2009.

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

Estimates

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

F-10

---

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.

Fair Value of Financial Instruments

The carrying values of cash and
  cash equivalents, restricted cash, accounts payable and accrued liabilities
  approximated their related fair values as of June 30, 2010, due to the
  relatively short-term nature of these instruments. The carrying value of the
  Companys convertible debentures approximates the fair value based on the terms
  at which the Company could obtain similar financing and the short term nature of
  these instruments.

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. Restricted cash is excluded from cash
  and cash equivalents and is included in other assets.

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. Depreciation is
  taken over the estimated useful lives of the assets, which may be limited to
  correspond with the life of the mine. Buildings are depreciated using the
  straight-line method over a period not to extend beyond 2016, the current
  estimated useful life of the mine. Equipment is also depreciated using the
  straight-line method over estimated useful lives of 2 to 7 years. Vehicles  are
  depreciated using the straight-line method over an estimated useful life of 5
  years.

Idle Equipment

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 aggregating a net book value of $125,000.
  During the year ended June 30, 2009, the Company sold related equipment with an
  appraised value of $53,000 for $45,000 in cash, realizing a loss on disposition
  of $8,000. During the year ended June 30, 2010, the Company sold related
  equipment with an appraised value of $34,972 for $31,400 in cash, realizing a
  loss on disposition of $3,572.

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.

Impairment of Long-Lived Assets

The Company reviews and evaluates
  long-lived assets for impairment when events or changes in circumstances indicate
  the related carrying amounts may not be recoverable. The assets are subject
  to impairment consideration under ASC 360-10-35-17, Measurement of an Impairment
    Loss, if events or circumstances indicate that their carrying amount might
  not be recoverable. As of June 30, 2010, exploration progress is on target with
  the Companys exploration and evaluation plan and no events or circumstances
  have happened to indicate the related carrying values of the properties may
  not be recoverable. When the Company determines that an impairment analysis
  should be done, the analysis will be performed using the rules of ASC 930-360-35, Asset Impairment, and 360-10-15-3 through 15-5, Impairment or Disposal
    of Long-Lived Assets.

F-11

---

An impairment loss is recognized
  when estimated future cash flows expected to result from the use of the asset
  and its eventual disposition is less than its carrying amount. When impairment
  is identified, the carrying amount of the asset is reduced to its estimated fair
  value. Assets to be disposed of are recorded at the lower of net book value or
  fair market value less cost to sell at the date management commits to a plan of
  disposal.

Restricted Cash

Restricted cash of $410,374 is
  maintained in connection with requirements for reclamation of projects as well
  as weighmaster activities. As part of the reclamation deposits, the Company has
  restricted cash of $409,374, comprised of $50,000 held on deposit for the
  Arizona State Treasurer in a one-year automatically renewable short-term
  investment; $128,658 held as collateral against an irrevocable letter of credit
  of the same amount to the U.S. Bureau of Land Management (BLM); and $230,716
  posted as a financial guarantee with the New Mexico Energy, Minerals and Natural
  Resources Department. The Company also maintains a certificate of deposit in the
  amount of $1,000 for the New Mexico Department of Agriculture in accordance with
  bonding requirements for a weighmaster.

Derivative Financial Instruments

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

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

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

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 follows ASC 410, Asset Retirement and Environmental Obligations, which requires that an
  asset retirement obligation (ARO) associated with the retirement of a tangible
  long-lived asset be recognized as a liability in the period in which it is
  incurred and becomes determinable, with an offsetting increase in the carrying
  amount of the associated asset. The cost of the tangible asset, including the
  initially recognized ARO, is depleted, such that the cost of the ARO is
  recognized over the useful life of the asset. The ARO is recorded at fair value,
  and accretion expense is recognized over time as the discounted liability is
  accreted to its expected settlement value. The fair value of the ARO is measured
  using expected future cash flow, discounted at the Companys credit-adjusted
  risk-free interest rate. To date, no significant asset retirement obligation is
  provided for on the Summit mine site as to the early stage of production status.

F-12

---

As of June 30, 2010, the Company
  has accrued $84,059 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, 2010, is as follows:

Balance at June 30, 2007
      $
      75,309Accretion expense for the year ended June 30, 2008
      
      5,000Accretion expense for the year ended June
        30, 2009
      
      3,750Accretion expense for the year ended June 30, 2010
      
      -Balance at June 30, 2010
      $
      84,059


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.

Deferred Revenue

Deferred revenue represents a cash advance made under a definitive gold sale agreement to sell a portion of the life-of-mine gold production only, not silver production, from our Summit silver-gold mine. Under the terms of the agreement, the Company received an upfront cash deposit of $4 million, plus it will receive ongoing production payments equal to the lesser of $400 per ounce or the prevailing market price, for each ounce of gold delivered pursuant to the agreement for the life of the mine. The upfront cash advance will be amortized by the difference between the market price and $400 per ounce for those gold deliveries where the prevailing market price exceeds $400 per ounce. The Company will also recognize the on-going production payments as revenue for gold delivered pursuant to the agreement. Deferred revenue on the Company’s balance sheet is categorized as current if the Company expects to recognize such revenue within the following twelve months.  Current and long-term deferred revenue amounted to $243,107 and $3,756,893, respectively at June 30, 2010.

Income Taxes

The Company accounts for income
  taxes in accordance with ASC 740, Income Taxes, (ASC 740) using the
  asset and liability approach, which requires recognition of deferred tax
  liabilities and assets for the expected future tax consequences of temporary
  differences between the carrying amounts and the tax basis of such assets and
  liabilities. This method utilizes enacted statutory tax rates in effect for the
  year in which the temporary differences are expected to reverse and gives
  immediate effect to changes in income tax rates upon enactment. Deferred tax
  assets are recognized, net of any valuation allowance, for temporary
  differences, net operating loss and tax credit carry forwards. Deferred income
  tax expense represents the change in net deferred assets and liability balances.
  Deferred income taxes result from temporary differences between the basis of
  assets and liabilities recognized for differences between the financial
  statement and tax basis thereon and for the expected future tax benefits to be
  derived from net operating losses and tax credit carry forwards. A valuation
  allowance is recorded when it is more likely than not that deferred tax assets
  will be unrealizable in future periods. As of June 30, 2010, 2009 and 2008, the
  Company has recorded a valuation allowance against the full amount of its net
  deferred tax assets. The inability to foresee taxable income in future years
  makes it more likely than not that the Company will not realize its recorded
  deferred tax assets in future periods.

Net (Loss) Per Share

The Company calculates net income
  (loss) per share as required by Accounting Standards Codification subtopic
  260-10, Earnings per Share (ASC 260-10). Basic earnings (loss) per share is
  calculated by dividing net income (loss) by the weighted average number of
  common shares outstanding for the period. Diluted earnings per share is
  calculated by dividing net income (loss) by the weighted average number of
  common shares and dilutive common stock equivalents outstanding. During the
  periods when they are anti-dilutive, common stock equivalents, if any, are not
  considered in the computation. For the years ended June 30, 2010, 2009 and 2008,
  the impact of outstanding stock equivalents has not been included as they would
  be anti-dilutive.

F-13

---

Stock-Based Compensation

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

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

Stock-based compensation costs
  recognized for the years ended June 30, 2010, 2009 and 2008 amounted to
  $717,547, $944,049 and $216,413, respectively.

Recent Accounting Pronouncements

In February 2010, the Financial
  Accounting Standards Board (FASB) issued Accounting Standard Update (ASU)
  No. 2010-09, Subsequent Events: Amendments to Certain Recognition and
    Disclosure Requirements, (ASU 2010-09) which amends Accounting Standards
  Codification Topic 855 (ASC 855) to address certain implementation issues
  related to an entity's requirement to perform and disclose subsequent events
  procedures. The amendments in ASU 2010-09 remove the requirement for an SEC
  filer to disclose a date through which subsequent events have been evaluated in
  both issued and revised financial statements. The new guidance became effective
  for the Company on February 16, 2010 and did not have an impact on the Companys
  consolidated financial statements or results of operations.

In January 2010, the ASC guidance
  for fair value measurements and disclosure was updated to require additional
  disclosures related to: i) transfers in and out of level 1 and 2 fair value
  measurements and ii) enhanced detail in the level 3 reconciliation. The guidance
  was amended to provide clarity about: i) the level of disaggregation required
  for assets and liabilities and ii) the disclosures required for inputs and
  valuation techniques used to measure fair value for both recurring and
  nonrecurring measurements that fall in either level 2 or level 3. The updated
  guidance is effective for the Companys fiscal year beginning July 1, 2010, with
  the exception of the level 3 disaggregation, which is effective for the
  Companys fiscal year beginning July 1, 2011. The Company is evaluating the
  potential impact of adopting this guidance on the Companys consolidated
  financial position, results of operations and cash flows.

Effective July 1, 2009, the
  Company adopted the Financial Accounting Standards Board (FASB) Accounting
  Standards Codification (ASC) 105-10, Generally Accepted Accounting
    Principles  Overall (ASC 105-10). ASC 105-10 establishes the FASB
      Accounting Standards Codification(the Codification) as the source of
  authoritative accounting principles recognized by the FASB to be applied by
  nongovernmental entities in the preparation of financial statements in
  conformity with U.S. GAAP. Rules and interpretive releases of the SEC under
  authority of federal securities laws are also sources of authoritative U.S. GAAP
  for SEC registrants. All guidance contained in the Codification carries an equal
  level of authority. The Codification superseded all existing non-SEC accounting
  and reporting standards. All other non-grandfathered, non-SEC accounting
  literature not included in the Codification is non-authoritative. The FASB will
  not issue new standards in the form of Statements, FASB Staff Positions or
  Emerging Issues Task Force Abstracts. Instead, it will issue Accounting
  Standards Updates (ASUs). The FASB will not consider ASUs as authoritative
  in their own right. ASUs will serve only to update the Codification, provide
  background information about the guidance and provide the bases for conclusions
  on the change(s) in the Codification. References made to FASB guidance
  throughout this document have been updated for the Codification. The adoption of
  SFAS 168 did not have a material impact on the Companys consolidated financial
  statements.

F-14

---

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 adoption
  of FSP APB 14-1 had no impact of the on the consolidated financial position,
  results of operations 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.
  The Company adoption of SFAS 141(R) had no effect on its consolidated results of operations,
  financial position, and 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  ADOPTION OF NEW ACCOUNTING POLICY

In June 2008, the Financial
  Accounting Standards Board (FASB) issued Emerging Issues Task Force (EITF)
  Issue 07-5 (EITF 07-5), Determining Whether an Instrument (or Embedded
    Feature) is Indexed to an Entitys Own Stock. EITF 07-5, which is now
  included in the FASB Accounting Standards Codification at ASC 815-40-15-5,
  requires entities to evaluate whether an equity-linked financial instrument (or
  embedded feature) is indexed to its own stock by assessing the instruments
  contingent exercise provisions and settlement provisions. Instruments not
  indexed to their own stock fail to meet the scope exception of Statement of
  Financial Accounting Standards No. 133, Accounting for Derivative Instruments
    and Hedging Activities, paragraph 11(a), now included in the FASB
  Codification at ASC 815-10-15-74(a), and should be classified as a liability and
  marked-to-market. ASC 815-40-15-5 is effective for fiscal years beginning after
  December 15, 2008 (effective as of July 1, 2009 for the Company) and is to be
  applied to outstanding instruments upon adoption with the cumulative effect of
  the change in accounting principle recognized as an adjustment to the opening
  balance of retained earnings or other appropriate components of equity.

The Company has various warrants
  outstanding which it has previously accounted for as derivative instrument
  liabilities and the accounting for those warrants is not changed by the adoption
  of ASC 815-40-15-5. However, prior to July 1, 2009, the conversion option
  embedded in the Companys $13,500,000 7% Senior Secured Convertible Debentures
  was not separately accounted for as a derivative instrument liability. Effective
  July 1, 2009, the conversion option met the criteria of a derivative instrument
  liability because the terms of the Senior Secured Convertible Debentures require
  that the conversion price be adjusted in certain circumstances that do not meet
  the fixed-for-fixed criteria in ASC 815-40-15-5. As a result, the Company is
  now required to separately account for the embedded conversion option as a
  derivative instrument liability, carried at fair value and marked-to-market each
  period, with changes in the fair value each period charged or credited to
  income.

The cumulative effect of this
  change in accounting principle of $2,381,894 has been recognized as a reduction
  of the opening balances of retained earnings and of additional paid-in capital
  as of July 1, 2009 of $942,636 and $1,439,258, respectively, with corresponding
  adjustments at July 1, 2009 to decrease the carrying value of the Convertible
  Debentures by $323,137 and the recognition of a derivative liability of
  $2,705,031. The cumulative effect adjustment is the difference between the
  amounts previously recognized in the Companys consolidated balance sheet as of
  June 30, 2009 and the amounts that would have been recognized if the conversion
  option in the Convertible Debentures had been accounted for as a derivative
  instrument liability from the issuance date.

In August 2009, the FASB issued
  Accounting Standards Update (ASU) ASU 2009-05, Measuring Liabilities at
    Fair Value(ASU 2009-05). ASU 2009-05 provides guidance on measuring the
  fair values of liabilities under Accounting Standards Codification (ASC) Topic
  820, Fair Value Measurements and Disclosures (ASC 820). ASU 2009-05 describes
  various valuation methods that can be applied to estimating the fair value of
  liabilities, requires the use of observable inputs, and minimizes the use of unobservable
  valuation inputs. ASU 2009-05 was effective for the Companys interim reporting
  period beginning October 1, 2009.

F-15

---

NOTE 4  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, 2010 and 2009:

2010
      
      
      2009Summit property, Grant
        County, NM
      $
      119,000
      
      $
      119,000Banner property, Hidalgo County, NM
      
      210,000
      
      
      210,000New Planet property, La Paz
        County, AZ
      
      250,000
      
      
      250,000$
      579,000
      
      $
      579,000


NOTE 5 - PROPERTY, PLANT AND EQUIPMENT

Property and equipment consist of
  the following at June 30, 2010 and 2009:

2010
      
      
      2009Leasehold improvements
      $
      1,645
      
      $
      1,645Office furniture and equipment
      
      37,779
      
      
      37,779Land
      
      163,000
      
      
      163,000Mine processing equipment and buildings
      
      4,087,855
      
      
      3,668,876Automotive
      
      179,868
      
      
      179,164Software
      
      87,848
      
      
      87,8484,557,995
      
      
      4,138,312Less: Accumulated depreciation
      
      (767,780
      )
      
      (290,020
      )$
      3,790,215
      
      $
      3,848,292


Depreciation expense for the
  years ended June 30, 2010, 2009 and 2008 were $477,760, $279,012 and $4,554,
  respectively.

Construction in progress consists
  of the following at June 30, 2010 and 2009:

2010
      
      
      2009Banner mill site
      $
      9,153,131
      
      $
      6,939,767Summit mine site
      
      4,195,194
      
      
      1,988,358Capitalized interest expense
      
      1,829,037
      
      
      872,872$
      15,177,362
      
      $
      9,800,997


The following table shows the
  carrying value of idle equipment at June 30, 2010 and 2009. The carrying value
  is based upon a third party appraisal obtained as of the year ended June 30,
  2007:

2010
      
      
      2009Mica processing equipment
      $
      1,616,367
      
      $
      1,651,339Black Canyon mine equipment
      
      2,192,090
      
      
      2,192,0903,808,457
      
      
      3,843,429Less: Allowance for impairment and
        depreciation
      
      (2,584,929
      )
      
      (2,584,929
      )$
      1,223,528
      
      $
      1,258,500


NOTE 6  FAIR VALUE MEASUREMENTS

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

F-16

---

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

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

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

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

The Company measures financial
  instruments that it considers to be derivatives at fair value on a recurring
  basis which consist of certain embedded features contained within its debt
  instruments and certain warrant contracts. The derivatives are measured on their
  respective origination dates, at the end of each reporting period and at other
  points in time when necessary, such as modifications, using Level 3 inputs in
  accordance with GAAP. The Company does not report any financial assets or
  liabilities that it measures using Level 1 or Level 2 inputs. The derivatives
  and their respective derivative values measured using Level 3 inputs as of June
  30, 2010 are as follows:

June 30,Level 1
      
      Level 2
      
      Level 3
      
      2010Other Assets:Idle equipment, net
      ---
      
      ---
      
      1,223,528
      
      1,223,528Value of derivative
        instruments liability
      ---
      
      ---
      
      9,894,041
      
      9,894,041


Idle equipment includes equipment
  associated with the mica project which the Company ceased operations and are
  classified as Level 3. The fair value of the idle equipment was determined based
  upon an independent third party appraisal. The appraised value was established
  based upon comparable sales of similar assets and certain assumptions regarding
  market demand for these assets. As this valuation was based upon unobservable
  inputs, we classified the idle equipment as Level 3. There was no change in the
  carrying valuation of the idle equipment during the year ended June 30, 2010,
  and the reduction of $34,972 during the year resulted from the sale of
  equipment.

NOTE 7 - 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.

F-17

---

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 (subsequently 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 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 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 116%, 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 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 were 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 received 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 114% to 118%, 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.

F-18

---

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% to 113%, 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 106% to 107%, 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 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 fair value of the derivative
  instruments liability for these warrants issued under the placements at the time
  of issuance was determined to be $1,184,521 with the following assumptions: (1)
  risk free interest rate of 3.43%, (2) an expected life of 6.5 years, (3)
  expected stock price volatility of 104%, and (4) expected dividend yield of
  zero.

The 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 beneficial conversion feature in
  conjunction with the derivative instruments liability for the warrants resulted
  in an aggregated note discount of $1,774,042.

On October 15, 2008, under the
  terms of the 7% Senior Secured Convertible Debenture dated December 21, 2007;
  the Company received the fifth advance under the agreement for $3,500,000 and
  issued 1,750,000 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 was determined to be $811,917 with the following
  assumptions: (1) risk free interest rate of 2.98%, (2) an expected life of 6.2
  years, (3) expected stock price volatility of 92%, and (4) expected dividend
  yield of zero.

On December 22, 2008, under the
  terms of the 7% Senior Secured Convertible Debenture dated December 21, 2007;
  the Company received the sixth and final advance under the agreement for
  $1,150,000 and issued 575,000 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 was determined to be $236,828 with the
  following assumptions: (1) risk free interest rate of 1.55%, (2) an expected
  life of 6.0 years, (3) expected stock price volatility of 89%, and (4) expected
  dividend yield of zero.

F-19

---

On July 27, 2009, in connection
  with a private placement for 94,339 shares of the Companys common stock, the
  Company issued 47,169 five year warrants giving the holder the right to purchase
  common stock at $1.06 per share. The fair market value of the warrants under the
  placement at the time of issuance was determined to be $35,017 with the
  following assumptions: (1) risk-free rate of interest of 2.63%, (2) an expected
  life of 5.0 years, (3) expected stock price volatility of 87.31%, and (4)
  expected dividend yield of zero. The private placement was subject to a sales
  commission and an additional 4,716 five year warrants were issued as a
  commission on the transaction. The fair market value of the commission warrants
  under the placement at the time of issuance was determined to be $3,501 with the
  following assumptions: (1) risk-free rate of interest of 2.63%, (2) an expected
  life of 5.0 years, (3) expected stock price volatility of 87.31%, and (4)
  expected dividend yield of zero.

On August 6, 2009, in connection
  with a private placement for 100,000 shares of the Companys common stock, the
  Company issued 50,000 five year warrants giving the holder the right to purchase
  common stock at $1.06 per share. The fair market value of the warrants under the
  placement at the time of issuance was determined to be $35,579 with the
  following assumptions: (1) risk-free rate of interest of 2.73%, (2) an expected
  life of 5.0 years, (3) expected stock price volatility of 86.19%, and (4)
  expected dividend yield of zero.

On August 17, 2009, in connection
  with a private placement for 18,868 shares of the Companys common stock, the
  Company issued 9,434 five year warrants giving the holder the right to purchase
  common stock at $1.06 per share. The fair market value of the warrants under the
  placement at the time of issuance was determined to be $6,769 with the following
  assumptions: (1) risk-free rate of interest of 2.43%, (2) an expected life of
  5.0 years, (3) expected stock price volatility of 86.19%, and (4) expected
  dividend yield of zero. The private placement was subject to a sales commission
  and an additional 944 warrants were issued as a commission on the transaction.
  The fair market value of the commission warrants under the placement at the time
  of issuance was determined to be $677 with the following assumptions: (1)
  risk-free rate of interest of 2.43%, (2) an expected life of 5.0 years, (3)
  expected stock price volatility of 86.19%, and (4) expected dividend yield of
  zero.

On January 20, 2010, in
  connection with the registered direct offering for 7,692,310 shares of the
  Companys common stock, the Company issued 3,846,155 five year warrants giving
  the holder the right to purchase common stock at $1.70 per share. The warrants
  are exercisable immediately after issuance and will expire five years from the
  date of issuance. The fair market value of the warrants under the placement at
  the time of issuance was determined to be $2,921,877 with the following
  assumptions: (1) risk-free rate of interest of 2.45%, (2) an expected life of
  5.0 years, (3) expected stock price volatility of 85.19%, and (4) expected
  dividend yield of zero. The private placement was subject to the issuance of
  461,539 warrants to placement agents, exercisable at $1.625 per share and has an
  exercise period of approximately 4.9 years. The warrants vest six months from
  the date of issuance. The fair market value of the placement agent warrants
  under the placement at the time of issuance was determined to be $353,190 with
  the following assumptions: (1) risk-free rate of interest of 2.45%, (2) an
  expected life of 4.94 years, (3) expected stock price volatility of 85.19%, and
  (4) expected dividend yield of zero.

In total the fair market value of
  the derivative instruments liability at June 30, 2009, was determined to be
  $7,805,676 with the following assumptions: (1) risk free interest rate of 0.19%
  to 2.54%, (2) remaining contractual life between 0 .42 to 5.51 years, (3)
  expected stock price volatility of 59%, and (4) expected dividend yield of zero.
  In total the fair market value of the derivative instruments liability at June
  30, 2010, was determined to be $9,894,041 with the following assumptions: (1)
  risk free interest rate of 0.38% to 1.62%, (2) remaining contractual life
  between 1.20 to 4.56 years, (3) expected stock price volatility of 84.8%, and
  (4) expected dividend yield of zero. Based upon the change in fair value, the
  Company has recorded a non-cash gain on derivative instruments for the year
  ended June 30, 2010, of $3,295,947 and a corresponding decrease in the
  derivative instruments liability. The impact of EITF 00-19 on the financial
  statements as of and through June 30, 2010, was as follows:

|                                    |   | Derivative          |  |   | Derivative          |  |   | Derivative Gain     |  
|----------------------------------- | - | ------------------- |  | - | ------------------- |  | - | ------------------- | -
|                                    |   | Liability as of     |  |   | Liability as of     |  |   | (Loss) Through      |  
|                                    |   | June
      30, 2009 |  |   | June
      30, 2010 |  |   | June
      30, 2010 |  
|Convertible Debentures:             |   |                     |  |   |                     |  |   |                     |  
|Compound
      Embedded Derivatives | $ | 4,907               |  | $ | -                   |  | $ | 4,907               |  
|Purchase Agreement Warrants         |   | 6,543,873           |  |   | 6,585,752           |  |   | (41,879             | )
|Amendment # 2
      Warrants        |   | 1,256,896           |  |   | 637,296             |  |   | 619,600             |  
|Embedded Conversion Option          |   | --                  |  |   | 2,670,993           |  |   | (2,670,993          | )
|Totals                              | $ | 7,805,676           |  | $ | 9,894,041           |  |   | (2,088,365          | )

F-20

---



|Derivative liability at the time of warrant
      exercise applied to additional paid in capital |   | (788,293  | )
|------------------------------------------------------------------------------------------------ | - | --------- | -
|Amount at adoption of accounting change on July 1, 2009                                          |   | 2,705,031 |  
|Amount allocated to warrants at transaction
      inception                                      |   | 3,467,574 |  
|                                                                                                 | $ | 3,295,947 |  

The derivative liability is comprised of the following as of:

|                                                            |   | June 30,  |  |   | June 30,  | 
|----------------------------------------------------------- | - | --------- |  | - | --------- | 
|                                                            |   | 2010      |  |   | 2009      | 
|Current portion of derivative
      instruments liability   | $ | 9,894,041 |  | $ | 2,643,500 | 
|Long-term portion of derivative instruments
      liability |   | -         |  |   | 5,162,176 | 
|                                                            | $ | 9,894,041 |  | $ | 7,805,676 | 

The entire amount of derivative
  instrument liabilities are classified as current due to the fact that settlement
  of the derivative instruments could be required within twelve months of the
  balance sheet date.

NOTE 8  SENIOR SECURED CONVERTIBLE NOTES PAYABLE AND
  DEBENTURES

Convertible Senior Subordinated Notes

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.

Senior Secured Convertible Debenture

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 were issued in accordance with a pre-determined funding
  schedule related to the Summit projects anticipated construction requirements.
  The term of the debenture is 60 months, at the end of which time all remaining
  principal and interest shall be due. The debenture bears interest at the rate of
  7% per annum. Interest on the outstanding principal balance is payable in
  quarterly installments, commencing on July 1, 2009. Interest may be paid in cash
  or stock at the investors election. 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. The Company has received the total advances under the agreement of $13,500,000,
  and the Company has issued an aggregate of 6,750,000 warrants under the
  debenture advances.

F-21

---

On June 30, 2009, the Company
  entered into Amendment 2 on the Senior Secured Convertible Debenture dated
  December 21, 2007. Pursuant to the amendment, all the accrued interest on the
  debentures due June 30, 2009, in the collective aggregate amount of $974,360,
  was automatically converted into 974,360 shares of the Companys common stock
  effective as of June 30, 2009. The amendment also provided that the accrued
  interest for the quarters ended September 30, 2009 and December 31, 2009 shall
  be paid in shares of the Companys common stock, to be valued at $1.00 per share
  at the time of payment and issuance. Accordingly the Company issued 483,000
  shares of its common stock for payment of $483,000 of aggregate accrued
  interest for the quarters ended September 30, 2009 and December 31, 2009.
  Additionally the amendment provided that on March 31, 2010, the note holder
  shall have the option to make a six-month election, by providing written notice
  of its election thirty days prior to March 31, 2010, to have the March 31, 2010
  and June 30, 2010 quarterly interest payments paid in shares of the Companys
  common stock. The note holder has chosen not to make the election, and
  consequently the accrued interest relating to the debentures, totaling $475,125
  for the quarters ended March 31, 2010 and June 30, 2010 was paid in cash during
  the year. Commencing September 30, 2010, the note holder shall have the option
  to make an annual election, by providing 30 days prior written notice of its
  election, to have the subsequent four quarterly interest payments paid in shares
  of the Companys common stock. Valuation of the common stock shall be based upon
  the Market Price of the stock for the 30 trading days immediately preceding the
  payment due date.

The components of the senior
  secured convertible notes payable are as follows as of June 30, 2010 and 2009:

| | June 30, 2010:                          |   | Principal  |  |   | Unamortized |   |   |            | 
| | --------------------------------------- | - | ---------- |  | - | ----------- | - | - | ---------- | 
| |                                         |   | Amount     |  |   | Discount    |   |   | Net        | 
| | Current portion                         | $ | -          |  | $ | -           |   | $ | -          | 
| | Long-term portion, net of current       |   | 13,950,000 |  |   | (3,793,560  | ) |   | 10,156,440 | 
| |                                         |   |            |  |   |             |   |   |            | 
| |                                         | $ | 13,950,000 |  | $ | (3,793,560  | ) | $ | 10,156,440 | 
| |                                         |   |            |  |   |             |   |   |            | 
| | June 30, 2009:                          |   | Principal  |  |   | Unamortized |   |   |            | 
| |                                         |   | Amount     |  |   | Discount    |   |   | Net        | 
| | Current portion                         | $ | 18,219     |  | $ | (8,027      | ) | $ | 10,192     | 
| | Long-term portion, net of
      current |   | 13,950,000 |  |   | (4,514,554  | ) |   | 9,435,446  | 
| |                                         |   |            |  |   |             |   |   |            | 
| |                                         | $ | 13,968,219 |  | $ | (4,522,581  | ) | $ | 9,445,638  | 

Aggregate yearly maturities on
  the senior secured convertible notes based upon payment terms at June 30, 2010,
  are as follows:

2010
      $
      -2011
      
      -2012
      
      13,950,000Subtotal
      
      13,950,000Less: unamortized original discount
      
      (3,793,560
      )$
      10,156,440


As of June 30, 2010 and 2009, accrued interest payable on the senior secured convertible notes aggregated $6,334 and $6,734, respectively.

NOTE 9  NOTES PAYABLE

On June 5, 2008, the Company
  agreed to exercise the option to purchase the Planet MIO property, consisting of
  thirty-one patented mining claims totaling 523 acres in La Paz County, Arizona.
  The Company originally leased the property in 2000 from New Planet Copper Mining
  Company under the terms of a Lease with Option to Purchase. The Company agreed
  to exercise the purchase option in connection with settlement of an action the
  Company commenced in March 2007 seeking to confirm that the lease remained in
  good standing. The purchase price was $250,000.

F-22

---

The Company signed a promissory note for
  $200,000 with interest payable at 10% per annum from the date of closing of the
  transaction. The original provisions of the note called for a $50,000 payment at
  the signing of the note, which occurred in August 2008, and four subsequent
  principal payments of $50,000 plus interest due each anniversary date of the
  agreement. In August 2009, the amortization schedule of the note was amended to
  reflect four equal annual payments of principal and interest of $63,094. The due
  date for the first annual payment was extended with the interest rate increased
  to 20% per annum during the extension period. The Company also agreed to pay an
  additional $2,000 in legal and miscellaneous fees to document the amendment. All
  other provisions of the original agreement remain unchanged including the
  provision for a 5% royalty to be paid on any future production from the
  property.

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

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

On October 1, 2009, the Company
  entered into an agreement to finance insurance premiums in the amount of $72,906
  at an interest rate of 6.99% with equal payments due monthly beginning November
  1, 2009 and continuing until September 1, 2010.

On November 1, 2009, the Company
  entered into an agreement to finance insurance premiums in the amount of
  $139,856 at an interest rate of 5.99% with equal payments due monthly beginning
  December 10, 2009 and continuing until October 10, 2010.

The following summarizes notes
  payable at June 30, 2010 and 2009:

|                                                                                                                                                                                                                    |   | June 30, 2010 |   |   | June 30, 2009 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | - | - | ------------- | -
|                                                                                                                                                                                                                    |   |               |   |   |               |  
|Note payable for mineral
      property, 
                   interest
      at 10%, payable in 4 annual
      installments 
                   of
      $63,094, including interest through August 2012             | $ | 156,906       |   | $ | 200,000       |  
|                                                                                                                                                                                                                    |   |               |   |   |               |  
|Installment sales contract on
      equipment, 
                   interest
      at 6.75%, payable in 36 monthly
      installments 
                   of
      $2,911, including interest through September 2011 |   | 39,180        |   |   | 70,518        |  
|                                                                                                                                                                                                                    |   |               |   |   |               |  
|Installment sales contract on
      equipment, 
                   interest
      at 9.25%, payable in 36 monthly
      installments 
                   of
      $537, including interest through October 2012     |   | 13,141        |   |   | -             |  
|                                                                                                                                                                                                                    |   |               |   |   |               |  
|Financing contract on insurance
      premiums 
                   interest
      at 6.99%, payable in 11 monthly
      installments 
                   of
      $6,862, including interest through September 2010 |   | 13,604        |   |   | -             |  
|                                                                                                                                                                                                                    |   |               |   |   |               |  
|Financing contract on insurance
      premiums 
                   interest
      at 5.99%, payable in 11 monthly
      installments 
                   of
      $13,098, including interest through October 2010  |   | 38,905        |   |   | -             |  
|Total Outstanding Notes Payable                                                                                                                                                                                     |   | 261,736       |   |   | 270,518       |  
|Less: Current maturities                                                                                                                                                                                            |   | (138,821      | ) |   | (74,430       | )
|Obligations of notes payable due after one year                                                                                                                                                                     | $ | 122,915       |   | $ | 196,088       |  

The aggregate maturities of notes payable as of June 30, 2010,
  is as follows:

Year ending June 30,2011
      $
      138,8212012
      
      63,9582013
      
      58,957Total Outstanding Notes Payable
      $
      261,736


F-23

---

NOTE 10  CAPITAL LEASES

During the year ended June 30,
  2010, the Company utilized capital leases aggregating $480,744 for the purchase
  of equipment. Lease terms and interest rates for the equipment are 60 months at
  6.25%, 36 months at 5.34%, and 36 months at 5.78% . The assets and liabilities
  under capital leases are recorded at the lower of the present value of the
  minimum lease payments or the fair value of the asset. The assets are amortized
  or depreciated over the lower of their related lease terms or their estimated
  productive lives.

Minimum future lease payments
  under capital leases, as of June 30, 2010, for each of the following years and
  in aggregate, are as follows:

Year ended June 30,2011
      $
      149,5632012
      
      88,4052013
      
      43,0412014
      
      3,586Total minimum lease payments
      
      284,595Amount representing interest
      
      (17,569
      )Present value of future minimum lease payments
      
      267,026Current portion of capital lease
        obligations
      
      (138,117
      )Obligations of capital leases due after one year
      $
      128,909


The total amount of equipment and related accumulated
  depreciation related to equipment purchased with capital leases is as follows:

June 30, 2010
      
      
      June 30, 2010Equipment
      $
      576,061
      
      $
      576,061Accumulated depreciation
      
      (138,986
      )
      
      (56,691
      )Net equipment under capital
        lease
      $
      437,075
      
      $
      519,370


NOTE 11 - CONTINGENCIES AND COMMITMENTS

Office and Real Property Leases

On March 1, 2007, the Company
  entered into a lease for office space located in Albuquerque, New Mexico, for a
  period of three years. Effective March 1, 2010 the lease has
    been extended for an additional period of three years.

In September 2009, the Company
  retroactively renewed its lease to be effective March 1, 2009 for real property
  located in Glendale, Arizona for a period of one year. Effective March 1, 2010 the lease has been extended for an
    additional period of one year.

Future minimum lease payments
  under operating leases are $46,497, $35,531, and $24,157 for
    the years ended June 30, 2011, 2012, 2013, respectively. Total rental
  expense was $52,155, $51,492 and $44,020 for the years ended June 30, 2010, 2009
  and 2008, 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.

F-24

---

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.

On
  May 19, 2009, the Company entered into change of control agreements with two of
  its employees, the manager of legal affairs, who is also the son of the current
  president, and the Company controller. The change of control agreements provide
  that if there is a change of control of the Company and the individual 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 employee
  shall receive a lump sum cash payment of 100% of the base salary in effect at
  the time of change of control. In addition, the employee will continue to be
  covered by the Companys medical, health, life and dental plans for 24 months
  after such cessation of employment.

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. On January 25, 2008, the Company paid the amount due of $126,891
  through January 2009. In February of 2009 the Company paid the amount due of
  $148,040 through January 31, 2010. In January of 2010 the Company paid the
  amount due of $126,891 through January 31, 2011. On May 1, 2010, we agreed with
  Ortiz Mines, Inc., to amend the terms of the lease. Under the amended terms, the
  lease provides for an extension of the initial term from seven to ten years (17
  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
  amended lease provides for annual lease payments of $130,000; 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.

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

F-25

---

Payment Due Date
      Minimum Due
      Maximum  Due($)
      ($)February 1, 2011
      130,000
      130,000February 1, 2012
      130,000
      130,000February 1, 2013
      130,000
      130,000February 1, 2014 and forward
      130,000
      260,000


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.

Commitments

On September 11, 2009, we entered into a definitive gold sale agreement with Sandstorm Resources Ltd. (TSX-V: SSL) (“Sandstorm”) to sell a portion of the life-of-mine gold production (but not silver production) from our Summit silver-gold mine. Under the agreement we received an upfront cash deposit of $4.0 million, plus we will receive ongoing production payments equal to the lesser of $400 per ounce or the prevailing market price, for each ounce of gold delivered pursuant to the agreement for the life of the mine. Gold production subject to the agreement includes 50% of the first 10,000 ounces of gold produced, and 22% of the gold thereafter. The amount of payable gold can be reduced from 22% to 15% provided that within 36 months the Summit mine reaches certain performance levels in any consecutive 12 month period, in compliance with prefeasibility estimates, including 1) the rate of ore mined and processed must average 400 tons per day or more, and 2) payable gold production must exceed 11,500 ounces during such consecutive 12 month period. Sandstorm made an initial payment of $500,000 and on October 7, 2009 paid the remaining $3,500,000 balance of the upfront cash deposit. We will receive credit against the $4,000.000 upfront cash deposit for the difference between the market price and $400 per ounce for those gold deliveries where the prevailing market price exceeds $400 per ounce.  These credits will be recognized as revenue, in addition to the ongoing production payments received for gold delivered pursuant to the agreement. In certain circumstances, including failure to meet minimum production rates, interruption in production due to permitting issues and customary events of default, the agreement may be terminated. In such event, we may be required to return to Sandstorm the upfront cash deposit of $4.0 million less a credit for gold delivered up to the date of that event, which is determined using the difference between the market price and $400 per ounce for gold deliveries where the prevailing market price exceeded $400 per ounce.

On April 6, 2010, the Company
  issued a purchase order for the purchase of a mining truck for the Summit
  project for an aggregate purchase price of $220,000. The Company has made a down
  payment on the truck of $53,750 and anticipated delivery should occur in 4-5
  months.

On May 1, 2010, the Company
  entered into an agreement for investor relations services. The agreement covers
  a period of six months with monthly payments of $15,000, for a total payment of
  $90,000, and a monthly payment of 15,000 restricted shares of the Companys
  stock. Additionally, the Company has issued a three year option to purchase
  125,000 shares of the Companys stock with an exercise price of $1.30 and issued
  a three year option to purchase 125,000 shares, and an exercise price of $1.70.
  Each of the option issuances vests 50% on August 1, 2010, and 50% on November 1,
  2010.

On May 19, 2010, the Company issued a
  purchase order for the purchase of liners and a discharge grate for the ball
  mill for an aggregate purchase price of $64,920. Delivery of the items is
  anticipated to occur in October 2010.

NOTE 12 - STOCKHOLDERS EQUITY (DEFICIT)

Issuances of 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-26

---

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 were
  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 was capitalized as deferred stock compensation during the year ended
  June 30 2008. The shares vested on December 31, 2008, and the aggregate value of
  $448,000 was recognized as general and administrative compensation expense
  during the year ended June 30, 2009.

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. On March 31, 2009, an officer exercised an option to purchase
  4,000,000 shares of common stock at $0.10 per share on a cashless basis. Under
  the cashless basis exercise, 3,701,494 shares were issued.On April 17,
  2009, a warrant holder exercised 25,000 warrants with an exercise price of $1.00
  per share to purchase shares of the Companys stock on a cashless basis. Under
  the cashless basis, 4,766 shares were issued. On June 9, 2009, an individual
  exercised an option to purchase 100,000 shares of common stock at $0.60 per
  share on a cashless basis. Under the cashless basis exercise, 43,396 shares were
  issued. The aggregate amount of shares issued on a cashless basis during the
  year ended June 30, 2009 was 4,180,906.

During the quarter ended March
  31, 2009, a convertible debenture holder converted $380,625 of note principal
  into 380,625 shares of the Companys common stock. On April 6, 2009, a
  convertible debenture holder converted $237,143 of note principal into 189,714
  shares of the Companys common stock. The aggregate value of debentures
  converted to stock was $617,768 during the year ended June 30 2009.

On May 19, 2009, the Company
  issued 480,000 shares of the Companys stock for services related to investor
  relations, including 380,000 shares issued to a shareholder who paid for
  expenses on the Company's behalf in prior years totaling $204,000. The shares
  were valued at $1.165 per share, the closing price on the date of grant. On June
  15, 2009, the Company issued 42,400 shares of the Companys stock for consulting
  services. The shares were valued at $1.14 per share, the closing price on the
  date of grant. The aggregate value of these transactions expensed to general and
  administrative expense was $403,536 during the year ended June 30, 2009, which
  includes $238,700 related to the shareholder capital contribution.

On May 19, 2009, the Company
  issued 150,000 shares of the Companys stock for services related to investor
  relations. The shares were valued at $1.165 per share, the closing price on the
  date of grant. On June 15, 2009, the Company issued 117,000 shares of the
  Companys stock for consulting services. The shares were valued at $1.14 per
  share, the closing price on the date of grant. The aggregate value for both
  transactions of $308,130 was classified as deferred stock compensation on the
  date of issue. During the years ended June 30, 2010 and 2009, general and
  administrative stock compensation expense of $281,144 and $26,986 was recognized
  relating to these transactions, respectively.

On June 22, 2009, the Company
  issued 283,019 shares of the Companys stock in a private placement. The shares
  were valued at $1.06 per share for total proceeds of $300,000.

On April 6, 2009, a convertible
  debenture holder converted $28,391 of accrued interest into 24,687 shares of the
  Companys common stock. On April 30, 2009, a convertible debenture holder
  converted $22,875 of accrued interest into 19,891 shares of the Companys stock.
  On June 30, 2009, a convertible debenture holder converted $974,360 of accrued
  interest into 974,360 shares of the Companys stock. The aggregate amount of
  accrued interest converted totals $1,025,626, of which $890,400 was recorded as
  interest expense during the year ended June 30, 2009.

On July 17, 2009, a director
  exercised options to purchase 1,150,000 shares of common stock as follows:
  1,000,000 shares at $0.10 per share, 75,000 shares at $0.55 per share, and
  75,000 shares at $0.60 per share. The total purchase price for the exercise of
  the options was $186,250. The director utilized proceeds from the Agreement to
  Sell Royalty dated May 19, 2009. At that time the director also utilized the
  remaining $13,750 from the Agreement to Sell Royalty to purchase an additional
  12,500 shares at $1.10 per share, the market closing price on July 17, 2009.
  Under the Agreement to Sell Royalty, the entire $200,000 has been utilized and
  no further amounts are due to the director under the agreement.

On July 20, 2009, an individual
  exercised an option to purchase 20,000 shares of common stock at $0.60 per share
  on a cashless basis. Under the cashless basis exercise, 8,991 shares were
  issued. On August 13, 2009, an individual exercised an option to purchase 20,000
  shares of common stock at $0.60 per share on a cashless basis. Under the
  cashless basis exercise, 8,679 shares were issued. On August 25, 2009, an
  individual exercised an option to purchase 10,000 shares of common stock at
  $0.60 per share on a cashless basis. Under the cashless basis exercise, 4,286
  shares were issued. On November 10, 2009, a warrant holder exercised 239,989
  warrants with an exercise price of $1.00 per share to purchase shares of the
  Companys stock on a cashless basis. Under the cashless basis, 67,335 shares
  were issued. On December 11, 2009, a warrant holder exercised 651,945 warrants
  with an exercise price of $1.00 per share to purchase shares of the Companys
  stock on a cashless basis. Under the cashless basis, 207,235 shares were issued.
  On December 29, 2009, an option holder exercised 10,000 options with an exercise
  price of $0.60 per share to purchase shares of the Companys stock on a cashless basis.

F-27

---

Under the cashless basis, 5,522
  shares were issued. On March 22, 2010, an option holder exercised 20,000 options
  with an exercise price of $0.60 per share to purchase shares of the Companys
  stock on a cashless basis. Under the cashless basis, 8,680 shares were issued.
  On April 16, 2010, an individual exercised an option to purchase 10,000 shares
  of common stock at $0.60 per share on a cashless basis. Under the cashless basis
  exercise, 3,815 shares were issued. On June 30, 2010, an individual exercised an
  option to purchase 10,000 shares of common stock at $0.60 per share on a
  cashless basis. Under the cashless basis exercise, 3,334 shares were issued. The
  aggregate amount of shares issued on a cashless basis for the exercise of
  options and warrants during the year ended June 30, 2010, was 317,877.

On July 27, 2009, the Company
  issued 94,339 shares of common stock at $1.06 per share in connection with a
  private placement. As part of the private placement the Company also issued
  47,169 warrants with an exercise price of $1.06 per share and an expiration of 5
  years. The warrants were valued as a derivative instrument liability and
  recorded separately at fair value at the time of issuance, reducing the value of
  the equity recorded by the same amount. The private placement was subject to a
  sales commission and an additional 9,433 shares of common stock were issued as a
  commission on the transaction at the fair market value of $10,093.

On August 6, 2009, the Company
  issued 100,000 shares of common stock at $1.06 per share in connection with a
  private placement. As part of the private placement the Company also issued
  50,000 warrants with an exercise price of $1.06 and an expiration of 5 years.
  The warrants were valued as a derivative instrument liability and recorded
  separately at fair value at the time of issuance, reducing the value of the
  equity recorded by the same amount.

On August 17, 2009, the Company
  issued 18,868 shares of common stock at $1.06 per share in connection with a
  private placement. As part of the private placement the Company also issued
  9,434 warrants with an exercise price of $1.06 per share and an expiration of 5
  years. The warrants were valued as a derivative instrument liability and
  recorded separately at fair value at the time of issuance, reducing the value of
  the equity recorded by the same amount. The private placement was subject to a
  sales commission and an additional 1,910 shares of common stock were issued as a
  commission on the transaction at the fair market value of $1,981.

On September 30, 2009, a
  convertible debenture holder converted $241,500 of accrued interest into 241,500
  shares of the Companys stock. The aggregate amount of accrued interest
  converted was recorded as capitalized interest expense during the three months
  ended September 30, 2009. On December 31, 2009, a convertible debenture holder
  converted $241,500 of accrued interest into 241,500 shares of the Companys
  stock. The aggregate amount of accrued interest converted was recorded as
  capitalized interest expense during the three months ended December 31, 2009.
  The aggregate amount of accrued interest converted totals $483,00, and this
  amount was recorded as capitalized interest during the year ended June 30, 2010.

On November 18, 2009, 18,219
  shares of common stock were issued to a convertible debenture holder for
  conversion of $18,219 of note principal at $1.00 per share in accordance with
  the debenture terms.

On December 7, 2009, the Company
  issued 20,000 shares of common stock at a market value of $29,400 for investor
  relations services. This amount was expensed as stock-based compensation expense
  during the year ended June 30, 2010.

On January 15, 2010, a warrant
  holder exercised 60,000 warrants with an exercise price of $1.25 per share to
  purchase shares of the Companys common stock and the Company received cash
  proceeds of $75,000 .

On January 20, 2010, the Company
  closed a registered direct offering with 23 institutional investors and issued
  7,692,310 shares of common stock and warrants to purchase an additional
  3,846,155 shares of common stock. The Company received net proceeds of
  approximately $9,375,000, after deducting placement agent fees and other
  offering expenses. The securities were issued pursuant to the Company's
  effective S-3 Registration Statement under which the securities are registered.
  The units, including the Shares and Warrants (including the Placement Agent
  warrants) and shares issuable upon exercise of the Warrants were issued pursuant
  to a prospectus supplement dated as of January 20, 2010, which was filed with
  the Securities and Exchange Commission ("SEC") in connection with a takedown
  from Santa Fe's shelf registration statement on Form S-3, which became effective
  on December 29, 2009, and the base prospectus contained in such registration
  statement. From the date of the transaction, the Company has agreed that it will
  not issue additional common stock or securities convertible into common stock
  for a period of 90 days. The Company also agreed that in any subsequent
  financings completed within six months of the closing, except for an
  underwritten public offering, that the Purchasers shall have the right to participate up to
  25% in the subsequent financings.

F-28

---

In any registered public offering, the
  Purchasers shall have the right to participate, but no Purchaser shall have the
  right to purchase any particular amount of such underwritten public offering.

On May 1, 2010, the Company
  issued 90,000 unvested shares of the Companys stock for services related to
  investor relations. The shares have a vesting period of six months. The shares
  were valued at $0.95 per share, the closing price on the date of grant. The
  aggregate value of the transaction of $85,500 was classified as deferred stock
  compensation on the date of issue. During the year ended June 30, 2010, stock
  compensation expense issued for services of $28,345 was recognized relating to
  the transaction and $57,155 deferred stock compensation will be reported over
  the remaining vesting periods.

On
  June 8, 2010, the Company granted and issued 575,000 unvested shares of the
  Companys stock to employees and 100,000 unvested shares to outside Board of
  Directors for services. The shares have a vesting period of two years for the
  employee share grant and six months for the outside Board of Directors grant.
  The shares were valued at $0.86 per share, the closing price on the date of
  grant. The aggregate value of the transaction of $580,500 was classified as
  deferred stock compensation on the date of issue. During the year ended June 30,
  2010, stock compensation expense of $32,926 was recognized relating to the
  transaction and $547,574 deferred stock compensation will be reported over the
  remaining vesting periods.

Issuance of Warrants

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.

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.

On July 15, 2008, in connection
  with a scheduled advance of $3,500,000 under 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.

F-29

---

On October 15, 2008, in
  connection with a scheduled advance of $3,500,000 under 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 December 22, 2008, in
  connection with a scheduled advance of $1,150,000 under the 7% Senior Secured
  Convertible Debenture, the Company issued 575,000 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 June 22, 2009, in connection
  with a private placement for 283,019 shares of the Companys common stock, the
  Company issued 141,510 five year warrants giving the holder the right to
  purchase common stock at $1.06 per share.

On
  July 27, 2009, in connection with a private placement for 94,339 shares of the
  Companys common stock, the Company issued 47,169 five year warrants giving the
  holder the right to purchase common stock at $1.06 per share. The fair market
  value of the warrants under the placement at the time of issuance was determined
  to be $35,017 with the following assumptions: (1) risk-free rate of interest of
  2.63%, (2) an expected life of 5.0 years, (3) expected stock price volatility of
  87.31%, and (4) expected dividend yield of zero. The private placement was
  subject to a sales commission and an additional 4,716 five year warrants were
  issued as a commission on the transaction. The fair market value of the
  commission warrants under the placement at the time of issuance was determined
  to be $3,501 with the following assumptions: (1) risk-free rate of interest of
  2.63%, (2) an expected life of 5.0 years, (3) expected stock price volatility of
  87.31%, and (4) expected dividend yield of zero.

On
  August 6, 2009, in connection with a private placement for 100,000 shares of the
  Companys common stock, the Company issued 50,000 five year warrants giving the
  holder the right to purchase common stock at $1.06 per share. The fair market
  value of the warrants under the placement at the time of issuance was determined
  to be $35,579 with the following assumptions: (1) risk-free rate of interest of
  2.73%, (2) an expected life of 5.0 years, (3) expected stock price volatility of
  86.19%, and (4) expected dividend yield of zero.

On
  August 17, 2009, in connection with a private placement for 18,868 shares of the
  Companys common stock, the Company issued 9,434 five year warrants giving the
  holder the right to purchase common stock at $1.06 per share. The fair market
  value of the warrants under the placement at the time of issuance was determined
  to be $6,769 with the following assumptions: (1) risk-free rate of interest of
  2.43%, (2) an expected life of 5.0 years, (3) expected stock price volatility of
  86.19%, and (4) expected dividend yield of zero. The private placement was
  subject to a sales commission and an additional 944 warrants were issued as a
  commission on the transaction. The fair market value of the commission warrants
  under the placement at the time of issuance was determined to be $677 with the
  following assumptions: (1) risk-free rate of interest of 2.43%, (2) an expected
  life of 5.0 years, (3) expected stock price volatility of 86.19%, and (4)
  expected dividend yield of zero.

On
  January 20, 2010, in connection with the registered direct offering for
  7,692,310 shares of the Companys common stock, the Company issued 3,846,155
  five year warrants giving the holder the right to purchase common stock at $1.70
  per share. The warrants are exercisable immediately after issuance and will
  expire five years from the date of issuance. The fair market value of the
  warrants under the placement at the time of issuance was determined to be
  $2,921,877 with the following assumptions: (1) risk-free rate of interest of
  2.45%, (2) an expected life of 5.0 years, (3) expected stock price volatility of
  85.19%, and (4) expected dividend yield of zero. The private placement was
  subject to the issuance of 461,539 warrants to placement agents, exercisable at
  $1.625 per share and has an exercise period of approximately 4.9 years. The
  warrants vest six months from the date of issuance. The fair market value of the
  placement agent warrants under the placement at the time of issuance was
  determined to be $353,190 with the following assumptions: (1) risk-free rate of
  interest of 2.45%, (2) an expected life of 4.94 years, (3) expected stock price
  volatility of 85.19%, and (4) expected dividend yield of zero.

In
  connection with the private placement of the senior secured convertible notes on
  March 20, 2006, the Company issued warrants for 75,001 shares of common stock as
  part of the financial advisory fee associated with the transaction. The warrants
  had an exercise price of $1.58 and an initial term of term of three years. On
  September 6, 2006, the warrant expiration date was amended to September 6, 2009.
  The warrants were not exercised and expired on September 6, 2009.

F-30

---

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 115%, 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 $37,849 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%, 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 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 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. General and administrative stock compensation
  expense of $448,000 was recognized for the year ended June 30, 2009.

On December 3, 2008, the Company
  cancelled and re-issued several outstanding options to four employees. The new
  options grant each employee a five (5) year option to purchase 100,000 shares of
  common stock at an option exercise price of $0.60 per share, the closing price
  on the date of grant, and the options will vest on June 30, 2009. Each option
  was valued at $30,101 using the Black-Scholes option pricing model. The options
  were valued using a volatility of 80%, a risk free interest rate of 0.76%, an
  expected life of 2.8 years and zero quarterly dividends. General and
  administrative stock compensation aggregating $107,358 for the four employees
  was recorded during the year ended June 30, 2009. The following describes the
  options that were cancelled:

- On May 2, 2006, the Company granted a non-plan 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. On December 3, 2008, the options were cancelled and re-issued.
    The options were fully vested and amortized at the time of cancellation

F-31

---

- On April 25, 2007, the Company granted non-plan 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 are expensed in the period granted. On
      December 3, 2008, the options were cancelled and re-issued. The options were
      fully vested and amortized at the time of cancellation.
- 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. On December 3, 2008
      the options were cancelled and re- issued. The options were fully vested and
      amortized at the time of the cancellation. General and administrative stock
      compensation expense of $28,524 was recorded during the year ended June 30,
      2009.
- 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. The options were
      valued at $61,724 using the Black-Scholes option pricing model. On December 3,
      2008, the options were cancelled and re-issued. The options were fully vested
      and amortized at the time of the cancellation. General and administrative
      stock compensation expense of $41,149 was recorded during the year ended June
      30, 2009.
- 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. The options were
      valued using a volatility of 104%, a risk free interest rate of 3.48%, an
      expected life of 5.0 years and zero quarterly dividends. On December 3, 2008,
      the options were cancelled and re- issued, with any further amortization of
      the options ceasing on that date. Stock-based compensation of $42,832 was
      recorded during the year ended June 30, 2009.

On December 3, 2008, the Company
  granted a five (5) year option to twenty-three employees and two board members
  to purchase 830,000 shares of common stock at an option exercise price of $0.60
  per share, the closing price on the date of grant, and the options will vest on
  June 30, 2009. The options were valued at $249,838 using the Black-Scholes
  option pricing model. The options were valued using a volatility of 80%, a risk
  free interest rate of 0.76%, an expected life of 2.8 years and zero quarterly
  dividends. During the year ended June 30, 2009, stock- based compensation of
  $238,688 was recorded.

On May 19, 2009, the Company
  granted a five (5) year option to eight employees to purchase 120,000 shares of
  common stock at an option exercise price of $1.165 per share, the closing price
  on the date of grant, and the options will vest on December 31, 2009. The
  options were valued at $73,581 using the Black-Scholes option pricing model. The
  options were valued using a volatility of 84%, a risk free interest rate of
  0.91%, an expected life of 2.8 years and zero quarterly dividends. During the
  year ended June 30, 2010 and 2009, stock- based compensation of $36,392 and
  $10,512 was recorded, respectively.

On July 13, 2009, the Company
  granted a five (5) year option to purchase 200,000 shares of common stock to an
  employee under the 2007 Equity Incentive Plan. The option exercise price is
  $1.00 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 fair market value of
  the options at the time of issuance was determined to be $103,123 with the
  following assumptions: (1) risk-free rate of interest of 0.92%, (2) an expected
  life of 2.75 years, (3) expected stock price volatility of 83.13%, and (4)
  expected dividend yield of zero. Stock-based compensation expense of $103,123
  was recognized during the year ended June 30, 2010.

On January 1, 2010, the Company
  issued 75,000 five year options with an exercise of $1.38, the market price on
  the date of the grant, to each of the two outside directors under the 2007
  Equity Incentive Plan. The options have a vesting period of six months from the
  date of grant. The fair market value of the options at the time of issuance was determined to be $114,640 with the following assumptions:
  (1) risk-free rate of interest of 1.70%, (2) an expected life of 3.0 years, (3)
  expected stock price volatility of 85.14%, and (4) expected dividend yield of
  zero. Stock-based compensation expense of $114,640 was recognized during the
  year ended June 30, 2010.

F-32

---

On May 1, 2010, the Company granted to an investor relations firm a three (3) year option to purchase 125,000 shares of common stock at an option exercise price of $1.30 per share and a three (3) year option to purchase 125,000 shares of common stock at an option exercise price of $1.70. Each of the option grants vest 50% on August 1, 2010, and 50% on November 1, 2010. The options were valued at $85,209 using the Black-Scholes option pricing model. The options were valued using a volatility of 71.55%, a risk free interest rate of 1.56%, an expected life of 3.0 years and zero quarterly dividends. Stock-based compensation expense of $28,403 was recorded during the year ended June 30, 2010 and $56,806 deferred stock-based compensation will be reported over the remaining vesting periods.

On June 8, 2010, the Company
  granted a five (5) year option to thirty-five employees and two board members to
  purchase 1,095,000 shares of common stock at an option exercise price of $0.86
  per share, the closing price on the date of grant, and 1,055,000 options will
  vest on December 31, 2010 and 40,000 options will vest on June 30, 2011. The
  options were valued at $342,869 using the Black-Scholes option pricing model.
  The options were valued using a volatility of 55.2%, a risk free interest rate
  of 1.11 to 1.16%, an expected life of 2.78 to 2.88 years and zero quarterly
  dividends. Stock-based compensation expense of $36,872 was recorded during the
  year ended June 30, 2010 and $305,997 deferred stock-based compensation will be
  reported over the remaining vesting periods.

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.

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, 2010, 2009 and 2008 are as
  follows:

| |                              |  | Stock
      Options |   |          | Stock
      Warrants | 
| | ---------------------------- |  | ------------------- | - | -------- | -------------------- | 
| |                              |  |                     |   | Weighted |                      | 
| |                              |  |                     |   | Average  |                      | 
| |                              |  | Shares              |   | Price    |                      | 
| |                              |  |                     |   |          |                      | 
| | 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          |   | $ 0.14   |                      | 
| |                              |  |                     |   |          |                      | 
| | Granted                      |  | 1,450,000           |   | $ 0.66   |                      | 
| | Canceled                     |  | (610,000            | ) | $ 0.75   |                      | 
| | Expired                      |  | ---                 |   | ---      |                      | 
| | Exercised                    |  | (4,600,000          | ) | $ 0.11   |                      | 
| | Outstanding at June 30, 2009 |  | 6,390,000           |   | $ 0.22   |                      | 
| |                              |  |                     |   |          |                      | 
| | Granted                      |  | 1,695,000           |   | $ 1.02   |                      | 
| | Canceled                     |  | (130,0000           | ) | $ 0.99   |                      | 
| | Expired                      |  | ---                 |   | ---      |                      | 
| | Exercised                    |  | (1,250,000          | ) | $0.20    |                      | 
| |                              |  |                     |   |          |                      | 
| | Outstanding at June 30, 2010 |  | 6,705,000           |   | $ 0.41   |                      | 

Stock options and warrants
  outstanding and exercisable at June 30, 2010, are as follows:

F-33

---

|Outstanding and Exercisable Options |                     | Outstanding and Exercisable Warrants
|----------------------------------- | ------------------- | ------------------------------------
|                                    |                     |                                     
|                                    |                     |                                     
|                                    |                     |                                     
|Exercise                            |                     |                                     
|Price                               | Outstanding         | Exercisable                         
|Range                               | Number              | Number                              
|$0.11                               | 4,000,000           | 4,000,000                           
|$0.46                               | 100,000             | 100,000                             
|$0.55                               | 175,000             | 175,000                             
|$0.60                               | 705,000             | 705,000                             
|$0.86                               | 1,095,000           | -                                   
|$1.00                               | 200,000             | 200,000                             
|$1.165                              | 30,000              | 30,000                              
|$1.30                               | 125,000             | -                                   
|$1.38                               | 150,000             | 150,000                             
|$1.70                               | 125,000             | -                                   
|                                    | 6,705,000           | 5,360,000                           
|                                    |                     |                                     
|                                    | Outstanding Options | 3.56                                
|                                    | Exercisable Options | 3.31                                

As of June 30, 2010, the
  aggregate intrinsic value of all stock options and warrants vested and expected
  to vest was approximately $3,520,550 and the aggregate intrinsic value of
  currently exercisable stock options and warrants was approximately $3,476,750.
  The intrinsic value of each option share is the difference between the fair
  market value of the common stock and the exercise price of such option or
  warrant share to the extent it is "in-the-money". Aggregate intrinsic value
  represents the value that would have been received by the holders of
  in-the-money options had they exercised their options on the last trading day of
  the quarter and sold the underlying shares at the closing stock price on such
  day. The intrinsic value calculation is based on the $0.90 closing stock price
  of the Common Stock on June 30, 2010. The total number of in-the-money options
  and warrants vested and exercisable as of June 30, 2010, was 4,980,000.

The total intrinsic value of
  options and warrants exercised during the year ended June 30, 2010, was
  approximately $1,560,679. Intrinsic value of exercised shares is the total value
  of such shares on the date of exercise less the cash received from the option or
  warrant holder to exercise the options. The total cash proceeds received from
  the exercise of stock options and warrants was $75,000.

The total fair value of options
  and warrants granted during the year ended June 30, 2010, was approximately
  $4,002,452. The total grant-date fair value of option and warrant shares vested
  during the year ended June 30, 2010, was approximately $3,257,974.

NOTE 13  PENSION PLAN

During the year ended June 30,
  2009, the Company adopted a 401(K) plan, which covers substantially all
  employees. Under the terms of the plan, the Company matches employee salary
  deferrals dollar for dollar up to a maximum of 5% of compensation. For the year
  ended June 30, 2010 and 2009, the Company recorded $31,363 and $44,021,
  respectively, in expenses related to the plan.

NOTE 14 - INCOME TAXES

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:

| |                                                           |   | 2010     |   |   | 2009       |   |   | 2008       |  
| | --------------------------------------------------------- | - | -------- | - | - | ---------- | - | - | ---------- | -
| | Tax (expense) benefit at the federal statutory
      rate | $ | 411,180  |   | $ | 1,951,463  |   | $ | 1,446,918  |  
| | State tax(expense) benefit                                |   | 66,514   |   |   | 315,678    |   |   | 296,533    |  
| | Expiration of state operating losses                      |   | (111,229 | ) |   | (544,184   | ) |   | (541,596   | )
| | Change in state tax rate                                  |   | ---      |   |   | (62,296    | ) |   | ---        |  
| | Decrease (increase) in valuation allowance                |   | (366,465 | ) |   | (1,660,661 | ) |   | (1,201,855 | )
| | Income tax expense                                        | $ | ---      |   | $ | ---        |   | $ | ---        |  

F-34

---

The components of the deferred
  tax asset and deferred tax liability at June 30, 2010 are as follows:

Deferred Tax AssetFederal net operating loss carry forwards
      $
      16,441,573State net operating loss carry
        forwards
      
      967,282Valuation allowance
      
      (17,408,855
      )Net deferred tax asset
      $
      ---


At June 30, 2010, the Company had
  financial statement net operating loss carry forwards for state income tax
  purposes of approximately $16.2 million. Net operating losses for state income
  tax purposes may be carried forward for five years. These losses expire in
  varying amounts from June 30, 2011 to 2015.

At June 30, 2010, the Company had
  financial statement net operating loss carry forwards for federal income tax
  purposes of approximately $48.4 million. Net operating losses for federal income
  tax purposes may be carried back for two years and forward for twenty years. The
  net operating losses expire in varying amounts from June 30, 2019 to 2030.

NOTE 15 - RELIEF OF DEBT

The Company recognized relief of
  debt totaling $90,967 from two separate events during the year ended June 30,
  2009. In one event during September of 2008, the Company negotiated a settlement
  with a government agency on outstanding amounts owed for property taxes and made
  a payment in cash to settle the account in full and recognized $48,872 as relief
  of debt. In a separate event, the Company wrote off $19,940 of notes payable and
  related accrued interest of $22,155 that extended beyond the Statute of
  Limitations for collectability. During the year ended June 30, 2008, the Company
  wrote off accounts payable resulting in relief of debt of $24,062.

NOTE 16  SUBSEQUENT EVENTS

The Company has evaluated events
  and transactions that occurred subsequent to June 30, 2010 for possible
  disclosure or recognition in the consolidated financial statements. The Company
  has determined that there were no such events or transactions that warrant
  disclosure or recognition in the consolidated financial statements except as
  noted below.

On August 26, 2010, the Company
  announced it has contracted with an Arizona smelter to supply a trial shipment
  of 1,000 tons of siliceous flux material. The flux material will be processed
  for precious metals recovery. The Company will be paid for the contained silver
  and gold less customary charges. The siliceous flux constitutes a beneficiated
  product of ore from the Summit mine upgraded in silica and precious metals
  contents through crushing and screening.

On August 31, 2010, an individual
  exercised an option to purchase 10,000 shares of common stock at $0.60 per share
  on a cashless basis. Under the cashless basis exercise, 2,942 shares were
  issued.

On September 1, 2010, the Company
  announced it will supply an additional 3,000 to 6,000 tons of trial siliceous
  flux material to a separate smelter in Arizona. The Company previously provided
  the smelter with 3,000 tons of similar material in earlier in the year. The flux
  material will be processed for precious metals recovery. The Company will be
  paid for the contained silver and gold less customary charges. The siliceous
  flux constitutes ore from the Summit mine upgraded in silica and precious metals
  contents through crushing and screening.

On September 13,
  2010, the Company announced it has shipped an initial 20 tons of precious metals
  concentrate to a European smelter. At current metal prices, the shipment
  contains approximately $425,000 in gold and silver. The Company will be paid for
  the gold and silver less customary smelter charges.

On September 24, 2010, the Company entered into a non-binding Memorandum of Understanding with Columbus Silver Corporation (TSXV: CSC) (“Columbus Silver”) pursuant to which the Company will acquire all of the outstanding shares of common stock of Columbus Silver in exchange for shares of the Company’s common stock.  The contemplated exchange ratio is one share of the Company’s common stock for every 5.82515 shares of Columbus Silver’s common stock.  It is contemplated that the Company will issue a total of 8,787,527 shares in the transaction, which is valued at approximately $9.93 million. Following completion of the transaction, it is estimated that the Company will be owned 91.37% by current Company shareholders and 8.63% by Columbus Silver shareholders. The combination with Columbus Silver is a notable step forward in the Company’s objective to become a significant North American precious metals producer.

The Memorandum of Understanding contemplates a business combination by way of a Plan of Arrangement, which is subject to Canadian court approval.  In addition, the proposed transactions are subject to the final approval of the boards of directors of the Company and Columbus Silver, stock exchange and regulatory approvals, and Columbus Silver shareholder approval. On September 27, 2010, in relation to the transaction with Columbus Silver, the Company filed a Current Report on Form 8-K.

F-35

---

PART III

**ITEM
10.**     **DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE**

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 |  | 72  |  | 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  |  | 67  |  | President, Chief Executive
      Officer and Director                    |  | October 7, 2003                                                                                  
|                  |  |     |  |                                                                          |  |                                                                                                  
|John E. Frost     |  | 86  |  | Director                                                                 |  | May 7, 2007                                                                                      

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 72, 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 67,was named President and Chief Executive
Officer and a director in October 2003, following a consulting assignment with
us. Dr. Carson has 40 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 86,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 2010, our board met once 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 2010. 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:

48

---

Nominating andCorporateGovernance
    Audit
    CompensationName
    Committee
    Committee
    CommitteeEmployee Director:W. Pierce Carson
    X(1)Non-Employee Directors:Lawrence G. Olson
    X
    X(1)
    XJohn E. Frost
    X
    X
X(1)


_______________(1) Chairman

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 2010.

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

49

---

- 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.

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 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.

The
  Audit Committee met once during fiscal 2010.

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 2010.

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, 2010, our officers, directors and greater than ten
percent beneficial owners complied with all applicable filing requirements.

50

---

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
11.**     **EXECUTIVE AND DIRECTOR
COMPENSATION**

Summary Compensation Table

The
following table summarizes the compensation awarded to, earned by or paid during
the last three 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, 2010, 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, 2010:

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. PierceCarson President &
      CEO
    2010 2009 2008
    227,837 222,413 207,125
    - - -
    172,000(2)-
      320,000(1)
    62,543(2)- -
    - - -
    - - -
    - - -
    462,380 222,413 527,125


| | (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 vested on December 31, 2008. 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.                                                                                                                                                                                   
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (2) | On June 8, 2010, the board of directors granted Mr.
      Carson an award of 200,000 shares of restricted common stock and 200,000
      options under our 2007 EIP. The shares vest 50% after 12 months with the
  remaining 50% vesting after 24 months. The options have a vest date of December 31, 2010. The exercise price of the options is $0.86 per share, the closing price of our common stock on the date of grant. The dollar value recognized for financial statement reporting purposes for both the grant of stock and options was calculated in accordance with FAS 123R.

51

---

Outstanding Equity Awards as of June 30, 2010

The
  following table summarizes the outstanding equity awards as of June 30, 2010,
  for each of our named executive officers:

Outstanding Equity Awards as of June 30, 2010

Option Awards
      Stock AwardsName
      Number of Securities Underlying UnexercisedOptions (#) Exercisable
      Number of Securities Underlying **Unexercised**Options (#) **Unexercisable**
      Equity Incentive Plan Awards: Number of
        Securities **Underlying** **Unexercised**Unearned Options (#)
      **Option** Exercise Price
        ($)
      Option Expiration Date
      Number
        of Shares or Units of Stock
        That Have Not Vested (#)
      Market Value
        of Shares or Units of Stock That Have Not
        Vested ($)
      EquityIncentive Plan Awards:Numberof Unearned Shares, 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 ($)W.
        Pierce
        Carson
      4,000,000 
        N/A
      N/A 
        N/A
      N/A 
        200,000
      0.11 
        0.86
      10/16/2013 
        6/08/2015
      N/A 
        N/A
      N/A 
        N/A
      N/A 
        200,000
      N/A 
        172,000


Compensation of Directors

The
  following table summarizes the compensation of our Companys directors
  for the fiscal year ended June 30, 2010:

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
    8,500
    43,000
    72,957
    -
    -
    -
    124,457John E. Frost
    8,500
    43,000
    72,957
    -
    -
    -
    124,457


(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 2010 in accordance with FAS 123R.

52

---

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.

Effective
July 1, 2010, we adopted an increase in the annual non-employee independent
director fee to $25,000 per year and an increase in annual committee fees to
$4,000 per committee membership and $2,000 per committee chairmanship, to be
paid quarterly.

During
fiscal years 2010, 2009 and 2008, 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 $17,000 for the year ended June 30, 2010.

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.

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.

In
May 2009, we entered into change of control agreements with two key employees,
our manager of legal affairs, who also is the son of our current president, and
our controller. The change of control agreements provide that if there is a
change of control of the Company and the individual 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 employee shall receive a lump sum
cash payment of 100% of the base salary in effect at the time of change of
control. In addition, the employee will continue to be covered by our medical,
health, life and dental plans for 24 months after such cessation of employment.

**ITEM 12.**     **SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS**

The
following table sets forth, as of September 10, 2010, 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.

53

---

| |                                                                                                   |  |                |  |  | Common
      Stock Beneficially Owned |    
| | ------------------------------------------------------------------------------------------------- |  | -------------- |  |  | ------------------------------------- | ---
| |                                                                                                   |  |                |  |  |                                       |    
| | Name and Address Of Beneficial Owner                                                              |  | Title of Class |  |  | Number of Shares                      |    
| |                                                                                                   |  |                |  |  |                                       |    
| | Christian Mustad 
      Bodmenstrasse, Chalet Corcovado 
      3778 Schoenried 
      Switzerland |  | Common Stock   |  |  | 5,195,000                             |    
| |                                                                                                   |  |                |  |  |                                       |    
| | Sulane Holdings, Inc. 
      P.O. Box 414 
      CH-1630 Bulle 
      Switzerland                 |  | Common Stock   |  |  | 10,307,360                            | (1)
| |                                                                                                   |  |                |  |  |                                       |    
| | Lawrence G. Olson 
      3045 S. 35thAvenue 
      Phoenix, AZ 85009                              |  | Common Stock   |  |  | 7,552,450                             | (2)
| |                                                                                                   |  |                |  |  |                                       |    
| | W. Pierce Carson 
      33 Camino de Avila 
      Tijeras, NM 87059                               |  | Common Stock   |  |  | 12,951,494                            | (3)
| |                                                                                                   |  |                |  |  |                                       |    
| | John E. Frost 
      602 Sandy Port 
      Houston, TX 77079                                      |  | Common Stock   |  |  | 360,000                               | (4)
| |                                                                                                   |  |                |  |  |                                       |    
| | Officers and Directors As a Group (3 Persons)                                                     |  | Common Stock   |  |  | 20,863,944                            | (5)

|(1) | Includes shares issuable under December 2007 convertible
      debenture financing authorizing Sulane to convert outstanding debt at a
      conversion price of $1.00 per share. Also includes an aggregate of
      1,457,360 shares that were issued for conversion of accrued interest due
      June 30, 2009, September 30, 2009 and December 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes options issued under the 2007 EIP to acquire
      75,000 shares at an exercise price of $1.38 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(3) | Includes non- plan options to acquire 4,000,000 shares at
      an exercise price of $0.11 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(4) | Includes options issued under the 2007 EIP to acquire
      100,000 shares at an exercise price of $0.46 per share, 75,000 shares at
      an exercise price of $0.55 per share, 75,000 shares at an exercise price
      of $0.60 per share, and 75,000 shares at an exercise price of $1.38 per
      share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(5) | Includes options to acquire an aggregate of 4,400,000
      shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(6) | Applicable percentage of ownership is based on 93,062,510
      shares of common stock outstanding as of September 27, 2010, together with
      securities exercisable or convertible into shares of common stock within
      60 days of September 27, 2010, 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 September 27, 2010, 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.

Equity Compensation Plans

The
following table contains information regarding our Equity Compensation Plans as
of June 30, 2010:

Plan
      Category
    Number of securitiesto be issued uponexercise ofoutstanding
      options,warrants and rights(a)
    Weighted
      average exerciseprice of outstanding options,warrants and rights(b)
    Number of securitiesremaining available forfuture issuance underequity compensation plans(excluding securitiesreflected in column (a))(c)2007 Equity Incentive Plan approved by security holders
    2,705,000
    $0.86
    3,820,000Equity compensation plan not approved by security
      holders(1)
    4,250,000
    $0.19
    N/A


54

---

(1)      Includes certain options
granted to an executive officer pursuant to an employment agreement described in
more detail under the caption Employment Agreements, prior to the adoption of
the 2007 EIP. Also includes options granted to an investor relations
consultant.

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 replaced 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, retain and
motivate the most qualified directors, employees, and consultants. As of
September 27, 2010, one executive officer, two non-employee independent board
members and approximately thirty-six 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.

**ITEM
13.**     **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).

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.

55

---

On
September 15, 2005, we entered into a consulting agreement with Ryan P. Carson,
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. 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 the individual 100,000 options at an exercise price of $0.55 per share,
which were the closing prices on the dates granted. On December 3, 2008, we
granted the individual 100,000 options and also cancelled and reissued the
options previously granted on May 2, 2006 and April 25, 2007, at an exercise
price of $0.60 per share, which was the closing price on December 3, 2008. On
June 8, 2010, we granted the individual 100,000 options at an exercise price of
$0.86 per share, the closing price on the date of grant. Additionally, on June
8, 2010 we granted the individual 100.000 shares of restricted stock. The shares
were valued at $0.86 per share, the closing price on the date of grant.

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 May 19, 2009, we entered into an agreement with Mr.
Olson to purchase the royalty for $200,000. On July 17, 2009, the $200,000 owed
to Mr. Olson was satisfied by applying credit of $186,250 for payment of the
exercise price of stock options exercised on that date, including 1,000,000
options at an exercise price of $0.10 per share, 75,000 options at $0.55 per
share and 75,000 options at $0.60 per share, and by satisfying the remaining
amount of $13,750 by the issuance of 12,500 shares of stock at a price of $1.10
per share, the closing price on July 17, 2009.

**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 2009 and 2008 fiscal years respectively:

2010
    
    
    2009Audit Fees (1)
    $
    81,595
    
    $
    68,270Tax Fees (2)
    
    -0-
    
    
    -0-$
    81,595
    
    $
    68,270


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

56

---

PART IV

**ITEM
15.**     **EXHIBITS, FINANCIAL
STATEMENT SCHEDULES**

Exhibit No.
    Description
    Location2.1
    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,
      19993.1
    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, 19924.2
    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, 199510.1
    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, 199510.3
    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, 199610.4
    Stock Option Plan
    Incorporated by reference to Exhibit A to
      Registrants DEF 14A as filed with the SEC on March 5, 199710.5
    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, 199710.6
    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, 199810.7
    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


57

---

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, 199810.9
    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, 199810.10
    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, 199810.11
    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, 199810.12
    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, 199910.13
    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, 199910.14
    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, 199910.15
    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, 200110.16
    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, 200210.17
    $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, 200210.18
    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, 200210.19
    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, 200210.20
    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, 200210.21
    $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


58

---

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, 200210.23
    $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, 200210.24
    $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, 200210.25
    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, 200210.26
    $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, 200210.27
    $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, 200210.28
    $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, 200210.29
    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, 200210.30
    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, 200210.31
    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, 200210.32
    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,
      200210.34
    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,
      200310.35
    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, 200510.36
    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, 200510.37
    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, 200510.38
    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


59

---

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, 200510.40
    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, 200510.41
    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, 200510.42
    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, 200510.43
    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, 200510.44
    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, 200510.45
    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, 200510.46
    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, 200610.47
    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, 200610.48
    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, 200610.49
    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, 200610.50
    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, 200710.51
    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, 200710.52
    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


60

---

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, 200710.54
      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, 200810.55
      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, 200810.56
      Change of Control
        Agreement between the Registrant and Ryan P. Carson dated May 19, 2009
      Incorporated by reference to Exhibit 10.56 in Registrant’s 10-K dated June 30, 2009, as filed with the SEC on October 13, 200910.57
      Change of Control
        Agreement between the Registrant and Michael P. Martinez dated May 19,
        2009
      Incorporated by reference to Exhibit 10.57 in Registrant’s 10-K dated June 30, 2009, as filed with the SEC on October 13, 200910.58
      Purchase option dated
        June 13, 2009, by and between Registrants subsidiary Minera Sandia
        S.A. de C.V. and Mineral de Suaqui Grande S. de R.L. de C.V.
      Incorporated by reference to Exhibit 10.58 in Registrant’s 10-K dated June 30, 2009, as filed with the SEC on October 13, 200910.59
      Agreement dated June
        13, 2009, by and between Registrant and Minera de Suaqui Grande S. de
        R.L. de C.V.
      Incorporated by reference to Exhibit 10.59 in Registrant’s 10-K dated June 30, 2009, as filed with the SEC on October 13, 200910.60
      Finders Agreement
        dated June 13, 2009, by and between Registrant and Finder
      Incorporated by reference to Exhibit 10.60 in Registrant’s 10-K dated June 30, 2009, as filed with the SEC on October 13, 200910.61
      Amendment No. 2 dated June 30, 2009, to Securities
        Purchase Agreement dated December 21, 2007, by and between Registrant
        and Purchaser
      Incorporated by reference to Exhibit 10.1 to
        Registrants 8-K dated June 30, 2009, as filed with the SEC on August
        25, 200910.62
      Gold Sale Agreement dated September 11, 2009,
        by and between Registrant and Purchaser
      Incorporated by reference to Exhibits 99.1- 99.2
        to Registrants 8-K dated September 11, 2009, as filed with the SEC
        on September 17, 200910.63
      Placement Agreement dated January 7, 2010, by
        and between Registrant and Placement Agent
      Incorporated by reference to Exhibit 1.1 to Registrants
        8-K dated January 14, 2010, as filed with the SEC on January 20, 2010.10.64
      Securities Purchase Agreement dated January
        14, 2010, by and between Registrant and Purchasers
      Incorporated by reference to Exhibit 10.1 to
        Registrants 8-K dated January 14, 2010, as filed with the SEC on
        January 20, 2010.14.1
      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, 200721.1
      Subsidiaries of the
        Registrant
      Incorporated by reference to Exhibit 21.1 in Registrant’s 10-K dated June 30, 2009, as filed with the SEC on October 13, 200931.1
      Certification of Principal
        Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
      Provided herewith32.1
      Certification of Principal
        Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
        1350
      Provided herewith


61

---

SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on September 27, 2010.

SANTA FE GOLD
CORPORATION

By: /s/ W.
Pierce
Carson
Name:  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 registrant in the capacities
indicated on September 27, 2010.

|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              |                                      

62

---