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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-KSB

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

For the fiscal year ended **June 30, 2007**

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

Commission file number:******0-20430**

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

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

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

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

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

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

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

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

Revenues for issuers most recent fiscal year: $7,201

Aggregate market value of stock held by non-affiliates as of
October 8, 2007: $27,715,810

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Number of shares of the issuers common stock outstanding as of
October 8, 2007:**74,773,510**

Documents incorporated by reference: **None**

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

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

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

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

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

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

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PART I

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

Background

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

In
May 2006, we acquired all of the outstanding shares of The Lordsburg Mining
Company (Lordsburg), which owns the Summit silver-gold project. The Summit
project consists of the Summit property of 117 acres of patented mining claims
and 520 acres of unpatented mining claims in Grant County, southwestern New
Mexico; the Lordsburg mill site property, located approximately 57 miles south
of the Summit property, totaling 257 acres of patented mining claims near the
town of Lordsburg, Hidalgo County, New Mexico; mining and operating permits
related to the Summit property and the Lordsburg mill site property; and mineral
processing equipment consisting of a ball mill and 400 ton-per-day flotation
plant. Our strategic objective is to develop the Summit project. As presently
conceived, the Summit mining and processing operation would involve underground
mining of mineralized material from the Summit mining claims at a rate of about
400 tons per day and trucking of the mined material 57 miles to the Lordsburg
mill site where metallurgical processing would take place. At the Lordsburg
plant site, processing would be accomplished through conventional crushing,
grinding and selective flotation to yield a bulk sulfide concentrate containing
the recoverable precious metals. This concentrate would be marketed to a smelter
or to an existing precious metals processing plant. In April 2007, we received
results of a preliminary feasibility study carried out by an independent
geological engineering firm that concludes that at recent silver and gold
prices, development of the Summit deposit would be economically viable and that
a commitment to production would entail minimal project risk. Capital cost is
estimated as $13.4 million and the development schedule is estimated as 12
months. On the basis of the results of the study, we intend to proceed to secure
the capital necessary for development. However, there can be no assurance we
will be successful in raising the necessary capital on acceptable terms, if at
all. We currently have not established proven or probable reserves on the Summit
silver-gold deposit.

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 December 2005,
we received the results of an independent scoping study of the Carache and Lucas
gold deposits. The study assessed various processing options for development and
provided estimations of capital and operating costs for each option. It also
included an economic analysis complete with sensitivities on gold price, capital
and operating costs. The report concluded that the financial results indicate a
favorable gold project employing high pressure grinding rolls with gravity
recovery and contract mining. The financial model estimated that production
could total 925,036 ounces of gold over 10 years at an average estimated
operating cost of $230 per ounce of gold recovered. The capital cost, assuming
contract mining, was estimated as $38.2 million. The report also stated that
upside exists in estimations of mineralized material in both contained ounces
and grade. Based on these results, we have proceeded to examine additional
mining and processing options in an attempt to further improve the projects
economics. Over the next 12 months we intend to further explore and evaluate
mining and processing alternatives. Also, we intend, in conjunction with this
work, to conduct an assessment of permitting and environmental issues. Although
work on the Ortiz gold property has yielded encouraging results with respect to
potential economic viability, substantial additional feasibility work and

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expenditures are required before development could proceed. We
currently have not established proven or probable reserves on the Ortiz gold
property.

In
1999, we acquired the Black Canyon mica project. The project includes a crushing
and concentrating plant and 76 unpatented mining claims at Black Canyon, 30
miles north of Phoenix, Arizona. Until November 2006, the project also included
a mica processing plant situated in Glendale, Arizona. In November 2002, due to
economic constraints, we suspended crushing and concentrating activities at our
Black Canyon mica mine. After the suspension of operations, limited production,
marketing and sales continued through 2005 at our Glendale mica processing
facility using inventoried mica. In January 2007, we removed the mica processing
equipment from the Glendale plant and placed it into storage. We intend to seek
a joint venture partner to contribute approximately $6.0 million required to
relocate the mica processing equipment and to fund the re-opening and
enhancement of our Black Canyon mica project, or alternatively, we intend to
divest of the project.

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

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

The
Company has earned net income of $345,979 and incurred at net (loss) of
($5,383,368) for the years ended June 30, 2007 and 2006, respectively. The
Company has a total accumulated (deficit) of ($42,981,772) and a negative
working capital of $2,933,940 at June 30, 2007. To continue as a going concern,
we are dependent on continued fund raising for project development. However, we
have received no commitment from any party to provide additional capital and
there is no assurance that such funding will be available when needed, or if
available, that we would find its terms to be favorable or acceptable.

Recent Developments

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

Pursuant
to the terms and conditions of our convertible debenture notes, we filed a SB-2
Registration Statement with the Securities Exchange Commission (SEC) on March
26, 2007. The Registration Statement became effective on July 20, 2007.

On
November 3, 2006, we sold to Muzz Investments, LLC (Muzz) our 60% ownership
interests in our Glendale, Arizona location. The sale included approximately
five acres of land, a 5,000 sq. ft. office building and an 18,000 sq. ft. mill
building. Under the terms of the sale, we retained ownership of the mica
processing equipment installed in the mill building. In January 2007, we removed
the equipment and transported it to a storage site for future use. As part of
the transaction, we also agreed

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to provide for the exercise of 2,550,000 warrants at $0.50 per
share granted to Muzz in 2002 and to issue 2,550,000 unregistered shares of our
common stock to Muzz. In consideration for our entry into the sale agreement and
the issue of the unregistered common stock, Muzz agreed to terminate a 2002
financing lease agreement and to cancel all of our outstanding financial
obligations under the lease.

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

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

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

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

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

On
February 23, 2007, we agreed with the investors to amend the terms of the
private placement of senior secured convertible notes, additional investment
rights and warrants issued March 21, 2006, and September 6, 2006. Under terms of
the amendment, the date by which we are required to file a registration
statement with the Securities and Exchange Commission was extended from November
5, 2006, until April 30, 2007, and the date by which such registration statement
is required to be declared effective was extended from February 4, 2007, until
July 31, 2007. The investors agreed to forgo all liquidated damages and
penalties related to the previous deadlines. We agreed to seek stockholder
approval for an increase in our authorized capital, from the authorized limit of
100 million shares, to 200 million shares, and, if necessary, to file additional
registration statements. In connection with the amendment, we issued 1,750,000
warrants, giving note holders the right to purchase common stock at a price of
$1.25 per share for a period of five years. The amendment also provided for the
Company to pay the February 1, 2007, and March 1, 2007, monthly installments in
common stock without being subject to Equity Conditions of the Note Agreements,
at a reduced conversion price of $0.80 per share rather than the Agreement price
of $1.00 per share. On March 26, 2007, we filed the required registration
statement, which was declared effective on July 20, 2007. On July 24, 2007, our
shareholders approved the increased limit of our authorized capital to 200
million shares.

Products  Mica and Feldspathic Sand

***Revenues***

During
fiscal years 2007 and 2006, our Black Canyon operation was unable to produce
plastic pellets due to a lack of working capital. In fiscal 2007, we sold no
plastic pellets or mica. In 2006, we sold, to a key customer, limited quantities
of the mica needed to produce the pellets. In 2006, we also sold cosmetic grade
mica on a limited basis. We have no inventoried mica available for mica
customers, while we seek financing to resume production.

We
produced and sold no feldspathic sand, a by-product of mica production, during
fiscal years 2007 or 2006. In 2003 and 2002, we sold feldspathic sand as golf
course bunker sand and as stucco sand. Sand sales ceased due to the suspension
in November 2002 of crushing and concentrating operations at the Black Canyon
mine.

Competition

Many
companies are engaged in the exploration and development of mineral properties.
We are at a disadvantage with respect to those competitors whose technical staff
and financial resources exceed

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

Employees and Consultants

As
of June 30, 2007, we had two full-time employees, one of whom serves as our
President and Chief Executive Officer. These individuals devote a majority of
their business time to our affairs. We engage consultants and independent
contractors in connection with financial accounting and the exploration and
development of our mining properties.

Office Facilities

In
April 2007, we relocated our corporate offices to Albuquerque, New Mexico from
Glendale, Arizona. We lease offices at 1128 Pennsylvania NE, Suite 200,
Albuquerque, New Mexico 87110, totaling approximately 2,300 square feet. We
believe this space is adequate for our needs for the foreseeable future.

Employment Agreements

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

On
May 2, 2006, we entered into an employment agreement with an attorney who is the
son of our President and Chief Executive Officer which provided a salary of
$5,000 per month and a monthly per diem of $1,000. In connection with full-time
employment, we granted 50,000 options under our stock option plan at an exercise
price of $1.24 per share, the closing price on May 2, 2006. Upon our relocation
to Albuquerque, New Mexico, the monthly per diem was terminated.

Carrying Value of Assets

As
of June 30, 2007, the Company carried its long-lived assets at the following
values:

Property, plant and equipment, net
    $
    1,320,463Idle plant and equipment, net
    
    1,544,000Total
    $
    2,864,463


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

Summit Silver-Gold Project

***Overview***

In
May 2006, for cash consideration of $1,300,000, we acquired all of the
outstanding shares of The Lordsburg Mining Company (LMC), a New Mexico
corporation, from Imagin Minerals Inc., a privately-held industrial minerals
company. The Company owns and operates LMC as a wholly-owned subsidiary. LMCs
primary assets are the Summit silver-gold property, which consists of
approximately 117 acres of patented mining claims and 520 acres of unpatented
mining claims in Grant County, southwestern New Mexico; the Lordsburg mill site
property, located approximately 57 miles south of the Summit property,
consisting of approximately 257 acres of patented mining claims near Lordsburg,
Hidalgo County, New Mexico; mining and operating permits related to the Summit
property and the Lordsburg mill site property; and mineral processing equipment
consisting of a ball mill and 400 ton-per-day flotation plant, stored at
Winston, Sierra County, New Mexico.

Our
strategic objective is to develop the Summit project. In April 2007, we received
results of a pre-feasibility engineering study that concludes that at recent
silver and gold prices, the Summit deposit would form the basis of an
economically viable underground mining operation and that commitment to
production appears to entail minimal project risk. On the basis of these
results, we are proceeding to explore avenues of financing for mine development.
As presently conceived, the Summit mining and processing operation would involve
underground mining of mineralized material from the Summit property at a rate of
400 tons per day (120,000 tons per year) and trucking of the mined material 57
miles to the Lordsburg mill site where metallurgical processing would take
place. At the Lordsburg plant site, processing would be accomplished through
conventional crushing, grinding and selective flotation to yield a bulk sulfide
concentrate containing the recoverable precious metals. This concentrate would
be marketed to a smelter or to an existing precious metals processing plant.

***Location
and Access***

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

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

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

The
Lordsburg mill site property 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 Lordsburg property has an approved
mill site accessible from Lordsburg by a 3-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,

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construction and other support services. We anticipate that the
labor force required for any plant operation could be sourced locally.

Figure X.1

Claim Boundary Map



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***Mineral
Title***

Our
holdings at the Summit silver-gold property in Grant County, New Mexico consist
of 10 patented federal mining claims totaling approximately 117 acres and 26
unpatented federal mining claims totaling approximately 520 acres. Our holdings
at the Lordsburg mill site in Hidalgo County, New Mexico consist of 16 patented
federal mining claims totaling approximately 257 acres. All claims are held in
the name of LMC. We believe the claims are in good standing in accordance with
the mining laws of the United States.

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

***History**
of Mining and Exploration*

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

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

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

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

***Geology
and Mineralization***

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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.

Biron
  Bay Resources Ltd. carried out preliminarily estimations of mineralized material
  contained in the Summit deposit, at various cutoff grades and using both cut
  and uncut values for high-grade assays of gold and silver. Depending on the
  assumptions made and cutoff grades employed, tonnages of mineralized material
  ranged to over 2 million tons. Biron Bays estimations were global in nature
  and were not based on any assumptions as to minability, relevance of the cutoff
  grades in an economic sense, or other factors usually used to define minable
  material. Biron Bays estimations were 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, requires the preparation
  of a feasibility study demonstrating the economic feasibility of mining and
  processing the mineralized material. No proven or probable reserves have been
  established at the Summit gold-silver property.

***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

11

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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 precious metals processing operation for final extraction of
gold and silver.

***Mineral
Processing Equipment***

With
the purchase of LMC, we acquired an inactive 400 ton-per-day flotation plant,
including ball mill and ancillary equipment, stored at Winston, Sierra County,
New Mexico. In order to utilize this plant for mineral processing, we plan to
transport it from its current location and erect it at the Lordsburg permitted
mill site in Hidalgo County. In addition to the processing equipment already
acquired, we plan to acquire and install other necessary equipment, including
crushing equipment.

***Permits***

We
hold existing operating permits for the Summit property and the Lordsburg mill
site. The New Mexico Mining and Minerals Division issued these permits to LMC
pursuant to the New Mexico Mining Act. The permits could facilitate the
commencement of mining at the Summit property and resumption of mineral
processing operations at the Lordsburg mill site.

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

Permit
No. H1001RE at the Lordsburg 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 existing mining disturbances are
required to be addressed under a closeout plan and to be secured by financial
assurance. Modification of this permit would be required prior to resumption of
flotation milling, and in particular, it would be necessary to obtain a
discharge permit related to mill tailings disposal. We have applied for such a
discharge permit and anticipate that approval will require a minimum of several
months to obtain, however there can be no assurance that approval will be
obtained in a timely manner, if at all.

***Preliminary
Feasibility Study***

In
April 2007, we received results of a preliminary feasibility study carried out
by the independent geological engineering firm of Chapman, Wood and Griswold,
Inc. (CWG), of Albuquerque, New Mexico. CWG concluded that at recent silver
and gold prices, the Summit deposit would form the basis of an economically
viable underground mining operation and that a commitment to production would
entail minimal project risk.

CWG
  used an estimation of minable mineralized material for the current 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, and represents in-place, diluted, minable mineralization with a
  minimum six-foot horizontal width, based on results of assays from core holes
  and samples of underground workings. All high assay values were cut to 45.0
  ounces of silver and 0.45 ounces of gold per ton. The CWG report was prepared
  in accordance with different standards than those prescribed by rules of the
  SEC. The SEC only permits the disclosure of proven or probable reserves.

The
Summit mining and processing operation would involve underground mining of
mineralized material from the Summit property at a rate of 400 tons per day
(120,000 tons per year) and trucking of

12

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the mined material 57 miles to the Lordsburg mill site where
metallurgical processing would take place. At the Lordsburg plant, processing
would be accomplished through conventional crushing, grinding and selective
flotation to yield a high-grade bulk sulfide concentrate containing the
recoverable precious metals. The concentrate would be marketed to one of the
areas copper smelters or to an existing 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.

At
gold and silver prices of $500 and $10 respectively, CWG estimated Summit
revenues over an initial seven-year mine life would total approximately $96
million, and pre-tax net income would total approximately $34 million. At recent
gold and silver prices of $650 and $13 per ounce respectively, CWG estimated
revenues would increase to approximately $130 million, pre-tax net income would
exceed $70 million, and payback of capital would be achieved in 18 months after
the commencement of production. The Company has approximately $40 million in tax
loss carry-forwards to shelter federal income tax otherwise payable. Direct
operating costs, assuming that mine development and ore production will employ
contract mining, were estimated as $76.65 per ton of ore milled. The total
estimated capital cost to bring the mine into production is $13.4 million,
inclusive of mine development, mill construction, bonding requirements, and
project management and working capital. CWG estimated the project could be
developed and brought into production in a twelve-month time frame.

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

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

***Work
Program***

We
believe that the Summit project holds promising potential for production and
have assigned a high priority to securing the $13.4 million in capital necessary
for project development. However, there can be no assurance we will be
successful in obtaining the necessary capital on acceptable terms, if at all. If
we are successful in procuring the necessary financing, we expect 12 months will
be required for construction and execution of the major elements of the mining
and processing plan described above. Work related to the proposed Lordsburg
milling operation is anticipated to include additional metallurgical testing to
characterize Summit mineralized material; optimization of a metallurgical
treatment process; completion of permitting of the planned milling operation;
and relocation of our flotation plant to Lordsburg and acquisition and
installation of all necessary processing equipment. We also will need to
finalize major contracts, including contracts for mining of the Summit deposit,
trucking of ore from Summit to Lordsburg, and sales of concentrates.

Ortiz Gold Project

***Overview***

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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 December 2005,
we received the results of an independent scoping study of the Carache and Lucas
gold deposits. The study assessed various processing options for development and
provided estimations of capital and operating costs for each option. It also
included an economic analysis complete with sensitivities on gold price, capital
and operating costs. The report concluded that the financial results indicate a
favorable gold project employing high pressure grinding rolls with gravity
recovery and contract mining. The financial model showed production would total
925,036 ounces of gold over 10 years at an average estimated operating cost of
$230 per ounce of gold recovered. The capital cost, assuming contract mining,
was estimated as $38.2 million. The report also stated that considerable upside
exists in estimations of mineralized material in both contained ounces and
grade.

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

***Location
and Access***

The
Ortiz Mine Grant, over which we hold a lease on the mineral estate underlying
57,267.04 acres (90 square miles) of segregated surface estate, is located 30
miles by road northeast of Albuquerque, in Townships 12, 13 and 14 North, Ranges
7 and 8 East, N.M.P.M., Santa Fe County, New Mexico. The villages of Golden,
Madrid and Cerrillos, with a combined population of less than 1,000 people, lie
in and adjacent to the Grant. Paved New Mexico Highway 14 traverses the western
portion of the Grant. The main line of the Santa Fe Railway crosses the
northeastern corner of the Grant. A network of unimproved ranch roads provides
access to the various land holdings. High-voltage electric power lines cross the
southern part of the Grant.

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

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

14

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Figure X.2

Claim Boundary Map [map to be inserted here]



15

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***Mineral
Title***

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

***History
of Mining and Exploration***

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

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

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

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

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

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

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

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

***Geology
and Mineralization***

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

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

- Gold-tungsten mineralization in a breccia pipe at Cunningham Hill adjacent
  to a volcanic vent, the Ortiz diatreme.
- Gold mineralization associated with a collapse breccia at Carache Canyon.
- Copper and gold disseminated in stockworks and fractures in monzonite at
  the Cunningham Gulch (gold) and Cerrillos (copper-gold) deposits (bulk tonnage
  low-grade porphyry-type deposits).

17

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

***Scoping
Study of the Carache and Lucas Gold Deposits***

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

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

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

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

18

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

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

***Permitting***

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

***Work
Program***

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

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

We
also plan to continue evaluation of the large 90 square mile area under lease
for its exploration potential for new discoveries of gold and copper deposits.
In this regard, we will continue to utilize the large quantity of existing
geological, geochemical, geophysical and drilling data.

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

Black Canyon Mica Project

***Overview***

In
1999 we acquired the Black Canyon mica project from Arizona Mica Properties,
Inc., a private Arizona corporation. In 2001 and 2002, we constructed a crushing
and concentrating plant at the Black Canyon mine site north of Phoenix, Arizona,
and a mica grinding and processing facility in Glendale, Arizona. The mine
operated with limited throughput for several months in 2002. In November 2002,
due

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to under-capitalization and economic constraints, we suspended
crushing and concentrating activities at the Black Canyon mica mine. After the
suspension of operations, limited production, marketing and sales continued
through 2005 at the Glendale mica processing facility using inventoried mica. On
November 3, 2006, we sold all of our ownership interests in our Glendale,
Arizona location. The sale included approximately five acres of land, a 5,000
sq. ft. office building and an 18,000 sq. ft. mill building. Under the terms of
the sale, we retained ownership of the mica processing equipment installed in
the mill building. In January 2007, we removed the mica processing equipment
from the Glendale plant and placed it into storage. We intend to seek a joint
venture partner to contribute the approximately $6.0 million required to fund
the relocation of the mica processing equipment and re-opening and enhancement
of the Black Canyon mica project, or alternatively, intend to sell 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.

20

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Figure X.3

Claim Boundary Map [map to be inserted here]



21

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***Mineral
Title***

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

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

In
order to maintain our claims in good standing, we must pay annual assessment
fees to the Bureau of Land Management and record the payment of rental fees with
Yavapai and Maricopa Counties. Annual assessment and recording costs total
approximately $10,000. We have paid the required fees for the 2007 and 2008
assessment years (September 1, 2006 through August 31, 2008).

***Mining
and Processing Facilities***

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

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

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

Operations
at the mine site were suspended in November 2002. The mica processing equipment
was removed from the Glendale plant in January 2007. We are seeking a joint
venture partner to contribute new funding in the amount of $6.0 million to
install the mica processing equipment at a new location and to 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.

22

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***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.

***Geology
and Mineralization***

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

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

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

***Ore
Reserve***

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

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

***Mica***

Ourmineral reserves contain high quality muscovite or white mica. Mica is
a mineral characterized by crystals that can be easily split into thin elastic
sheets and is valued for its unique combination of chemical, physical,
electrical, thermal and mechanical properties. Muscovite exhibits

23

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perfect cleavage, flexibility and elasticity, infusibility, low
thermal and electrical conductivity, high dielectric strength, light weight,
good insulating characteristics, and is stable when exposed to moisture, light
and high temperatures. Because of these properties, muscovite has found
widespread application in plastics, automotive coatings, cosmetics, paints,
catalysis and composite formulations. We plan, once adequate financing is
obtained, to produce 10,000 tons (20 million pounds) annually of premium
wet-ground mica and intend to penetrate existing markets and to establish our
own markets in plastics, cosmetics and ultra-micronized applications.

In
fiscal year 2007, sales totaled $7,201. In 2006, sales totaled $16,237. We sold
mica, on a limited basis, to customers in the plastics and cosmetics industries
and for other specialized applications. In addition, other potential consumer
conducted trial tests of our mica products. Our inventory was largely depleted
in fiscal 2006.

***Feldspathic
Sand***

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

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

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

***Work
Program***

Over
the next 12 months, we plan to seek a joint venture partner to contribute $6.0
million in new funding necessary to advance the Black Canyon mica project to
full production. The new funding would be used to install the mica processing
equipment at a new location and to upgrade and expand the mining and processing
facilities in order to reach planned capacity and to provide working capital.
These expansions are required in order to achieve the higher throughput
necessary for sustained economic operation. If funding were to become available,
we estimate positive cash flow could be achieved in approximately twelve months.
As an alternative to arranging the $6.0 million of new funding required for
production, we are seeking to sell the project.

Planet Micaceous Iron Oxide (MIO) Project

***Overview***

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

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

24

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

***Location
and Access***

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

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

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

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

25

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Figure X.4

Claim Boundary Map [map to be inserted here]



26

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***Mineral
Title***

The
property consists of thirty-one patented mining claims totaling 523 acres,
comprising an area 3,600 feet wide by 8,000 feet long. We leased the property in
September 2000 from the underlying owner, New Planet Copper Mining Company, for
its potential to produce MIO. The lease gives us exclusive rights for a period
of 20 years to explore, develop and mine MIO, copper, gold and other minerals.
Terms of the lease include monthly payments of $1,500; an option to purchase the
property for $250,000; and a production royalty of 5%. On March 21, 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 remains in good
standing. See LEGAL PROCEEDINGS.

In
August 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 our current President and Chief Executive
Officer, who was a consultant to us at the time of the assignment. We retained
an option to reacquire 25% of the 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. In September 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.

***History
of Mining and Exploration***

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

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

***Work
Program***

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

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

***Geology
and Mineralization***

27

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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.

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

28

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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.

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

On
March 21, 2007, we commenced an action in the Superior Court of the State of
Arizona against New Planet Copper Mining Company (New Planet), from whom we
lease our Planet micaceous iron oxide property, seeking to confirm that our
lease remains in good standing. Our action against New Planet was in response to
a notice of termination of the lease, which followed our refusal to reimburse
costs of insurance premiums that New Planet alleges it incurred over two years
ago. We believe we are not obligated under the lease to reimburse such premiums
and therefore that New Planets termination of the lease was improper. Our
action seeks both declaratory judgment that the lease is in full force and
effect and can not be terminated by New Planet, and $50,000 in damages for New
Planets breach of the lease. We intend to vigorously pursue our claims.

On
June 27, 2006, Montgomery Equity Partners, Ltd. (Montgomery) filed an action
against us in the Superior Court of New Jersey, alleging it is the assignee of a
promissory note executed in January 2003 by us in favor of Cornell Capital
Partners, LP (Cornell Capital) and seeking a judgment for unpaid principal of
$73,145, unpaid interest of $57,522 and award of attorneys fees and expenses
pursuant to the terms of the note. On September 29, 2006, we filed an answer and
counterclaim against Montgomery, Cornell Capital and their affiliate, Yorkville
Advisors, LLC, denying liability and asserting claims for fraudulent inducement
and breach of good faith and fair dealing. Our claims arise out of a June 2002
transaction underlying the note, and seek a declaration that the note is invalid
and unspecified damages and other relief. In our financial statements, we
recorded the amounts due under the line of credit and accrued interest payable.
In May 2007, we reached a settlement agreement with Montgomery, Cornell Capital
and Yorkville Advisors, LLC, pursuant to which the parties settled all
outstanding issues. Under

29

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the settlement agreement, we agreed to pay Montgomery $75,000,
comprising $35,000 paid upon execution of the settlement agreement and $40,000
to be paid in monthly increments over 18 months.

In
January 1999, the trustee in bankruptcy proceedings against Eagle River
International Limited, our former partner in the WAG - Mali joint venture,
served a petition upon us in the Quebec Superior Court, District of Hull, in
order to recuperate from us certain subsidiary stock and other assets alleged to
have a value of up to $4,300,000. In mid-July 2007, the Company agreed to a
proposal from the plaintiffs to drop the case and settle the claim, with a
mutual release from all claims related to the Trustees Petition. Completion of
settlement documentation is pending. The Company paid $7,500 in connection with
settlement costs.

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

None.

PART II

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

During
fiscal 2003, our common stock was traded on the American Stock Exchange (AMEX)
in the United States and on the Toronto Stock Exchange (TSX) in Canada. In
June 2003, we voluntarily requested our common stock be delisted from the AMEX.
In July 2003, our shares began trading on the Over the Counter Bulletin Board
(OTCBB).

We
were delinquent in the filing of our financial statements for the year ended
June 30, 2003, with the Security and Exchange Commission in the United States
and with the Securities Commissions of Ontario and British Columbia.
Consequently cease trade orders were issued in November 2003 for trading of our
common stock on the TSX and in January 2004 for trading on the OTCBB.
Subsequently we traded over-the-counter on the Pink Sheets. In May 2004, we
received notice that the TSX was reviewing the eligibility for the continued
listing of our common stock on the TSX. We fell below several requirements for
continued listing, primarily related to our financial condition and operating
results. In September 2004, our shares were suspended from trading on the TSX.
Subsequently, we delisted voluntarily from the TSX.

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

As
of October 8, 2007, there were 74,773,510 common shares outstanding.

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

30

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Quarter ended
      Pink Sheets
      
      OTCBB(U.S. $)
      (U.S. $)2005
      HIGH
      LOW
      HIGH
      LOW09/30/05
    $0.43
    $0.14
    -
    -12/31/05
    $1.01
    $0.30
    -
    -2006
      HIGH
      LOW
      HIGH
      LOW3/31/06
    $1.99
    $0.83
    -
    -6/30/06
    1.72
    0.89
    -
    -9/30/06
    1.40
    0.92
    1.10
    0.7812/31/06
    $1.40
    $0.99
    $1.03
    $0.692007
      HIGH
      LOW
      HIGH
      LOW3/31/07
    $1.32
    $0.95
    $1.00
    $0.926/30/07
    -
    -
    $0.94
    $0.44


Transfer Agent

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

Holders of Common Equity

As
of October 8, 2007, we had 825 holders of record of common stock.

Dividends

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

Recent Sales and Issuances of Common Stock and Securities

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

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

During
the period March 10, 2007, to June 30, 2007, we paid on the convertible
debenture notes, principal installments aggregating $1,890,836 with the issuance
of 2,048,408 shares of our common

31

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stock, and interest payments aggregating $531,765 with the
issuance of 520,166 shares of our common stock.

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

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

Under
the current terms, the convertible notes have a term of 17 months and amortize
over 12 months in 12 equal monthly installments beginning on February 1, 2007.
Interest on the $3,781,662 principal amount outstanding will accrue at a rate of
seven percent (7%) per annum. We may pay principal and accrued interest in cash
or, at our option, in shares of our common stock. If we elect to pay principal
and interest in shares of our common stock, the value of each share of common
stock will be equal to ninety percent (90%) of the average of the ten (10)
lowest daily volume weighted average prices of our common stock during the
twenty (20) trading days immediately preceding the date of payment. At the
option of each holder of the convertible notes, the principal amount outstanding
under the notes is convertible at any time after the closing of the private
placement into shares of our common stock at a conversion price of $1.00 per
share.

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.

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

Overview

We
have received no substantial revenue from the production of gold or other metals
since our inception, and historically have relied on equity and debt financings
to finance our ongoing operations. Our operations generated a net profit of
$345,979 for the year ended June 30, 2007, and a net (loss) of $(5,383,368) for
the year ended June 30, 2006. In order to fund operations in the fiscal years
ending June 30, 2007 and 2006, we relied on sales of mica totaling $23,438 for
the two years, proceeds from the sale of equipment aggregating $52,250 for the
two years, equity financing in fiscal 2006 totaling $1,033,241, and in March
2006 and September 2006, the private placement sale of senior secured
convertible notes aggregating $3.5 million.

The
net proceeds of the private placement of senior secured convertible notes
completed in March 2006 and September 2006 were used, in part, to fund the
acquisition of our Summit property. The remainder is being utilized as general
working capital.

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The
results of operations for the fiscal years ended June 30, 2007 and 2006 reflect
under-capitalization of our Black Canyon mica project, which project requires
additional funding to be able to resume production and to achieve sustained
profitable operation. We expect results of operations similar to those in 2007
and 2006 to continue in the foreseeable future, and do not expect them to change
significantly until such time as additional capital and/or debt resources are
secured.

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

We
anticipate a need for at least $18.0 million over the next 36 months in order to
satisfy past commitments, commence mining operations and initiate an exploration
program as discussed under the Liquidity and Capital Resources section of this
report. If we fail to procure adequate funding on acceptable terms, we may be
required to reduce or eliminate substantially all business activities until such
time as funding of the projects 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 ($42,981,772) at June 30, 2007. To continue
as a going concern, we are dependent on continued fund raising for project
development. However, we have no commitment from any party to provide additional
capital and there is no assurance that such funding will be available when
needed, or if available, that its terms will be favorable or acceptable to us.

Results of Operations

Fiscal Year Ended June 30, 2007, Compared to Fiscal Year
Ended June 30, 2006

Sales

Sales
decreased to $7,201 in fiscal 2007 from $16,237 in fiscal 2006 due primarily to
cessation of sales of mica-filled plastic pellets in fiscal 2007. The mica sold
in 2006 was sourced from inventory. No revenue was generated from the sale of
feldspathic sand in fiscals 2007 or 2006, due to the curtailment of operations
at our crushing and concentrating facilities at the Black Canyon mine in
November 2002. We have no inventoried mica available for sale and have
discontinued processing and sale of mica into the cosmetic and reinforced
plastic industries, while we seek financing to resume production.

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

Expenses

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Production,
exploration and mining costs increased in fiscal 2007 to $345,227 from $212,489
in fiscal 2006. This increase of $132,738 in fiscal 2007 is mainly attributable
to increased costs incurred on the Summit site aggregating $175,229 and was
offset by decreased costs at the Ortiz site aggregating $42,567.

General
and administrative expense increased to $1,360,828 in fiscal 2007 from
$1,207,320 in fiscal 2006, an increase of $153,508. The increase in fiscal 2007
is mainly attributable to increases in legal and accounting fees aggregating
$194,321, payroll burden of $55,595, insurance costs of $13,759, rent on office
and storage of $12,831, consulting and investor relation expenses of $97,678,
filing fees of $12,341 and financing costs of $141,073. These increases were
mainly offset by decreases in deferred lease costs of $11,103 and a decrease in
rent on leased property of $360,000 that was attributable to the financing
lease.

General
and administrative stock-compensation expense decreased in fiscal 2007 to
$68,208 from $2,174,670 in fiscal 2006, a decrease of $2,106,462. The decrease
is mainly attributable tono new stock compensation transactions in the
area of investor relations and related parties in the fiscal year ended June 30,
2007.

Other
Income and Expense

Other
  income and (expense) in fiscal 2007 was $2,132,471 as compared to $(1,775,445)
  for fiscal 2006, or an increase of $3,907,916. The increase in other income
  is mainly attributable to the gain on settlement of a financing lease liability
  aggregating $2,870,369 and increased interest income of $31,818, an increased
  non-cash gain recognized on derivative instruments liabilities of $3,627,018
  and an increase in relief of debt aggregating $522,384.The increased income
  was offset by increased accretion of discounts on notes payable and lease liability
  of $(2,437,901), increased interest expense of $(583,540), and a decrease in
  gain on conversion of debt of $(119,667).

Gain
(loss) on Derivative Financial Instruments

We
  recognized a gain on derivative financial instruments of $2,224,115 for the
  fiscal year ended June 30, 2007, as compared to a loss of $(1,402,903) for the
  prior fiscal year. The non-cash gain arises from adjustments to record the derivative
  financial instruments at fair values in accordance with current accounting standards.
  The derivative financial instruments arose in connection with a financing lease
  and convertible debentures. The financing lease derivative was eliminated in
  our quarter ended December 31, 2006, under a Real Property Purchase Agreement.
  Otherwise, we generally do not use derivative financial instruments for other
  purposes, such as hedging cash flow or fair-value risks. The gain on financial
  derivative instruments in the fiscal year ended June 30, 2007, is mainly attributable
  to additional funds raised and changes to the terms and conditions of the senior
  secured convertible notes that were issued on March 21, 2006, and to an additional
  1,750,000 warrants issued to the convertible note holders in February 2007.
  We use the Black-Scholes option pricing model to estimate the fair value of
  this derivative. Because Black-Scholes uses our stock price, changes in the
  stock price will result in volatility in the earnings in future periods as we
  continue to reflect the derivative financial instruments at fair values.

Gain
on Settlement of Financing Lease Liability

Purchase
Agreement transaction with Muzz Investments, LLC for the sale of our 60%
ownership interests in real estate and buildings at our Glendale, Arizona
location resulted in a recognized gain of $2,870,369, net of costs associated
with the transaction,

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Liquidity and Capital Resources; Plan of Operation

As
of June 30, 2007, we had cash and cash equivalents of $639,852 as compared to
$1,265,392 at June 30, 2006. As of June 30, 2007, we had a working capital
deficit of $(2,933,940), which is mainly attributable to the current portion of
our derivative instrument liabilities of $2,402,970.

On
March 21, 2006, we completed a private placement of senior secured convertible
notes, additional investment rights and warrants to institutional investors for
an aggregate purchase price of $2,500,000. On September 6, 2006, we amended the
senior secured convertible notes, additional investment rights and warrants and
received additional funding of $1,000,000. We incurred fees and expenses
associated with the amendment of $100,000. The placement of the convertible
notes enabled us to complete the Lordsburg acquisition for cash of $1.3 million.
During our fiscal year 2006, we sold 6,005,578 common shares in private
placements for cash proceeds of $1,033,241.

In
recent years we have not generated any significant revenues from operations and
have incurred significant operating losses. At June 30, 2007, we have an
accumulated (deficit) of $(42,981,772). 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 2007 was from the sale
of convertible notes. We anticipate that our operations through fiscal 2008 will
be funded from the balance of proceeds from these placements; sale of our
securities and possibly through the exercise of certain options and warrants.
While we believe we will be able to finance our continuing activities, there are
no assurances of success in this regard or in our ability to obtain continued
financing through capital markets, joint ventures, or other acceptable
arrangements. If our plans are not successful, operations and liquidity may be
adversely impacted. In the event that we are unable to obtain additional
required capital, we may be forced to reduce our exploration and operating
expenditures or to cease development operations altogether.

We
have developed a plan to place the Company on an improved financial footing.
Important elements of the plan include maintaining currency in the filing of our
annual and quarterly financial reports, continuing to raise interim funding to
provide for deployment of operations on our various property sites, and
restructuring of debt with secured creditors. During the quarter ended December
31, 2006, we eliminated significant debt with secured creditors. If we are able
to continue to secure additional interim financing on acceptable terms and
obtain the additional required project financing, we believe we will be in a
position to deploy our business plan on mining operations.

We
are continuing to seek funding to advance our business plan and strategies. We
require funding to meet our corporate commitments, to place our Summit
silver-gold deposit into production, to continue feasibility studies on our
mineral properties, to initiate exploration programs, and to arrange a joint
venture for development and restart of our Black Canyon mica mine. We project
the need for a minimum of $18.0 million working capital during the next 36
months, estimated as follows:

Development and operations
    $
    13,500,000Exploration programs and feasibility studies
    
    2,500,000Corporate overhead and related expenses
    
    2,000,000Total funding requirements
    $
    18,000,000


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

On
November 3, 2006, we concluded an agreement with Muzz Investments, LLC (Muzz)
for the sale of our 60% ownership interests in real estate and buildings at our
Glendale, Arizona location. The sale included approximately five acres of land,
a 5,000 sq. ft. office building and an 18,000 sq. ft. mill building. Under the
agreement, we retained ownership of our mica processing equipment installed in
the mill building. In January 2007, we removed the equipment from the mill
building and transported it to a storage site for future use. As part of the
transaction, we also agreed to provide for the exercise of 2,550,000 warrants at
$0.50 per share granted to Muzz in 2002 and to issue to Muzz 2,550,000
unregistered shares of our common stock. In consideration for our entry into the
sale agreement and the issue of the unregistered stock in settlement of the
warrants, Muzz agreed to terminate a 2002 financing lease agreement and to
cancel all of the outstanding financial obligations under the lease.

In
2001, Lawrence G. Olson, our 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
conjunction 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 and we entered into a security agreement with Mr. Olson,
whereby our assets secured the loan. 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, and he agreed to extend the note payable for a
period of 18 months, until September 15, 2007. On November 15, 2006, Mr. Olson
exercised options to purchase 1,000,000 shares of common stock at $0.10 per
share and 1,000,000 shares of common stock at $0.11 per share, in exchange for
payment of accrued interest owed and reduction of principal on the note,
aggregating $210,000. In addition, Mr. Olson contributed to capital the
remaining unpaid principal on the note of $600,000. In connection with the
contribution to capital, we granted Mr. Olson a 25% net proceeds royalty in the
Black Canyon mica claims, toward an end settlement of $600,000.

Critical Accounting Policies and Estimates

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

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

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Asset
Retirement Obligations

We
adopted the provisions of Statement of Financial Accounting Standards No. 143,
Accounting for Asset Retirement Obligations (SFAS No. 143). SFAS No. 143
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs estimated to aggregate approximately $250,000. Specifically, the Statement
requires that retirement obligations be recognized when they are incurred and
displayed as liabilities with the initial measurement being at the present value
of estimated third party costs. In addition, the asset retirement cost is
capitalized as part of the assets carrying value and subsequently allocated to
expense over the assets useful life.

The
asset retirement costs associated with the Black Canyon mine consist of
reclamation of disturbed property as well as the disposal and dismantling of
related property and equipment. We developed estimations of and accounting for
asset retirement costs in conjunction with third parties and with our auditors.

As
of June 30, 2007, the Company, pursuant to regulatory requirements, maintained
the following restricted assets associated with reclamation costs for the Black
Canyon property: $50,000 held on deposit on behalf of the Arizona State
Treasurer in a one-year automatically renewable short-term investment; and
$128,658 held on deposit on behalf of the U.S. Bureau of Land Management. Both
of the amounts will be held until all conditions of the reclamation agreement
have been fulfilled.

A
roll forward of our asset retirement obligation through June 30, 2007, is as
follows:

Balance at June 30, 2005
    $
    60,309Accretion for the year ended June 30, 2006
    
    5,000Amount included with Lordsburg acquisition
    
    5,000Accretion for the year ended June 30, 2007
    
    5,000Balance, June 30, 2007
    $
    75,309


Revenue
Recognition

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

Depreciation

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

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

Derivative
Instruments

We
may have derivative financial instruments in connection with the issuance of
debt or equity instruments, and may issue options or warrants to purchase common
stock. In certain circumstances,

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options or warrants may be classified as derivative liabilities
rather than as equity. Additionally, the debt or equity instruments may contain
embedded derivative instruments, such as conversion options, which in certain
circumstances, may be required to be bifurcated from the associated host
instrument and accounted for separately as a derivative instrument liability.

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

Recent Accounting Pronouncements

In
September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB No.
108), which addresses the process and diversity in practice of quantifying
financial statement misstatements resulting in the potential build up of
improper amounts on the balance sheet. We adopted the provision of SAB No. 108
in fiscal year 2007. We have determined that the adoption of SAB No. 108 does
not have a material impact on our financial statements

On
February 15, 2007, the Financial Accounting Standards Board (FASB) issued SFAS
Statement No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS No. 159). SFAS No. 159 permits entities to choose to measure
many financial instruments and other items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
procedures. SFAS No. 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and liabilities.
The Statement is expected to expand the use of fair value measurements, which is
consistent with the Boards long-term measurement objectives for accounting for
financial instruments. SFAS No. 159 is effective for the Companys 2009 fiscal
year and will be required to be adopted by the Company effective July 1, 2008.
Management at this time has not evaluated the impact, if any, of adopting SFAS
No. 159, on its consolidated financial statements.

Off-Balance Sheet Arrangements

During
the year ended June 30, 2007, we did not engage in any off balance sheet
arrangements as defined in item 303(c) of the SECs Regulation S-B.

Risk Factors

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

Risk Factors Related to Our Business and Operations

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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, 2007, our
total accumulated (deficit) was approximately $(43) million. To become
profitable, we must identify mineralization and establish reserves, and then
either develop properties ourselves or locate and enter into agreements with
third party operators. It could be years before we receive any revenues from
industrial mineral or precious metals production. We may suffer significant
additional losses in the future and may never be profitable. There can be no
assurance we will receive revenue from operations in the foreseeable future, if
at all. Even if we do achieve profitability, we may not be able to sustain or
increase profitability on a quarterly or annual basis.

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

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

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

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.

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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 not established proven or probable reserves on the Summit silver-gold
  property or 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 Summit silver-gold or Ortiz gold properties. As a result,
  we have no reserves. At the Summit silver-gold property, we believe this risk
  is mitigated in that a qualified independent engineering firm has completed
  a pre-feasibility study that concluded there would be minimal risk in proceeding
  to development and mining on the basis of estimates of mineralized material.

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

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

The potential for profitability of gold and silver mining operations
  at our Summit silver-gold property and at our Ortiz gold property and the values
  of these properties are directly related to the market prices of gold and silver.
  The prices of gold and silver may also have a significant influence on the market
  price of our common stock. In the event that we obtain positive feasibility
  results and progress to a point where a commercial production decision can be
  made, our decision to put a mine into production and to commit the funds necessary
  for that purpose must be made long before any revenue from production would
  be received. A decrease in the price of gold or silver at any time during future
  development or mining may prevent our properties from being economically mined
  or result in the impairment of assets as a result of lower gold or silver prices.
  The prices of gold and silver are affected by numerous factors beyond our control,
  including inflation, fluctuation of the United States dollar and foreign currencies,
  global and regional demand, the purchase or sale of gold by central banks, and
  the political and economic conditions of major gold producing countries throughout
  the world. During the last five years, the average annual market price of gold
  has progressively increased from $310 per ounce to $604 per ounce, as shown
  in the table below:

Average Annual Market Price of Gold, 2001-2006

2002
    
    2003
    
    2004
    
    2005
    
    2006$ 310
    
    $ 364
    
    $ 406
    
    $ 445
    
    $ 604


Although,
if we identify commercially recoverable reserves on the Summit silver-gold
property or on the Ortiz gold property, it may be possible for us to protect
against future gold and silver price

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fluctuations through hedging programs, the volatility of metal
prices represents a substantial risk that is impossible to completely eliminate
by planning or technical expertise. In the event gold or silver prices decline
and remain low for prolonged periods of time, we might be unable to develop our
Summit silver-gold property or our Ortiz gold property or produce any revenue.

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

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

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

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

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

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

The
mica and feldspathic sand reserve estimations at our Black Canyon property, the
only property on which we have established reserves, are imprecise.

Although
we have relied on expert independent consultants to calculate the reserves
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 Black Canyon mining operation
were to encounter mineralization or geologic conditions different from those
predicted, reserve estimations might

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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 increased over the past several years, with
demand driven by the housing, construction, and recreational markets. There are
numerous factors beyond our control that could affect markets for both mica and
feldspathic sand. No assurance can be given as to future prices or demand for
our products. Any decline in prices could have a material adverse effect on our
financial position.

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

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

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

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

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

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

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

42

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

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

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

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

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

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

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

All
phases of our operations will be subject to federal, state and local
environmental regulation. These regulations mandate, among other things, the
maintenance of air and water quality standards and land reclamation. They also
set forth limitations on the generation, transportation, storage and disposal of
solid and hazardous waste. Environmental legislation is evolving in a manner
which will require stricter standards and enforcement, increased fines and
penalties for non-compliance, more stringent

43

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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 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.

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 two persons, namely Mr. Olson, our chairman, and Mr.
Carson, our president and chief executive officer and principal financial
officer. We rely heavily on these two individuals for the conduct of our
business, and the loss of either would 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

44

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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.

We
filed a registration statement with the SEC to permit the public sale of
securities sold by us in private placements in March and September 2006. That
action will result in a significant number of additional shares of our common
stock available for sale in the public market. Due to a number of factors,
including the lack of listing of our common stock on a national securities
exchange, the trading volume in our common stock has historically been limited.
Trading volume over the last 3 months has averaged approximately 160,000 shares
per day. As a result, the sale of a significant amount of common stock by the
selling shareholders may depress the price of our common stock and the price of
our common stock may decline.

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

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

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

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

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

45

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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 largest shareholder,
beneficially own approximately 30% 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
7.**     **FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA**

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

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

None.

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

We
maintain disclosure controls and procedures (as defined in Rules 13a-15(d) and
15d-15(e) under the Securities and Exchange Act of 1934, as amended (the
Exchange Act)) that are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms. Under the
supervision of, and the participation of, our management, including our Chief
Executive Officer, has conducted an evaluation of our disclosure controls and
procedures as of June 30, 2007. Based on this evaluation, our Chief Executive
Officer has concluded that our disclosure controls and procedures are effective
in alerting him on a timely basis to material information required to be
disclosed in our periodic reports.

46

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During
the fiscal year ended June 30, 2007, there were no changes in the Companys
internal controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.

PART III

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

The
Companys present directors and officers as well as those who served during
fiscal 2007 are as follows:

|Name              |  | Age |  | Position                   |  | Date Elected                  
|----------------- |  | --- |  | -------------------------- |  | ------------------------------
|                  |  |     |  |                            |  |                               
|Lawrence G. Olson |  | 69  |  | Chairman of the Board      |  | 1999 / served as President and
|                  |  |     |  | Former President and Chief |  | Chief Executive Officer from  
|                  |  |     |  | Executive Officer          |  | October 2000 to October 7,    
|                  |  |     |  |                            |  | 2003                          
|                  |  |     |  |                            |  |                               
|W. Pierce Carson  |  | 63  |  | President, Chief Executive |  | October 7, 2003               
|                  |  |     |  | Officer and Director       |  |                               
|                  |  |     |  |                            |  |                               
|John E. Frost     |  | 83  |  | 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 69, 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 63,was named President and Chief Executive
Officer and a director in October 2003, following a consulting assignment with
us. Dr. Carson has 35 years of international mining experience and has managed
the discovery, financing, development and operation of precious metals, base
metals and industrial mineral properties in the United States, Australia and
other countries. From 1981 to 2000, he worked for Nord Pacific Limited and Nord
Resources Corporation in senior management capacities, including president and
chief executive officer. Prior to 1981, he managed exploration programs for
Exxon Minerals Company and Kennecott Copper Company. Dr. Carson holds a
Bachelors Degree in Geology from Princeton University and MS and PhD Degrees in
Economic Geology from Stanford University.

John
E. (Jack) Frost, age 83,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

47

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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 2007, our board met four times and took action by unanimous consent
twelve times. All of our directors attended at least 75% of the meetings of our
board and its assigned committees during 2007. 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:

|                        | Nominating and |           |             
|----------------------- | -------------- | --------- | ------------
|                        | Corporate      |           |             
|                        | Governance     | Audit     | Compensation
|Name                    | Committee      | Committee | Committee   
|Employee Directors:     |                |           |             
|W. Pierce Carson        | X(1)           |           |             
|Non-Employee Directors: |                |           |             
|Lawrence G. Olson       | X              | X(1)      | X           
|John 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 2007.

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

48

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

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

Audit Committee

The
primary purposes of the committee are:

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

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

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 2007 annual meeting of stockholders. Mr. Frost is
independent under the NASDAQ listing standards and applicable SEC rules. Mr.
Frost may not be an audit committee financial expert as defined by the rules
promulgated by the SEC. Mr. Olson may not meet prescribed independence standards
nor satisfy the criteria for an audit committee financial expert under Item
401(e) of Regulation S-B of the rules of the Securities and Exchange Commission.
Each Audit Committee member is able to read and understand fundamental financial
statements, including our consolidated balance sheet, consolidated statement of
operations and consolidated statement of cash flows.

Until
the appointment of Mr. Frost to the Audit Committee in May 2007, the Audit
Committee was comprised solely of Mr. Olson and as such did not hold formal
meetings during fiscal 2007.

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.

49

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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 2007 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 did not meet during fiscal 2007.

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, 2007, our officers, directors and greater than ten
percent beneficial owners complied with all applicable filing requirements.

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            

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| | 4) | accountability for adherence to the Code of
  Ethics.
| | -- | -----------------------------------------------------

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

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

The
  following table summarizes the total compensation of our Chief Executive Officer
  and the other most highly compensated executive officers earning in excess of
  $100,000 for the years ended June 30, 2007, 2006 and 2005:

|Summary Compensation Table
|--------------------------
|                          
|                          
|                          
|Name and Title            
|                          
|                          
|W. Pierce Carson          
|President & CEO           
|                          

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION VALUES

|                  |  |                 |  |                |  | Number of Securities Underlying |  | Value of Unexercised In-The-Money
|----------------- |  | --------------- |  | -------------- |  | ------------------------------- |  | ---------------------------------
|                  |  |                 |  |                |  | Unexercised Options at FY-End   |  | Options at FY-End ($)(*)         
|                  |  | Shares Acquired |  |                |  |                                 |  |                                  
|Name              |  | on Exercise     |  | Value Realized |  | Exercisable                     |  | Unexercisable                    
|Lawrence G. Olson |  | 2,000,000       |  | $1,850,000     |  | 1,500,000                       |  | 0                                
|W. Pierce Carson  |  | --              |  | --             |  | 8,000,000                       |  | 0                                

(*)      Based on the closing
price of $0.57 of the Companys common stock as quoted on the OTCBB on June 29,
2007.

Compensation of Directors

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.

Previously,
our policy was to pay our outside, non-officer directors a fee of $1,500 per
month. Due to financial constraints, no such fees have been paid or accrued
since August 2002. We also reimbursed our directors for reasonable expenses
incurred in attending meetings of the board of directors. During fiscal years
2007 and 2006, 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.

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Employment Agreements

On
October 7, 2003, we entered into employment and change of control agreements
with our President and Chief Executive Officer. The employment agreement
describes among other things the officers duties, compensation levels and
benefits. The agreement provides for annual salary of $180,000 adjusted by the
CPI. The term of the agreement is from October 16, 2003, through and including
October 15, 2006, and then automatically extends through October 15, 2008, and
thereafter 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. The officer was provided a per diem living and
travel allowance of $4,015 per month while based at the Companys headquarter
location in Glendale, AZ, which per diem was discontinued upon the Companys
relocation to Albuquerque, NM.

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.

On
May 2, 2006, we entered into an employment agreement with the son of our
President and Chief Executive Officer at a salary of $5,000 per month and a
monthly per diem of $1,000. In connection with the employment agreement, we
granted 50,000 options under its stock option plan at an exercise price of $1.24
per share, the closing price on May 2, 2006. In April 2007 the monthly per diem
was terminated after the relocation of the Company to Albuquerque, New Mexico.

1989 Stock Option Plan

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

The
following table contains information regarding the 1989 Plan as of June 30,
2007:

|                             |  | Number of securities |  |                              |  | Number of securities     
|---------------------------- |  | -------------------- |  | ---------------------------- |  | -------------------------
|                             |  | to be issued upon    |  | Weighted average exercise    |  | remaining unavailable for
|                             |  | exercise of          |  | price of outstanding options |  | future Issuance under    
|Plan Category                |  | outstanding options  |  | US$                          |  | equity compensation plan 
|                             |  |                      |  |                              |  |                          
|Equity compensation plan     |  | 2,100,000            |  | $0.14                        |  | 32,924                   
|approved by security holders |  |                      |  |                              |  |                          

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2007 Equity Incentive Plan

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

The
purpose of the 2007 EIP is to provide the employees, non-employee directors, and
consultants who are selected for participation in the 2007 EIP with added
incentives to continue in the long-term service of the Company and to create in
such persons a more direct interest in the future success of our operations by
relating increases in compensation to increases in stockholder value, so that
the income of the participants in the 2007 EIP is more closely aligned with the
financial interests of our stockholders. The 2007 EIP is also intended to
provide a financial incentive that will enable us to attract, retain and
motivate the most qualified directors, employees, and consultants. As of October
8, 2007, one executive officer, two non-employee board members and approximately
five 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.

The
following table contains information regarding the 2007 EIP as of October 8,
2007:

|                             |  | Number of securities |  |                              |  | Number of securities    
|---------------------------- |  | -------------------- |  | ---------------------------- |  | ------------------------
|                             |  | to be issued upon    |  | Weighted average exercise    |  | remaining available for 
|                             |  | exercise of          |  | price of outstanding options |  | future Issuance under   
|Plan Category                |  | outstanding options  |  | US$                          |  | equity compensation plan
|                             |  |                      |  |                              |  |                         
|Equity compensation plan     |  | 100,000              |  | $0.46                        |  | 7,900,000               
|approved by security holders |  |                      |  |                              |  |                         

The
  100,000 options outstanding under the 2007 EIP were granted to Dr. John. E.
  Frost on July 25, 2007, in connection with his election to the board of directors
  on May 7, 2007. The options were granted at the closing price of the stock on
  the date granted and are subject to a twelve month vesting requirement.

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

The
following table sets forth, as of October 8, 2007, 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

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|                                              |  |                |  | Common
      Stock Beneficially Owned
|--------------------------------------------- |  | -------------- |  | -------------------------------------
|                                              |  |                |  |                                      
|Name and Address Of Beneficial Owner          |  | Title of Class |  | Number of Shares                     
|                                              |  |                |  |                                      
|                                              |  |                |  |                                      
|Christian Mustad                              |  | Common Stock   |  | 5,195,000                            
|Bodmenstrasse, Chalet Corcovado               |  |                |  |                                      
|3778 Schoenried                               |  |                |  |                                      
|Switzerland                                   |  |                |  |                                      
|Lawrence G. Olson                             |  | Common Stock   |  | 7,358,700(1)                         
|3045 S. 35thAvenue                            |  |                |  |                                      
|Phoenix, AZ 85009                             |  |                |  |                                      
|                                              |  |                |  |                                      
|W. Pierce Carson                              |  | Common Stock   |  | 12,750,000(2)                        
|33 Camino de Avila                            |  |                |  |                                      
|Tijeras, NM 87059                             |  |                |  |                                      
|                                              |  |                |  |                                      
|John E. Frost                                 |  | Common Stock   |  | 10,000                               
|602 Sandy Port                                |  |                |  |                                      
|Houston, TX 77079                             |  |                |  |                                      
|                                              |  |                |  |                                      
|Officers and Directors As a Group (3 Persons) |  | Common Stock   |  | 20,118,700 (3)                       

|(1) | Includes non-plan
        options to acquire (i) 500,000 shares at an exercise price of US $0.11
        per share and (ii) 1,000,000 shares at an exercise price of $0.10 per
        share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes options issued under the 1989 Stock Option
        Plan to acquire 2,000,000 shares at an exercise price of US $0.10 per
        share. Includes non- plan options to acquire (i) 4,000,000 shares at an
        exercise price of US $0.11 per share, and (ii) 2,000,000 shares at an
        exercise price of $0.10 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(3) | Includes options to acquire an aggregate of 9,500,000
        shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(4) | Applicable percentage of ownership is based on 74,773,510
        shares of common stock outstanding as of October 8, 2007, together with
        securities exercisable or convertible into shares of common stock within
        60 days of October 8, 2007, for each stockholder. Beneficial ownership
        is determined in accordance with the rules of the Commission and generally
        includes voting or investment power with respect to securities. Shares
        of common stock subject to securities exercisable or convertible into
        shares of common stock that are currently exercisable or exercisable within
        60 days of October 8, 2007, are deemed to be beneficially owned by the
        person holding such options for the purpose of computing the percentage
        of ownership of such person, but are not treated as outstanding for the
        purpose of computing the percentage ownership of any other person.

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

In
  October 2003, prior to his becoming an officer and director of the Company,
  we entered into a confidential property identification agreement with W. Pierce
  Carson, our current President and Chief Executive Officer. Under terms of the
  agreement, Mr. Carson, on the basis of his prior knowledge, provided a list
  of 24 specific mineral properties with potential for exploration and development
  that might represent attractive acquisition opportunities for us. We agreed
  to pay compensation to Mr. Carson in the form of a royalty of 1.0% of the value
  of future production, if any, derived from identified properties that we acquire.
  In the event an identified property is acquired and subsequently sold, we agreed
  to pay Mr. Carson an amount equal to 10.0% of the value of the sale. The Ortiz
  gold property acquired in August 2004 and the Summit silver-gold property acquired
  in May 2006 are two of the 24 properties identified and are subject to the property
  identification agreement (See Notes 1 and 9 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

54

---

Ventures LLC reassigned to us, for consideration of $10,000 and
the issue of 2,000,000 unregistered shares of our common stock, its right, title
and interest in and to the lease with New Planet Copper Mining Company.

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

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

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

**ITEM
13.**     **EXHIBITS, FINANCIAL
STATEMENT SCHEDULES AND REPORTS ON FORM 8-K**

(a)

55

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|1. | Financial Statements- Reference is made to the
      Financial Statements appearing on Pages F-1 through F-22.
|-- | --------------------------------------------------------------------------------------------------------------
|   |                                                                                                               
|2. | Exhibits                                                                                                      

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

56

---

|Exhibit |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     |  | Description                                                                                                                                                                                                                                  |  | Location                                                                                                                                                                                 
|10.6    |  | Management Agreements dated February 1, 1998 between the
      Registrant, Alan Lindsay and Associates, Ltd. and ARH Management Ltd.                                                                                                         |  | Incorporated by reference to Exhibit 10.8 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1998 as filed with the SEC on September 30, 1998 
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.7    |  | Management Agreements dated August 15, 1994, by and
      between the Registrant and both of Alan P. Lindsay, Anthony R. Harvey;
      Management Agreement dated November 19, 1996, by and between the
      Registrant and Ryan A. Modesto |  | Incorporated by reference to Exhibit 10.15 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1998 as filed with the SEC on September 30, 1998
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.8    |  | Directors Agreement dated August 15, 1994, by and
      between the Registrant and Paul A. Hodges                                                                                                                                           |  | Incorporated by reference to Exhibit 10.16 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1998 as filed with the SEC on September 30, 1998
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.9    |  | Shareholders & Operators Agreement dated December
      19, 1995, by and among PD Cobre Del Mayo, Inc., the Registrant and Cobre
      Del Mayo, SA de CV                                                                                   |  | Incorporated by reference to Exhibit 10.17 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1998 as filed with the SEC on September 30, 1998
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.10   |  | Right of First Refusal Agreement dated June 18, 1998 by
      and among the Registrant, Seville Mineral Developments SA de CV and Minera
      Cortez Resources Ltd.                                                                         |  | Incorporated by reference to Exhibit 10.12 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1998 as filed with the SEC on September 30, 1998
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.11   |  | Mineral Property Option Agreement dated July, 1998, by
      and between the Registrant and Minera Cortez Resources Ltd.                                                                                                                     |  | Incorporated by reference to Exhibit 10.13 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1998 as filed with the SEC on September 30, 1998
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.12   |  | Shareholders Agreement by and among Registrant, Sanou
      Mining Corporation, West African Gold & Exploration, S.A. and Randgold
      Resources Ltd.                                                                                     |  | Incorporated by reference to Exhibit 10.5 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1999 as filed with the SEC on September 29, 1999 
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.13   |  | Mineral Property Option Agreement dated May 20, 1999, by
      and between the Registrant and Minera Cortez Resources Ltd.                                                                                                                   |  | Incorporated by reference to Exhibit 10.16 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1999 as filed with the SEC on September 29, 1999
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.14   |  | Agreement in Principal dated August 9, 1999 between the
      Registrant, Thomas Ford and Calgem, Inc.                                                                                                                                       |  | Incorporated by reference to Exhibit 10.17 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1999 as filed with the SEC on September 29, 1999
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.15   |  | Non-Revolving Credit Line Agreement dated March 14, 2001,
      by and between the Registrant and Lawrence G. Olson                                                                                                                          |  | Incorporated by reference to Exhibit 10.16 to
      Registrants 10-K as filed with the SEC on October 15, 2001                                                                          
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.16   |  | Settlement Agreement and Release by and among the
      Registrant, Anthony Harvey, ARH Management, Ltd., Alan Lindsay and Alan
      Lindsay and Associates, Ltd.                                                                           |  | Incorporated by reference to Exhibit 99 to the
      Registrants 8-K as filed with the SEC on July 25, 2002                                                                             

57

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|Exhibit |  |                                                                                                                                                    |  |                                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------
|No.     |  | Description                                                                                                                                        |  | Location                                                                                                         
|10.17   |  | $5,000,000 Equity Line of Credit Agreement, by and
      between the Registrant and Cornell Capital Partners, LP dated June 19,
      2002         |  | Incorporated by reference to Exhibit 10.17 to
      Registrants 10-K as filed with the SEC on September 27, 2002
|        |  |                                                                                                                                                    |  |                                                                                                                  
|10.18   |  | Registration Rights Agreement by and between the
      Registrant and Cornell Capital Partners, LP dated June 19, 2000                             |  | Incorporated by reference to Exhibit 10.18 to
      Registrants 10-K as filed with the SEC on September 27, 2002
|        |  |                                                                                                                                                    |  |                                                                                                                  
|10.19   |  | Escrow Agreement by and among the Registrant, Cornell
      Capital Partners, LP, Wachovia, NA and Butler Gonzales LLP, dated June 19,
      2002. |  | Incorporated by reference to Exhibit 10.19 to
      Registrants 10-K as filed with the SEC on September 27, 2002
|        |  |                                                                                                                                                    |  |                                                                                                                  
|10.20   |  | Placement Agent Agreement by and between the Registrant
      and Westrock Advisors, Inc. dated June 19, 2002.                                     |  | Incorporated by reference to Exhibit 10.20 to
      Registrants 10-K as filed with the SEC on September 27, 2002
|        |  |                                                                                                                                                    |  |                                                                                                                  
|10.21   |  | $150,000 Subscription Agreement between the Registrant
      and Floyd R. Bleak dated August 13, 2001                                              |  | Incorporated by reference to Exhibit 10.21 to
      Registrants 10-K as filed with the SEC on September 27, 2002
|        |  |                                                                                                                                                    |  |                                                                                                                  
|10.22   |  | 300,000 share Stock Loan Agreement between the Registrant
      and Floyd R. Bleak dated October 11, 2001                                          |  | Incorporated by reference to Exhibit 10.22 to
      Registrants 10-K as filed with the SEC on September 27, 2002
|        |  |                                                                                                                                                    |  |                                                                                                                  
|10.23   |  | $200,000 Loan Agreement between the Registrant and Patty
      J. Ryan dated August 27, 2001                                                       |  | Incorporated by reference to Exhibit 10.23 to
      Registrants 10-K as filed with the SEC on September 27, 2002
|        |  |                                                                                                                                                    |  |                                                                                                                  
|10.24   |  | $200,000 Loan agreement between the Registrant and Luis
      Barrenchea dated September 4, 2001                                                   |  | Incorporated by reference to Exhibit 10.24 to
      Registrants 10-K as filed with the SEC on September 27, 2002
|        |  |                                                                                                                                                    |  |                                                                                                                  
|10.25   |  | Amendment to March 15, 2001 $800,000 Loan Agreement
      between the Registrant and Lawrence G. Olson dated October 12. 2001                      |  | Incorporated by reference to Exhibit 10.25 to
      Registrants 10-K as filed with the SEC on September 27, 2002
|        |  |                                                                                                                                                    |  |                                                                                                                  
|10.26   |  | $100,000 Loan agreement between the Registrant and Luis
      Barrenchea dated October 19, 2001                                                    |  | Incorporated by reference to Exhibit 10.26 to
      Registrants 10-K as filed with the SEC on September 27, 2002
|        |  |                                                                                                                                                    |  |                                                                                                                  
|10.27   |  | $100,000 Loan agreement between the Registrant and Luis
      Barrenchea dated December 4, 2001                                                    |  | Incorporated by reference to Exhibit 10.27 to
      Registrants 10-K as filed with the SEC on September 27, 2002
|        |  |                                                                                                                                                    |  |                                                                                                                  
|10.28   |  | $3,000,000 Purchase Agreement between the Registrant and
      Muzz Investments, LLC dated January 17, 2002                                        |  | Incorporated by reference to Exhibit 10.28 to
      Registrants 10-K as filed with the SEC on September 27, 2002
|        |  |                                                                                                                                                    |  |                                                                                                                  
|10.29   |  | Lease Agreement between the Registrant and Muzz
      Investments, LLC dated January 17, 2002                                                      |  | Incorporated by reference to Exhibit 10.29 to
      Registrants 10-K as filed with the SEC on September 27, 2002

58

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|Exhibit |  |                                                                                                                                                  |  |                                                                                                                               
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------
|No.     |  | Description                                                                                                                                      |  | Location                                                                                                                      
|10.30   |  | Amendment No. 2 to Loan Agreement dated March 15, 2001
      for $800,000 between the Registrant and Lawrence G. Olson dated June 28,
      2002 |  | Incorporated by reference to Exhibit 10.30 to
      Registrants 10-K as filed with the SEC on September 27, 2002             
|        |  |                                                                                                                                                  |  |                                                                                                                               
|10.31   |  | Directors Agreements dated April 26, 2002, by and
      between the Registrant and Stanley A. Ratzlaff and M. William Lightner                  |  | Incorporated by reference to Exhibit 10.31 to
      Registrants 10-K as filed with the SEC on September 27, 2002             
|        |  |                                                                                                                                                  |  |                                                                                                                               
|10.32   |  | Settlement Agreement dated July 9, 2002 by and between
      the Registrant and Anthony Harvey and Alan Lindsay                                  |  | Incorporated by reference to Exhibit 1 to Registrants
      8-K dated July 11, 2002, as filed with the SEC on July 25, 2002  
|        |  |                                                                                                                                                  |  |                                                                                                                               
|10.34   |  | Stock Purchase Agreement dated April 10, 2003 by and
      between the Registrant and Frontera Cobre del Mayo, Inc.                              |  | Incorporated by reference to Exhibit 1 to Registrants
      8-K dated April 10, 2003, as filed with the SEC on April 25, 2003
|        |  |                                                                                                                                                  |  |                                                                                                                               
|10.35   |  | Settlement Agreement dated June 22, 2003 by and between
      the Registrant and Anthony Harvey and Alan Lindsay                                 |  | Incorporated by reference to Exhibit 10.35 to
      Registrants 10-K/A as filed with the SEC on May 18, 2005                 
|        |  |                                                                                                                                                  |  |                                                                                                                               
|10.36   |  | Amendment to $200,000 Loan agreement between the
      Registrant and Luis Barrenchea dated September 4, 2002                                    |  | Incorporated by reference to Exhibit 10.36 to
      Registrants 10-K/A as filed with the SEC on May 18, 2005                 
|        |  |                                                                                                                                                  |  |                                                                                                                               
|10.37   |  | Amendment to $100,000 Loan agreement between the
      Registrant and Luis Barrenchea dated October 19, 2002                                     |  | Incorporated by reference to Exhibit 10.37 to
      Registrants 10-K/A as filed with the SEC on May 18, 2005                 
|        |  |                                                                                                                                                  |  |                                                                                                                               
|10.38   |  | Amendment to $100,000 Loan agreement between the
      Registrant and Luis Barrenchea dated December 3, 2003                                     |  | Incorporated by reference to Exhibit 10.38 to
      Registrants 10-K/A as filed with the SEC on May 18, 2005                 
|        |  |                                                                                                                                                  |  |                                                                                                                               
|10.39   |  | Employment Agreement between the Registrant and W. Pierce
      Carson dated October 7, 2003                                                     |  | Incorporated by reference to Exhibit 10.39 to
      Registrants 10-KSB as filed with the SEC on December 28, 2005            
|        |  |                                                                                                                                                  |  |                                                                                                                               
|10.40   |  | Change of Control Agreement between the Registrant and W.
      Pierce Carson dated October 7, 2003                                              |  | Incorporated by reference to Exhibit 10.40 to
      Registrants 10-KSB as filed with the SEC on December 28, 2005            
|        |  |                                                                                                                                                  |  |                                                                                                                               
|10.41   |  | Property Identification Agreement between the Registrant
      and W. Pierce Carson dated October 6, 2003                                        |  | Incorporated by reference to Exhibit 10.41 to
      Registrants 10-KSB as filed with the SEC on December 28, 2005            
|        |  |                                                                                                                                                  |  |                                                                                                                               
|10.42   |  | Assignment and Assumption of Planet Lease Agreement
      between the Registrant and Metallica Ventures LLC dated August 12, 2003                |  | Incorporated by reference to Exhibit 10.42 to
      Registrants 10-KSB as filed with the SEC on December 28, 2005            
|        |  |                                                                                                                                                  |  |                                                                                                                               
|10.43   |  | Option Agreement between the Registrant and Metallica
      Ventures LLC dated August 12, 2003                                                   |  | Incorporated by reference to Exhibit 10.43 to
      Registrants 10-KSB as filed with the SEC on December 28, 2005            

59

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|Exhibit |  |                                                                                                                                                |  |                                                                                                                                                                                                                  
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     |  | Description                                                                                                                                    |  | Location                                                                                                                                                                                                         
|10.44   |  | Assignment and
        Assumption of Planet Lease Agreement between the Registrant and Metallica
        Ventures LLC dated September 22, 2005 |  | Incorporated
        by reference to Exhibit 10.44 to Registrants 10-KSB as filed with
        the SEC on December 28, 2005                                                                                     
|        |  |                                                                                                                                                |  |                                                                                                                                                                                                                  
|10.45   |  | Letter Agreement
        between the Registrant and Metallica Ventures LLC dated September 22,
        2005                                    |  | Incorporated
        by reference to Exhibit 10.45 to Registrants 10-KSB as filed with
        the SEC on December 28, 2005                                                                                     
|        |  |                                                                                                                                                |  |                                                                                                                                                                                                                  
|10.46   |  | Securities Purchase
        Agreement dated March 21, 2006 by and between the Registrant and Purchasers                                        |  | Incorporated
        by reference to Exhibits 4.1-4.5 and Exhibit 99.1 to Registrants
        8-K dated March 21, 2006, as filed with the SEC on March 23, 2006                                                 
|        |  |                                                                                                                                                |  |                                                                                                                                                                                                                  
|10.47   |  | Share Sale Agreement
        dated May 4, 2006, by and between the Registrant and Imagin Minerals,
        Inc. and St. Cloud Mining Company   |  | Incorporated
        by reference to Exhibit 10.1 and Exhibit 99.1 to Registrants 8-K
        dated May 4, 2006, as filed with the SEC on May 10, 2006                                                          
|        |  |                                                                                                                                                |  |                                                                                                                                                                                                                  
|10.48   |  | Amended Securities
        Purchase Agreement dated September 6, 2006, by and between the Registrant
        and Purchasers                    |  | Incorporated
        by reference to Exhibits 4.1-4.4 and Exhibit 99.1 to Registrants
        8-K dated September 6, 2006, as filed with the SEC on September 8, 2006,
        and amended on September 15, 2006
|        |  |                                                                                                                                                |  |                                                                                                                                                                                                                  
|10.49   |  | Real Property
        Purchase Agreement effective October 31, 2006, by and between Registrant
        and Muzz Investments, LLC               |  | Incorporated
        by reference to Exhibits 10.1 and 10.2 and Exhibit 99.1 to Registrants
        8-K dated November 3, 2006, as filed with the SEC on November 6, 2006                                       
|        |  |                                                                                                                                                |  |                                                                                                                                                                                                                  
|10.50   |  | Amended Securities
        Purchase Agreement dated February 23, 2007, by and between the Registrant
        and Purchasers                    |  | Incorporated
        by reference to Exhibits 4.1-4.3 and Exhibit 99.1 to Registrants
        8-K dated February 23, 2007, as filed with the SEC on February 26, 2007                                           
|        |  |                                                                                                                                                |  |                                                                                                                                                                                                                  
|10.51   |  | Registrants
        2007 Equity Incentive Plan, effective July 25, 2007, approved by security
        holders on July 24, 2007                |  | Incorporated
        by reference to Registrants DEF14Adated June 18, 2007, as filed
        with the SEC on May 23, 2007                                                                                       
|        |  |                                                                                                                                                |  |                                                                                                                                                                                                                  
|14.1    |  | Code of Ethics
        for CEO and Senior Financial Officers adopted June 15, 2006                                                             |  | Incorporated
        by reference to Exhibit 14.1 to Registrants 10-KSB for the period ending
        June 30, 2006, dated February 14, 2007, as filed with the SEC on February
        16, 2007                 
|        |  |                                                                                                                                                |  |                                                                                                                                                                                                                  
|21.1    |  | Subsidiaries
        of the Registrant                                                                                                         |  | Incorporated
        by reference to Exhibit 21.1 to the Registrants Registration Statement
        on Form SB-2 as filed with the SEC on March 26, 2007, and amended on June
        26, 2007.                 
|        |  |                                                                                                                                                |  |                                                                                                                                                                                                                  
|31.1    |  | Certification
        of Principal Executive Officer and Chief Financial Officer pursuant to
        Rule 13a-14(a)/15d-14(a)                  |  | Provided
        herewith                                                                                                                                                                                        
|        |  |                                                                                                                                                |  |                                                                                                                                                                                                                  
|32.1    |  | Certification
        of Principal Executive Officer and Chief Financial Officer pursuant to
        18 U.S.C. Section 1350                    |  | Provided
        herewith                                                                                                                                                                                        

60

---

(b)
Reports on Form 8K:

On
September 8, 2006, the Company filed a Form 8-K relating to an amendment of the
March 22, 2006 private placement of $2.5 million and to a private placement of
an additional $1.0 million.

On
November 6, 2006, the Company filed a Form 8-K relating to sale of real estate
and buildings in Glendale, Arizona in connection with cancellation of a
financing lease.

On
February 16, 2007, the Company filed a Form 8-K/A to amend the Form 8-K filed on
May 10, 2006. This amendment provides audited and pro forma financial statements
of The Lordsburg Mining Company, which required information was not included in
the Form 8-K filed on May 10, 2006.

On
February 26, 2007, the Company filed a Form 8-K relating to an amendment of the
March 22, 2006, and September 6, 2006, private placements of $2.5 million and
$1.0 million respectively.

On
May 9, 2007, the Company filed a Form 8-K relating to appointment of a new
director to its board of directors.

On
July 13, 2007, the Company filed a Form 8-K relating to non-reliance on
previously issued interim financial statements for the fiscal quarters ended
December 31, 2006, and March 31, 2007. The Company restated the financial
statements in amended filings on June 20, 2007.

**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 2007 and 2006 fiscal years respectively:

2007
    
    
    2006Audit Fees (1)
    $
    103,419
    
    $
    52,930Tax Fees (2)
    
    -0-
    
    
    -0-$
    103,419
    
    $
    52,930


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

61

---

SIGNATURES

Pursuant
  to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
  1934, the small business issuer has duly caused this report to be signed on
  its behalf by the undersigned, thereunto duly authorized, on October 15, 2007.

SANTA FE GOLD CORPORATION

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

Pursuant
  to the requirements of the Securities Exchange Act of 1934, this report has
  been signed by the following persons on behalf of the small business issuer
  in the capacities indicated on October 15, 2007.



|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

---



SANTA FE GOLD CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2007 and for the Years Ended 
  June 30, 2007 and 2006

F-1

---

SANTE FE GOLD CORPORATION

TABLE OF CONTENTS





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

F-2

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Shareholders and Board of Directors 
  Santa Fe Gold Corporation

We have audited the accompanying consolidated balance sheet of
  Santa Fe Gold Corporation, formerly AZCO Mining Inc., as of June 30, 2007, and
  the related consolidated statements of operations, stockholders' (deficit) equity,
  and cash flows for the years ended June 30, 2007 and 2006. These consolidated
  financial statements are the responsibility of the Company's management. Our
  responsibility is to express an opinion on these consolidated financial statements
  based on our audits.

We conducted our audits in accordance with the standards of the
  Public Company Accounting Oversight Board (United States). Those standards require
  that we plan and perform the audits to obtain reasonable assurance about whether
  the financial statements are free of material misstatement. An audit includes
  examining, on a test basis, evidence supporting the amounts and disclosures
  in the financial statements. An audit also includes assessing the accounting
  principles used and significant estimates by management, as well as evaluating
  the overall financial statement presentation. We believe that our audits provide
  a reasonable basis for our opinion.

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

In our opinion, the consolidated financial statements referred
  to above present fairly, in all material respects, the financial position of
  Santa Fe Gold Corporation, formerly AZCO Mining Inc., as of June 30, 2007, and
  the results of its operations, and its cash flows for the years ended June 30,
  2007 and 2006, in conformity with accounting principles generally accepted in
  the United States of America.

/s/ Stark Winter Schenkein & Co., LLP

Denver, Colorado 
  October 3, 2007

F-3

---

SANTA FE GOLD CORPORATION 
  CONSOLIDATED BALANCE SHEETJUNE 30, 2007

|ASSETS                                                                      |  
|--------------------------------------------------------------------------- | -
|CURRENT ASSETS:                                                             |  
|Cash and
      cash equivalents                                             | $
|Prepaid expenses                                                            |  
|Total Current Assets                                                        |  
|                                                                            |  
|PROPERTY, PLANT AND EQUIPMENT, net                                          |  
|                                                                            |  
|OTHER ASSETS:                                                               |  
|Idle plant and equipment,
      net                                         |  
|Restricted
      cash                                                       |  
|Deposit                                                                     |  
|Total Other Assets                                                          |  
|                                                                            |  
|                                                                            | $
|                                                                            |  
|LIABILITIES AND STOCKHOLDERS'
      EQUITY                                  |  
|CURRENT LIABILITIES:                                                        |  
|Accounts
      payable                                                      | $
|Accrued liabilities                                                         |  
|Line of credit                                                              |  
|Derivative instrument liabilities                                           |  
|Senior secured
      convertible notes payable, net of discount of $988,822 |  
|Accrued interest
      payable                                              |  
|Total Current Liabilities                                                   |  
|                                                                            |  
|LONG TERM LIABILITIES:                                                      |  
|Asset retirement obligation                                                 |  
|                                                                            |  
|Total Liabilities                                                           |  
|                                                                            |  
|STOCKHOLDERS' EQUITY:                                                       |  
|Common stock,
      $.002 par value, 100,000,000 shares                     |  
|authorized
      and 71,082,286 shares issued and outstanding               |  
|Additional
      paid in capital                                            |  
|Deferred compensation                                                       |  
|Accumulated
      (deficit)                                                 |  
|Total Stockholders' Equity                                                  |  
|                                                                            | $

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, 2007 AND 2006

|                                                                            |   | 2007       |   |   | 2006       |  
|--------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|SALES                                                                       | $ | 7,201      |   | $ | 16,237     |  
|                                                                            |   |            |   |   |            |  
|OPERATING COSTS AND EXPENSES:                                               |   |            |   |   |            |  
|Exploration and mining costs                                                |   | 345,227    |   |   | 212,489    |  
|General and administrative                                                  |   | 1,360,828  |   |   | 1,207,320  |  
|General and administrative - stock compensation                             |   | 68,208     |   |   | 2,174,670  |  
|Depreciation and amortization                                               |   | 14,430     |   |   | 24,681     |  
|Accretion of asset retirement obligation                                    |   | 5,000      |   |   | 5,000      |  
|                                                                            |   | 1,793,693  |   |   | 3,624,160  |  
|                                                                            |   |            |   |   |            |  
|(LOSS) FROM OPERATIONS                                                      |   | (1,786,492 | ) |   | (3,607,923 | )
|                                                                            |   |            |   |   |            |  
|OTHER INCOME (EXPENSE):                                                     |   |            |   |   |            |  
|(Loss) gain on sale of assets                                               |   | (7,500     | ) |   | 750        |  
|Gain on settlement of financing
      lease liability                       |   | 2,870,369  |   |   | -          |  
|Interest income                                                             |   | 53,162     |   |   | 21,344     |  
|Miscellaneous income                                                        |   | 4,735      |   |   | -          |  
|Foreign currency translation (loss)                                         |   | (1,947     | ) |   | (2,897     | )
|Gain (loss) on derivative
      instrument liabilities                      |   | 2,224,115  |   |   | (1,402,903 | )
|Relief of debt                                                              |   | 582,987    |   |   | 60,603     |  
|Gain associated with conversion
      of debt                               |   | -          |   |   | 119,667    |  
|Accretion of discounts on notes payable
      and financing lease liability |   | (2,770,472 | ) |   | (332,571   | )
|Interest expense                                                            |   | (822,978   | ) |   | (239,438   | )
|                                                                            |   | 2,132,471  |   |   | (1,775,445 | )
|                                                                            |   |            |   |   |            |  
|INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES                             |   | 345,979    |   |   | (5,383,368 | )
|                                                                            |   |            |   |   |            |  
|PROVISION FOR INCOME TAXES                                                  |   | -          |   |   | -          |  
|                                                                            |   |            |   |   |            |  
|NET INCOME (LOSS)                                                           | $ | 345,979    |   | $ | (5,383,368 | )
|                                                                            |   |            |   |   |            |  
|Basic Income (Loss) per Share:                                              |   |            |   |   |            |  
|Basic                                                                       | $ | 0.01       |   | $ | (0.09      | )
|                                                                            |   |            |   |   |            |  
|Diluted                                                                     | $ | 0.02       |   | $ | (0.09      | )
|                                                                            |   |            |   |   |            |  
|Weighted Average Common Shares Outstanding:                                 |   |            |   |   |            |  
|Basic                                                                       |   | 67,441,641 |   |   | 60,304,242 |  
|                                                                            |   |            |   |   |            |  
|Diluted                                                                     |   | 75,243,252 |   |   | 60,304,242 |  

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

---

SANTAFE GOLDCORPORATIONCONSOLIDATEDSTATEMENTOFSTOCKHOLDERS'(DEFICIT)EQUITYFOR THEYEARSENDEDJUNE 30, 2007 AND 2006

|                                                                          |  |                    |  |   |         |  |   | Additional |  |   |              |   |   |             |   |   |            |  
|------------------------------------------------------------------------- |  | ------------------ |  | - | ------- |  | - | ---------- |  | - | ------------ | - | - | ----------- | - | - | ---------- | -
|                                                                          |  | Common
      Stock |  |   | Paid-in |  |   | Deferred   |  |   | Accumulated  |   |   |             |  
|                                                                          |  | Shares             |  |   | Amount  |  |   | Capital    |  |   | Compensation |   |   | (Deficit)   |   |   | Total      |  
|                                                                          |  |                    |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|Balance, June 30, 2005                                                    |  | 51,210,122         |  | $ | 102,420 |  | $ | 33,618,899 |  | $ | (105,250     | ) | $ | (37,944,383 | ) | $ | (4,328,314 | )
|Sale of shares for cash                                                   |  | 6,005,578          |  |   | 12,012  |  |   | 1,021,229  |  |   | -            |   |   | -           |   |   | 1,033,241  |  
|Issuance of shares for services                                           |  | 2,295,000          |  |   | 4,590   |  |   | 1,202,960  |  |   | -            |   |   | -           |   |   | 1,207,550  |  
|Shares issued for conversion of accounts payable                          |  |                    |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|notes payable and accrued
      liabilities                               |  | 2,453,012          |  |   | 4,906   |  |   | 975,094    |  |   | -            |   |   | -           |   |   | 980,000    |  
|Related party stock compensation recognized on                            |  |                    |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|conversion of accrued
      liabilities                                   |  | -                  |  |   | -       |  |   | 250,000    |  |   | -            |   |   | -           |   |   | 250,000    |  
|Issuance of shares for acquisition of mineral rights from                 |  |                    |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|the Company's President                                                   |  | 2,000,000          |  |   | 4,000   |  |   | 596,000    |  |   | -            |   |   | -           |   |   | 600,000    |  
|Recognized deferred stock compensation                                    |  | -                  |  |   | -       |  |   | -          |  |   | 105,250      |   |   | -           |   |   | 105,250    |  
|Costs associated with issuance of warrants
      for services             |  |                    |  |   |         |  |   | 67,266     |  |   | (55,396      | ) |   |             |   |   | 11,870     |  
|Net (loss)                                                                |  | -                  |  |   | -       |  |   | -          |  |   | -            |   |   | (5,383,368  | ) |   | (5,383,368 | )
|                                                                          |  |                    |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|Balance, June 30, 2006                                                    |  | 63,963,712         |  |   | 127,928 |  |   | 37,731,448 |  |   | (55,396      | ) |   | (43,327,751 | ) |   | (5,523,771 | )
|Shares issued for warrants in settlement of
      financing               |  |                    |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|lease liability                                                           |  | 2,550,000          |  |   | 5,100   |  |   | 1,269,900  |  |   | -            |   |   | -           |   |   | 1,275,000  |  
|Shares issued for warrants on settlement of
      note                    |  |                    |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|payable and accrued interest                                              |  | 2,000,000          |  |   | 4,000   |  |   | 806,000    |  |   | -            |   |   | -           |   |   | 810,000    |  
|Termination of derivative on sale of property
      underlying            |  |                    |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|financing lease                                                           |  | -                  |  |   | -       |  |   | 638,537    |  |   | -            |   |   | -           |   |   | 638,537    |  
|Shares issued for senior secured notes payable
      principal conversion |  | 2,048,408          |  |   | 4,096   |  |   | 1,886,740  |  |   | -            |   |   | -           |   |   | 1,890,836  |  
|Shares issued for senior secured notes payable interest conversion        |  | 520,166            |  |   | 1,041   |  |   | 530,724    |  |   | -            |   |   | -           |   |   | 531,765    |  
|Recognized deferred warrant compensation                                  |  | -                  |  |   | -       |  |   | -          |  |   | 37,704       |   |   | -           |   |   | 37,704     |  
|Costs associated with issuance of options for services                    |  | -                  |  |   | -       |  |   | 30,505     |  |   | -            |   |   | -           |   |   | 30,505     |  
|Net income                                                                |  | -                  |  |   | -       |  |   | -          |  |   | -            |   |   | 345,979     |   |   | 345,979    |  
|Balance, June 30, 2007                                                    |  | 71,082,286         |  | $ | 142,165 |  | $ | 42,893,854 |  | $ | (17,692      | ) | $ | (42,981,772 | ) | $ | 36,555     |  

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

---

SANTA FE GOLD CORPORATION 
  CONSOLIDATED STATEMENTS OF CASH FLOWS 
  FOR THE YEARS ENDED JUNE 30, 2007 AND 2006

|                                                                             |   | 2007       |   |   | 2006       |  
|---------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|CASH FLOWS FROM OPERATING ACTIVITIES:                                        |   |            |   |   |            |  
|Net income (loss)                                                            | $ | 345,979    |   | $ | (5,383,368 | )
|                                                                             |   |            |   |   |            |  
|Adjustments to reconcile
      net income (loss) to net cash                 |   |            |   |   |            |  
|(used in)
      operating activities:                                        |   |            |   |   |            |  
|Depreciation and amortization                                                |   | 14,430     |   |   | 24,681     |  
|Stock compensation and other non-cash expenses                               |   | 68,208     |   |   | 2,174,670  |  
|Stock issued for interest                                                    |   | 531,765    |   |   | -          |  
|Gain on settlement of financing lease liability                              |   | (2,870,369 | ) |   | -          |  
|Accretion of discount on financing leasing liability and notes
      payable |   | 2,770,472  |   |   | 332,571    |  
|Accretion of asset retirement obligation                                     |   | 5,000      |   |   | 5,000      |  
|Loss (gain) on sale of assets                                                |   | 7,500      |   |   | (750       | )
|(Gain) on conversion of debt                                                 |   | -          |   |   | (119,667   | )
|Relief of debt                                                               |   | (582,987   | ) |   | (60,603    | )
|Foreign currency translation (gain) loss                                     |   | (1,947     | ) |   | 2,897      |  
|(Gain) loss on derivative instrument liabilities                             |   | (2,224,115 | ) |   | 1,402,903  |  
|Net change
      in current assets and liabilities:                          |   |            |   |   |            |  
|Prepaid expenses                                                             |   | 247,118    |   |   | (202,189   | )
|Deposits                                                                     |   | (2,683     | ) |   | -          |  
|Accounts payable and accrued liabilities                                     |   | (96,696    | ) |   | 119,593    |  
|Accrued interest payable - related party                                     |   | 33,750     |   |   | 116,917    |  
|Accrued interest payable                                                     |   | 63,782     |   |   | 49,206     |  
|Accrued lease payments                                                       |   | 180,000    |   |   | 540,000    |  
|Net
      Cash (Used in) Operating Activities                                |   | (1,510,793 | ) |   | (998,139   | )
|                                                                             |   |            |   |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                        |   |            |   |   |            |  
|Proceeds
      from sale of property and equipment                           |   | 39,500     |   |   | 12,750     |  
|Purchase of property, plant
      and equipment                              |   | (16,702    | ) |   | (2,561     | )
|Purchase
      of subsidiary                                                 |   | -          |   |   | (1,300,000 | )
|Net
      Cash Provided by (Used in) Investing Activities                    |   | 22,798     |   |   | (1,289,811 | )
|                                                                             |   |            |   |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                        |   |            |   |   |            |  
|Proceeds
      from convertible debentures payable                           |   | 1,000,000  |   |   | 2,500,000  |  
|Line of credit                                                               |   | (37,545    | ) |   | -          |  
|Deferred
      finance costs                                                 |   | (100,000   | ) |   | -          |  
|Proceeds from sale of common
      stock                                     |   | -          |   |   | 1,033,241  |  
|Net Cash Provided by Financing Activities                                    |   | 862,455    |   |   | 3,533,241  |  
|                                                                             |   |            |   |   |            |  
|(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                             |   | (625,540   | ) |   | 1,245,291  |  
|                                                                             |   |            |   |   |            |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                 |   | 1,265,392  |   |   | 20,101     |  
|                                                                             |   |            |   |   |            |  
|CASH AND CASH EQUIVALENTS, END OF YEAR                                       | $ | 639,852    |   | $ | 1,265,392  |  

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

---

SANTA FE GOLD CORPORATION 
  CONSOLIDATED STATEMENTS OF CASH FLOWS 
  FOR THE YEARS ENDED JUNE 30, 2007 AND 2006 
  (Continued)

|                                                                                |   | 2007      |  |   | 2006    | 
|------------------------------------------------------------------------------- | - | --------- |  | - | ------- | 
|SUPPLEMENTAL CASH FLOW INFORMATION:                                             |   |           |  |   |         | 
|                                                                                |   |           |  |   |         | 
|Cash paid
      for interest                                                    | $ | -         |  | $ | 5,760   | 
|                                                                                |   |           |  |   |         | 
|Cash paid
      for income taxes                                                | $ | -         |  | $ | -       | 
|                                                                                |   |           |  |   |         | 
|SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
      AND                         |   |           |  |   |         | 
|FINANCING ACTIVITIES:                                                           |   |           |  |   |         | 
|                                                                                |   |           |  |   |         | 
|Stock issued for warrants
      in settlement of financing lease liability      | $ | 1,275,000 |  | $ | -       | 
|                                                                                |   |           |  |   |         | 
|Stock issued for conversion
      of accrued liabilities, related party         | $ | -         |  | $ | 100,000 | 
|                                                                                |   |           |  |   |         | 
|Stock issued for conversion
      of senior secured convertible notes and notes |   |           |  |   |         | 
|payable,
      related parties                                                  | $ | 2,700,836 |  | $ | 730,000 | 
|                                                                                |   |           |  |   |         | 
|Stock issued
      for conversion of accrued settlement obligation              | $ | -         |  | $ | 150,000 | 
|                                                                                |   |           |  |   |         | 
|Stock issued
      for debenture interest conversion                            | $ | 531,765   |  | $ | -       | 
|                                                                                |   |           |  |   |         | 
|Termination
      of derivative on sale of property underlying financing lease  | $ | 638,537   |  | $ | -       | 

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

---

SANTA FE GOLD CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2007

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 leased Ortiz gold project in New Mexico, the 100% owned Black
  Canyon mica project in Arizona, and the 100% owned Summit silver-gold property
  located in New Mexico.

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

In May 2006, for a cash price of $1.3 million, the Company acquired
  100% of the shares of The Lordsburg Mining Company (Lordsburg), a New Mexico
  corporation. With the acquisition of Lordsburg, 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.

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 operational results of $345,979 and
  ($5,383,368) for the years ended June 30, 2007 and 2006, respectively, has a
  total accumulated deficit of ($42,981,772) and a working capital deficit of
  ($2,933,940) at June 30, 2007. In addition, the Company has no significant revenue
  generating operations. To continue as a going concern, the Company is dependent
  on continued fund raising for project development. However, the Company has
  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 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,
  and The Lordsburg Mining Company, a New Mexico corporation. All significant
  inter-company accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

The Company considers all liquid investments purchased with an
  initial maturity of three months or less to be cash equivalents. The Company
  maintains its cash in bank deposit accounts which, at times, may exceed federally
  insured limits. The Company has not experienced any losses in such accounts.
  The Company believes it is not exposed to any significant credit risk on cash
  balances. At June 30, 2007, the Company's uninsured balance was approximately
  $571,862.

F-9

---

Property, Plant and Equipment

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

As of June 30, 2007, the Company obtained an independent appraisal
  of certain equipment. The appraisal indicated a net realizable value of approximately
  $1,544,000. This equipment has been classified as idle plant and equipment.

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 they provide.

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

The asset retirement obligation associated with the Mica project
  consists of reclamation of disturbed property as well as the disposal and dismantling
  of related property and equipment.

The Companys asset retirement obligation through June 30,
  2007, is as follows:

F-10

---

Balance at June 30, 2005
      $
      60,309Accretion for the year ended June 30, 2006
      
      5,000Amount included with Lordsburg acquisition
      
      5,000Accretion for the year ended June 30, 2007
      
      5,000Balance at June 30, 2007
      $
      75,309


Revenue Recognition

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

Income Taxes

The Company accounts for income taxes in accordance with SFAS
  No. 109, Accounting for Income Taxes. SFAS No. 109
  requires the Company to recognize deferred tax assets and liabilities for the
  expected future tax consequences of events that have been recognized in the
  Companys financial statements or tax returns. Under this method, deferred
  tax assets and liabilities are determined based on the difference between the
  financial statements carrying amounts and tax basis of assets and liabilities
  using enacted tax rates in effect in the years in which the differences are
  expected to reverse.

Net (Loss) Per Share

SFAS No. 128, "Earnings per Share," requires dual presentation
  of basic and diluted earnings or loss per share (EPS) with a reconciliation
  of the numerator and denominator of the basic EPS computation to the numerator
  and denominator of the diluted EPS computation. Diluted EPS reflects the potential
  dilution that could occur if securities or other contracts to issue common stock
  were exercised or converted into common stock or resulted in the issuance of
  common stock that then shared in the earnings of the entity. Basic loss per
  common share is computed based on weighted average shares outstanding and excludes
  any potential dilution from stock options, warrants and other common stock equivalents
  and is computed by dividing loss available to common shareholders by the weighted
  average number of common shares outstanding for the period. Diluted net loss
  per common share reflects potential dilution. These dilutive securities are
  not considered in the calculation, as the impact of the potential shares would
  be to decrease loss per share.

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

Numerator:Numerator for basic EPS, net
        income
      $
      345,979Numerator for diluted EPS:Net earnings
      $
      345,979Interest on senior secured convertible notes
        payable
      
      3,432,562Derivative income
      
      (2,224,115
      )Income available for diluted EPS
      $
      1,554,426


Denominators:Denominator for basic EPS, weighted-average
        common shares outstanding
      
      67,441,641Potentially dilutive shares
        resulting from stock options and warrants
      
      4,110,387Senior secured notes converted to shares
      
      3,691,224Denominator for diluted EPS
      
      75,243,252


Stock-Based Compensation  Transition and Disclosure

Prior to July 1, 2006, the Company accounted for stock based
  compensation in accordance with SFAS No. 123, "Accounting for Stock-Based
  Compensation." The provisions of SFAS No. 123 allow companies to either
  expense the estimated fair value of

F-11

---

stock options or to continue to follow the intrinsic value method
  set forth in Accounting Principles Board Opinion 25, "Accounting for Stock
  Issued to Employees" (APB 25") but disclose the pro forma effects
  on net income (loss) had the fair value of the options been expensed. The Company
  elected to continue to apply APB 25 in accounting for its stock option incentive
  plans until July 1, 2006.

In December 2004, FASB issued SFAS No. 123(R), Share-based
  Payment (SFAS No. 123R) and requires companies to measure
  all stock compensation awards using a fair value method and recognize the related
  compensation cost in its financial statements. This statement replaces SFAS
  No. 123 Accounting for Stock Based Compensation,and
  supersedes ABP Opinion No. 25, Accounting for Stock Issued to Employees.
  Beginning with the Companys quarterly period that began on July 1, 2006,
  the Company adopted the provisions of SFAS No. 123R and is required to expense
  the fair value of employee stock options and similar awards in the financial
  statements. The Company had no compensation cost relating to unvested portion
  of awards granted prior to the date of adoption to recognize at the time of
  adoption.

Estimates

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

Significant estimates are used when accounting for the Companys
  carrying value of mineral properties and 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, and the line of credit approximated
  their related fair values as of June 30, 2007, 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.

Restricted Cash

As part of the reclamation deposit required for the Black Canyon
  mica property, the Company has restricted cash of $178,658, comprised of $50,000
  held on deposit for the Arizona State Treasurer in a one-year automatically
  renewable short-term investment; and $128,658 held as collateral against an
  irrevocable letter of credit of the same amount to the U.S. Bureau of Land Management
  (BLM). Both of the amounts will be held until all terms and conditions of the
  reclamation agreement have been fulfilled or a satisfactory replacement bond
  has been accepted.

Recent Accounting Pronouncements

On February 15, 2007, the Financial Accounting Standards Board
  (FASB) issued SFAS No. 159, The Fair Value Option for Financial
  Assets and Financial Liabilities(SFAS No. 159). SFAS No. 159 permits
  entities to choose to measure many financial instruments and other items at
  fair value. The objective it to improve financial reporting by providing entities
  with the opportunity to mitigate volatility in reported earnings caused by measuring
  related assets and liabilities differently without having to apply complex hedge
  accounting procedures. SFAS No. 159 also establishes presentation and disclosure
  requirements designed to facilitate comparisons between companies that choose
  different measurement attributes for similar types of assets and liabilities.
  The Statement is expected to expand the use of fair value measurements, which
  is consistent with the Boards long-term measurement objectives for accounting
  for financial instruments. SFAS No. 159 is effective for the Companys
  2009 fiscal year and will be required to be adopted by the Company effective
  July 1, 2008. Management at this time has not evaluated the impact, if any,
  of adopting SFAS No. 159 on its consolidated financial statements.

NOTE 3- PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following at June
  30, 2007:

F-12

---

Leasehold improvements
      $
      1,645Office furniture and equipment
      
      6,134Patented mineral properties
      
      282,000Mine processing equipment and buildings
      
      1,022,941Computer equipment
      
      5,985Automotive
      
      18,8681,337,573Less: Accumulated depreciation
      
      (17,110
      )$
      1,320,463


Depreciation expense for the years ended June 30, 2007 and 2006
  were $14,430 and $24,681, respectively.

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

Mica processing equipment
      $
      1,736,839Black Canyon mine equipment
      
      2,392,0904,128,929Less: Allowance for impairment
      
      (2,584,929
      )$
      1,544,000


NOTE 4 - 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.

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

On February 23, 2007, the Company agreed with the institutional
  investors to amend the terms of the private placement of senior secured convertible
  notes, additional investment rights and warrants issued March 20, 2006 and September
  6, 2006. Under terms of this Amendment 2, the date by which the Company was
  required to file a registration statement with the Securities and Exchange Commission
  was extended from November 5, 2006, until April 30, 2007 (filed March 23, 2007),
  and the date by which such registration statement was required to be declared
  effective, was extended from February 4, 2007, until July 31, 2007. The investors
  agreed to forgo all liquidated damages and penalties related to the previous
  deadlines. The Company agreed to seek

F-13

---

stockholder approval for an increase in the Companys authorized
  capital, from the current authorized limit of 100 million shares, to 200 million
  shares, and, if necessary, to file additional registration statements. In connection
  with the amendment, the Company issued 1,750,000 warrants, giving note holders
  the right to purchase common stock at a price of $1.25 per share for a period
  of five years. The fair value of the derivative instruments liability for these
  warrants at the time of issuance was determined to be $1,773,013 with the following
  assumptions: (1) risk free interest rate of 4.67%, (2) remaining contractual
  life of 5 years, (3) expected stock price volatility of 115.5%, and (4) expected
  dividend yield of zero.

The fair value of the derivative instruments liability at June
  30, 2006, was determined to be $3,983,960 with the following assumptions: (1)
  risk free interest rate of 5.1% to 5.24%, (2) remaining contractual life between
  0.55 - 4.7 years, (3) expected stock price volatility of 114.07%, and (4) expected
  dividend yield of zero. The fair market value of the derivative instruments
  liability at June 30, 2007, was determined to be $2,402,970 with the following
  assumptions: (1) risk free interest rate of 4.91% to 4.93%, (2) remaining contractual
  life between 0 .50 - 4.65 years, (3) expected stock price volatility of 115.602%,
  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, 2007, of $2,224,115 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, 2007, was as follows:

|                                                                 |   | Derivative          |  |   | Derivative          |  |   | Derivative Gain     |  
|---------------------------------------------------------------- | - | ------------------- |  | - | ------------------- |  | - | ------------------- | -
|                                                                 |   | Liability as of     |  |   | Liability as of     |  |   | (Loss) Through      |  
|                                                                 |   | June
      30, 2006 |  |   | June
      30, 2007 |  |   | June
      30, 2007 |  
|                                                                 |   |                     |  |   |                     |  |   |                     |  
|Financing Lease Payable Derivative                               | $ | 1,814,990           |  | $ | --                  |  | $ | 1,814,990           |  
|                                                                 |   |                     |  |   |                     |  |   |                     |  
|Senior Secured Convertible Notes Payable:                        |   |                     |  |   |                     |  |   |                     |  
|Compound Embedded Derivatives                                    |   | 790,368             |  |   | 353,534             |  |   | 436,834             |  
|Additional Investment Rights                                     |   | 672,578             |  |   | 552,996             |  |   | 119,582             |  
|Purchase Agreement Warrants                                      |   | 706,024             |  |   | 775,120             |  |   | (69,096             | )
|Amendment 2 Warrants                                             |   | --                  |  |   | 721,320             |  |   | (721,320            | )
|Totals                                                           | $ | 3,983,960           |  | $ | 2,402,970           |  |   | 1,580,990           |  
|                                                                 |   |                     |  |   |                     |  |   |                     |  
|Derivative Expense Related to:                                   |   |                     |  |   |                     |  |   |                     |  
|Sale of property for debt
      disposition on lease liabilities |   |                     |  |   |                     |  |   | (638,537            | )
|Senior Secured Convertible Notes Issuance                        |   |                     |  |   |                     |  |   | 1,281,662           |  
|                                                                 |   |                     |  |   |                     |  | $ | 2,224,115           |  

NOTE 5  SENIOR SECURED CONVERTIBLE NOTES PAYABLE

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. The
  senior secured convertible notes had a term of 17 months and were to amortize
  over 12 months beginning on September 1, 2006. Interest on the principal amount
  outstanding accrues at a rate of 7% per annum. The Company may pay principal
  and accrued interest in cash or, at the Company’s option, in shares of
  its common stock. If the Company elects to pay principal and interest in shares
  of its common stock, the value of each share of common stock will be equal to
  ninety percent (90%) of the average of the ten (10) lowest daily volume weighted
  average prices of its common stock during the twenty (20) trading days immediately
  preceding the date of payment. The holder of each senior secured convertible
  note, at the holder’s option, may convert the note into the Company’s
  common stock at a conversion price of $1.58 per share. The Company also granted
  Additional Investment Rights to the investors, giving each the right for 12
  months to purchase, under the same terms, an additional convertible note for
  50% of the amount initially purchased. Warrants were also issued to the note
  holders, giving the right for a period of 5 years to purchase in the aggregate
  791,141 shares of the Company’s common stock at a price of $1.58 per share.
  In connection with the transaction, the Company was required within 60 days
  of the closing to file a registration statement with the Securities and Exchange
  Commission and within 150 days to cause the registration statement to be declared
  effective.

As collateral security, the Company granted the investors a security
  interest in (a) $6,000,000 in gold contained in mineralized materials from the
  Ortiz Mine Grant over which the Company holds a lease on the mineral estate
  underlying 57,267.04 acres (90 square miles) of segregated surface estate 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, which such gold
  is as-extracted collateral (as such term is defined in the New York
  Uniform Commercial Code) and (b) all proceeds, products and accessions thereof
  and related thereto (including, without limitation, any proceeds of insurance
  thereon), and, to the extent related to such as extracted collateral
  or such proceeds, products and accessions thereof and related thereto.

F-14

---

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

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

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

The Company used the Black-Scholes option model to determine
  the fair value of the additional warrants and Additional Investment Rights,
  the fair value of the embedded conversion option related to the increased principal
  amount of the senior secured convertible notes and the cost of reducing the
  conversion price of the existing senior secured convertible notes, warrants
  and Additional Investment Rights from $1.58 to $1.00. The aggregate fair values
  exceeded the additional proceeds received, and the difference of $2,400,000
  was recognized as a charge to loss on derivative liabilities in the period ended
  September 30, 2006. Because the senior secured convertible notes had no net
  initial carrying value and the modifications made to the notes resulted in no
  additional carrying value (because the fair value of the additional derivative
  instruments exceeded the proceeds received), the Company re-computed, as of
  the date of the amendment, the effective interest rate on the senior secured
  convertible notes to accrete the earning value of the notes to their redemption
  dates, based on the revised repayment schedule and amounts.

On February 23, 2007, the Company agreed with the institutional
  investors to amend the terms of the private placement of senior secured convertible
  notes, Additional Investment Rights and warrants issued March 20, 2006 and September
  6, 2006. Under terms of the amendment, the date by which the Company must file
  a registration statement with the Securities and Exchange Commission was extended
  from November 5, 2006, until April 30, 2007, and the date by which such registration
  statement must be declared effective, was extended from February 4, 2007, until
  July 31, 2007. The registration became effective on July 20, 2007, within the
  terms and conditions of the amendment. 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 current 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 amendment also provided for the Company to pay the February
  1, 2007, and March 1, 2007, monthly installments in common stock without being
  subject to Equity Conditions of the Note Agreements, at a reduced conversion
  price of $0.80 per share rather than the Agreement price of $1.00 per share.

During the period March 10, 2007, to June 30, 2007, the Company
  paid principal installments aggregating $1,890,836 with the issuance of 2,048,408
  shares of its common stock, and paid interest aggregating $531,765 with the
  issuance of 520,166 shares of its common stock. The Company recognized additional
  interest expense of $157,570 on the conversions due to the discount on the February
  1 and March 1, 2007 conversion shares.

The components of the senior secured convertible notes payable
  are as follows as of June 30, 2007:

F-15

---

Senior secured convertible notes payable
      $
      1,890,831Less: unamortized discount
      
      (988,822
      )Net senior secured convertible notes payable
      $
      902,009


As of June 30, 2007, accrued interest payable on the senior secured
  convertible notes aggregated $28,777.

NOTE 6SALE OF REAL PROPERTY AND SETTLEMENT
  OF FINANCING LEASE LIABILITY

On November 3, 2006, the Company concluded a Real Property Purchase
  Agreement with Muzz Investments, LLC (Muzz) for the sale of the
  Company's 60% ownership interests in real estate and buildings at its Glendale,
  Arizona location. The sale included approximately five acres of land, a 5,000
  sq. ft. office building and an 18,000 sq. ft. mill building. Under the Agreement,
  the Company retained ownership of its mica processing equipment installed in
  the mill building. The equipment was removed and transported to a storage site
  for future use. The equipment is included in idle equipment in the accompanying
  financial statements. As part of the transaction, the Company also agreed to
  provide for the exercise of 2,550,000 warrants granted to Muzz in 2002 and to
  issue 2,550,000 unregistered shares of its common stock to Muzz. In consideration
  for the Companys entry into the Real Property Purchase Agreement and the
  issue of the unregistered stock in settlement of the Muzz warrants, Muzz agreed
  to terminate the 2002 financing lease agreement and to cancel all of the outstanding
  financial obligations under the lease.

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

NOTE 7 - NOTES PAYABLE, RELATED PARTY

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

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

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

NOTE 8 - LINE OF CREDIT

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

In April 2007, the Company negotiated a non-interest bearing
  settlement of $75,000 in connection with liabilities related to the ELOC, payable
  in an initial installment of $35,000 and monthly payments of $2,200 commencing
  in May 2007 until paid in full. The unpaid balance at June 30, 2007 was $35,600.

F-16

---

NOTE 9 - CONTINGENCIES AND COMMITMENTS

Royalty Agreement

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

Office Lease

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

Fiscal year ending: June 30, 2008
      $
      32,520June 30, 2009
      
      33,492June 30, 2010
      
      22,770Total
      $
      88,782


Eagle River International Ltd. Litigation

In January 1999, the trustee in bankruptcy proceedings against
  Eagle River International Limited, the Companys former partner in the
  WAG - Mali joint venture, served a petition upon the Company in the Quebec Superior
  Court, District of Hull, in order to recuperate from the Company certain subsidiary
  stock and other assets alleged to have a value of up to $4,300,000.

In July 2007, the Company agreed to a proposal from the plaintiffs
  to settle the claim, with a mutual release from all claims related to the Trustees
  Petition. Completion of settlement documentation is pending. The Company paid
  $7,500 in connection with settlement costs.

Montgomery Equity Partners, Ltd. Litigation

On June 27, 2006, Montgomery Equity Partners, Ltd. (Montgomery)
  filed an action against the Company in the Superior Court of New Jersey, alleging
  it is the assignee of a promissory note executed in January 2003 by the Company
  in favor of Cornell Capital Partners, LP (Cornell Capital) and seeking
  a judgment for unpaid principal of $73,145 on the ELOC, unpaid interest of $57,522
  and award of attorneys fees and expenses pursuant to the terms of the
  note. On September 29, 2006, the Company filed an answer and counterclaim against
  Montgomery, Cornell Capital and their affiliate, Yorkville Advisors, LLC, denying
  liability and asserting claims for fraudulent inducement and breach of good
  faith and fair dealing. The Companys claims arose out of a June 2002 transaction
  underlying the note, and sought a declaration that the note is invalid, unspecified
  damages and other relief.

In April 2007, the Company negotiated a non-interest bearing
  settlement of the liabilities with Montgomery Equity Partners, Ltd. for $75,000,
  payable with an initial installment of $35,000 and monthly payments of $2,200
  commencing in May 2007 until paid in full. Prior to the settlement, the Company
  recorded the amounts due under the line of credit and accrued interest payable.

New Planet Copper Mining Company Litigation

On March 21, 2007, the Company commenced an action in the Superior
  Court of the State of Arizona against New Planet Copper Mining Company (New
  Planet), in connection with the Companys lease on the Planet micaceous
  iron oxide property, seeking to confirm that the lease remains in good standing.
  This action against New Planet was in response to New Planets notice of
  purported termination of the lease, which followed the Companys refusal
  to reimburse costs of insurance premiums that New Planet alleges it incurred
  over two years ago. The Company believes it is not obligated under the lease
  to reimburse such premiums and therefore that New Planets purported termination
  of the lease was improper. The Companys action seeks both declaratory
  judgment that the lease is in full force and effect and can not be terminated
  by New Planet, and $50,000 in damages for New Planets breach of the lease.
  The Company intends to vigorously pursue its claims.

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

F-17

---

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

On May 2, 2006, the Company entered into an employment agreement
  with an attorney who is the son of the Company’s President and Chief Executive
  Officer which provided for an initial salary of $5,000 per month and a monthly
  per diem of $1,000. In connection with full-time employment, the Company granted
  50,000 options under its stock option plan at an exercise price of $1.24 per
  share, the closing price on May 2, 2006. Beginning in January 2007, the salary
  was increased to $5,250 per month, and in April 2007, the monthly per diem was
  terminated after the relocation of the Company to Albuquerque, New Mexico.

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

On August 12, 2003, the Company assigned, for the sum of $5,000,
  its right, title and interest in and to its lease with New Planet Copper Mining
  Company to Metallica Ventures, LLC, a corporation controlled by the Companys
  President and Chief Executive Officer. The Company 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 the
  Company, for consideration of $10,000 and the issue of 2,000,000 shares of the
  Companys common stock to its President, its right, title and interest
  in and to the lease with New Planet Copper Mining Company. The Company is obligated
  to a $1,500 monthly rental payment on 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. 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. The lease provides for an initial term of seven years
  (12 years in certain circumstances), continuing year-to-year thereafter for
  so long as the Company is producing gold or other leased minerals in commercial
  quantities and otherwise is performing its obligations under the lease. Among
  other terms, the lease provides for annual lease payments that escalate per
  acre of ground the Company retains under lease; a sliding-scale production royalty
  varying from 3% to 5% depending on the price of gold; the requirement that the
  Company comply with governmental permitting and other regulations; and other
  terms common in mining leases of this type. The Ortiz gold project is subject
  to the property identification agreement between the Company and its President
  and Chief Executive Officer.

F-18

---

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

Payment Due
      Minimum Due
      MaximumDate
      ($)
      Due
        ($)Feb 1, 2008
      81,801
      171,801Feb 1, 2009
      42,934
      200,434Feb 1, 2010
      30,000
      171,801Feb 1, 2011 forward
      30,000
      171,801


Summit Silver-Gold Project

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

Title to Mineral Properties

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

NOTE 10 - STOCKHOLDERS (DEFICIT)

Issuances of Common Stock

During the fiscal year ended June 30, 2006, the Company sold
  6,005,578 common shares for aggregate cash proceeds of $1,033,241.

During the fiscal year ended June 30, 2006, the Company issued
  2,295,000 shares of common stock for investor relations and financial consulting
  services rendered at an aggregate value of $1,207,550, based on the fair market
  value on the transaction dates. This amount has been recorded as general and
  administrative stock compensation expense.

On November 15, 2004, the Company agreed with iCapital to settle
  the approximately $150,000 owed, by the issue of up to 500,000 shares of its
  common stock to be held by the Company and released to iCapital in six $25,000
  increments over a period of six months beginning December 1, 2005, the number
  of shares to be released monthly to be calculated on the basis of the average
  market price of the Companys stock for the week prior to the shares being
  released. A total of 153,012 shares were issued during the period December 1,
  2005, and May 1, 2006, in full satisfaction of the Agreement.

On September 22, 2005, the Company issued 750,000 shares each
  to the President and to a director, for a total of 1,500,000 shares of common
  stock with an aggregate value of $450,000, based on the fair market value on
  the transaction date. The shares were issued to reduce accrued wages and accrued
  interest payable of $100,000 each for a total of $200,000 and the balance of
  $250,000 was recorded as general and administrative stock compensation expense.

On September 22, 2005, the Company issued 2,000,000 shares of
  common stock at a market value of $600,000 on the date of the transaction, to
  its President, for the rights, title and interest in and to the lease with New
  Planet Copper Mining Company. The Board of Directors believes the fair value
  of the lease is equal to the purchase price. However, there are no established
  reserves and the Company cannot predict the economic viability of the project
  nor reasonably estimate its future cash flows. Therefore, the value assigned
  to the transaction has been recorded as general and administrative stock compensation
  expense.

On November 28, 2005, a consultant was awarded 50,000 shares
  of the Companys common stock with a fair market value of $25,000 on the
  date of the transaction. The consultant is the son of the Companys President
  and Chief Executive Officer who subsequently became an employee in May 2006.

F-19

---

On December 21, 2005, the Company issued 500,000 shares of common
  stock at a market value of $420,000 on the date of the transaction for payment
  of notes payable and related accrued interest to a shareholder, which aggregated
  $539,667. The Company recognized a gain of $119,667 on the conversion of debt
  to equity.

On March 15, 2006, a director 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 the director, aggregating
  $210,000.

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

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

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

Warrants

In connection with the private placement of the senior secured
  convertible notes, the Company issued warrants for 75,001 shares of common stock
  as part of the financial advisory fee associated with the transaction. The warrants
  have an exercise price of $1.58 and a term of three years. The warrants were
  valued at $67,266 using the Black-Scholes option pricing model using a volatility
  of 111.95%, risk free interest rate of 4.62% and an expected life of 3.0 years.
  At June 30, 2007, $17,692 of this amount was classified as deferred compensation,
  and $37,704 and $11,870 has been recorded as general and administrative stock
  compensation expense at June 30, 2007 and 2006, respectively.

On March 15, 2006, a director 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 the director, aggregating
  $210,000.

On March 20, 2006, the Company issued 791,141 five year warrants
  at an exercise price of $1.58 under the terms of the private placement of senior
  secured convertible notes to the note holders. The warrants issued to the note
  holders were valued as financial derivates as described in NOTE 4.

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

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

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

Stock Options

The Company had a stock option plan (the Plan) dated July 24,
  1989, as amended, which expired April 30, 2007, for the granting of options
  to purchase its common stock. The board of directors could grant options to
  key personnel and others as it deemed appropriate provided the number of options
  granted under the Plan did not exceed 5,950,424. There were no vesting requirements
  under the Plan. The options are exercisable over a maximum term of five years.
  On July 24, 2007, the shareholders approved the 2007 Equity Incentive Plan.

F-20

---

In addition to options under the Plan, the Company also has issued
  options outside of the Plan, and these options are exercisable over various
  terms up to a maximum of ten years.

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

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

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

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

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

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

Stock option and warrant activity, both within the Plan and outside
  of the Plan, for the years ended June 30, 2007 and 2006 are as follows:

F-21

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Stock
        Options
      
      Stock
        WarrantsWeighted
      
      
      WeightedAverage
      
      
      ExerciseShares
      Price
      
      Shares
      PriceOutstanding at June 30, 2005
      11,500,000
      $0.10
      
      2,900,000
      $0.56Granted
      50,000
      $1.24
      
      866,142
      $1.58Canceled
      ---
      ---
      
      ---
      ---Expired
      ---
      ---
      
      ---
      ---Exercised
      ---
      ---
      
      (300,000)
      $0.70Outstanding at June 30, 2006
      11,550,000
      $0.11
      
      3,466,142
      $0.80Granted
      50,000
      $0.74
      
      2,849,159
      $1.15Canceled
      ---
      ---
      
      ---
      ---Expired
      ---
      ---
      
      (50,000)
      $2.50Exercised
      (2,000,000)
      $0.105
      
      (2,550,000)
      $0.50Outstanding at June 30, 2007
      9,600,000
      $0.11
      
      3,715,301
      $1.12


Stock options and warrants outstanding and exercisable at June
  30, 2007, are as follows:

Outstanding and Exercisable Options
      
      Outstanding and Exercisable WarrantsWeighted
      
      
      
      
      
      
      
      WeightedAverage
      
      
      
      
      
      
      
      AverageRemaining
      
      Weighted
      
      
      
      
      
      Remaining
      
      WeightedExercise
      
      
      
      Contractual
      
      Average
      
      Exercise
      
      
      
      Contractual
      
      AveragePrice
      
      
      
      Life
      
      Exercise
      
      Price
      
      
      
      Life
      
      ExerciseRange
      
      Number
      
      (In
        Years)
      
      Price
      
      Range
      
      Number
      
      (In
        Years)
      
      Price$0.10
      
      5,000,000
      
      1.96
      
      $0.10
      
      $1.00
      
      1,965,301
      
      4.12
      
      $1.00$0.11
      
      4,500,000
      
      5.73
      
      $0.11
      
      $1.25
      
      1,750,000
      
      4.65
      
      $1.25$1.24
      
      50,000
      
      3.84
      
      $1.24
      
      
      
      3,715,301
      
      
      
      $1.12$0.74
      
      50,000
      
      4.83
      
      $0.749,600,000
      
      
      
      $0.11


Stock-Based Compensation

The following table illustrates the pro forma effect on net (loss)
  and net (loss) per share if the Company had applied the fair value recognition
  provisions of SFAS No. 148, Accounting For Stock-Based Compensation -
  Transition & Disclosure, An Amendment to FASB Statement No. 123, to
  stock-based employee compensation for the year ended June 30, 2006. Beginning
  with the Companys quarterly period that began on July 1, 2006, the Company
  adopted the provisions of SFAS No. 123R and is required to expense the fair
  value of employee stock options and similar awards in the financial statements.

Year Ended June 30,2006Net (loss), as reported
      $
      (5,383,368
      )Deduct  stock-based compensation expense determinedunder the
        fair value method, net of tax effect
      
      (50,971
      )Pro forma net (loss)
      $
      (5,434,339
      )(Loss) per share:Net (loss)
        per share, as reported
      $
      (0.09
      )Net (loss)
        per share, pro forma
      $
      (0.09
      )


F-22

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NOTE 11 - INCOMETAXES

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

2007
      
      
      2006Tax (expense) benefit at the federal
      $
      (117,633
      )
      $
      1,830,345statutory rateState tax(expense) benefit
      
      (24,108
      )
      
      375,113Expiration of state operating losses
      
      (435,956
      )
      
      (296,364
      )Decrease (increase) in valuation allowance
      
      577,697
      
      
      (1,909,094
      )Income tax expense
      $
      ---
      
      $
      ---


The components of the deferred tax asset and deferred tax liability
  at June 30, 2007 are as follows:

Deferred Tax AssetFederal net operating loss carry forwards
      $
      12,631,859State net operating loss carry
        forwards
      
      1,548,016Valuation allowance
      
      (14,179,875
      )Net deferred tax asset
      $
      ---


At June 30, 2007, the Company had net operating loss carry forwards
  for Arizona income tax purposes of approximately $22.2 million (2006- $28.8
  million). These losses expire in varying amounts through June 30, 2012.

At June 30, 2007, the Company had net operating loss carry forwards
  for federal income tax purposes of approximately $40.0 million (2006 - $40.3
  million). These losses expire between June 30, 2019 and June 30, 2027.

NOTE 12 - RELIEF OF DEBT

During the year ended June 30, 2007, in addition to the settlement
  on the line of credit of $69,026 described in Note 8, the Company wrote off
  accounts payable and accrued compensation liabilities aggregating $513,961 that
  extended beyond the Statute of Limitations for collectability from approximately
  1 to 3 years. During the year ended June 30, 2006, the Company settled accounts
  payable resulting in relief of debt of $60,603.

NOTE 13  SUBSEQUENT EVENTS

On July 1, 2007, the Company signed a four month Financial Consulting
  Agreement (the Agreement) with an investor relations firm for a
  $30,000 fee for investors relation services and other compensation provisions
  relating to potential merger or acquisition transactions. The Agreement provides
  services in various areas of public relations, shareholder communications and
  marketing activities.

Pursuant to the terms and conditions of the senior secured convertible
  notes, the Company filed a SB-2 Registration Statement with the Securities and
  Exchange Commission (“SEC”) on March 26, 2007. The Registration
  Statement became effective on July 20, 2007.

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

The Company’s 2007 Equity Incentive Plan ("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 1989 Stock Option Plan,
  which terminated on April 30, 2007. The full text of the 2007 EIP is included
  in the definitive proxy statement DEF14A filed with the SEC on May 23, 2007.
  As of October 8, 2007, one executive officer, two non-employee board members
  and approximately five other employees and consultants are eligible to receive
  grants under the 2007 EIP.

F-23

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On July 25, 2007, the Company granted to a director options to
  purchase 100,000 shares of common stock at a price of $0.46 per share, the closing
  price of the stock on the date of grant. The options have a five year exercise
  period and vest twelve months from the date of grant. The options were valued
  at $37,849 using the Black-Scholes option pricing model and this amount will
  be expensed in the quarters over the vesting period. The options were valued
  using a volatility of 114.662%, a risk free interest rate of 4.8%, an expected
  life of 5.0 years and zero quarterly dividends.

Subsequent to June 30, 2007, the Company paid principal installments
  due on the senior secured convertible notes aggregating $945,420, with the issuance
  of 945,420 shares of the Companys common stock. The Company issued an
  additional 2,599,550 shares of the Companys common stock at an aggregate
  value of $922,582 to true-up the stock issued for the July through October 2007
  principal payments. In July 2007, the Company issued an additional 61,727 shares
  of the Companys common stock at an aggregate market value of $28,777 to
  true-up stock issued in June 2007 for the accrued interest payment due June
  30, 2007. The Company issued 84,527 shares of the Companys common stock
  as interest expense on the senior secured convertible notes aggregating $25,806
  for the interest due as of September 30, 2007. The aggregate value of the true-up
  shares issued and shares issued for interest aggregate $948,388, and this amount
  will be charged to interest expense in the quarter ended September 30, 2007.

F-24

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