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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-K

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

For the fiscal year ended June 30, 2011

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

For the transition period from _______to _______

Commission file number 001-12974

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

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

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

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

Securities registered pursuant to Section 12(g) of the Act:

Common stock, $.002 par value(Title of
class)

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

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

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

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

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

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

1

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

The aggregate market value of the Common Stock of Santa Fe Gold
Corporation held by non-affiliates as of the last business day of the
registrants most recently completed second fiscal quarter was $99,184,311.

As of September 13, 2011, there were 94,794,412 shares of common
stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None.

2

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TABLE OF CONTENTS

|            |                                                                                                      | Page
|----------- | ---------------------------------------------------------------------------------------------------- | ----
|            |                                                                                                      |     
|            |                                                                                                      |     
|            |                                                                                                      |     
|            |                                                                                                      |     
|            | PART I                                                                                               |     
|            |                                                                                                      |     
|ITEM 1:     | BUSINESS                                                                                             | 5   
|ITEM 1A:    | RISK FACTORS                                                                                         | 9   
|ITEM 1B:    | UNRESOLVED
      STAFF COMMENTS                                                                      | 15  
|ITEM 2:     | PROPERTIES                                                                                           | 16  
|ITEM 3:     | LEGAL PROCEEDINGS                                                                                    | 38  
|ITEM 4:     | SUBMISSION OF MATTERS TO A
      VOTE OF SECURITY HOLDERS                                            | 38  
|            |                                                                                                      |     
|            | PART II                                                                                              |     
|            |                                                                                                      |     
|ITEM 5:     | MARKET FOR COMMON EQUITY, RELATED
      STOCKHOLDER MATTERS AND PURCHASES OF EQUITY SECURITIES       | 38  
|ITEM 6:     | SELECTED FINANCIAL
      DATA                                                                        | 40  
|ITEM 7:     | MANAGEMENT'S DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION           | 41  
|ITEM 7A:    | QUANITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                      | 52  
|ITEM 8:     | FINANCIAL STATEMENTS AND SUPPLEMENTARY
      DATA                                                    | 53  
|ITEM 9:     | CHANGES IN
      AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE           | 96  
|ITEM 9A(T): | CONTROLS AND PROCEDURES                                                                              | 96  
|ITEM 9B:    | OTHER INFORMATION                                                                                    | 97  
|            |                                                                                                      |     
|            | PART III                                                                                             |     
|            |                                                                                                      |     
|ITEM 10:    | DIRECTORS,
      EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE                                        | 97  
|ITEM 11:    | EXECUTIVE AND DIRECTOR COMPENSATION                                                                  | 101 
|ITEM 12:    | SECURITY OWNERSHIP
      OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 103 
|ITEM 13:    | CERTAIN RELATIONSHIPS AND
      RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                      | 105 
|ITEM 14:    | PRINCIPAL
      ACCOUNTING FEES AND SERVICES                                                         | 106 
|            |                                                                                                      |     
|            | PART
      IV                                                                                        |     
|            |                                                                                                      |     
|ITEM 15:    | EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES                                                        | 106 
|            |                                                                                                      |     
|SIGNATURES  |                                                                                                      | 112 

ADDITIONAL INFORMATION

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

3

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CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

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

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

These risks and uncertainties and
other factors include, but are not limited to, those set forth under Item 1A.
Risk Factors. All subsequent written and oral forward-looking statements
attributable to the company or to persons acting on our behalf are expressly
qualified in their entirety by these cautionary statements. Except as required
by federal securities laws, we do not intend to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

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

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PART I

|ITEM 1. | BUSINESS
|------- | --------

History and Organization

Santa Fe Gold Corporation (Santa
Fe, "the Company, our or we) is a U.S. mining company, incorporated in
1991 in the state of Delaware. Our general business strategy is to acquire and
develop mining properties amenable to low cost production. Presently, we have
four projects: Our Summit silver-gold and Ortiz gold projects located in New
Mexico; and our Black Canyon mica and Planet micaceous iron oxide projects
located in Arizona. SeeItem 2. Propertiesfor more information
about our properties. We have constructed a mill and are developing an
underground mine at our Summit silver-gold project, which successfully began
processing ore in 2010. We expect commercial production to be achieved in Q4 of
calendar 2011. Information about the Company, including a link to our most
recent financial reports filed with the Securities and Exchange Commission
(SEC), can be viewed on our website at www.santafegoldcorp.com.

From July 1, 2006 through the
current date, we completed private placements of our common stock, and notes
convertible into our common stock, for amounts aggregating $2,856,757.
Additionally, in December 2007, we raised capital pursuant to a private
placement of convertible debentures aggregating $13,500,000. In September 2009,
we entered into a gold sale agreement with an investor that included an upfront
payment of $4,000,000. In January 2010 and December 2010, we raised $10,000,000
and $2,000,000 respectively through registered direct offerings pursuant to an
S-3 Registration Statement. In August 2011 we raised $5,000,000 through a senior
secured debt facility. We used the majority of the funds raised to acquire and
construct the Summit mine and Banner mill and for working capital. We anticipate
using currently available funds to continue these efforts. SeeItem
7. Managements Discussion and Analysis of Financial Condition and Results of
Operationfor more information.

Development of the Summit mine
and operation of the related Banner mill was the focus of our activities in
2011. In April 2007, we received results of a preliminary feasibility study
carried out by an independent geological engineering firm that concluded that
development of the Summit deposit would be economically viable. Capital cost was
estimated as $13.4 million.. In December 2007, we arranged a financing of $13.5
million by way of a private placement of senior secured convertible debentures.
We carried out construction activities during 2008 and 2009, including
development of the Summit mine and construction of the Banner mill. Underground
mine development is on-going. Commencement of processing operations at the
Banner mill began in April 2010 and commissioning of the mill proceeded
satisfactorily. Sales of ore as silica flux commenced in Q2 of calendar 2010 and
sales of precious metals flotation concentrates began in Q3 of calendar 2010.
During calendar 2011 we have sold products to smelters on a regular basis,
including silica flux under contract to an Arizona smelter and concentrates
under contract to a German smelter. We plan to ramp up production from the
Summit mine and increase throughput at the Banner mill, and expect the Summit
project to achieve commercial production in Q4 of calendar 2011. As of June 30,
2011, we have approximately $68.5 million in federal and state tax loss
carry-forwards to shelter income taxes otherwise payable.

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

Please refer to the last section
  of ITEM 2:  PROPERTIESof this report for a glossary of certain
  terms used herein.

Recent Developments

On September 6, 2011, we entered into
  a Memorandum of Understanding with Columbus Silver Corporation (TSXV: CSC) (Columbus
  Silver) pursuant to which Santa Fe has conditionally agreed to acquire
  all of Columbus Silvers outstanding common stock for a cash amount of
  Cdn $0.20 per outstanding share in a transaction currently valued at Cdn $9,977,285.
  Until closing of the transaction, Santa Fe has agreed to provide bridge financing
  to Columbus Silver to fund leasehold payments and for working capital, which
  through the end of December 2011 totals $513,716.

5

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The Memorandum of Understanding
  contemplates a business combination by way of a Plan of Arrangement, which is
  subject to Canadian court approval. In addition, the proposed transactions are
  subject to the final approval of the boards of directors of Santa Fe and Columbus
  Silver, stock exchange and regulatory approvals, Columbus Silver shareholder
  approval and Santa Fes commitment of the required funding. If Santa Fe
  does not notify Columbus Silver by November 30, 2011 that it has obtained a
  firm commitment for the required funding, Columbus Silver will have the option
  to terminate the acquisition. On September 8, 2011, in relation to the transaction
  with Columbus, we filed a Current Report on Form 8-K.

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

On August 2, 2011, we entered into a financing agreement and closed a $5 million senior secured loan (“Loan”) with Victory Park Capital Advisors, LLC, an investment firm that acts as investment manager on behalf of one or more entities. We received net proceeds of $4,555,000 after deducting fees and expenses. The Loan bears interest at 15% per annum payable monthly in arrears. The Loan matures and comes due upon the six month anniversary of the closing date. We may repay the Loan at any time without penalty. We paid a 5% commitment fee at closing and an agent fee of 3.5%. The senior obligations are secured by a first priority lien on the stock of Santa Fe’s subsidiaries and on liens covering substantially all of the assets of the company, including the Summit silver-gold project, the Black Canyon mica project and the Planet micaceous iron oxide project. The company agreed that any equity it raises in excess of $5 million must be applied to repayment of the loan. In connection with the Loan, we issued warrants to purchase 500,000 shares of our common stock. The warrants have an exercise price of $1.00 per share and a term of five years. On August 9, 2011, in relation to the financing agreement, we filed a Current Report on Form 8-K.

On May 18, 2011 at Santa Fes
Annual Meeting of Stockholders, stockholders approved an amendment to our
Certificate of Incorporation to change the number of authorized shares of common
stock from 200,000,000 shares to 300,000,000 shares.

On January 11, 2011, we announced a contract with ASARCO LLC (Asarco) to sell 12,000
tons of siliceous flux material for delivery during 201l. The contract was
valued at up to $4.0 million. The siliceous flux is shipped to Asarcos smelter
in Hayden, Arizona. The flux material is processed for precious metals recovery
and we are paid for the contained silver and gold less customary charges. The
sales agreement was reached following a successful smelting trial of an initial
1,000 tons of siliceous flux shipped to Asarco in 2010. Sale of siliceous flux
material involves direct shipment of Summit ore with only minimal processing
required.

On December 23, 2010, we
announceda contract with Aurubis AG (Aurubis), Europes
largest copper and precious metals smelter, to sell approximately 240 tons of
high-value precious metal concentrates for delivery during 2011. The contract
was valued at approximately $9.0 million. The sales agreement was reached
following a successful smelting trial of an initial 20 tons of concentrate
shipped to Aurubis in October 2010. The concentrates are produced at our
Lordsburg flotation mill from ore mined at the Summit mine.

On December 29, 2010, we entered
into definitive agreements with institutional investors to purchase $2.0 million
of securities in a registered direct offering. We received net proceeds of
approximately $1,880,000 after deducting placement agent fees and other offering
expenses. The securities were offered pursuant to an effective S-3 Registration
Statement. The Company sold to the investors an aggregate of 1,666,668 shares of
its common stock, and warrants to purchase up to 833,334 additional shares of
common stock. Each unit, consisting of one share of common stock and one-half of
a warrant to purchase a share of common stock, was sold for a purchase price of
$1.20. The warrants to purchase additional shares are exercisable at an exercise
price of $1.50 per share and have a term of 5 years.

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

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

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

On June 28, 2011, we entered into
Amendment 2 for the definitive gold sale agreement with Sandstorm Gold, Ltd. The
amendment extended the delivery date for the additional 700 ounces of gold
agreed upon in Amendment 1 from June 30, 2011 until October 15, 2011. In
exchange for the deferred delivery date we agreed to pay a per diem of 3 ounces
of gold for each day the additional 700 ounces of gold under Amendment 1 remain
outstanding past June 30, 2011 until the actual date of delivery, no later than
October 15, 2011. Based upon the sale terms of the agreement, the Company
recorded an accrued liability of $773,850 based upon the closing gold price on
June 30, 2011.

On August 9, 2011, we delivered
817 ounces of gold to Sandstorm in accordance with Amendments 1 and 2 of the
definitive gold sales agreement, including 700 ounces related to Amendment 1 and
117 ounces for 39 days of per diem related to Amendment 2. The net cost of
delivering the gold after receiving payment from Sandstorm of $400 per ounce
delivered was $1,075,785. In order to recognize the final cost of delivering the
gold, the accrued liability of $773,850 at June 30, 2011 will be adjusted by an
additional $301,935 in Q1 of fiscal 2012.

On December 21, 2007, we entered
into a definitive agreement for the placement with a single investor of senior
secured convertible debentures in the amount of $13,500,000. Proceeds from the
debentures were used primarily for the development of the Summit project. The
debentures were issued in accordance with a pre-determined funding schedule. The
term of the debentures is 60 months. In fiscal 2009 we received advances
aggregating $8,150,000, bringing the total received to $13,500,000 since
inception.

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

Competitive Business Conditions

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

Government Regulations and Permits

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

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

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

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

With respect to the permits
required for the Summit project mentioned above, as well as permits for the
Ortiz project and for our other projects, we may be unable to obtain such
permits in a timely manner, on reasonable terms, or at all. If we cannot obtain
or maintain the necessary permits, or if there is a delay in receiving such
permits, our timetable and business plan for development and mining of these
properties could be adversely affected. SeeItem IA. Risk Factorsfor more information.

Employees

We currently have 53 full-time
employees, including our executive officer, head office support staff and
Lordsburg management and operating personnel. We also engage consultants and
independent contractors in connection with financial accounting, construction,
and exploration and development of our mining properties.

Office Facilities

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

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|ITEM 1A. | RISK FACTORS
|-------- | ------------

This report, including Managements
  Discussion and Analysis of Financial Condition and Results of Operation, contains
  forward looking statements that may be materially affected by numerous risk
  factors, including those summarized below:

Risk Factors Related to Our Business and Operations

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

Since our inception in 1991, we
have not been profitable. As of June 30, 2011, our total accumulated deficit was
approximately $59.7 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. If our
plans to achieve commercial production at our Summit mine are not successful, it
could be years before we receive significant revenues from industrial mineral or
precious metals production. We may suffer significant additional losses in the
future and may never be profitable. There can be no assurance we will receive
significant revenue from operations in the foreseeable future, if at all. Even
if we do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis.

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

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

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

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

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

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

We currently have established only
  limited probable reserves on the Summit silver-gold property and have not established
  proven or probable reserves on the Ortiz gold property. A reserve,
  as defined by regulation of the SEC, is that part of a mineral deposit that
  can be economically and legally extracted or produced at the time of the reserve
  determination. A reserve requires a feasibility study demonstrating with reasonable
  certainty that the deposit can be economically and legally extracted and produced.
  We have not received feasibility studies nor obtained necessary operating permits
  with regard to the Ortiz gold property. As a result, we have no reserves at
  the Ortiz gold property.

9

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At the Summit silver-gold
property, a qualified independent engineering firm has completed a
pre-feasibility study that concluded there would be minimal risk in proceeding
to development and mining on the basis of estimates of mineralized material.
Subsequently, we have established probable reserves. However, the
pre-feasibility stage estimate carries significant risks associated with factors
including but not limited to the following:

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

Although preliminary studies
carried out on the Ortiz gold property 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 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.

10

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During the last five years, the
  average annual market price of gold has progressively increased from $603 per
  ounce to $1225 per ounce, as shown in the table below:

Average Annual Market Price of Gold,
      2006-20102006
    2007
    2008
    2009
    2010$ 603
    $ 695
    $ 872
    $ 972
    $ 1225


During the last five years, the
average annual market price of silver has progressively increased from $11.55
per ounce to $20.19 per ounce, as shown in the table below:

Average Annual Market Price of Silver,
      2006-20102006
    2007
    2008
    2009
    2010$ 11.55
    $ 13.38
    $ 14.99
    $ 14.67
    $ 20.19


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

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

Mining and processing operations
at the Summit silver-gold property or at the Ortiz gold property would require
permits from the state and federal governments. We may be unable to obtain such
permits in a timely manner, on reasonable terms, or at all. If we cannot obtain
or maintain the necessary permits, or if there is a delay in receiving such
permits, our timetable and business plan for development and mining of one or
both of these properties could be adversely affected.

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

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

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

Under the terms of our lease with
  Ortiz Mines, Inc., we are required to meet certain obligations as is common
  in a mineral lease of this type. Among other requirements, we must begin mineral
  production by February 2015 (February 2022 in certain circumstances), make annual
  payments, pay a sliding-scale production royalty based on the price of gold
  and comply with all governmental permitting and other regulations. If we fail
  to make payments in a timely manner or to perform our other obligations as required
  under the lease, we are at risk that the lease could be cancelled.

The reserve estimations at our
Summit property are imprecise.

Although we have relied on expert
independent consultants to calculate the reserve estimations disclosed in our
reports, such estimations are necessarily imprecise because they depend upon the
judgment of the individuals who review the geological and engineering
information and upon statistical inferences drawn from only limited drilling and
sampling. If the Summit mining operation were to encounter mineralization or
geologic conditions different from those predicted, reserve estimations might
have to be adjusted and mining plans altered. Changes to the planned operations
could adversely affect forecast costs and profitability.

The future prices of mica and
feldspathic sand are uncertain.

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

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

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

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

The development and
completion of our properties entail significant risks.

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

12

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

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

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

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

13

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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 nine
persons, namely Mr. Olson, our chairman; Mr. Pierce Carson, our president and
chief executive officer and principal financial officer; Mr. Martinez, our
controller; Mr. Ryan Carson, manager of legal affairs; Mr. Anderson, technical
manager mining of our Summit project; Mr. Freeman, senior consultant; Mr.
Billingsley, mine superintendent; Mr. Dalton, assistant mine superintendent; and
Mr. Floyd, mill superintendent. We rely heavily on these nine individuals for
the conduct of our business, and the loss of any of them could significantly and
adversely affect our business. In that event, we would be forced to identify and
retain a suitable replacement, which we may not be able to accomplish on terms
acceptable to us. We have no life insurance on the life of any officer.

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

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

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

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

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Risks Related to our Common Stock

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

Due to a number of factors,
including the lack of listing of our common stock on a national securities
exchange, the trading volume in our common stock has historically been limited.
Trading volume over the last 3 months has averaged approximately 62,000 shares
per day. As a result, the sale of a significant amount of common stock by
selling shareholders may depress the price of our common stock and the price of
our common stock may decline.

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

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

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

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

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

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

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

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

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

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

|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None.

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|ITEM 2. | PROPERTIES
|------- | ----------

Summit Silver-Gold Project

Overview

Santa Fe Gold acquired the Summit
silver-gold project in May 2006. The project includes the underground Summit
silver-gold mine and related property consisting of 117 acres of patented mining
claims and 740 acres of unpatented mining claims in Grant County, southwestern
New Mexico; and the Banner mill, including mineral processing equipment
consisting of a crushing and screening plant, a ball mill and a 400 ton-per-day
flotation plant, and related property consisting of approximately 1,500 acres of
wholly owned and leased patented and unpatented mining claims, located
approximately 57 miles south of the Summit mine near Lordsburg, Hidalgo County,
New Mexico. We own and operate the Summit project under the Lordsburg Mining
Company, a wholly-owned subsidiary.

Construction of the Banner mill
and development of the Summit mine have been the focus of our activities since
2008. In April 2007, we received results of an engineering study that concluded
the Summit deposit would form the basis of an economically viable underground
mining operation. In December 2007, we arranged financing of $13.5 million by
way of a private placement of senior secured convertible debentures. We began
construction activities during 2008, including development of the Summit mine
and construction of the Banner mill. Ore generated in the process of developing
the mine was stockpiled for later processing. Construction of the Banner mill
was completed in mid-2009 and construction of the tailings disposal impoundment
was completed in early 2010. We commenced processing operations at the Banner
mill in April 2010. Trial sales of ore as silica flux material commenced in the
second quarter of 2010 and trial sales of precious metals flotation concentrate
began in the third quarter of 2010. Mine development including limited mining of
Summit ore is on-going, and at the end of June 2011 we had constructed over
8,000 feet of new underground openings. We expect to ramp up production from the
Summit mine and to achieve commercial production in Q4 of calendar 2011.

The Summit mining and processing
operation involves underground mining of silver and gold ore from the Summit
mine and trucking of the ore 57 miles to the Banner mill site where
metallurgical processing takes place. At full production, mining is planned to
be carried out at a rate of 400 tons per day (120,000 tons per year). At the
Banner site, processing is accomplished through conventional crushing, grinding
and selective flotation to yield a bulk sulfide concentrate containing the
recoverable precious metals.

Since start-up in April 2010, the
mill has demonstrated the ability to produce a high value gold-silver
concentrate that averages around 10 ounces per ton gold and 600 ounces per ton
silver. We are marketing this concentrate under a sales contract for 2011 to a
German smelter and plan to sell concentrate to other smelters as well. We also
are producing siliceous flux material, involving crushing and screening of
Summit ore, and then direct shipping of the resulting beneficiated product to
copper smelters for use as smelter flux. We sold siliceous flux material to two
Arizona smelters in 2010 and entered into a contract with one of the smelters
for sales during 2011. Sales of siliceous flux material are in addition to sales
of concentrate produced at the Banner mill.

Location and Access

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

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

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

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

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Figure X.1

Claim Boundary Map



17

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Mineral Title

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

In order to maintain our claims
in good standing, for our patented mining claims we must pay annual property
taxes to Grant and Hidalgo Counties, and for our unpatented mining claims we
must pay annual assessment fees to the Bureau of Land Management and record the
payment of rental fees with Grant and Hidalgo Counties. We are current on
property taxes related to our patented claims. Annual assessment and recording
costs for our unpatented claims total approximately $10,500. We have paid the
required fees for the 2011 and 2012 assessment years (September 1, 2010 through
August 31, 2012).

The Summit property is subject to
underlying net smelter return royalties capped at $4,000,000 and to a
net-proceeds interest on sales of unbeneficiated mineralized rock with an end
price of $2,400,000. The Summit acquisition is subject to a property
identification agreement between us and our President and Chief Executive
Officer.SeeItem 13. Certain Relationships and Related
Transactions.

History of Mining and
Exploration

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

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

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

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Exploration work estimated to
have cost in excess of $8.0 million was carried out on the Summit silver-gold
property from 1984-1992. This work included drilling totaling 104,700 feet on
the Summit and adjacent structures, of which 78,000 feet was directed to the
Summit structure. In 1984-85, Inspiration Mines Inc. reportedly spent about $1.5
million conducting underground development, shallow core drilling and sampling
and mapping. In 1988-89, Novagold Resources Inc. reportedly expended
approximately $2.0 million in surface and airborne geophysical surveys,
underground mapping and sampling, and core drilling. Novagolds drilling
identified a significant block of mineralized material in the Summit vein. From
1989-1992, Biron Bay Resources Ltd., in joint venture with Novagold, conducted
extensive exploration, drilled 88 core holes, and reportedly spent over $5.0
million extending and improving the level of confidence in the mineralized
material at the Summit vein and in defining exploration potential in adjacent
and outlying vein structures.

Geology and
Mineralization

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

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

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

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

Ore Reserve

Chapman, Wood and Griswold, Inc.
(CWG), an independent geological engineering firm, has carried out studies and
reviews of the reserve/resource classification of Summit mineralization. In
February 2010, CWG concluded that a portion of the mineralized material in the
footwall zone can be classified as a Probable Reserve under the SECs Industry
Guide 7, sufficient for a mine life of five years at the planned rate of
production, as follows:

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|                            |  | Probable Reserve
      (Footwall Zone) | 
|--------------------------- |  | -------------------------------------- | 
|                            |  | Tons                                   | 
|                            |  |                                        | 
|Inplace, diluted(2)(3)      |  | 686,750                                | 
|Minable @ 90% extraction    |  | 618,075                                | 
|Ounces in conc. at 80% rec. |  |                                        | 

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

Mineralized Material

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

|   |  |                                                                                                                                |  |  | Tons    |  |  | Grade (oz/ton) | 
|-- |  | ------------------------------------------------------------------------------------------------------------------------------ |  |  | ------- |  |  | -------------- | 
|   |  |                                                                                                                                |  |  |         |  |  | Au             | 
|   |  |                                                                                                                                |  |  |         |  |  |                | 
|1. |  | Single-hole,
      isolated blocks within the footwall zone; inplace, diluted.                                                 |  |  | 71,380  |  |  | 0.144          | 
|2. |  | Mineralization peripheral to the
      Probable Reserve in the footwall zone; inplace, diluted.                                |  |  | 370,000 |  |  | 0.067          | 
|3. |  | Mineralization in
      a hangingwall section of the structure; inplace, undiluted at a 5-foot
      minimum horizontal width. |  |  | 196,000 |  |  | 0.092          | 

CWG stated this mineralized
material has the potential to be upgraded to Reserve status following further
definition by drilling and/or underground development.

Project Economic
Estimate

At gold and silver prices of
$1,000 and $16.67 respectively, and assuming 80% metallurgical recovery, in May
2011 CWG estimated Summit revenues over an initial five-year mine life would
total approximately $144 million, and direct operating profit would total
approximately $91 million. Payback of capital would be achieved in the third
calendar quarter of 2012. The Company has $68.5 million in tax loss
carry-forwards to shelter federal and state income taxes otherwise payable.
Direct operating costs were estimated as $84.50 per ton of ore milled or $364
per ounce of gold equivalent produced. The total capital cost to bring the mine
into production was estimated as $18.5 million, of which $15.8 million had been
spent as of December 31, 2010. The estimated capital cost is inclusive of mine
development, mill construction, bonding requirements, and project management and
working capital. CWG estimated the project could be brought into full production
during 2011.

Metallurgical
Testing

Conventional processing including
crushing, grinding and milling of Summit ore to produce a bulk sulfide flotation
concentrate containing the recoverable precious metals was evaluated and tested
at bench scale. Preliminary bench scale flotation tests indicated that a
precious metals recovery of 80-86% with a concentration ratio of 70 to 1 would
be reasonably achievable. Operating results to date at the Banner mill support
the conclusions of the previous bench scale testing, although metallurgical
recoveries to date have been relatively low due to processing of low grade
development ore and of oxidized ores. Currently we are marketing the concentrate
to a smelter, but believe that alternatively the concentrate could be treated to
produce either a dore or pure gold and silver metal products, or could be
marketed to a third-party precious metals processing operation for final
extraction of gold and silver.

Processing for silica flux material
  requires only crushing and screening of the ore to yield a specified size fraction
  upgraded in silica content to meet smelter requirements. Along with the higher
  silica content, the precious metals content also is upgraded in the silica flux
  material. After crushing and screening, the crushed material that does not meet
  smelter specifications for silica flux is processed through the flotation plant.

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Mineral Processing
Equipment

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

Permits

With the purchase of Lordsburg
Mining in 2006, we acquired existing operating permits for the Summit property
and the Banner mill site. The New Mexico Mining and Minerals Division issued
these permits to Lordsburg Mining pursuant to the New Mexico Mining Act. We
modified and revised these permits as necessary in order to commence mining at
the Summit mine and resume mineral processing operations at the Banner mill.

Permit No. GR001ME at the Summit
mine allows operation of a minimal impact mine. As surface disturbance
expands, it will be necessary to modify the permit and to post financial
assurance for reclamation. Pursuant to the current permit, we are conducting
underground mining operations.

Permit No. H1001RE at the Banner
mill site is for an existing mining operation and authorizes us to conduct
mining and reclamation operations according to the conditions stipulated in the
permit. We have addressed all proposed mining disturbances under a closeout plan
secured by financial assurance. We applied for and received modification and
revision of the permit to allow resumption of flotation milling, construction of
a tailings impoundment and discharge of tailings. We also have applied or will
apply for other necessary permits, including air quality permits for the Banner
mill and Summit mine.

Development
Activities

In December 2007 we arranged for
$13.5 million in capital for project development. We carried out construction
activities in 2008 and 2009. Underground mine development is on-going. The
Banner mill began processing operations in April 2010.

At the Summit mine, a seven
hundred foot long 12 x 13 decline ramp intersected the predicted mineralized
body in February 2009. Since then, we have proceeded to drive two development
headings in the main mineralized structure, one an incline to the southeast
planned to intersect old workings and to serve as a secondary escape and a
source of additional ventilation, and the other a decline to the northwest
toward additional mineralized bodies identified in previous drilling. Over 8,000
feet of underground development has been accomplished and work is proceeding on
several headings. The southeastern heading achieved its objectives in October
2009. The northwestern heading encountered the southern extensions of the
predicted mineralized bodies in August 2009. Stope development and test mining
of ore bodies has been carried out and an ore panel, containing approximately
140,000 tons of ore, is being developed for extraction by blasthole stoping.
Blasthole drill levels have been driven in this panel at vertical intervals of
50 feet at four elevations, with the objective of beginning blasthole stoping
operations and ramping up production to the full production rate of 400 tons per
day during Q4 of calendar 2011. Assays of mineralized bodies encountered to date
show variable silver and gold values, with occasional very high grades
encountered, as is to be expected from this style of epithermal mineralization.
Mineralized material encountered in mine development activities is segregated at
the mine and trucked to the Lordsburg mill site. Development operations are
proceeding on the basis of two 10-hour shifts seven days a week.

At the Banner mill, processing
operations commenced in April 2010. Commissioning of the mill proceeded
satisfactorily. Sales of ore as silica flux and sales of precious metals
flotation concentrates began in 2010. Ramp-up of mill throughput is planned to
occur in conjunction with increased output from the Summit mine. We expect that
the Summit project to achieve commercial production in Q4 of calendar 2011.

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Potential Expansion of Proposed
Initial Operation

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

Ortiz Gold Project

Overview

In August 2004, Santa Fe acquired
exclusive rights for exploration, development and mining of gold and other
minerals on 57,267 acres (approximately 90 square miles) of the Ortiz Mine Grant
in Santa Fe County, New Mexico. In November 2007, we relinquished 14,970 acres
and retained under lease 42,297 acres (66 square miles). Drilling by other
companies from 1989-1992 identified gold mineralization in several deposits.

In December 2005, using
historical resources and pit designs, we received the results of an independent
scoping study for the open pit mining of approximately 1.0 million ounces of
gold from 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 indicated a favorable gold project
employing high pressure grinding rolls with gravity recovery and contract
mining. The report also stated that considerable upside existed in estimations
of mineralized material in both contained ounces and grade. We currently have
not established proven or probable reserves on the Ortiz gold property. The
historical mineral resources, pit designs and December 2005 scoping study are
not compliant with SEC Guide 7 or Canadian NI 43-101. They should not be relied
upon and Santa Fe does not treat them as current.

We plan to proceed with studies
necessary to advance the Ortiz project. This work will include an assessment of
the historical resources that were calculated from previous drilling,
metallurgical testing and design of conceptual open pits for the Carache and
Lucas deposits. This work will form the basis for further evaluation of mining
and processing options and a preliminary economic assessment. We also intend to
begin an assessment of permitting and environmental issues, which would be
important for any mining development.

The geology of the unusually
large area under Santa Fes control is prospective for several styles of gold
deposits and offers promising exploration potential for discovery of additional
deposits.

Location and Access

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

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

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

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Figure X.2

Claim Boundary Map



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Mineral Title

On August 1, 2004, we entered into an option and lease agreement with Ortiz Mines, Inc. (“Ortiz Mines”), a New Mexico corporation, whereby we acquired exclusive rights for exploration, development and mining of gold, silver, copper and other minerals on 57,267 acres (approximately 90 square miles) of the Ortiz Mine Grant in Santa Fe County, New Mexico. In November 2007, we relinquished 14,970 acres and retained under lease 42,297 acres (66 square miles). We paid an initial sum of $20,000 for a six-month option, and on February 1, 2005, paid the additional sum of $30,000 in order to exercise the option and enter into the lease and also to satisfy the obligation of the first year’s lease payment. Since February 1, 2006, we have paid annual lease payments, the last payment of $130,000 in January 2011 satisfying the lease payment through January 31, 2012.

On May 1, 2010, we agreed with
Ortiz Mines, Inc., to amend the terms of the lease. Under the amended terms, the
lease provides for an extension of the initial term from seven to ten years (17
years in certain circumstances), continuing year-to-year thereafter for so long
as we are producing gold or other leased minerals in commercial quantities and
otherwise are performing our obligations under the lease. Among other terms, the
amended lease provides for annual lease payments of $130,000; a sliding-scale
production royalty varying from 3% to 5% depending on the price of gold; the
requirement that we comply with governmental permitting and other regulations;
and other terms common in mining leases of this type. The Ortiz gold project is
subject to a property identification agreement between us and our President and
Chief Executive Officer. SeeItem 13.  Certain Relationships and
Related Transactions.

On August 31, 2011, the Company filed a Complaint in the United States District Court for the District of New Mexico against Ortiz Mines, Inc., in connection with Ortiz Mines purported termination of the Company’s exclusive leasehold rights to explore, develop and mine gold, silver, copper and other minerals on the Ortiz Mine Grant in Santa Fe County, New Mexico and Ortiz Mines’ demand for significant additional consideration to allow the lease to continue.  See Item 1. “Recent Developments”.

History of Mining and
Exploration

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

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

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

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

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

Independent Mining Consultants,
Inc. (IMC), an independent geological engineering firm, was engaged by the
LAC-Pegasus Joint Venture to audit estimations of the quantities and grades of
in-place resources at the Carache and Lucas deposits and to prepare conceptual
open pit mine plans. In 1992, IMC estimated the Carache gold deposit, within the
boundaries of a conceptual open pit, to contain a resource of 11.8 million tons
grading 0.060 ounces of gold per ton, with a waste-to-ore stripping ratio of
8.3:1. IMC estimated the Lucas gold deposit, within the boundaries of a
conceptual open pit, to contain a resource of 7.6 million tons grading 0.043
ounces of gold per ton and 0.22% copper, with a stripping ratio of 2.2:1. The
historical figures presented herein are not NI 43-101 compliant. They should not
be relied upon and Santa Fe Gold does not treat them as current mineral
resources or mineral reserves as defined in sections 1.2 and 1.3 of NI 43-101.
Santa Fe has reviewed the reports describing the historical work conducted and
believes the work to have been carried out in a professional manner and to be
both relevant and reliable, however has not independently verified the work and
a qualified person has not done sufficient work to classify the historical
estimate as current mineral resources or mineral reserves. IMC classified the
majority of the resources in the two pits as Proven and Probable, using
indicator kriging as the estimation method, and the remaining as Possible,
using polygonal calculation. Santa Fe believes IMCs resource classifications of
Proven and Probable and Possible correspond approximately to the NI 43-101
section 1.2 resource definitions of Measured and Indicated and Inferred,
respectively. Reserves have not been established on the Ortiz deposits, and
under SEC Guideline 7, all of the mineralization described above as a resource
more properly should be referred to as mineralized material.

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

Geology and
Mineralization

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

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

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

25

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- Lead  zinc  silver veins at the Cash Entry and other old mines north of
  Cerrillos.
- Lead  zinc  silver pipe-like mantos in limestone at the Carnahan mine,
  San Pedro area.
- Molybdenite in stockworks and fractures in the San Lazarus monzonite
  stock, San Pedro area.
- Placer gold deposits on Cunningham Mesa, on the northern pediment of the
  San Pedro Mountains, and in most of the arroyos draining the Ortiz and San
  Pedro Mountains.

At the Carache gold deposit,
relatively coarse-grained free gold is contained in open space fractures
developed in four gently dipping andesite porphyry sills and a sandstone unit
around the collapsed margins of a breccia pipe. At the Lucas gold-copper
deposit, mineralization occurs in garnet skarn developed in a limestone unit,
the outcropping portion of which forms a dip slope at the surface.

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

Scoping Study of the Carache and
Lucas Gold Deposits

In October 2005, we commissioned
Mineral Advisory Group, LLC (MAG) of Tucson, Arizona, an independent
geological engineering firm, to carry out an engineering review and scoping
study of the Carache and Lucas gold deposits, utilizing as a technical base the
information generated by the LAC-Pegasus Joint Venture in 1989-1991. MAGs
study, which was completed in December 2005, assessed various processing options
for development and provided estimations of capital and operating costs for each
option. It also included an economic analysis complete with sensitivities on
gold price, capital and operating costs.

The MAG report was prepared in
accordance with different standards than those prescribed by rules of the SEC.
The SEC only permits the disclosure of proven or probable reserves, which in
turn, require the preparation of a feasibility study demonstrating the economic
feasibility of mining and processing the mineralized material. We have not
received a feasibility study with regard to our Ortiz property. We currently
have not established proven or probable reserves on the Ortiz property.

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

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

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

The historical resource figures
presented herein and the MAG December 2005 Scoping Study are not NI 43-101
compliant. They should not be relied upon and Santa Fe does not treat the
resources as current mineral resources or mineral reserves as defined in
sections 1.2 and 1.3 of NI 43-101. Santa Fe Gold has reviewed the reports
describing the historical work conducted and believes the work to have been
carried out in a professional manner, however the LAC-Pegasus Joint Venture
calculated resources using a polygonal method and results show significantly
lower grades as compared to those in IMCs study described above, which employed
indicator kriging. As the IMC methodology may provide more accurate resource
estimations, the LAC-Pegasus Joint Venture estimate may not be relevant or reliable. Santa
Fe Gold has not independently verified the work and a qualified person has not
done sufficient work to classify the historical estimate as current mineral
resources or mineral reserves. The LAC-Pegasus Joint Venture classified the
majority of the resources in the two pits as Proven and Probable, and the
remaining as Possible, using a polygonal method. Santa Fe believes the
resource classifications of Proven and Probable and Possible correspond
approximately to the NI 43-101 section 1.2 resource definition of Measured and
Indicated and Inferred, respectively.

26

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Permitting

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

Work Program

Over the next 12 months, we plan
to conduct additional studies necessary to advance the Ortiz project. The work
planned includes carrying out a NI43-101 report and preliminary economic
assessment of the Carache and Lucas gold deposits. The study will include
bringing current the historical resources from previous drilling, additional
metallurgical testing, and redesign of open pits. We plan also to proceed with
surface access agreements and to begin baseline environmental surveys. Results
from these studies will form the basis for further evaluation of development
options. We expect this work to form a sound basis upon which to formulate plans
and budgets for advancement of the Carache and Lucas gold deposits.

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

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

Black Canyon Mica Project

Overview

Santa Fe acquired the Black
Canyon mica project in 1999 and spent $15 million in establishing mining and
processing facilities at the mine site north of Phoenix, Arizona, and at a
separate processing plant in Glendale, Arizona. In 2002, we commissioned the
processing facilities at the mine site and in Glendale, operated for several
months on a test basis and achieved limited production and commercial sales.
However, design capacity of the processing facilities was not achieved due to
undercapitalization. In November 2002, after unsuccessful attempts to raise the
additional capital necessary to expand plant capacity in order to reach design
capacity and to provide working capital, we suspended crushing and concentrating
activities at the Black Canyon mica mine. After the suspension of operations,
limited production, marketing and sales continued through 2005 at the Glendale
mica processing facility using inventoried mica. Subsequently, we removed the
processing equipment from the Glendale plant and Black Canyon mine and placed it
into storage.

While it operated on a test basis
in 2002, the project achieved limited production and commercial sales. The
operation was successful in achieving two important objectives. First, it
demonstrated the facilities were capable of producing the planned range of
products. Second, it validated the high quality and market acceptability of the
two main product lines, namely high-end wet-ground mica, targeted for high value
applications in the plastics and cosmetic industries; and feldspathic sand,
targeted for the Phoenix construction and recreational markets.

In 2003-2005, Santa Fe sold, from
  inventory, limited quantities of its engineered mica-filled plastic pellets
  and mica powders to a number of companies, including Dupont Canada and Revlon.
  The commercial orders to Dupont followed a program of testing and product development
  conducted jointly with Dupont. Dupont used Santa Fe Golds plastic pellets
  in its own formulations to produce plastic end products that it supplied to
  the automotive industry. Santa Fe Gold also supplied its high quality mica powder
  to the cosmetic industry through distributors, with Revlon as one of the important
  customers.

In 2003, we sold our entire inventory
  of feldspathic sand to customers in the Phoenix area.

Santa Fe is seeking a joint venture
  partner to contribute new funding in the amount of $10.0 million to reinstall
  the mica processing equipment at a new location, to upgrade and expand the mining
  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.

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.

27

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Figure X.3

Claim Boundary Map





28

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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.

In order to maintain our claims
in good standing, we must pay annual assessment fees to the Bureau of Land
Management and record the payment of rental fees with Yavapai and Maricopa
Counties. Annual assessment and recording costs total approximately $11,000. We
have paid the required fees for the 2011 and 2012 assessment years (September 1,
2010 through August 31, 2012).

Mining and Processing
Facilities

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

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

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

29

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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. We have completed reclamation of the mining site as required under the
Plan of Operations.

Geology and
Mineralization

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

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

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

Estimation of Mineralized
Material

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

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

Mica

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

30

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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. The project is designed to produce 180,000 tons of feldspathic
sand products annually. The demand for manufactured sand in the Phoenix
construction market has decreased significantly in recent years because of the
collapse in the housing market.

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.
The location of our Black Canyon mine only 30 miles from Phoenix may provide a
transportation cost advantage over competitors who import sand into Arizona.

Work Program

Over the next 12 months, we plan
to seek a joint venture partner to contribute the estimated $10.0 million in new
funding necessary to advance the Black Canyon mica project to full production.
The new funding would be used to fund an updated feasibility study, re-establish
crushing and concentrating facilities at the Black Canyon mine, install the mica
processing equipment at a new location and upgrade and expand the mining and
processing facilities in order to reach planned capacity and to provide working
capital. These expansions are required in order to achieve the higher throughput
necessary for sustained economic operation. As an alternative to arranging the
$10.0 million of new funding required for production, we are seeking to divest
of the project.

Planet Micaceous Iron Oxide (MIO) Project

Overview

In 2002, Santa Fe leased the
Planet property for its potential to produce micaceous iron oxide (MIO). In
August 2008, we exercised our option to purchase the property. The Planet
property consists of thirty-one patented mining claims totaling 523 acres
located in western Arizona.

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 is an
increasingly recognized eco-friendly base pigment used in coating systems on
many of the worlds largest bridges, oil rigs, production platforms,
transmission towers, pipelines, industrial plants and superstructures.

Results of work to date indicate
the Planet property contains an exceptional MIO deposit, one of the largest
deposits of its kind in the world and unique to North America. It contains both
high grade and large tonnage. The deposit appears to have the characteristics
necessary to produce MIO from open pit mining at a relatively low production
cost as compared to commercial operations currently in production. Metallurgical
work suggests that a high quality MIO product can be successfully produced. For
these reasons, we believe the project appears to exhibit significant 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.

As the work to date has yielded
encouraging results, 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. The labor force required
  for a plant operation could be sourced locally.

31

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Figure X.4

Claim Boundary Map



32

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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, with an option to
purchase, in September 2000 from the underlying owner, New Planet Copper Mining
Company, for its potential to produce MIO. In 2008, in settlement of a dispute
with the owner, we agreed to exercise our option to purchase the property for
the purchase price of $250,000. We paid an initial purchase payment of $50,000
in 2008 and payments of principal and interest of $63,094 each in 2009, 2010 and
2011. One payment of $63,094 remains to be paid in 2012. There also is provision
for a 5% royalty to be paid on any future production.

History of Mining and
Exploration

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

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

Work Completed

Work completed since acquisition
of the project includes 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.

33

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Geology and Mineralization

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

The mineralized bodies form
discontinuous lenses, irregular bodies and veins that individually are as much
as 700 feet long, 250 feet wide, and 50 feet thick. Mineralized material
consists dominantly of specularite and massive hematite with some limonite,
malachite, azurite, chrysocolla, and minor pyrite, chalcopyrite, bornite, gold,
and silver. Associated minerals include quartz and calcite. The mineralized
material is silicified and very hard at the surface and to a depth of ten feet,
but underground it is soft and powdery.

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

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

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

Conceptual Mining and Processing
Plan

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

Micaceous Iron Oxide

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

34

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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. Lack of a domestic source of MIO has forced U. S. paint manufacturers to
depend on imports and has restricted market expansion for MIO. The Planet
project, if developed, would establish a domestic source of MIO pigment.

Historically, domestic paint
manufactures have used zinc, rather than MIO, in anti-corrosion coatings of
structural steelwork. However, underlying economic and environmental factors
could result in a shift in usage to MIO. Increases in zinc prices, we believe,
could create a competitive price advantage for MIO. In addition, MIO is
non-toxic to the environment, another advantage that can be expected to grow in
future importance.

Lordsburg Exploration Project

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

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

35

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

36

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

37

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|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

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

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

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

None.

PART II

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


Market Information

Our common stock trades
over-the-counter and is quoted on the OTC Bulletin Board under the symbol
SFEG. The table below sets forth the high and low bid prices for our common
stock as reflected on the OTC Bulletin Board for the last two fiscal years.
Quotations represent prices between dealers, do not include retail markups,
markdowns or commissions, and do not necessarily represent prices at which
actual transactions were effected.

Quarter ended
    OTCBB(U.S. $)2009
    HIGH
    LOW09/30/09
    $1.30
    $0.9012/31/09
    $1.74
    $1.072010
    HIGH
    LOW3/31/10
    $1.70
    $0.916/30/10
    1.08
    0.779/30/10
    1.24
    0.7712/31/10
    $1.38
    $0.852011
    HIGH
    LOW3/31/11
    $1.30
    $0.826/30/11
    $1.38
    $0.86


We were delinquent in the filing
  of our financial statements for the year ended June 30, 2003, and consequently
  the Securities Commissions of Ontario and British Columbia issued cease trade
  orders for trading of our common stock by Canadian residents, which cease trade
  orders are still in effect. We believe approximately 1.3% of our common stock
  is held by Canadian residents as recorded on March 28, 2011. We are attempting
  to bring the Company in compliance with filing requirements on the Canadian
  SEDAR system and to have the cease trade orders revoked.

38

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Holders of Common Equity

As of September 12, 2011, there
were 94,794,412 common shares outstanding, the high and low sales prices of our
common stock on the OTC Bulletin Board were $0.90 and $0.86, respectively, and
we had 775 holders of record of our common stock.

Penny Stock Rules

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

Transfer Agent

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

Dividend Policy

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

Performance Graph

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

The following graph compares the performance of Santa Fe Gold Corporation with the performance of the S&P BMI Gold & Precious Metal Index, and a Peer Group (New ) of companies with comparable market capitalizations.  The Peer Group (Old) represents companies with larger market capitalizations. The graph represents monthly index levels derived from compounded daily returns that include all dividends.  The indexes are re-weighted daily, using the market capitalization on the previous trading day.  The index level for all series was set to $100.00 on June 30, 2006.

39

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Recent Sales of Unregistered Securities

None.

|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

The following selected financial
data sets forth our summary historical financial data as of and for the fiscal
years ended June 30, 2011, 2010, 2009, 2008 and 2007. This information was
derived from our audited consolidated financial statements for each period. Our
selected historical financial data is qualified in its entirety by, and should
be read in conjunction with, Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations and the financial statements
and the notes thereto included elsewhere in this report. For additional
information relating to our operations, see Item 1. Business and
Item 2. Properties.

|                                        |   | Fiscal Year Ended June 30, |  
|--------------------------------------- | - | -------------------------- | -
|                                        |   | 2011                       |  
|Operating Data:                         |   |                            |  
|Net loss from operations                | $ | (4,269,128                 | )
|Other income                            |   | (347,965                   | )
|Net income (loss)                       |   | (4,617,093                 | )
|Basic & diluted income (loss) per share | $ | (0.05                      | )
|Diluted income per share                | $ | --                         |  
|Weighted average shares - basic         |   | 93,249,081                 |  
|Weighted average shares - diluted       |   | 93,249,081                 |  
|                                        |   |                            |  
|Balance Sheet Data:                     |   |                            |  
|Cash and cash equivalents               | $ | 172,531                    |  
|Total current assets                    |   | 2,955,038                  |  
|Property and equipment, net             |   | 13,104,215                 |  
|Other assets & mineral properties       |   | 11,158,137                 |  

|Total assets                                         | $ | 27,217,390 |   | $ | 27,400,834 |  | $ | 16,771,303 |   | $ | 8,845,197  |   | $ | 3,891,870 | 
|---------------------------------------------------- | - | ---------- | - | - | ---------- |  | - | ---------- | - | - | ---------- | - | - | --------- | 
|                                                     |   |            |   |   |            |  |   |            |   |   |            |   |   |           | 
|Current liabilities                                  | $ | 16,069,339 |   | $ | 11,213,275 |  | $ | 4,512,400  |   | $ | 4,080,786  |   | $ | 3,780,006 | 
|Long-term obligations                                |   | 11,685,501 |   |   | 14,249,216 |  |   | 15,144,800 |   |   | 5,995,212  |   |   | 75,309    | 
|Shareholders equity (deficit)                       |   | (537,450   | ) |   | 1,938,343  |  |   | (2,885,897 | ) |   | (1,230,801 | ) |   | 36,555    | 
|Total liabilities and shareholders equity (deficit) | $ | 27,217,390 |   | $ | 27,400,834 |  | $ | 16,771,303 |   | $ | 8,845,197  |   | $ | 3,891,870 | 

40

---

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

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

Overview

During our current fiscal year
ended June 30, 2011, we generated sales of $6,440,897 and incurred a net loss of
$4,617,093. Prior to our current fiscal year, we had received no substantial
revenue from the production of gold or other metals since our inception, and
historically relied on equity and debt financings to finance our ongoing
operations. Our operations generated a net loss of $1,209,354 and $5,535,596 for
the fiscal years ended June 30, 2010 and 2009, respectively. In order to fund
operations in the fiscal years ended June 30, 2011, 2010 and 2009, we relied on
proceeds from the sale of gold and silver products aggregating $6,761,042,
equipment sales aggregating $99,584, proceeds received under the private
placement sale in December 2007 of senior secured convertible debentures
aggregating $8,150,000, aggregate proceeds of $2,601,004 from the private
placement sales of stock, financing of $4,000,000 in September 2009 relating to
a gold sale agreement, a registered direct sale of equity of $10,000,000 in
January 2010, and proceeds received from notes payable of $290,068.

In August 2011, we secured a $5.0
million Senior Secured Loan, bearing interest at fifteen percent (15%) per
annum, payable monthly in arrears and maturing upon the six month anniversary of
the closing date. We received net proceeds of $4,555,000 after deducting
placement agent fees and other offering expenses. We will use the net proceeds
for general corporate purposes, including but not limited to, working capital
for the Summit silver-gold project.

In December 2010, we sold $2.0
million of securities to three institutional investors under a prospectus
supplement filed with the Securities and Exchange Commission in connection with
a take down from our shelf registration statement made on Form S-3. We received
net proceeds of $1,864,001 after deducting placement agent fees and other
offering expenses. Proceeds were used for on-going development of the Summit
mine, support of other projects and general working capital.

In January 2010, we sold $10.0
million of securities to institutional investors in a registered direct offering
pursuant to an S-3 Registration Statement. We received net proceeds of
$9,375,000 after deducting placement agent fees and other offering expenses.
Proceeds were used for on-going development of the Summit mine, support of other
projects and general working capital.

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

41

---

In December 2007, we secured
placement of $13.5 million of senior secured convertible debentures. Proceeds
from the debentures were used primarily for the development of the Summit
project. The debentures were issued in accordance with a pre-determined funding
schedule. The term of the debentures is 60 months. In fiscal 2009 we received
advances aggregating $8,150,000, bringing the total received to $13,500,000
since inception. The remainder of the proceeds of the fiscal 2011, 2010 and 2009
financing transactions was utilized as general working capital.

In September 2010, we signed a
non-binding Memorandum of Understanding (MOU) with Columbus Silver Corporation
(TSXV: CSC) (Columbus Silver) pursuant to which we will acquire all the
outstanding shares of common stock of Columbus Silver in exchange for shares of
our common stock. The contemplated business combination by way of a Plan of
Arrangement is subject to Canadian court approval. In January 2011, in
connection with MOU, we loaned Columbus Silver $200,000 with an annual interest
rate of four percent (4%) and principal and accrued interest due and payable on
December 31, 2012. In April 2011 we announced our continuing efforts to obtain a
revocation of the cease trade orders issued against us by the British Columbia
and Ontario Securities Commissions in 2003 after we did not make required
Canadian regulatory filings.

On September 6, 2011, we entered
into a Memorandum of Understanding with Columbus Silver Corporation (TSXV: CSC)
(Columbus Silver) pursuant to which we have conditionally agreed to acquire
all of Columbus Silvers outstanding common stock for a cash amount of Cdn $0.20
per outstanding share in a transaction currently valued at Cdn $9,977,285. Until
closing of the transaction, Santa Fe has agreed to provide bridge financing to
Columbus Silver to fund leasehold payments and for working capital, which
through the end of December 2011 totals $513,716.

The Memorandum of Understanding
entered into on September 6, 2011 contemplates a business combination by way of
a Plan of Arrangement, which is subject to Canadian court approval. In addition,
the proposed transactions are subject to the final approval of the boards of
directors of Santa Fe and Columbus Silver, stock exchange and regulatory
approvals, Columbus Silver shareholder approval and Santa Fes commitment of the
required funding. If Santa Fe does not notify Columbus Silver by November 30,
2011 that it has obtained a firm commitment for the required funding, Columbus
Silver will have the option to terminate the acquisition. On September 8, 2011,
in relation to the transaction with Columbus Silver, we filed a Current Report
on Form 8-K.

The results of operations for the
fiscal years ended June 30, 2011, 2010 and 2009 reflect a continuing
under-capitalization of our Summit silver-gold project which requires additional
funding to be able to achieve full production and profitability. We expect
results of operations similar to those in fiscal 2011 and 2010 to continue in
the foreseeable future, and do not expect them to change significantly until
such time as profitable production is achieved at our Summit mine and/or
additional capital and/or debt facilities are secured. There is significant
uncertainty in our Summit estimates of both future costs and future revenues,
and we may require additional capital resources to complete our plans.

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

We anticipate a need for at least
$25.0 million over the next 12 months, and $38.0 million over the next 36 months
in order to satisfy past commitments, pay corporate overhead costs, complete
Summit development, and fund acquisitions, feasibility studies and exploration
programs as discussed under the Liquidity and Capital Resources section of this
report. A portion of the required funding may be generated from cash flows from
our Summit mine. If we fail to procure adequate funding on acceptable terms, we
may be required to reduce or eliminate substantially all business activities
until such time as funding can be secured on a basis acceptable to us.

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

42

---

We have a total accumulated
deficit of $59,746,543 at June 30, 2011. To continue as a going concern, we are
dependent on continued fund raising. However, we have no commitment from any
party to provide additional capital and there is no assurance that such funding
will be available when needed, or if available, that its terms will be favorable
or acceptable to us.

Liquidity and Capital Resources; Plan of Operation

As of June 30, 2011, we had cash
and cash equivalents of $172,531 as compared to $5,540,130 at June 30, 2010. As
of June 30, 2011, we had a working capital deficit of $13,114,301, which is
mainly attributable to the current portion of our non-cash derivative instrument
liabilities of $8,973,066 and the current portion of deferred revenue of
$3,611,266.

On January 11, 2011, we announced a contract with ASARCO LLC (Asarco) to sell 12,000
tons of siliceous flux material for delivery during 201l. The contract was
valued at up to $4.0 million. The siliceous flux is shipped to Asarcos smelter
in Hayden, Arizona. The flux material is processed for precious metals recovery
and we are paid for the contained silver and gold less customary charges. The
sales agreement was reached following a successful smelting trial of an initial
1,000 tons of siliceous flux shipped to Asarco in 2010. Sale of siliceous flux
material involves direct shipment of Summit ore with only minimal processing
required.

On December 23, 2010, we
announceda contract with Aurubis AG (Aurubis), Europes
largest copper and precious metals smelter, to sell approximately 240 tons of
high-value precious metals concentrates for delivery during 2011. The contract
was valued at approximately $9.0 million. The sales agreement was reached
following a successful smelting trial of an initial 20 tons of concentrate
shipped to Aurubis in 2010. The concentrates are produced at our Lordsburg
flotation mill from ore mined at the Summit mine.

On December 30, 2010, we sold
common stock to three institutional investors pursuant to the Companys shelf
registration statement on Form S-3. The shares were sold at $1.20 per share and
gross cash proceeds aggregated $2,000,001. Placement agent fees of $136,000 were
paid on the offering. We issued 833,334 five-year warrants giving the holders
the right to purchase common stock at $1.50 per share. The warrants are
exercisable immediately after issuance and will expire five years from the date
of issuance. In connection with the registered direct offering, we issued
100,000 warrants to the placement agent, exercisable at $1.50 per share.

On January 20, 2010 we entered
into definitive agreements with 23 institutional investors to purchase $10.0
million of securities in a registered direct offering. We received net proceeds
of $9,375,000 after deducting placement agent fees and other offering expenses.
The securities were offered pursuant to an effective S-3 Registration Statement.
The Company sold to the investors an aggregate of 7,692,310 shares of its common
stock, and warrants to purchase up to 3,846,155 additional shares of common
stock. Each unit, consisting of one share of common stock and one-half of a
warrant to purchase a share of common stock, was sold for a purchase price of
$1.30. The warrants to purchase additional shares are exercisable at $1.70 per
share and have a term of 5 years.

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

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

43

---

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

On June 28, 2011, the Company
entered into Amendment 2 for the definitive gold sale agreement with Sandstorm.
The amendment extended the delivery date for the additional 700 ounces of gold
agreed upon in Amendment 1 from June 30, 2011 until October 15, 2011. In
exchange for the deferred delivery date the Company agreed to pay a per diem of
3 ounces of gold for each day the additional 700 ounces of gold under Amendment
1 remain outstanding past June 30, 2011 until the actual date of delivery, no
later than October 15, 2011. Based upon the sale terms of the agreement, the
Company recorded an accrued liability of $773,850 based upon the closing gold
price on June 30, 2011. The Company will mark to market the accrued liability on
the delivery date of the additional ounces based upon the closing gold price on
such date.

On August 6, 2009, the Company
issued 100,000 shares of the Companys stock in a private placement. The shares
were valued at $1.06 per share for total proceeds of $106,000. As part of the
private placement the Company also issued 50,000 warrants with an exercise price
of $1.06 and an expiration of 5 years.

On July 27, 2009, the Company
issued 94,339 shares of the Companys stock in a private placement. The shares
were valued at $1.06 per share for total proceeds of $100,000. As part of the
private placement the Company also issued 47,169 warrants with an exercise price
of $1.06 per share and an expiration of 5 years.

On June 22, 2009, the Company
issued 283,019 shares of the Companys stock in a private placement. The shares
were valued at $1.06 per share for total proceeds of $300,000. As part of the
private placement the Company also issued 141,510 warrants with an exercise
price of $1.06 and an expiration of 5 years.

On December 21, 2007, we entered
into a definitive agreement for the placement with a single investor of senior
secured convertible debentures in the amount of $13,500,000. Proceeds from the
debentures were used primarily for the development of the Summit project. The
debentures were issued in accordance with a pre-determined funding schedule and
the term of the debentures is 60 months. In fiscal 2009, we received advances
aggregating $8,150,000, bringing the total received to $13,500,000 since
inception.

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

Prior to our current fiscal year
  ended June 30, 2011, we have not generated any significant revenues from operations
  and have incurred significant operating losses. At June 30, 2011, we have an
  accumulated (deficit) of $59,746,543. 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 operating funds provided during our fiscal year 2011 was
  from the sales of our gold and silver products aggregating $6,440,897 and from
  the sale of equity. We anticipate that our operations through fiscal 2012 will
  be funded from increased revenues from the ramp up to full production at our
  Summit project resulting increased sales of our gold and silver products. Additional funding may come from the sale of our securities;
  exercise of certain options and warrants; and/or through project related debt
  or equity financings. While we believe we will be able to finance our continuing
  activities, there is no assurance of success in this regard or in our ability
  to obtain continued financing through capital markets, joint ventures, or other
  acceptable arrangements. If our plans are not successful, operations and liquidity
  may be adversely impacted. In the event that we are unable to obtain additional
  required capital, we may be forced to reduce our exploration and operating expenditures
  or to cease future development operations altogether.

44

---

We have developed a plan to place
the Company on a strong financial footing. Important elements of the plan
include continued procurement of interim funding to provide for deployment of
operations on our various property sites, and final stage development of our
Summit property and the commencement of profitable production. During fiscal
years 2007-2011, we secured a substantial portion of the funding necessary to
place our Summit property into production. If we are able to secure additional
required financing on acceptable terms, we believe we will be in a position to
deploy our business plan and to achieve commercial production in Q4 of calendar
2011.

We are continuing to seek funding
to advance our business plan and strategies. We require funds to meet our
corporate commitments, to complete Summit development, to make acquisitions, to
continue feasibility studies on our mineral properties and to initiate
exploration programs.. A portion of the funds required may be generated from our
Summit mine. We project the need for a minimum of $25.0 million over the next 12
months, and $38.0 million over the next 36 months, estimated as follows:

Next 12 Months
    
    
    Next 36 MonthsCompletion of Summit development
    $
    5,000,000
    
    $
    8,000,000Exploration programs and feasibility studies
    
    3,000,000
    
    
    10,000,000Acquisitions
    
    11,000,000
    
    
    11,000,000Corporate overhead and related expenses
    
    1,000,000
    
    
    4,000,000General working capital
    
    5,000,000
    
    
    5,000,000Total funding requirements
    $
    25,000,000
    
    $
    38,000,000


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

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

Results of Operations

Fiscal Year Ended June 30, 2011 Compared to Fiscal Year
Ended June 30, 2010

Sales

Sales increased to $6,440,897 in
fiscal year 2011 from $320,145 in fiscal year 2010, an increase of $6,120,752.
The increase in was comprised of precious metals sales of concentrate, flux
material, and refined gold. Concentrate sales for fiscal year 2011, were
$3,907,364, as compared to $-0- for fiscal year 2010, an increase of $3,907,364,
while flux material sales were $1,997,276 for fiscal year 2011, as compared to
$320,145 for fiscal year 2010, an increase of $1,677,131. Sales of refined gold
increased to $536,257 for fiscal year 2011, as compared to $-0- for fiscal year
2010, the increase resulting from the delivery of refined gold commencing in
accordance with the definitive gold sales agreement entered into on September
11, 2009.

45

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Costs Applicable to Sales

Costs applicable to sales
generated during fiscal year 2011, were $3,317,914, comprised of $1,521,400 for
concentrate and flux material, and $1,796,514 related to sales of refined gold.
No costs were attributable to sales for our fiscal year 2010. The increase of
$1,796,514 for sales of refined gold includes a non-recurring accrual of
$773,850 related to Amendment 1 of the definitive gold sales agreement for the
extension of the completion guarantee date.

Exploration and Mine and Mill Start
Up Costs

Exploration and mine and mill
start up costs increased in fiscal year 2011 to $2,147,511 from $1,004,256 in
fiscal year 2010. The increase of $1,143,255 is mainly attributable to increased
non-capitalized costs incurred on the Summit project., including deployment of
the mill into operations with increasing through put, continued development of
the Summit mine and wrap up towards full production. Major components of
increased costs were labor burden of $185,333; operating supplies and general
expenses of $138,552; vehicle operating costs of $46,560; repairs and
maintenance of $96,531; property and resource taxes of $101,387; royalty fees of
$536,089; and exploration costs of $220,395. Significant decreased expense
components offsetting these increases were utilities of $47,753 which were
allocated to cost sales in fiscal year 2011; property, casualty and liability
insurance of $18,020; relocation costs of $69,792 and land lease payments of
$11,041

General and Administrative

General and administrative
increased to $2,921,864 in fiscal year 2011, from $2,204,724 for fiscal year
2010, an increase of $717,140. Major components of the increased costs are
comprised of labor burden of $103,843; employee stock compensation of $369,259;
investor relations of $101,435; costs associated with options of $200,557;
corporate filing fees of $20,953; director fees of $55,000; corporate meetings
of $33,004; travel and entertainment of $49,693 and office operating costs
aggregating $30,476. Major components of decreased costs offsetting the
increases were auditing, accounting and related compliance fees of $82,861;
commissions of $12,097 and consulting fees of $142,245. The decreased auditing,
accounting and related compliance fees are a result of an over accrual of
approximately $30,000 related to prior audit fees recognized in fiscal year
2010, and reduced fees incurred on other special projects. The decrease in
consulting fees is mainly attributable to $131,359 related to the termination of
a consulting agreement for the discontinued Pilar project in Mexico.

Stock-Based Compensation

Stock-based compensation included
in General and Administrative in fiscal year 2011 increased to $1,010,081 from
$717,547 in fiscal year 2010, an increase of $292,534. The increase in the
current fiscal year is attributable to increased costs recognized on stock
grants to employees of $202,426; amortized costs associated with options of
$200,556 and a reduction of amortized costs associated with stock issued for
services aggregating $110,448.

Depreciation and
Amortization

Depreciation and amortization
during the current fiscal year 2011 increased to $2,322,736 as compared to
$477,760 for the comparable fiscal year 2010, an increase of $1,844,976. The
increase is directly attributable to the deployment of the Summit mine project
and Banner mill project and related capitalized equipment costs put into service
during fiscal year 2011 and 2010.

Other Income and Expense

Other income and (expense) for
fiscal year 2011 were $(347,965) as compared to $2,157,241 for fiscal 2010, a
decrease of $2,505,206. The increase in other expense incurred in the current
fiscal year is mainly attributable to a decrease in a gain on derivative
instrument liabilities of $1,642,986; an increase in accretion of discounts on
notes payable of $223,651 and an increase of interest expense of $633,098.

46

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The increase in interest expense
was due primarily to the fact that the portion of interest expense on the
debentures related to the construction of the mill facilities was previously
capitalized. In July 2010 based upon the commissioning of the mill proceeding
satisfactorily over the previous quarter, the mill facilities were placed into
service and the capitalization of interest expense related to the mill
construction ceased, contributing $658,213 in interest expense to the current
fiscal year.

Gain (loss) on Derivative Financial
Instruments

We recognized a non-cash gain on
derivative instruments liabilities of $1,652,961 for fiscal year 2011, as
compared to a gain of $3,295,947 for the prior fiscal comparable year 2010, a
reduction of $1,642,986. The non-cash gain arose from adjustments to record the
derivative financial instruments at fair values in accordance with current
accounting standards. The derivative financial instruments arose in connection
with senior secured convertible notes and warrants issued in connection with
debt and equity placements. Otherwise, we generally do not use derivative
financial instruments for other purposes, such as hedging cash flow or
fair-value risks. The decrease in the derivative gain in fiscal 2011 is mainly
attributable to changes in the market price of our common stock, which is a
component of the calculation model, and to the issuance of additional warrants
resulting in derivative treatment. We use the Black-Scholes option pricing model
to estimate the fair value of these derivatives. Because Black-Scholes uses the
Companys stock price, changes in the stock price will result in volatility in
the earnings in future periods as the Company continues to reflect the
derivative financial instruments at fair values.

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

Sales

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

Exploration and Mine and Mill Start
Up Costs

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

General and Administrative

General and administrative
decreased to $2,204,724 in fiscal year 2010, from $2,737,671 for fiscal year
2009, a decrease of $532,947. Major components of the decreased costs consist of
labor burden of $14,282; employee stock compensation of $415,074; investor
relations of $135,682; costs associated with options of $135,428 and finance
costs of $214,135. Major components of increased costs were office operating
costs of $18,052; auditing and related compliance fees of $84,067; legal costs
of $117,116 and consulting fees of $148,948. The increased auditing and related
compliance fees are comprised of approximately $19,000 of prior year audit fees
recognized in fiscal 2010, professional fees approximating $21,000 relating to
derivative work and the implementation of SOX requirements, and increased audit
and 10-K accrued fees of $40,000 due to increased SEC audit requirements
referencing internal control procedures. The increase in legal fees is a result
of multiple financing agreements, including a private placement of common stock.
Consulting fees increased in fiscal 2010 due to the recognition of the remaining
consulting fees in the current year on the abandoned Pilar project, aggregating
$131,359.

47

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Stock-Based Compensation

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

Depreciation and
Amortization

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

Other Income and Expense

Other income and (expense) for
fiscal year 2010 were $2,157,241 as compared to $(1,914,870) for fiscal 2009, an
increase of $4,072,111. The increase in other income incurred in the current
fiscal year is mainly attributable to decreases in expenses relating to interest
expense of $113,204; accretion of discounts on notes payable of $376,840 and
increased gain on derivative instruments liability of $3,810,303. These
increases in other income were offset by a reduction in relief of debt of
$90,967; and a decrease in interest and miscellaneous income aggregating
$127,208.

Gain (Loss) on Derivative Financial
Instruments

We recognized a gain on
derivative instruments liabilities of $3,295,947 for fiscal year 2010, as
compared to a loss of $514,356 for the prior fiscal comparable year 2009. The
non-cash gain arose from adjustments to record the derivative financial
instruments at fair values in accordance with current accounting standards. The
derivative financial instruments arose in connection with senior secured
convertible notes and warrants issued in connection with debt and equity
placements. Otherwise, we generally do not use derivative financial instruments
for other purposes, such as hedging cash flow or fair-value risks. The increase
in the derivative gain in fiscal 2010 is mainly attributable to changes in the
market price of our common stock, which is a component of the calculation model,
and to the issuance of additional warrants resulting in derivative treatment. We
use the Black-Scholes option pricing model to estimate the fair value of these
derivatives. Because Black-Scholes uses the Companys stock price, changes in
the stock price will result in volatility in the earnings in future periods as
the Company continues to reflect the derivative financial instruments at fair
values.

Off-Balance Sheet Arrangements

As of and subsequent to June 30, 2011,
we have no off-balance sheet arrangements.

Critical Accounting Policies

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

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

48

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Reclamation Costs

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

Prior to the current fiscal
operating year, we had accrued $84,059 for reclamation on the ground site work
at the Mica project. The asset retirement obligation associated with the Mica
project consists of reclamation of disturbed property, all of which has been
completed, and we have written this liability down to zero at June 30, 2011.

As of June 30, 2011, pursuant to
regulatory requirements, we 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. We are currently pursuing the release of these
funds as the reclamation on this site has been completed.

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

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

Estimates

The preparation of financial
statements in conformity with US GAAP requires us to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent asset and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. We routinely make judgments and estimates about the effects of
matters that are inherently uncertain. Estimates that are critical to the
consolidated financial statements include the identification and valuation of
proven and probable reserves, obligations for environmental, reclamation, and
closure matters, valuation of derivative instruments, estimates related to asset
impairments of long lived assets and investments, classification of expenditures
as either an asset or an expense, valuation of deferred tax assets, and the
likelihood of loss contingencies. We base our estimates and judgments on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Estimates and assumptions are revised
periodically and the effects of revisions are reflected in the financials
statements in the period it is determined to be necessary. Actual results could
differ from these estimates.

Impairment of Long-Lived
Assets

The Company reviews and evaluates long-lived assets for impairment when events or changes in circumstances indicate the related carrying amounts may not be recoverable. The assets are subject to impairment consideration under ASC 360-10-35-17, Measurement of an Impairment Loss, if events or circumstances indicate that their carrying amount might not be recoverable. As of June 30, 2011, exploration progress is on target with the Company’s exploration and evaluation plan and no events or circumstances have happened to indicate the related carrying values of the properties may not be recoverable. When the Company determines that an impairment analysis should be done, the analysis will be performed using the rules of ASC 930-360-35, Asset Impairment, and 360-10-15-3 through 15-5, Impairment or Disposal of Long-Lived Assets.

49

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

Revenue Recognition

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

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

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

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

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

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

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

50

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Derivative
Instruments

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

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

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

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

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

Recent Accounting Pronouncements

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

In March 2010, the FASB issued
authoritative guidance which clarifies the Embedded Derivatives guidance (ASC
815). All entities that enter into contracts containing an embedded credit
derivative feature related to the transfer of credit risk that is not only in
the form of subordination of one financial instrument to another will be
affected by the amendments. The amendments in this update are effective for
interim periods beginning after June 15, 2010. The adoption of this update has
not had a material impact on the Companys consolidated financial statements.

In April 2010, the FASB issued
  authoritative guidance which clarifies the Stock Compensation guidance
  (ASC 718). This guidance clarifies the accounting for certain employee share-based
  payment awards. Awards with an exercise price denominated in the currency of
  a market in which a substantial portion of the entitys equity securities
  trades would not be considered to contain a condition that is not a market,
  performance or service condition. Therefore, an entity would not classify such an award as a liability
  if it otherwise qualifies as equity. This accounting guidance is effective for
  accounting periods beginning on or after December 15, 2010, with earlier application
  permitted. The adoption of this update has not had a material impact on the
  Companys consolidated financial statements.

51

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In December 2010, FASB issued ASU
2010-29, "Business Combinations (Topic 805): Disclosure of Supplementary Pro
Forma Information for Business Combinations (a consensus of the FASB Emerging
Issues Task Force)." ASU 2010-29 provides amendments to subtopic 805-10 of the
FASB ASC that requires a public entity to disclose pro forma information for
business combinations that occurred in the current reporting period. ASU 2010-29
is effective prospectively for business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning
on or after December 15, 2010, with early adoption permitted. The adoption of
this update has not had an impact on the Company's consolidated financial
statements.

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

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

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

|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES
      ABOUT MARKET RISK
|-------- | ----------------------------------------------------------------

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

Interest Rate Risk

We had $14.2 million and $14.5
million of indebtedness under our credit facilities at June 30, 2011 and 2010,
respectively. The annual interest rates on our credit facilities for our
outstanding senior secured convertible notes are 7.0% on $13.5 million and 10.0%
on $450,000. Interest rates on capital leases and other notes payable range from
5.3% to 10.0% . Additionally, we do not have any investment in debt instruments
other than highly liquid cash equivalents. Accordingly, we consider our interest
rate risk exposure to be insignificant at this time.

Equity Price Risk

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

52

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Commodity Price Risk

We currently have only limited
production but expect to produce increasing amounts of gold and silver in our
fiscal year 2012. As we increase production and sales, changes in the price of
gold and other minerals could significantly affect our results of operations and
cash flows. We do not presently expect to hedge the sale of any of our
anticipated production.

|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY
      DATA
|------- | -------------------------------------------------

53

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SANTA FE GOLD CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2011 and for the Years Ended 
  June 30, 2011, 2010 and 2009

54

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SANTE FE GOLD CORPORATION

TABLE OF CONTENTS

|REPORT OF INDEPENDENT
      REGISTERED PUBLIC ACCOUNTING FIRM          | 56                                                            
|---------------------------------------------------------------------- | --------------------------------------------------------------
|MANAGEMENTS REPORT ON INTERNAL
      CONTROL OVER FINANCIAL REPORTING | 58                                                            
|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          

55

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders 
  Santa Fe Gold Corporation 
  Albuquerque, New Mexico

We have audited the accompanying consolidated balance sheets of Santa Fe Gold Corporation as of June 30, 2011 and 2010, and the related consolidated statements of operations, changes in shareholders’ equity (deficit) and cash flows for each of the years in the three year period ended June 30, 2011.  We also have audited Santa Fe Gold Corporation’s internal control over financial reporting as of June 30, 2011, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Santa Fe Gold Corporation’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, including in the accompanying Management’s Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the
  Public Company Accounting Oversight Board (United States). Those standards require
  that we plan and perform the audits to obtain reasonable assurance about whether
  the consolidated financial statements are free of material misstatement and
  whether effective internal control over financial reporting was maintained in
  all material respects. Our audits of the consolidated financial statements included
  examining, on a test basis, evidence supporting the amounts and disclosures
  in the consolidated financial statements, assessing the accounting principles
  used and significant estimates made by management, and evaluating the overall
  financial statement presentation. Our audit of internal control over financial
  reporting included obtaining an understanding of internal control over financial
  reporting, assessing the risk that a material weakness exists, and testing and
  evaluating the design and operating effectiveness of internal control based
  on the assessed risk. Our audits also included performing such other procedures
  as we considered necessary in the circumstances. We believe that our audits
  provide a reasonable basis for our opinions.

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

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

56

---

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

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Santa Fe Gold Corporation as of June 30, 2011 and 2010, and the consolidated results of its operations and its cash flows for each of the years in the three year period ended June 30, 2011, in conformity with accounting principles generally accepted in the United States of America.  Also in our opinion, Santa Fe Gold Corporation maintained, in all material respects, effective internal control over financial reporting as of June 30, 2011, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Denver, Colorado 
  September 13, 2011

57

---

SANTA FE GOLD CORPORATION

MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
  REPORTING

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

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

We conducted an evaluation of the
  effectiveness of our internal control over financial reporting as of June 30,
  2011 based on Internal Control  Integrated Framework issued by
  the Committee of Sponsoring Organizations of the Treadway Commission. Through
  this evaluation, we did not identify any material weaknesses in our internal
  controls. There are inherent limitations in the effectiveness of any system
  of internal control over financial reporting; however, based on our evaluation,
  we have concluded that our internal control over financial reporting was effective
  at a reasonable assurance level as of June 30, 2011.

The operating effectiveness of our internal control over financial
  reporting as of June 30, 2011 has been audited by Stark Schenkein, LLP, an independent
  registered public accounting firm, as stated in their report, which is included
  herein.

|Date: September 13, 2011 |     |                                    
|------------------------ | --- | -----------------------------------
|                         | By: | /s/ W.
      Pierce Carson         
|                         |     | W. Pierce Carson                   
|                         |     | President, Chief Executive Officer,
|                         |     | and Chief Financial Officer        

58

---

|SANTA FE GOLD CORPORATION  
|---------------------------
|CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                                                                                                                         |   | June 30,    |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ----------- | -
|ASSETS                                                                                                                                                                                                                                                                   |   | 2011        |  
|CURRENT ASSETS:                                                                                                                                                                                                                                                          |   |             |  
|Cash and cash equivalents                                                                                                                                                                                                                                                | $ | 172,531     |  
|Accounts receivable                                                                                                                                                                                                                                                      |   | 2,230,605   |  
|Inventory                                                                                                                                                                                                                                                                |   | 175,578     |  
|Marketable securities                                                                                                                                                                                                                                                    |   | 97,260      |  
|Prepaid expenses and other current
      assets                                                                                                                                                                                                                          |   | 279,064     |  
|Total Current Assets                                                                                                                                                                                                                                                     |   | 2,955,038   |  
|MINERAL PROPERTIES                                                                                                                                                                                                                                                       |   | 579,000     |  
|PROPERTY, PLANT AND EQUIPMENT, net                                                                                                                                                                                                                                       |   | 13,104,215  |  
|OTHER ASSETS:                                                                                                                                                                                                                                                            |   |             |  
|Construction in
      progress                                                                                                                                                                                                                                           |   | 8,427,113   |  
|Idle equipment, net                                                                                                                                                                                                                                                      |   | 1,223,528   |  
|Note receivable
      and accrued interest                                                                                                                                                                                                                               |   | 203,422     |  
|Restricted cash                                                                                                                                                                                                                                                          |   | 410,374     |  
|Deferred financing
      costs                                                                                                                                                                                                                                           |   | 314,700     |  
|Total Other Assets                                                                                                                                                                                                                                                       |   | 10,579,137  |  
|Total Assets                                                                                                                                                                                                                                                             | $ | 27,217,390  |  
|                                                                                                                                                                                                                                                                         |   |             |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                                                                                                                                                                           |   |             |  
|CURRENT LIABILITIES:                                                                                                                                                                                                                                                     |   |             |  
|Accounts payable                                                                                                                                                                                                                                                         | $ | 1,090,907   |  
|Accrued liabilities                                                                                                                                                                                                                                                      |   | 1,976,751   |  
|Derivative instrument
      liabilities                                                                                                                                                                                                                                  |   | 8,973,066   |  
|Current portion, notes payable                                                                                                                                                                                                                                           |   | 78,384      |  
|Current portion,
      capital leases                                                                                                                                                                                                                                    |   | 83,856      |  
|Deferred revenue, current portion                                                                                                                                                                                                                                        |   | 3,611,266   |  
|Accrued interest
      payable                                                                                                                                                                                                                                           |   | 255,109     |  
|Total Current Liabilities                                                                                                                                                                                                                                                |   | 16,069,339  |  
|LONG TERM LIABILITIES:                                                                                                                                                                                                                                                   |   |             |  
|Senior secured convertible
      notes payable, net of discount of 
                   
      $2,498,065 and $3,761,569, respectively                                                                                                                                    |   | 11,001,935  |  
|Senior subordinated
      convertible notes payable, net of discount of 
                   
      $19,684 and $31,991, respectively                                                                                                                                     |   | 430,316     |  
|Notes payable, net of current portion                                                                                                                                                                                                                                    |   | 58,957      |  
|Capital leases,
      net of current portion                                                                                                                                                                                                                             |   | 45,057      |  
|Deferred revenue, net of current
      portion                                                                                                                                                                                                                           |   | -           |  
|Asset retirement
      obligation                                                                                                                                                                                                                                        |   | 149,236     |  
|Total Liabilities                                                                                                                                                                                                                                                        |   | 27,754,840  |  
|STOCKHOLDERS' EQUITY (DEFICIT):                                                                                                                                                                                                                                          |   |             |  
|Common stock, $.002
      par value, 300,000,000 shares authorized; 94,744,412 and 
                    
      93,059,568 shares issued and outstanding, respectively; Includes non-vested
      
                    
      shares of 575,000 and 765,000, respectively |   | 188,341     |  
|Additional paid
      in capital                                                                                                                                                                                                                                         |   | 59,021,550  |  
|Accumulated (deficit)                                                                                                                                                                                                                                                    |   | (59,746,543 | )
|Accumulated other
      comprehensive (loss)                                                                                                                                                                                                                             |   | (798        | )
|Total Stockholders' Equity (Deficit)                                                                                                                                                                                                                                     |   | (537,450    | )
|                                                                                                                                                                                                                                                                         | $ | 27,217,390  |  

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

59

---

|SANTA FE GOLD CORPORATION            
|-------------------------------------
|CONSOLIDATED STATEMENTS OF OPERATIONS
|AND COMPREHENSIVE (LOSS)             

|                                                                        |   | For the Years Ended June 30, |  
|----------------------------------------------------------------------- | - | ---------------------------- | -
|                                                                        |   | 2011                         |  
|                                                                        |   |                              |  
|SALES                                                                   | $ | 6,440,897                    |  
|                                                                        |   |                              |  
|OPERATING COSTS AND EXPENSES:                                           |   |                              |  
|Costs applicable to sales                                               |   | 3,317,914                    |  
|Exploration and mine and
      mill start up costs                      |   | 2,147,511                    |  
|General and administrative                                              |   | 2,921,864                    |  
|Depreciation and amortization                                           |   | 2,322,736                    |  
|Accretion of asset retirement obligation                                |   | -                            |  
|                                                                        |   | 10,710,025                   |  
|                                                                        |   |                              |  
|LOSS FROM OPERATIONS                                                    |   | (4,269,128                   | )
|                                                                        |   |                              |  
|OTHER INCOME (EXPENSE):                                                 |   |                              |  
|(Loss) on disposal of assets                                            |   | -                            |  
|Interest income                                                         |   | 11,645                       |  
|Miscellaneous income                                                    |   | -                            |  
|Foreign currency translation
      gain (loss)                          |   | -                            |  
|Gain (loss) on derivative instrument liabilities                        |   | 1,652,961                    |  
|Relief of debt                                                          |   | -                            |  
|Accretion of discounts on notes payable                                 |   | (1,275,811                   | )
|Interest expense                                                        |   | (736,760                     | )
|                                                                        |   | (347,965                     | )
|                                                                        |   |                              |  
|LOSS BEFORE PROVISION FOR INCOME TAXES                                  |   | (4,617,093                   | )
|PROVISION FOR INCOME TAXES                                              |   | -                            |  
|                                                                        |   |                              |  
|NET LOSS                                                                |   | (4,617,093                   | )
|                                                                        |   |                              |  
|OTHER COMPREHENSIVE (LOSS)                                              |   |                              |  
|Unrealized (loss) on marketable securities                              |   | (798                         | )
|                                                                        |   |                              |  
|NET COMPREHENSIVE (LOSS)                                                | $ | (4,617,891                   | )
|                                                                        |   |                              |  
|Basic and Diluted Per Share data 
         Net Loss - basic and diluted | $ | (0.05                        | )
|                                                                        |   |                              |  
|Weighted Average Common Shares Outstanding: 
         Basic and diluted |   | 93,249,081                   |  

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

60

---

|SANTA FE GOLD CORPORATION                               
|--------------------------------------------------------
|CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
|FOR THE YEARS ENDED JUNE 30, 2011, 2010 AND 2009        

|                                                                                                       |  |              |  |   |         |  |   |             |   |   |               |   |   | Accumulated |  |   |            |  
|------------------------------------------------------------------------------------------------------ |  | ------------ |  | - | ------- |  | - | ----------- | - | - | ------------- | - | - | ----------- |  | - | ---------- | -
|                                                                                                       |  |              |  |   |         |  |   | Additional  |   |   |               |   |   | Other       |  |   |            |  
|                                                                                                       |  | Common Stock |  |   | Paid-in |  |   | Accumulated |   |   | Comprehensive |   |   |             | 
|                                                                                                       |  | Shares       |  |   | Amount  |  |   | Capital     |   |   | (Deficit)     |   |   | (loss)      |  |   | Total      |  
|                                                                                                       |  |              |  |   |         |  |   |             |   |   |               |   |   |             |  |   |            |  
|Balance, June 30, 2008                                                                                 |  | 75,473,510   |  | $ | 150,948 |  | $ | 46,060,115  |   | $ | (47,441,864   | ) | $ | -           |  | $ | (1,230,801 | )
|                                                                                                       |  |              |  |   |         |  |   |             |   |   |               |   |   |             |  |   |            |  
|Shares issued for senior secured notes payable
      principal conversion                              |  | 570,339      |  |   | 1,140   |  |   | 616,628     |   |   | -             |   |   | -           |  |   | 617,768    |  
|Shares issued for senior secured notes payable interest conversion                                     |  | 1,018,938    |  |   | 2,038   |  |   | 1,023,588   |   |   | -             |   |   | -           |  |   | 1,025,626  |  
|Shares issued for services                                                                             |  | 789,400      |  |   | 1,578   |  |   | 605,958     |   |   | -             |   |   | -           |  |   | 607,536    |  
|Shares issued for cashless exercise of options                                                         |  | 4,180,906    |  |   | 8,362   |  |   | (8,362      | ) |   | -             |   |   | -           |  |   | -          |  
|Shares issued for subscription agreements                                                              |  | 283,019      |  |   | 566     |  |   | 299,434     |   |   | -             |   |   | -           |  |   | 300,000    |  
|Recognized deferred stock compensation                                                                 |  | -            |  |   | -       |  |   | 474,986     |   |   | -             |   |   | -           |  |   | 474,986    |  
|Costs associated with issuance of options                                                              |  | -            |  |   | -       |  |   | 469,063     |   |   | -             |   |   | -           |  |   | 469,063    |  
|Beneficial conversion feature on senior secured notes payable                                          |  | -            |  |   | -       |  |   | 589,521     |   |   | -             |   |   | -           |  |   | 589,521    |  
|Stock-based compensation for services reference
      shareholder stock loan allocatedto prior periods |  |              |  |   |         |  |   | (204,000    | ) |   | -             |   |   | -           |  |   | (204,000   | )
|Net loss                                                                                               |  | -            |  |   | -       |  |   | -           |   |   | (5,535,596    | ) |   | -           |  |   | (5,535,596 | )
|                                                                                                       |  |              |  |   |         |  |   |             |   |   |               |   |   |             |  |   |            |  
|Balance, June 30, 2009                                                                                 |  | 82,316,112   |  |   | 164,632 |  |   | 49,926,931  |   |   | (52,977,460   | ) |   | -           |  |   | (2,885,897 | )
|                                                                                                       |  |              |  |   |         |  |   |             |   |   |               |   |   |             |  |   |            |  
|Cumulative effect of change in accounting on derivative financial
      instruments                    |  | -            |  |   | -       |  |   | (1,439,258  | ) |   | (942,636      | ) |   | -           |  |   | (2,381,894 | )
|Balance, June 30, 2009 - Restated                                                                      |  | 82,316,112   |  |   | 164,632 |  |   | 48,487,673  |   |   | (53,920,096   | ) |   | -           |  |   | (5,267,791 | )

61

---

|Shares issued for settlement of accrued liability                          |  | 1,162,500  |   |   | 2,325   |  |   | 197,675    |   |   | -           |   |   | -    |   |   | 200,000    |  
|-------------------------------------------------------------------------- |  | ---------- | - | - | ------- |  | - | ---------- | - | - | ----------- | - | - | ---- | - | - | ---------- | -
|Shares issued for cashless exercise of options and warrants                |  | 317,877    |   |   | 636     |  |   | (636       | ) |   | -           |   |   | -    |   |   | -          |  
|Shares issued for services and commissions                                 |  | 31,343     |   |   | 63      |  |   | 41,435     |   |   | -           |   |   | -    |   |   | 41,498     |  
|Shares issued for cash exercise of warrants                                |  | 60,000     |   |   | 120     |  |   | 74,880     |   |   | -           |   |   | -    |   |   | 75,000     |  
|Shares issued for cash proceeds                                            |  | 7,905,517  |   |   | 15,812  |  |   | 10,210,191 |   |   | -           |   |   | -    |   |   | 10,226,003 |  
|Shares issued for conversion of note payable                               |  | 18,219     |   |   | 36      |  |   | 18,183     |   |   | -           |   |   | -    |   |   | 18,219     |  
|Shares issued for conversion of accrued interest                           |  | 483,000    |   |   | 966     |  |   | 482,034    |   |   | -           |   |   | -    |   |   | 483,000    |  
|Fees attributable to private placement                                     |  | -          |   |   | -       |  |   | (625,000   | ) |   | -           |   |   | -    |   |   | (625,000   | )
|Private placement proceeds allocated to warrant
      derivative liability |  | -          |   |   | -       |  |   | (3,275,067 | ) |   | -           |   |   | -    |   |   | (3,275,067 | )
|Stock sale proceeds allocated to warrant derivative liability              |  | -          |   |   | -       |  |   | (192,507   | ) |   | -           |   |   | -    |   |   | (192,507   | )
|Derivative instrument liability at exercise
      date                     |  | -          |   |   | -       |  |   | 788,293    |   |   | -           |   |   | -    |   |   | 788,293    |  
|Recognized deferred stock compensation                                     |  | -          |   |   | -       |  |   | 342,415    |   |   | -           |   |   | -    |   |   | 342,415    |  
|Issuance of non-vested stock grants                                        |  | 765,000    |   |   | -       |  |   | -          |   |   | -           |   |   | -    |   |   | -          |  
|Costs associated with issuance of options                                  |  | -          |   |   | -       |  |   | 333,634    |   |   | -           |   |   | -    |   |   | 333,634    |  
|Net loss                                                                   |  | -          |   |   | -       |  |   | -          |   |   | (1,209,354  | ) |   | -    |   |   | (1,209,354 | )
|                                                                           |  |            |   |   |         |  |   |            |   |   |             |   |   |      |   |   |            |  
|Balance, June 30, 2010                                                     |  | 93,059,568 |   |   | 184,590 |  |   | 56,883,203 |   |   | (55,129,450 | ) |   | -    |   |   | 1,938,343  |  
|Shares issued for services                                                 |  | 17,500     |   |   | 35      |  |   | 16,515     |   |   | -           |   |   | -    |   |   | 16,550     |  
|Issuance of vested stock grants                                            |  | -          |   |   | 180     |  |   | (180       | ) |   | -           |   |   | -    |   |   | -          |  
|Cancellation of non-vested stock grants                                    |  | (100,000   | ) |   | -       |  |   | -          |   |   | -           |   |   | -    |   |   | -          |  
|Shares issued in private placement for cash
      proceeds                 |  | 1,666,668  |   |   | 3,333   |  |   | 1,996,668  |   |   | -           |   |   | -    |   |   | 2,000,001  |  
|Private placement fees paid                                                |  | -          |   |   | -       |  |   | (136,000   | ) |   | -           |   |   | -    |   |   | (136,000   | )
|Private placement proceeds allocated to warrant
      derivative           |  | -          |   |   | -       |  |   | (731,984   | ) |   | -           |   |   | -    |   |   | (731,984   | )
|Shares issued for cashless exercise of options                             |  | 100,676    |   |   | 203     |  |   | (203       | ) |   | -           |   |   | -    |   |   | -          |  
|Costs associated with issuance of options                                  |  | -          |   |   | -       |  |   | 534,191    |   |   | -           |   |   | -    |   |   | 534,191    |  
|Recognized deferred stock compensation                                     |  | -          |   |   | -       |  |   | 459,340    |   |   | -           |   |   | -    |   |   | 459,340    |  
|Mark to market on securities                                               |  | -          |   |   | -       |  |   | -          |   |   | -           |   |   | (798 | ) |   | (798       | )
|Net loss                                                                   |  | -          |   |   | -       |  |   | -          |   |   | (4,617,093  | ) |   | -    |   |   | (4,617,093 | )
|Balance, June 30, 2011                                                     |  | 94,744,412 |   | $ | 188,341 |  | $ | 59,021,550 |   | $ | (59,746,543 | ) | $ | (798 | ) | $ | (537,450   | )

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

62

---

|SANTA FE GOLD CORPORATION            
|-------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                  |   | For the Years Ended June 30, |  
|--------------------------------------------------------------------------------- | - | ---------------------------- | -
|                                                                                  |   | 2011                         |  
|                                                                                  |   |                              |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |   |                              |  
|Net loss                                                                          | $ | (4,617,093                   | )
|Adjustments to reconcile
      net loss to net cash used in operating activities: |   |                              |  
|Depreciation                                                                      |   | 2,322,736                    |  
|Stock-based compensation                                                          |   | 1,010,081                    |  
|Accretion
      of discount on notes payable                                      |   | 1,275,811                    |  
|Accretion of asset retirement obligation                                          |   | (84,059                      | )
|Relief
      of debt                                                              |   | -                            |  
|Foreign currency translation (gain) loss                                          |   | -                            |  
|(Gain)
      Loss on derivative instrument liabilities                            |   | (1,652,961                   | )
|Gain on disposal of assets                                                        |   | -                            |  
|Amortization
      of deferred financing costs                                    |   | 98,317                       |  
|Net change in operating
      assets and liabilities:                             |   |                              |  
|Accounts
      receivable                                                         |   | (2,230,605                   | )
|Interest receivable                                                               |   | -                            |  
|Inventory                                                                         |   | (175,578                     | )
|Prepaid expenses and other current assets                                         |   | (11,856                      | )
|Accounts
      payable and accrued liabilities                                    |   | 2,288,996                    |  
|Deferred revenue                                                                  |   | (388,734                     | )
|Accrued
      interest payable                                                    |   | 234,584                      |  
|Net Cash Used
      in Operating Activities                                       |   | (1,930,361                   | )
|                                                                                  |   |                              |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |   |                              |  
|Increase to restricted cash                                                       |   | -                            |  
|Proceeds from disposal
      of assets                                            |   | -                            |  
|Purchase of marketable securities                                                 |   | (98,058                      | )
|Notes receivable and accrued
      interest                                       |   | (203,422                     | )
|Purchase of property, plant and equipment                                         |   | (1,072,217                   | )
|Construction in progress                                                          |   | (3,665,034                   | )
|Net Cash Used in Investing
      Activities                                       |   | (5,038,731                   | )
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |   |                              |  
|Proceeds from convertible notes payable                                           |   | -                            |  
|Proceeds from issuance
      of stock                                             |   | 2,000,001                    |  
|Proceeds from notes payable                                                       |   | 77,306                       |  
|Proceeds from deferred
      revenue                                              |   | -                            |  
|Payment of private placement fees                                                 |   | (136,000                     | )
|Payments on notes payable                                                         |   | (201,701                     | )
|Payments on capital leases                                                        |   | (138,113                     | )
|Payments on line of credit                                                        |   | -                            |  
|Payments on convertible debenture notes                                           |   | -                            |  
|Payment of financing costs                                                        |   | -                            |  
|Net Cash Provided by Financing
      Activities                                   |   | 1,601,493                    |  
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                  |   | (5,367,599                   | )
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                      |   | 5,540,130                    |  
|CASH AND CASH EQUIVALENTS, END OF YEAR                                            | $ | 172,531                      |  

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

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|SANTA FE GOLD CORPORATION            
|-------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS
|(Continued)                          

|                                                                        |   | For the Years Ended June 30, | 
|----------------------------------------------------------------------- | - | ---------------------------- | 
|                                                                        |   | 2011                         | 
|SUPPLEMENTAL CASH FLOW INFORMATION:                                     |   |                              | 
|Cash paid for interest                                                  | $ | 799,354                      | 
|Cash paid for income taxes                                              | $ | -                            | 
|                                                                        |   |                              | 
|SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: |   |                              | 
|Stock issued for conversion of accrued
      interest                   | $ | -                            | 
|Stock issued for conversion
      of senior secured convertible notes   | $ | -                            | 
|Stock issued for conversion of accrued
      liability                  | $ | -                            | 
|Stock issued for conversion
      of note payable                       | $ | -                            | 
|Equipment purchased with note payable                                   | $ | -                            | 
|Equipment purchased with
      capital leases                           | $ | -                            | 
|Stock grants issued                                                     | $ | -                            | 
|Stock issued for services                                               | $ | 16,550                       | 

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

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|SANTA FE GOLD CORPORATION                     
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|JUNE 30, 2011                                 

NOTE 1  NATURE OF OPERATIONS

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

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

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

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

The Company commenced processing
  operations at the Banner Mill in March 2010. Commissioning of the mill proceeded
  satisfactorily and in July 2010, mill operations were expanded to two shifts
  per day, five days a week. The Company plans to ramp up production from the
  Summit mine and is currently ramping up to full production and in turn will
  increase throughput at the Banner mill. The Company anticipates the Summit project
  will achieve a commercial level production during the fourth quarter of the
  calendar year 2011.

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

On June 13, 2009, the Companys
  wholly owned Mexican subsidiary, Minera Sandia S.A. de C.V, entered into an
  option purchase contract on the Pilar Gold Property consisting of two mineral
  exploitation concessions located 165 kilometers east-southeast of Hermosillo,
  Sonora, Mexico. In March 2010, the Company relinquished its interest in this
  property before the March 13, 2010 payments were due, after receiving disappointing
  results from an extensive program of trenching and surface sampling.

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NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Going Concern

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

The Company has incurred a loss
  of $(4,617,093) for the fiscal year ended June 30, 2011, and has a total accumulated
  deficit of $(59,746,543) and a working capital deficit of $(13,114,301) at June
  30, 2011, which includes non-cash derivative instrument liabilities aggregating
  $8,973,066. The Company began revenue generating operations during the current
  fiscal year through the sales of precious metals and flux material. To continue
  as a going concern, the Company is dependent on continued fund raising for project
  development and payment of general and administration expenses until production
  at the Summit mine site ramps up to full production and profitable operations
  are achieved. The Company has no continuing commitment from any party to provide
  additional working capital and there is no assurance that such funding will
  be available if needed, or if available, that its terms will be favorable or
  acceptable to the Company.

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

Principles of Consolidation

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

Reclassifications

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

Estimates

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

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

Marketable Securities

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

Inventory

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

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Fair Value of Financial Instruments

The carrying values of cash and
  cash equivalents, restricted cash, accounts payable and accrued liabilities
  approximated their related fair values as of June 30, 2011, due to the relatively
  short-term nature of these instruments. The carrying value of the Companys
  convertible debentures approximates the fair value based on the terms at which
  the Company could obtain similar financing and the short term nature of these
  instruments.

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable consist of trade receivables from precious metals sales of concentrate, flux, and refined gold  As of June 30, 2011, total accounts receivable by customer are 71% from Aurubis AG, (“Aurubis”), 26% from Asarco LLC (“Asarco”), and 3% from Sandstorm Gold, Ltd. (“Sandstorm”).

In evaluating the collectability of accounts receivable, the Company analyzes past results and identifies trends for each major payor source of revenue for the purpose of estimating the appropriate amounts of the allowance for doubtful accounts and the provision for bad debts. Data in each major payor source are regularly reviewed to evaluate the adequacy of the allowance, and actual write-offs are charged against the allowance.  There was no allowance for doubtful accounts as of June 30, 2011.

Property, Plant and Equipment

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

Idle Equipment

As of June 30, 2007, the Company
  obtained an independent appraisal of certain equipment. The appraisal indicated
  a net realizable value of approximately $1,541,500. During the year ended June
  30, 2008, the Company transferred idle equipment at an appraisal value of $105,000
  to the Banner mill site and upon the dismantling of the Black Canyon mica site,
  wrote off idle equipment aggregating a net book value of $125,000. During the
  year ended June 30, 2009, the Company sold related equipment with an appraised
  value of $53,000 for $45,000 in cash, realizing a loss on disposition of $8,000.
  During the year ended June 30, 2010, the Company sold related equipment with
  an appraised value of $34,972 for $31,400 in cash, realizing a loss on disposition
  of $3,572. There were no transactions involving idle equipment for the year
  ended June 30, 2011.

Mineral Exploration Costs

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

Impairment of Long-Lived Assets

The Company reviews and evaluates
  long-lived assets for impairment when events or changes in circumstances indicate
  the related carrying amounts may not be recoverable. The assets are subject
  to impairment consideration under ASC 360-10-35-17, Measurement of an Impairment
  Loss, if events or circumstances indicate that their carrying amount might not
  be recoverable. As of June 30, 2011, exploration progress is on target with
  the Companys exploration and evaluation plan and no events or circumstances
  have happened to indicate the related carrying values of the properties may
  not be recoverable. When the Company determines that an impairment analysis
  should be done, the analysis will be performed using the rules of ASC 930-360-35,
  Asset Impairment, and 360-10-15-3 through 15-5, Impairment or Disposal of Long-Lived
  Assets.

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

Restricted Cash

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

Derivative Financial Instruments

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

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

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

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

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

Reclamation Costs

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

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Prior to the current fiscal operating
  year, the Company accrued $84,059 for reclamation on the ground site work at
  the Mica project. The asset retirement obligation associated with the Mica project
  consists of reclamation of disturbed property, all of which has been completed
  and the Company has written this liability down to zero at June 30, 2011.

Revenue Recognition

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

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

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

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

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

Deferred Revenue

Deferred revenue represents a cash
  advance made under a definitive gold sale agreement to sell a portion of the
  life-of-mine gold production only, not silver production, from our Summit silver-gold
  mine. Under the terms of the agreement, the Company received an upfront cash
  deposit of $4 million, plus it will receive ongoing production payments equal
  to the lesser of $400 per ounce or the prevailing market price, for each ounce
  of gold delivered pursuant to the agreement for the life of the mine. The upfront
  cash advance will be amortized by the difference between the market price and
  $400 per ounce for those gold deliveries where the prevailing market price exceeds
  $400 per ounce. The Company will also recognize the on-going production payments
  as revenue for gold delivered pursuant to the agreement. Deferred revenue on
  the Companys balance sheet is categorized as current if the Company expects
  to recognize such revenue within the following twelve months. Current deferred
  revenue amounted to $ $3,611,266 at June 30, 2011.

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Concentration of Credit Risk

For the year ended June 30, 2011, the composition of sales generated from precious metals were 61% to Aurubis, 23% to Asarco, 8% to Freeport McMoran (“Freeport”) and 8% to Sandstorm.  For the year ended June 30, 2010, Freeport accounted for 100% of sales generated from precious metals products.

The Company’s Summit project located in the state of New Mexico accounted for 100% of the Company’s total sales.

The Company has carefully considered and assessed the credit risk resulting from its sales arrangements with Aurubis,  Asarco, Freeport, and Sandstorm and believes it is not exposed to significant credit risk in relation to the counterparties meeting their contractual obligations at it pertains to trade receivables during the ordinary course of business.

Income Taxes

The Company accounts for income
  taxes in accordance with ASC 740, Income Taxes, (ASC 740)
  using the asset and liability approach, which requires recognition of deferred
  tax liabilities and assets for the expected future tax consequences of temporary
  differences between the carrying amounts and the tax basis of such assets and
  liabilities. This method utilizes enacted statutory tax rates in effect for
  the year in which the temporary differences are expected to reverse and gives
  immediate effect to changes in income tax rates upon enactment. Deferred tax
  assets are recognized, net of any valuation allowance, for temporary differences,
  net operating loss and tax credit carry forwards. Deferred income tax expense
  represents the change in net deferred assets and liability balances. Deferred
  income taxes result from temporary differences between the basis of assets and
  liabilities recognized for differences between the financial statement and tax
  basis thereon and for the expected future tax benefits to be derived from net
  operating losses and tax credit carry forwards. A valuation allowance is recorded
  when it is more likely than not that deferred tax assets will be unrealizable
  in future periods. As of June 30, 2011, 2010 and 2009, the Company has recorded
  a valuation allowance against the full amount of its net deferred tax assets.
  The inability to foresee taxable income in future years makes it more likely
  than not that the Company will not realize its recorded deferred tax assets
  in future periods.

Net (Loss) Per Share

The Company calculates net income
  (loss) per share as required by Accounting Standards Codification subtopic 260-10,
  Earnings per Share (ASC 260-10). Basic earnings (loss) per share is calculated
  by dividing net income (loss) by the weighted average number of common shares
  outstanding for the period. Diluted earnings per share is calculated by dividing
  net income (loss) by the weighted average number of common shares and dilutive
  common stock equivalents outstanding. During the periods when they are anti-dilutive,
  common stock equivalents, if any, are not considered in the computation. For
  the years ended June 30, 2011, 2010 and 2009, the impact of outstanding stock
  equivalents has not been included as they would be anti-dilutive.

Comprehensive Loss

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

Stock-Based Compensation

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

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

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Stock-based compensation costs
  recognized for the years ended June 30, 2011, 2010 and 2009 amounted to $1,010,081,
  $717,547 and $1,347,585, respectively.

Recent Accounting Pronouncements

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

In March 2010, the FASB issued
  authoritative guidance which clarifies the Embedded Derivatives
  guidance (ASC 815). All entities that enter into contracts containing an embedded
  credit derivative feature related to the transfer of credit risk that is not
  only in the form of subordination of one financial instrument to another will
  be affected by the amendments. The amendments in this update are effective for
  interim periods beginning after June 15, 2010. The adoption of this update has
  not had a material impact on the Companys consolidated financial statements.

In April 2010, the FASB issued
  authoritative guidance which clarifies the Stock Compensation guidance
  (ASC 718). This guidance clarifies the accounting for certain employee share-based
  payment awards. Awards with an exercise price denominated in the currency of
  a market in which a substantial portion of the entitys equity securities
  trades would not be considered to contain a condition that is not a market,
  performance or service condition. Therefore, an entity would not classify such
  an award as a liability if it otherwise qualifies as equity. This accounting
  guidance is effective for accounting periods beginning on or after December
  15, 2010, with earlier application permitted. The adoption of this update has
  not had a material impact on the Companys consolidated financial statements.

In December 2010, FASB issued ASU
  2010-29, "Business Combinations (Topic 805): Disclosure of Supplementary Pro
  Forma Information for Business Combinations (a consensus of the FASB Emerging
  Issues Task Force)." ASU 2010-29 provides amendments to subtopic 805-10 of the
  FASB ASC that requires a public entity to disclose pro forma information for
  business combinations that occurred in the current reporting period. ASU 2010-29
  is effective prospectively for business combinations for which the acquisition
  date is on or after the beginning of the first annual reporting period beginning
  on or after December 15, 2010, with early adoption permitted. The adoption of
  this update has not had an impact on the Company's consolidated financial statements.

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

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

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

NOTE 3  ADOPTION OF NEW ACCOUNTING POLICY

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

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

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

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

NOTE 4  INVENTORY

The following table provides the components
  of inventory as of June 30, 2011 and 2010:

2011
      
      
      2010Stockpiled ore
      $
      23,296
      
      $
      --In-process material
      
      24,281
      
      
      --Siliceous flux material
      
      46,135
      
      
      --Precious metals concentrate
      
      81,866
      
      
      --$
      175,578
      
      $
      --


72

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NOTE 5  MINERAL PROPERTIES

Mineral properties were comprised
  of acquisition costs related to the properties in New Mexico and Arizona, as
  shown below as of June 30, 2011 and 2010:

2011
      
      
      2010Summit property, Grant County, NM
      $
      119,000
      
      $
      119,000Banner property, Hidalgo County, NM
      
      210,000
      
      
      210,000New Planet property, La Paz County, AZ
      
      250,000
      
      
      250,000$
      579,000
      
      $
      579,000


NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

Property and equipment consist of the following at June 30, 2011
  and 2010:

2011
      
      
      2010Leasehold improvements
      $
      1,645
      
      $
      1,645Office furniture and equipment
      
      37,779
      
      
      37,779Land
      
      163,000
      
      
      163,000Mine processing equipment and buildings
      
      5,489,538
      
      
      4,087,855Plant
      
      8,053,672
      
      
      --Tailings
      
      1,726,677
      
      
      --Environmental and permits
      
      267,078
      
      
      --Asset retirement obligation
      
      149,236
      
      
      --Automotive
      
      218,258
      
      
      179,868Software
      
      87,848
      
      
      87,84816,194,731
      
      
      4,557,995Less: Accumulated depreciation
      
      (3,090,516
      )
      
      (767,780
      )$
      13,104,215
      
      $
      3,790,215


Depreciation expense for the years
  ended June 30, 2011, 2010 and 2009 was $2,322,736, $477,760 and $279,012, respectively.

Construction in progress consists
  of the following at June 30, 2011 and 2010:

2011
      
      
      2010Banner mill site
      $
      --
      
      $
      9,153,131Summit mine site
      
      7,550,583
      
      
      4,195,194Capitalized interest expense
      
      876,530
      
      
      1,829,037$
      8,427,113
      
      $
      15,177,362


During the current fiscal year,
  the Company put into service the Banner Mill Site consisting of capitalized
  costs of plant and related equipment aggregating $10,147,035 and capitalized
  interest of $1,254,189.

The following table shows the carrying
  value of idle equipment at June 30, 2011 and 2010. The carrying value is based
  upon a third party appraisal obtained as of the year ended June 30, 2007:

2011
      
      
      2010Mica processing equipment
      $
      1,616,367
      
      $
      1,616,367Black Canyon mine equipment
      
      2,192,090
      
      
      2,192,0903,808,457
      
      
      3,808,457Less: Allowance for impairment and depreciation
      
      (2,584,929
      )
      
      (2,584,929
      )$
      1,223,528
      
      $
      1,223,528


73

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NOTE 7  NOTE RECEIVABLE

On January 27, 2011, the Company
  advanced $200,000 to Columbus Silver Corporation (Columbus Silver)
  (TSXV: CSC) in exchange for a promissory note bearing interest at 4% per annum.
  All accrued interest and principal is due and payable on December 31, 2012.
  The loan was extended for the purpose of providing Columbus Silver with working
  capital in connection with a non-binding Memorandum of Understanding (MOU)
  dated September 23, 2010, in contemplation of a business combination (the Transaction).
  In the event that either party to the MOU informs the other that it will not
  proceed with the Transaction, either the maker or the holder will have the ability,
  by providing written notice to the other, to require that the maker apply to
  the TSX Venture Exchange to have the entire outstanding principal amount and
  accrued unpaid interest of this note paid in common shares of the maker. As
  of June 30, 2011, accrued interest receivable on the note receivable was $3,422.

NOTE 8 - DERIVATIVE INSTRUMENT LIABILITIES

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

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

On February 23, 2007, the Company
  agreed with the institutional investors to amend the terms of the private placement
  of senior secured convertible notes, additional investment rights and warrants
  issued March 20, 2006 and September 6, 2006. Under terms of this Amendment 2,
  the date by which the Company was required to file a registration statement
  with the Securities and Exchange Commission was extended from November 5, 2006,
  until April 30, 2007 (subsequently filed March 23, 2007), and the date by which
  such registration statement was required to be declared effective, was extended
  from February 4, 2007, until July 31, 2007. The investors agreed to forgo all
  liquidated damages and penalties related to the previous deadlines. The Company
  agreed to seek stockholder approval for an increase in the Companys authorized
  capital, from the authorized limit of 100 million shares, to 200 million shares,
  and, if necessary, to file additional registration statements. In connection
  with the amendment, the Company issued 1,750,000 warrants, giving note holders
  the right to purchase common stock at a price of $1.25 per share for a period
  of five years. The Company uses the Black-Scholes option pricing model to value
  options, warrants, imbedded conversion option components and additional investment
  rights that are recorded as derivative liabilities. The fair value of the derivative
  instruments liability for these warrants at the time of issuance was determined
  to be $1,773,013 with the following assumptions: (1) risk free interest rate
  of 4.67%, (2) remaining contractual life of 5 years, (3) expected stock price
  volatility of 116%, and (4) expected dividend yield of zero.

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

74

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On October 30, 2007, the Company
  completed the placement of 10% Convertible Senior Subordinated Notes in the
  amount of $450,000. The notes were placed with three accredited investors in
  the amount of $150,000 each. The notes have a term of 60 months and bear interest
  at 10% per annum. In connection with the transaction, the Company issued a five
  year warrant for each $2.50 invested, each warrant giving the note holder the
  right to purchase common stock at a price of $1.25 per share. An aggregate of
  180,000 warrants were issued under the notes.

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

The fair value of the derivative
  instruments liability for these warrants issued under the placements at the
  time of issuance in the October 2007, and December 2007, transactions was determined
  to be $163,627 with the following assumptions: (1) risk free interest rate of
  3.50% to 4.05%, (2) remaining contractual life of 5 and 7 years, (3) expected
  stock price volatility of 114% to 118%, and (4) expected dividend yield of zero.
  This derivative instruments liability was recorded as a discount to the convertible
  notes at the time of the transaction.

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

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

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

The fair value of the derivative
  instruments liability for these warrants and embedded convertible options issued
  under the placements at the time of issuance in the January 2008, and February
  2008, transactions was determined to be $771,323 with the following assumptions:
  (1) risk free interest rate of 2.46% to 3.3%, (2) remaining contractual life
  of 1.5 and 7 years, (3) expected stock price volatility of 112% to 113%, and
  (4) expected dividend yield of zero. This derivative instruments liability was
  recorded as a discount to the convertible notes at the time of the transaction.

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

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

75

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The fair value of the derivative
  instruments liability for these warrants and embedded convertible options issued
  under the placements at the time of issuance in the April 2008 and June 2008
  transactions was determined to be $1,447,716 with the following assumptions:
  (1) risk free interest rate of 2.29% to 3.28%, (2) remaining contractual life
  of 1.42 to 6.72 years, (3) expected stock price volatility of 106% to 107%,
  and (4) expected dividend yield of zero. This derivative instruments liability
  was recorded as a discount to the convertible notes at the time of the transaction.

On July 15, 2008, under the terms
  of 7% Senior Secured Convertible Debenture dated December 21, 2007, the Company
  received the fourth advance under the agreement of $3,500,000 and issued 1,750,000
  warrants relating to the advance. The fair value of the derivative instruments
  liability for these warrants issued under the placements at the time of issuance
  was determined to be $1,184,521 with the following assumptions: (1) risk free
  interest rate of 3.43%, (2) an expected life of 6.5 years, (3) expected stock
  price volatility of 104%, and (4) expected dividend yield of zero.

The convertible debenture was determined
  to have a beneficial conversion feature of $589,521 based upon the effective
  computed conversion price, which was charged to the note discount and credited
  to Additional Paid in Capital. The beneficial conversion feature in conjunction
  with the derivative instruments liability for the warrants resulted in an aggregated
  note discount of $1,774,042.

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

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

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

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

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

76

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

On December 30, 2010, in connection
  with the registered direct offering to three institutional investors for 1,666,668
  shares of the Companys common stock, the Company issued 833,334 five year
  warrants giving the holders the right to purchase common stock at $1.50 per
  share. The warrants are exercisable immediately after issuance and will expire
  five years from the date of issuance. Using the Black-Scholes option pricing
  model, the fair market value of the warrants under the placement at the time
  of issuance was determined to be $669,372 with the following assumptions: (1)
  risk-free rate of interest of 2.01%, (2) an expected life of 5.0 years, (3)
  expected stock price volatility of 79.51%, and (4) expected dividend yield of
  zero. The private placement was subject to the issuance of 100,000 warrants
  to the placement agent, exercisable at $1.50 per share and has an exercise period
  of approximately 3.92 years. The warrants are exercisable immediately after
  issuance. Using the Black-Scholes option pricing model, the fair market value
  of the placement agent warrants under the placement at the time of issuance
  was determined to be $62,614 with the following assumptions: (1) risk-free rate
  of interest of 1.47%, (2) an expected life of 3.92 years, (3) expected stock
  price volatility of 68.65%, and (4) expected dividend yield of zero.

The fair market value of the derivative
  instruments liabilities at June 30, 2011, was determined to be $8,973,066 with
  the following assumptions: (1) risk free interest rate of 0.02% to 1.52%, (2)
  remaining contractual life of 0.20 to 4.50 years, (3) expected stock price volatility
  of 41.26% to 87.59%, 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, 2011, of $1.652,961 and a corresponding
  decrease in the derivative instruments liability.

|                                                      |   | Derivative      |           |   | Derivative      |  |   | Derivative    |  
|----------------------------------------------------- | - | --------------- | --------- | - | --------------- |  | - | ------------- | -
|                                                      |   | Liability as of |           |   | Liability as of |  |   | Gain Through  |  
|                                                      |   | June 30, 2010   |           |   | June 30, 2011   |  |   | June 30, 2011 |  
|Convertible Debentures:                               |   |                 |           |   |                 |  |   |               |  
|Purchase Agreement Warrants                           | $ | 6,585,752       |           | $ | 5,712,913       |  | $ | 872,839       |  
|Amendment 2 Warrants                                  |   | 637,296         |           |   | 332,387         |  |   | 304,909       |  
|Embedded Conversion Option                            |   | 2,670,995       |           |   | 2,927,766       |  |   | (256,771      | )
|Totals                                                | $ | 9,894,043       |           | $ | 8,973,066       |  |   | 920,977       |  
|                                                      |   |                 |           |   |                 |  |   |               |  
|Amount allocated to derivative liability at inception |   |                 | 731,984   |  
|                                                      |   | $               | 1,652,961 |  

The derivative liability is comprised of the following as of:

|                                                        |   | June 30,  |  |   | June 30,  | 
|------------------------------------------------------- | - | --------- |  | - | --------- | 
|                                                        |   | 2011      |  |   | 2010      | 
|Current portion of derivative instruments liabilities   | $ | 8,973,066 |  | $ | 9,894,041 | 
|Long-term portion of derivative instruments liabilities |   | -         |  |   | -         | 
|                                                        | $ | 8,973,066 |  | $ | 9,894,041 | 

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

77

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NOTE 9 CONVERTIBLE NOTES PAYABLE AND DEBENTURES

Senior Subordinated Convertible Notes

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

At June 30, 2011 and 2010 accrued
  interest due on the Senior Subordinated Convertible Notes, was $6,334 and $6,334,
  respectively.

Senior Secured Convertible Debenture

On December 21, 2007, the Company
  entered into definitive agreements for the placement with a single investor
  of a 7% Senior Secured Convertible Debenture in the amount of $13,500,000. Proceeds
  from the debenture were issued in accordance with a pre-determined funding schedule
  related to the Summit projects anticipated construction requirements.
  The term of the debenture is 60 months, at the end of which time all remaining
  principal and interest shall be due. The debenture bears interest at the rate
  of 7% per annum. Interest on the outstanding principal balance is payable in
  quarterly installments, commencing on July 1, 2009. Interest may be paid in
  cash or stock at the investors election. If paid in stock, the number
  of shares will be calculated using the average of the daily volume weighted
  average sales prices of the common stock for the twenty (20) trading days immediately
  preceding the payment date. The entire amount of principal and any unpaid interest
  will be due December 31, 2012, subject to the investors right to require
  the Company after 36 and 48 months to apply up to 30% of the Summit projects
  positive cash flow toward retirement of the debenture. The debenture is secured
  by a mortgage on the Summit real property and a security interest in Summit
  personal property. The investor may at any time convert unpaid principal and
  interest into shares of our common stock at the rate of $1.00 per share. The
  debenture will be automatically converted into common stock if the weighted
  average closing sales price of the stock exceeds $2.50 per share for 10 consecutive
  trading days. Beginning January 1, 2011, the Company may redeem the entire outstanding
  amount of the debenture, including principal and outstanding interest, subject
  to the investors right to convert the debenture into shares of common
  stock. In connection with the transaction, for every $2.00 of the original principal
  amount of the debenture, the investor will receive a warrant to purchase one
  share of common stock at a price of $1.00. The warrants are exercisable from
  July 1, 2010 to December 31, 2014. The Company has received the total advances
  under the agreement of $13,500,000, and the Company has issued an aggregate
  of 6,750,000 warrants under the debenture advances.

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

78

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At June 30, 2011 and 2010, accrued
  interest due on the Senior Secured Convertible Debenture was $238,875 and $-0-,
  respectively.

The components of the Senior Subordinated
  Convertible Notes and the Senior Secured Convertible Debenture are as follows
  as of June 30, 2011 and 2010:

June 30, 2011:
      
      Principal
      
      
      UnamortizedAmount
      
      
      Discount
      
      
      NetCurrent portion
      $
      -
      
      $
      -
      
      $
      -Long-term portion, net of current
      
      13,950,000
      
      
      (2,517,749
      )
      
      11,432,251$
      13,950,000
      
      $
      (2,517,749
      )
      $
      11,432,251


June 30, 2010:
      
      Principal
      
      
      UnamortizedAmount
      
      
      Discount
      
      
      NetCurrent portion
      $
      -
      
      $
      -
      
      $
      -Long-term portion, net of current
      
      13,950,000
      
      
      (3,793,560
      )
      
      10,156,440$
      13,950,000
      
      $
      (3,793,560
      )
      $
      10,156,440


Aggregate yearly maturities on
  the Senior Subordinated Convertible Notes and the Senior Secured Convertible
  Debenture based upon payment terms at June 30, 2011, are as follows:

2011
      $
      -2012
      
      13,950,000Subtotal
      
      13,950,000Less: unamortized original discount
      
      (2,517,749
      )$
      11,432,251


NOTE 10  NOTES PAYABLE

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

79

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

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

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

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

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

The following summarizes notes payable
  at June 30, 2011 and 2010:

|                                                                                                                                                                 |   | June 30, 2011 |   |   | June 30, 2010 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | - | - | ------------- | -
|                                                                                                                                                                 |   |               |   |   |               |  
|Note payable for mineral property, interest
      at 10%, payable in 4 annual installments of $63,094, including interest
      through August 2012              | $ | 109,502       |   | $ | 156,906       |  
|                                                                                                                                                                 |   |               |   |   |               |  
|Installment sales contract on equipment, interest
      at 6.75%, payable in 36 monthly installments of $2,911, including interest
      through September 2011  |   | 5,777         |   |   | 39,180        |  
|                                                                                                                                                                 |   |               |   |   |               |  
|Installment sales contract on equipment, interest
      at 9.25%, payable in 36 monthly installments of $537, including interest
      through October 2012      |   | 7,635         |   |   | 13,141        |  
|                                                                                                                                                                 |   |               |   |   |               |  
|Financing contract on insurance premiums, interest
      at 6.99%, payable in 11 monthly installments of $6,862, including interest
      through September 2010 |   | --            |   |   | 13,604        |  
|                                                                                                                                                                 |   |               |   |   |               |  
|Financing contract on insurance premiums, interest
      at 5.99%, payable in 11 monthly installments of $13,098, including interest
      through October 2010  |   | --            |   |   | 38,905        |  
|                                                                                                                                                                 |   |               |   |   |               |  
|Financing contract on insurance premiums, interest
      at 6.99%, payable in 11 monthly installments of $7,276, including interest
      through September 2011 |   | 14,427        |   |   | (138,821      | )
|Total Outstanding Notes Payable                                                                                                                                  |   | 137,341       |   |   | 261,736       |  
|Less: Current maturities                                                                                                                                         |   | (78,384       | ) |   | (138,821      | )
|Obligations of notes payable due after one year                                                                                                                  | $ | 58,957        |   | $ | 122,915       |  

The aggregate maturities of notes payable
  as of June 30, 2011, is as follows:

Year ending June 30,2012
      $
      78,3842013
      
      58,957Total Outstanding Notes Payable
      $
      137,341


80

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NOTE 11  CAPITAL LEASES

During the year ended June 30,
  2011, the Company utilized capital leases aggregating $480,744 for the purchase
  of equipment. Lease terms and interest rates for the equipment are 60 months
  at 6.25%, 36 months at 5.34%, and 36 months at 5.78% . The assets and liabilities
  under capital leases are recorded at the lower of the present value of the minimum
  lease payments or the fair value of the asset. The assets are amortized or depreciated
  over their estimated productive lives, not to exceed the life of the mine.

Minimum future lease payments under
  capital leases, as of June 30, 2011, for each of the following years and in
  aggregate, are as follows:

Year ended June 30,2012
      $
      88,4072013
      
      43,0412014
      
      3,587Total minimum lease payments
      
      135,035Amount representing interest
      
      (6,122
      )Present value of future minimum lease payments
      
      128,913Current portion of capital lease obligations
      
      (83,856
      )Obligations of capital leases due after one
        year
      $
      45,057


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

June 30, 2011
      
      
      June 30, 2010Equipment
      $
      576,061
      
      $
      576,061Accumulated depreciation
      
      (221,280
      )
      
      (138,986
      )Net equipment under capital lease
      $
      354,781
      
      $
      437,075


NOTE 12  FAIR VALUE MEASUREMENTS

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

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

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

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

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

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The Companys financial instruments
  consist of marketable securities and derivative instruments which are measured
  at fair value on a recurring basis. Marketable securities are comprised of 1,000,000
  shares of common stock of Columbus Silver Corporation which is traded on the
  TSX Venture Exchange (TSXV: CSC). The stock was purchased in accordance with
  a Memorandum of Understanding entered into on September 24, 2010 for the purpose
  of consummating a business combination. The derivative instruments consist of
  certain embedded features contained within its debt instruments and certain
  warrant contracts. The derivatives are measured on their respective origination
  dates, at the end of each reporting period and at other points in time when
  necessary, such as modifications, using Level 3 inputs in accordance with GAAP.
  The Company does not report any financial assets or liabilities that it measures
  using Level 2 inputs. The fair value measurement of financial instruments and
  other assets as of June 30, 2011 are as follows:

|                                          |   |         |  |  |         |  |   |           |  |   | June 30,  | 
|----------------------------------------- | - | ------- |  |  | ------- |  | - | --------- |  | - | --------- | 
|                                          |   | Level 1 |  |  | Level 2 |  |   | Level 3   |  |   | 2011      | 
|Marketable securities                     | $ | 97,260  |  |  | ---     |  |   | ---       |  | $ | 97,260    | 
|                                          |   |         |  |  |         |  |   |           |  |   |           | 
|Other Assets:                             |   |         |  |  |         |  |   |           |  |   |           | 
|Idle equipment, net                       |   | ---     |  |  | ---     |  | $ | 1,223,528 |  |   | 1,223,528 | 
|                                          |   |         |  |  |         |  |   |           |  |   |           | 
|Value of derivative instruments liability |   | ---     |  |  | ---     |  |   | 8,973,066 |  |   | 8,973,066 | 

Idle equipment includes equipment
  associated with the mica project which the Company ceased operations and are
  classified as Level 3. The fair value of the idle equipment was determined based
  upon an independent third party appraisal. The appraised value was established
  based upon comparable sales of similar assets and certain assumptions regarding
  market demand for these assets. As this valuation was based upon unobservable
  inputs, we classified the idle equipment as Level 3. There was no change in
  the carrying valuation of the idle equipment during the year ended June 30,
  2011.

NOTE 13 - CONTINGENCIES AND COMMITMENTS

Office and Real Property Leases

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

On March 1, 2008, the Company entered
  into a lease for storage space located in Glendale, Arizona for a period of
  one year. The lease has subsequently been extended for a one year period multiple
  times. Effective March 1, 2010 the lease was extended for an additional period
  of one year.

Future minimum lease payments under
  operating leases are $47,531 and $24,157 for the years ended June 30, 2012 and
  2013, respectively.

Total rental expense was $52,155,
  $52,155 and $51,492 for the years ended June 30, 2011, 2010 and 2009, respectively.

Employment Agreements

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

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

Property Identification Agreement

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

New Planet Project Royalty Agreement

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

Ortiz Gold Project

On August 1, 2004, the Company
  entered into an option and lease agreement with Ortiz Mines, Inc., a New Mexico
  corporation, whereby the Company acquired exclusive rights for exploration,
  development and mining of gold and other minerals on 57,267 acres (approximately
  90 square miles) of the Ortiz Mine Grant in Santa Fe County, New Mexico. On
  November 1, 2007, the Company relinquished 14,970 acres and retained under lease
  42,297 acres (66 square miles). On May 1, 2010, we agreed with Ortiz Mines,
  Inc., to amend the terms of the lease. Under the amended terms, the lease provides
  for an extension of the initial term from seven to ten years (17 years in certain
  circumstances), continuing year-to-year thereafter for so long as we are producing
  gold or other leased minerals in commercial quantities and otherwise are performing
  our obligations under the lease. Among other terms, the amended lease provides
  for annual lease payments of $130,000; a sliding-scale production royalty varying
  from 3% to 5% depending on the price of gold; the requirement that we comply
  with governmental permitting and other regulations; and other terms common in
  mining leases of this type. In January of 2011 the Company pre-paid the amount
  due of $130,000 through January 31, 2012. Total lease expense recognized was
  $128,186, $139,228, and $135,703 for the years ended June 30, 2011, 2010 and
  2009, respectively. The Ortiz gold project is subject to a property identification
  agreement between us and our President and Chief Executive Officer.

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

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


On August 31, 2011, the Company filed a Complaint in the United States District Court for the District of New Mexico against Ortiz Mines, Inc. (“OMI”) in connection with OMI’s purported termination of the Company’s exclusive leasehold rights to explore, develop and mine gold, silver, copper and other minerals on the Ortiz Mine Grant in Santa Fe County, New Mexico and OMI’s demand for significant additional consideration to allow the lease to continue.  See NOTE 18 – SUBSEQUENT EVENTS.

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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 Summit silver-gold
  project is subject to a property identification agreement between the Company
  and President and Chief Executive Officer. The property identification agreement
  specifies that a 1% royalty be paid on the value of future production from the
  project.

For the year ended June 30, 2011
  the Company recorded $543,379 for royalty expense, which includes $59,046 resulting
  from the property identification agreement with the Companys President
  and Chief Executive Officer. At June 30, 2011, an accrued royalty liability
  of $409,603 was recorded, which includes $48,189 payable to the Companys
  President and Chief Executive Officer.

Title to Mineral Properties

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

Commitments

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

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

On June 28, 2011, the Company entered
  into Amendment 2 for the definitive gold sale agreement. The amendment extended
  the delivery date for the additional 700 ounces of gold agreed upon in Amendment
  1 from June 30, 2011 until October 15, 2011. In exchange for the deferred delivery
  date the Company agreed to pay a per diem of 3 ounces of gold for each day the
  additional 700 ounces of gold under Amendment 1 remain outstanding past June
  30, 2011 until the actual date of delivery, no later than October 15, 2011.
  Based upon the sale terms of the agreement, the Company recorded an accrued
  liability of $773,850 based upon the closing gold price on June 30, 2011. The
  Company will mark to market the accrued liability on the delivery date of the
  additional ounces based upon the closing gold price on such date.

84

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NOTE 14 - STOCKHOLDERS EQUITY (DEFICIT)

Issuances of Common Stock

On September 30, 2008, a director
  exercised an option to purchase 500,000 shares of common stock at $0.11 per
  share on a cashless basis. Under the cashless basis exercise, 431,250 shares
  were issued. On March 31, 2009, an officer exercised an option to purchase 4,000,000
  shares of common stock at $0.10 per share on a cashless basis. Under the cashless
  basis exercise, 3,701,494 shares were issued.On April 17, 2009, a warrant
  holder exercised 25,000 warrants with an exercise price of $1.00 per share to
  purchase shares of the Companys stock on a cashless basis. Under the cashless
  basis, 4,766 shares were issued. On June 9, 2009, an individual exercised an
  option to purchase 100,000 shares of common stock at $0.60 per share on a cashless
  basis. Under the cashless basis exercise, 43,396 shares were issued. The aggregate
  amount of shares issued on a cashless basis during the year ended June 30, 2009
  was 4,180,906.

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

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

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

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

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

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

On July 20, 2009, an individual
  exercised an option to purchase 20,000 shares of common stock at $0.60 per share
  on a cashless basis. Under the cashless basis exercise, 8,991 shares were issued.
  On August 13, 2009, an individual exercised an option to purchase 20,000 shares
  of common stock at $0.60 per share on a cashless basis. Under the cashless basis exercise, 8,679 shares were issued.
  On August 25, 2009, an individual exercised an option to purchase 10,000 shares
  of common stock at $0.60 per share on a cashless basis. Under the cashless basis
  exercise, 4,286 shares were issued. On November 10, 2009, a warrant holder exercised
  239,989 warrants with an exercise price of $1.00 per share to purchase shares
  of the Companys stock on a cashless basis. Under the cashless basis, 67,335
  shares were issued. On December 11, 2009, a warrant holder exercised 651,945
  warrants with an exercise price of $1.00 per share to purchase shares of the
  Companys stock on a cashless basis. Under the cashless basis, 207,235
  shares were issued. On December 29, 2009, an option holder exercised 10,000
  options with an exercise price of $0.60 per share to purchase shares of the
  Companys stock on a cashless basis. Under the cashless basis, 5,522 shares
  were issued. On March 22, 2010, an option holder exercised 20,000 options with
  an exercise price of $0.60 per share to purchase shares of the Companys
  stock on a cashless basis. Under the cashless basis, 8,680 shares were issued.
  On April 16, 2010, an individual exercised an option to purchase 10,000 shares
  of common stock at $0.60 per share on a cashless basis. Under the cashless basis
  exercise, 3,815 shares were issued. On June 30, 2010, an individual exercised
  an option to purchase 10,000 shares of common stock at $0.60 per share on a
  cashless basis. Under the cashless basis exercise, 3,334 shares were issued.
  The aggregate amount of shares issued on a cashless basis for the exercise of
  options and warrants during the year ended June 30, 2010, was 317,877.

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On July 27, 2009, the Company issued
  94,339 shares of common stock at $1.06 per share in connection with a private
  placement. As part of the private placement the Company also issued 47,169 warrants
  with an exercise price of $1.06 per share and an expiration of 5 years. The
  warrants were valued as a derivative instrument liability and recorded separately
  at fair value at the time of issuance, reducing the value of the equity recorded
  by the same amount. The private placement was subject to a sales commission
  and an additional 9,433 shares of common stock were issued as a commission on
  the transaction at the fair market value of $10,116 and recognized as stock-based
  compensation as of June 30, 2010.

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

On August 17, 2009, the Company
  issued 18,868 shares of common stock at $1.06 per share in connection with a
  private placement. As part of the private placement the Company also issued
  9,434 warrants with an exercise price of $1.06 per share and an expiration of
  5 years. The warrants were valued as a derivative instrument liability and recorded
  separately at fair value at the time of issuance, reducing the value of the
  equity recorded by the same amount. The private placement was subject to a sales
  commission and an additional 1,910 shares of common stock were issued as a commission
  on the transaction at the fair market value of $1,981 and recognized as stock-based
  compensation as of June 30, 2010.

On September 30, 2009, a convertible
  debenture holder converted $241,500 of accrued interest into 241,500 shares
  of the Companys stock. The aggregate amount of accrued interest converted
  was recorded as capitalized interest expense during the three months ended September
  30, 2009. On December 31, 2009, a convertible debenture holder converted $241,500
  of accrued interest into 241,500 shares of the Companys stock. The aggregate
  amount of accrued interest converted was recorded as capitalized interest expense
  during the three months ended December 31, 2009. The aggregate amount of accrued
  interest converted totals $483,000, and this amount was recorded as capitalized
  interest during the year ended June 30, 2010.

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

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

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

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On January 20, 2010, the Company
  closed a registered direct offering with 23 institutional investors and issued
  7,692,310 shares of common stock and warrants to purchase an additional 3,846,155
  shares of common stock. The Company received net proceeds of approximately $9,375,000,
  after deducting placement agent fees and other offering expenses. The securities
  were issued pursuant to the Company's effective S-3 Registration Statement under
  which the securities are registered. The units, including the Shares and Warrants
  (including the Placement Agent warrants) and shares issuable upon exercise of
  the Warrants were issued pursuant to a prospectus supplement dated as of January
  20, 2010, which was filed with the Securities and Exchange Commission ("SEC")
  in connection with a takedown from Santa Fe's shelf registration statement on
  Form S-3, which became effective on December 29, 2009, and the base prospectus
  contained in such registration statement.

On May 1, 2010, the Company issued
  90,000 unvested shares of the Companys stock for services related to investor
  relations. The shares have a vesting period of six months. The shares were valued
  at $0.95 per share, the closing price on the date of grant. The aggregate value
  of the transaction of $85,500 was classified as deferred stock compensation
  on the date of issue. During the years ended June 30, 2011 and 2010, stock compensation
  expense for services of $57,155 and $28,345 was recorded, respectively.

On June 8, 2010, the Company granted
  and issued 575,000 unvested shares of the Companys stock to employees
  and 100,000 unvested shares to outside Board of Directors for services. The
  shares have a vesting period of two years for the employee share grant and six
  months for the outside Board of Directors grant. The shares were valued at $0.86
  per share, the closing price on the date of grant. The aggregate value of the
  transaction of $580,500 was classified as deferred stock compensation on the
  date of issue. During the years ended June 30, 2011 and 2010, stock compensation
  expense of $402,184 and $32,926 was recorded, respectively. Deferred stock compensation
  of $95,970 will be reported over the remaining vesting periods.

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

On September 29, 2010, an individual
  exercised an option to purchase 10,000 shares of common stock at $0.60 per share
  on a cashless basis. Under the cashless basis exercise, 4,445 shares were issued.

On October 8, 2010, an individual
  exercised an option to purchase 75,000 shares of common stock at $0.60 per share
  on a cashless basis. Under the cashless basis exercise, 34,822 shares were issued.

On November 16, 2010, 7,500 shares
  of common stock were issued to a consultant for services, valued at $6,750 based
  on the closing market price on the date of the transaction and recognized as
  stock-based compensation as of June 30, 2011.

On December 30, 2010, 1,666,668
  common shares of common stock were issued to three institutional investors pursuant
  to the Companys shelf registration statement on Form S-3. The shares were
  sold at $1.20 per share and gross cash proceeds aggregated $2,000,001. Placement
  agent fees of $136,000 were paid on the offering.

On December 31, 2010, an individual
  forfeited 100,000 shares of stock which were unvested at the time employment
  with the Company was terminated.

On January 1, 2011, an individual
  exercised an option to purchase 10,000 shares of common stock at $1.165 per
  share on a cashless basis. Under the cashless basis exercise, 1,241 shares were
  issued.

During January 3 through January
  10, 2011, five individuals exercised options, on a cashless basis, to purchase
  an aggregate of 70,000 shares of common stock at $0.86 per share. Under the
  cashless basis exercises, 19,611 shares were issued.

On February 23, 2011, the Company
  issued 10,000 shares of common stock to a consultant for services, valued at
  $9,800 based on the closing market price on the date of the transaction and
  recognized as stock-based compensation as of June 30, 2011.

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On March 29, 2011, an individual
  exercised options to purchase 100,000 shares of common stock at $0.86 per share
  and 200,000 shares at $1.00 per share, both on a cashless basis. Under the cashless
  basis exercises, 37,615 shares were issued.

Issuance of Warrants

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

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

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

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

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

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

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

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

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

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

On December 22, 2008, in connection
  with a scheduled advance of $1,150,000 under the 7% Senior Secured Convertible
  Debenture, the Company issued 575,000 warrants, each warrant giving the note
  holder the right to purchase one share of common stock at a price of $1.00 per
  share. The warrants are exercisable from July 1, 2010 to December 31, 2014.

On June 22, 2009, in connection
  with a private placement for 283,019 shares of the Companys common stock,
  the Company issued 141,510 five year warrants giving the holder the right to
  purchase common stock at $1.06 per share.

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

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

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

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

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

On December 30, 2010, in connection
  with the registered direct offering to three institutional investors for 1,666,668
  shares of the Companys common stock, the Company issued 833,334 five-year
  warrants giving the holders the right to purchase common stock at $1.50 per
  share. The warrants are exercisable immediately after issuance and will expire
  five years from the date of issuance. Using the Black-Scholes option pricing
  model, the fair market value of the warrants under the placement at the time
  of issuance was determined to be $669,372 with the following assumptions: (1)
  risk-free rate of interest of 2.01%, (2) an expected life of 5.0 years, (3)
  expected stock price volatility of 79.51%, and (4) expected dividend yield of
  zero. In connection with the registered direct offering, the Company issued
  100,000 warrants to the placement agent, exercisable at $1.50 per share and
  with an exercise period of approximately 3.92 years. The warrants are exercisable
  immediately after issuance. Using the Black-Scholes option pricing model, the
  fair market value of the placement agent warrants at the time of issuance was
  determined to be $62,614 with the following assumptions: (1) risk-free rate
  of interest of 1.47%, (2) an expected life of 3.92 years, (3) expected stock
  price volatility of 68.65%, and (4) expected dividend yield of zero.

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Stock Options and the 2007 Equity Incentive Plan

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

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

On June 25, 2008, the Board of
  Directors granted awards of 500,000 shares of restricted stock to an officer
  and 200,000 shares of restricted stock to an employee. The shares will vest
  on December 31, 2008, and are subject to forfeiture contingent on attainment
  of certain performance objectives related to construction of the Summit project.
  The stock grants were valued at $448,000 using the closing price on the date
  of the grant of $0.64 per share. The grant amount was recorded as deferred stock
  compensation at June, 30, 2008. General and administrative stock compensation
  expense of $448,000 was recognized for the year ended June 30, 2009.

On December 3, 2008, the Company
  cancelled and re-issued several outstanding options to four employees. The new
  options grant each employee a five (5) year option to purchase 100,000 shares
  of common stock at an option exercise price of $0.60 per share, the closing
  price on the date of grant, and the options will vest on June 30, 2009. Each
  option was valued at $30,101 using the Black-Scholes option pricing model. The
  options were valued using a volatility of 80%, a risk free interest rate of
  0.76%, an expected life of 2.8 years and zero quarterly dividends. General and
  administrative stock compensation aggregating $112,505 for the four employees
  was recorded during the year ended June 30, 2009. The following describes the
  options that were cancelled:

- On May 2, 2006, the Company granted a non-plan five (5) year option to
      purchase 50,000 shares of common stock to an employee, who is the son of
      the Companys President and Chief Executive Officer, in connection
      with an employment agreement. The option exercise price is $1.24 per share,
      the closing price on the date of grant and the options vested on the date
      of grant. The options were valued at $50,971 using the Black-Scholes option
      pricing model. On December 3, 2008, the options were cancelled and re-issued.
      The options were fully vested and amortized at the time of cancellation
- On April 25, 2007, the Company granted non-plan a five (5) year option
      to purchase 50,000 shares of common stock to an employee, who is the son
      of the Companys President and Chief Executive Officer. The option
      exercise price is $0.74 per share, the closing price on the date of grant
      and the options vested on the date of grant. The options were valued at
      $30,505 using the Black-Scholes option pricing model and are expensed in
      the period granted. On December 3, 2008, the options were cancelled and
      re-issued. The options were fully vested and amortized at the time of cancellation.
- On March 24, 2008, the Company granted a five (5) year option to purchase
      100,000 shares of common stock to an employee. The option exercise price
      is $0.73 per share, the closing price on the date of grant, and the options
      have a vesting period of six months from the date of grant. The options
      were valued at $57,048 using the Black-Scholes option pricing model. On
      December 3, 2008 the options were cancelled and re- issued. The options
      were fully vested and amortized at the time of the cancellation. General
      and administrative stock compensation expense of $28,524 was recorded during
      the year ended June 30, 2009.
- On May 1, 2008, the Company granted a five (5) year option to purchase
      100,000 shares of common stock to an employee. The option exercise price
      is $0.79 per share, the closing price on the date of grant. The options
      were valued at $61,724 using the Black-Scholes option pricing model. On
      December 3, 2008, the options were cancelled and re-issued. The options
      were fully vested and amortized at the time of the cancellation. General
      and administrative stock compensation expense of $41,149 was recorded during
      the year ended June 30, 2009.

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- On July 22, 2008, the Company granted a five (5) year option to purchase
      100,000 shares of common stock to an employee. The option exercise price
      is $0.83 per share, the closing price on the date of grant and the options
      have a vesting period of six months from the date of grant. The options
      were valued at $64,247 using the Black-Scholes option pricing model. The
      options were valued using a volatility of 104%, a risk free interest rate
      of 3.48%, an expected life of 5.0 years and zero quarterly dividends. On
      December 3, 2008, the options were cancelled and re- issued, with any further
      amortization of the options ceasing on that date. Stock-based compensation
      of $42,832 was recorded during the year ended June 30, 2009.

On December 3, 2008, the Company
  granted a five (5) year option to twenty-three employees and two board members
  to purchase 830,000 shares of common stock at an option exercise price of $0.60
  per share, the closing price on the date of grant, and the options will vest
  on June 30, 2009. The options were valued at $370,517 using the Black-Scholes
  option pricing model. The options were valued using a volatility of 80%, a risk
  free interest rate of 0.76%, an expected life of 2.8 years and zero quarterly
  dividends. During the year ended June 30, 2009 stock-based compensation of $346,046
  was recorded.

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

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

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

On May 1, 2010, the Company granted
  to an investor relations firm a three (3) year option to purchase 125,000 shares
  of common stock at an option exercise price of $1.30 per share and a three (3)
  year option to purchase 125,000 shares of common stock at an option exercise
  price of $1.70. Each of the option grants vest 50% on August 1, 2010, and 50%
  on November 1, 2010. The options were valued at $85,209 using the Black-Scholes
  option pricing model. The options were valued using a volatility of 71.55%,
  a risk free interest rate of 1.56%, an expected life of 3.0 years and zero quarterly
  dividends. During the years ended June 30, 2011 and 2010, stock-based compensation
  expense of $42,601 and $42,608 was recorded, respectively.

On June 8, 2010, the Company granted
  a five (5) year option to thirty-five employees and two board members to purchase
  1,095,000 shares of common stock at an option exercise price of $0.86 per share,
  the closing price on the date of grant, and 1,055,000 options will vest on December
  31, 2010 and 40,000 options will vest on June 30, 2011. The options were valued
  at $342,869 using the Black-Scholes option pricing model. The options were valued
  using a volatility of 55.2%, a risk free interest rate of 1.11 to 1.16%, an
  expected life of 2.78 to 2.88 years and zero quarterly dividends. During the
  years ended June 30, 2011 and 2010, stock-based compensation expense of $304,936
  and $36,872 was recorded, respectively.

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On November 10, 2010, the Company
  granted 150,000 three-year options at an exercise price of $1.30 per share.
  The options have a six month vesting period from the date of grant. The options
  were valued at $55,368 using the Black-Scholes option pricing model. The options
  were valued using the following assumptions: (1) a risk free interest rate of
  0.63%, (2) an expected life of 3.0 years, (3) expected stock price volatility
  of 75.51%, and (4) expected dividend yield of zero. During the year ended June
  30, 2011 stock-based compensation of $55,368 was recorded.

On January 1, 2011, the Company
  granted 75,000 five-year options at an exercise price of $1.21 per share to
  each of the two outside directors. The options have a six month vesting period
  from the date of grant. The options were valued at $62,071 using the Black-Scholes
  option pricing model. The options were valued using the following assumptions:
  (1) a risk free interest rate of 2.02%, (2) an expected life of 5.0 years, (3)
  expected stock price volatility of 79.05%, and (4) expected dividend yield of
  zero. During the year ended June 30, 2011 stock- based compensation of $62,071
  was recorded.

On March 1, 2011, the Company granted
  50,000 five-year options at an exercise price of $0.88 per share to an employee.
  The options have a six month vesting period from the date of grant. The options
  were valued at $15,894 using the Black-Scholes option pricing model. The options
  were valued using the following assumptions: (1) a risk free interest rate of
  2.11%, (2) an expected life of 5.0 years, (3) expected stock price volatility
  of 73.03%, and (4) expected dividend yield of zero. During the year ended June
  30, 2011 stock-based compensation of $10,596 was recorded. Stock compensation
  expense of $5,298 is expected to be recognized over the remaining vesting period.

On May 17, 2011, the Company granted
  a five (5) year option to twenty-seven employees and two consultants to purchase
  805,000 shares of common stock at an option exercise price of $1.01 per share,
  the closing price on the date of grant and the options will vest on December
  31, 2011. The options were valued at $298,311 using the Black-Scholes option
  pricing model. The options were valued using a volatility of 55.62%, a risk
  free interest rate of 0.84%, an expected life of 2.82 years and zero quarterly
  dividends. During the year ended June 30, 2011 stock-based compensation of $58,619
  was recorded. Stock compensation expense of $239,692 is expected to be recognized
  over the remaining vesting period.

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

Stock option and warrant activity,
  both within the 1989 Stock Option Plan and 2007 EIP and outside of these plans,
  for the years ended June 30, 2011, 2010 and 2009 are as follows:

Stock Options
      
      
      Stock WarrantsWeighted
      
      
      
      
      
      WeightedAverage
      
      
      
      
      
      ExerciseShares
      
      
      Price
      
      
      Shares
      
      
      PriceOutstanding at June 30, 2008
      
      10,150,000
      
      $
      0.14
      
      
      7,424,996
      
      $
      1.02Granted
      
      1,450,000
      
      $
      0.66
      
      
      4,216,510
      
      $
      1.00Canceled
      
      (610,000
      )
      $
      0.75
      
      
      ---
      
      
      ---Expired
      
      ---
      
      
      ---
      
      
      ---
      
      
      ---Exercised
      
      (4,600,000
      )
      $
      0.11
      
      
      (25,000
      )
      $
      1.00Outstanding at June 30, 2009
      
      6,390,000
      
      $
      0.22
      
      
      11,616,506
      
      $
      1.01Granted
      
      1,695,000
      
      $
      1.02
      
      
      4,419,957
      
      $
      1.68Canceled
      
      (130,000
      )
      $
      0.99
      
      
      ---Expired
      
      ---
      
      
      ---
      
      
      (75,001
      )
      $
      1.58Exercised
      
      (1,250,000
      )
      $
      0.20
      
      
      (951,934
      )
      $
      1.02 Outstanding at June 30, 2010
    
    6,705,000
    
    $
    0.41
    
    
    15,009,528
    
    $
    1.20Granted
    
    1,155,000
    
    $
    1.07
    
    
    933,334
    
    $
    1.50Canceled
    
    (30,000
    )
    $
    0.96
    
    
    ---
    
    
    ---Expired
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---Exercised
    
    (475,000
    )
    $
    0.87
    
    
    ---
    
    
    ---Outstanding at June 30, 2011
    
    7,355,000
    
    $
    0.48
    
    
    15,942,862
    
    $
    1.22


92

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Stock options and warrants outstanding and exercisable at June
  30, 2011, are as follows:

|Outstanding and Exercisable Options |  |             | Outstanding and Exercisable Warrants | 
|----------------------------------- |  | ----------- | ------------------------------------ | 
|                                    |  |             |                                      | 
|                                    |  |             |                                      | 
|                                    |  |             |                                      | 
|Exercise                            |  |             |                                      | 
|Price                               |  | Outstanding |                                      | 
|Range                               |  | Number      |                                      | 
|$0.11                               |  | 4,000,000   |                                      | 
|$0.46                               |  | 100,000     |                                      | 
|$0.55                               |  | 175,000     |                                      | 
|$0.60                               |  | 610,000     |                                      | 
|$0.86                               |  | 915,000     |                                      | 
|$0.88                               |  | 50,000      |                                      | 
|$1.01                               |  | 785,000     |                                      | 
|$1.165                              |  | 20,000      |                                      | 
|$1.21                               |  | 150,000     |                                      | 
|$1.30                               |  | 125,000     |                                      | 
|$1.30                               |  | 150,000     |                                      | 
|$1.38                               |  | 150,000     |                                      | 
|$1.70                               |  | 125,000     |                                      | 
|                                    |  | 7,355,000   |                                      | 
|                                    |  |             |                                      | 
|Outstanding Options                 |  |             |                                      | 
|Exercisable Options                 |  |             |                                      | 

As of June 30, 2011, the aggregate
  intrinsic value of all stock options and warrants vested and expected to vest
  was approximately $3,836,850 and the aggregate intrinsic value of currently
  exercisable stock options and warrants was approximately $3,836,850. The intrinsic
  value of each option share is the difference between the fair market value of
  the common stock and the exercise price of such option or warrant share to the
  extent it is "in-the-money". Aggregate intrinsic value represents the value
  that would have been received by the holders of in-the-money options had they
  exercised their options on the last trading day of the quarter and sold the
  underlying shares at the closing stock price on such day. The intrinsic value
  calculation is based on the $0.96 closing stock price of the Common Stock on
  June 30, 2011. The total number of in-the-money options and warrants vested
  and exercisable as of June 30, 2011, was 5,800,000.

The total intrinsic value associated
  with options exercised during the year ended June 30, 2011, was approximately
  $112,450. Intrinsic value of exercised shares is the total value of such shares
  on the date of exercise less the cash received from the option or warrant holder
  to exercise the options. The company received no cash proceeds from the exercise
  of stock options during the year ended June 30, 2011.

The total fair value of options
  and warrants granted during the year ended June 30, 2011, was approximately
  $1,153,475. The total grant-date fair value of option and warrant shares vested
  during the year ended June 30, 2011, was approximately $5,546,788.

NOTE 15  PENSION PLAN

During the year ended June 30,
  2009, the Company adopted a 401(K) plan, which covers substantially all employees.
  Under the terms of the plan, the Company matches employee salary deferrals dollar
  for dollar up to a maximum of 5% of compensation. For the years ended June 30,
  2011, 2010 and 2009, the Company recorded $45,627, $31,363 and $44,021, respectively,
  in expenses related to the plan.

93

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NOTE 16 - INCOME TAXES

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

2011
      
      
      2010
      
      
      2009Tax (expense) benefit at the federal statutory
        rate
      $
      1,569,812
      
      $
      411,180
      
      $
      1,951,463State tax(expense) benefit
      
      253,940
      
      
      66,514
      
      
      315,678Expiration of state operating losses
      
      (375,113
      )
      
      (111,229
      )
      
      (544,184
      )Change in state tax rate
      
      536
      
      
      ---
      
      
      (62,296
      )Decrease (increase) in valuation allowance
      
      (1,449,175
      )
      
      (366,465
      )
      
      (1,660,661
      )Income tax expense
      $
      ---
      
      $
      ---
      
      $
      ---


The components of the deferred tax asset and deferred tax liability
  at June 30, 2011 are as follows:

|Deferred
      Tax Asset                  |   |             |  
|----------------------------------------- | - | ----------- | -
|Federal net operating loss carry forwards | $ | 18,011,385  |  
|State net operating loss carry forwards   |   | 846,645     |  
|Valuation allowance                       |   | (18,858,030 | )
|Net deferred tax asset                    | $ | ---         |  

At June 30, 2011, the Company had
  financial statement net operating loss carry forwards for state income tax purposes
  of approximately $15.5 million. Net operating losses for state income tax purposes
  may be carried forward for five years. These losses expire in varying amounts
  from June 30, 2012 to 2016.

At June 30, 2011, the Company had
  a financial statement net operating loss carry forwards for federal income tax
  purposes of approximately $53.0 million. Net operating losses for federal income
  tax purposes may be carried back for two years and forward for twenty years.
  The net operating losses expire in varying amounts from June 30, 2019 to 2031.

NOTE 17 - RELIEF OF DEBT

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

NOTE 18  SUBSEQUENT EVENTS

On July 1, 2011, the Company issued
  50,000 shares of the Companys stock for services related to investor relations.
  The shares were valued at $0.96 per share, the closing price on the date of
  issue.

On August 2, 2011, the Company secured a $5 million senior secured loan with Victory Park Capital Advisors, LLC (“Victory Park”). The term of the loan is 6 months, and it bears interest at the rate of 15% per annum which is payable monthly in arrears. The senior obligations are secured by a first priority lien on the stock of Santa Fe’s subsidiaries and on liens covering substantially all of the assets of the company, including the Summit silver-gold project, the Black Canyon mica project and the Planet micaceous iron oxide project. The company agreed that any equity it raises in excess of $5 million must be applied to repayment of the loan. In connection with the loan, the company issued warrants to purchase 500,000 shares of its common stock. The warrants have an exercise price of $1.00 per share and a term of five years. The Company will use the net proceeds for general corporate purposes, including but not limited to, working capital for the Summit silver-gold project.  On August 9, 2011, in relation to the financing agreement, we filed a Current Report on Form 8-K.

94

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On August 8, 2011, the Company issued 250,000 warrants in connection with an agreement to provide investor relations services.  The warrants are priced at $1.00 per share and have a five year term.

On August 9, 2011, the Company
  delivered 817 ounces of gold to Sandstorm in accordance with Amendments 1 and
  2 of the definitive gold sales agreement, including 700 ounces related to Amendment
  1 and 117 ounces for 39 days of per diem related to Amendment 2. The net cost
  of delivering the gold after receiving payment from Sandstorm of $400 per ounce
  delivered was $1,075,785. In order to recognize the final cost of delivering
  the gold, the accrued liability of $773,850 at June 30, 2011 will be adjusted
  by an additional $301,935 in Q1 of fiscal 2012.

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

On September 6, 2011, the Company
  entered into a Memorandum of Understanding with Columbus Silver Corporation
  (TSXV: CSC) (Columbus Silver) pursuant to which the Company has
  conditionally agreed to acquire all of Columbus Silvers outstanding common
  stock for a cash amount of Cdn $0.20 per outstanding share in a transaction
  currently valued at Cdn $9,977,285. Until closing of the transaction, the Company
  has agreed to provide bridge financing to Columbus Silver to fund leasehold
  payments and for working capital, which through the end of December 2011 totals
  $513,716.

The Memorandum of Understanding
  contemplates a business combination by way of a Plan of Arrangement, which is
  subject to Canadian court approval. In addition, the proposed transactions are
  subject to the final approval of the boards of directors of the Company and
  Columbus Silver, stock exchange and regulatory approvals, Columbus Silver shareholder
  approval and the Companys commitment of the required funding. If the Company
  does not notify Columbus Silver by November 30, 2011 that it has obtained a
  firm commitment for the required funding, Columbus Silver will have the option
  to terminate the acquisition. On September 8, 2011, in relation to the transaction
  with Columbus, the Company filed a Current Report on Form 8-K.

95

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

None.

|ITEM 9A(T). | CONTROLS AND PROCEDURES
|----------- | -----------------------

We maintain disclosure controls
and procedures (as defined in Rules 13a-15(d) and 15d-15(e) under the
Securities and Exchange Act of 1934, as amended (the Exchange Act)) that are
designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms, and that our disclosure controls and
procedures are effective in alerting management on a timely basis to material
information required to be disclosed in our periodic reports. Under the
supervision of, and the participation of our management, our Chief Executive
Officer and Principal Financial Officer, or persons performing similar
functions, has conducted an evaluation of our disclosure controls and procedures
as of June 30, 2011. This evaluation included certain areas in which we have
made, and are continuing to make, changes to improve and enhance controls. Based
on this evaluation, our Chief Executive Officer and Principal Financial Officer
has concluded that our disclosure controls and procedures are effective in
providing reasonable assurance that information required to be disclosed by us
in reports we file with the Securities and Exchange Commission is recorded,
processed, summarized and reported within the time periods required, and are
effective in alerting management on a timely basis to material information
required to be disclosed in our periodic reports.

96

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During the fiscal year ended June
30, 2011, there were no changes in the Companys internal controls over
financial reporting that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.

|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

Mine Safety Disclosures

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

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

Specified disclosures relating to
The Act and pertaining to the Summit Mine for the year ended June 30, 2011 are
as follows:

|(i)   | Total number of violations of mandatory health or safety
      standards that could significantly and substantially (S&S)
      contribute to a safety or health hazard under the Federal Mine Safety and
      Health Act of 1977 (the Mine Safety Act) for which the Company received
      a citation from the Mine Safety and Health Administration (MSHA): -
      Twenty two; (These are violations that could "significantly and
      substantially" contribute to a safety or health hazard as
  issued.);
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(ii)  | Total number of orders and citations issued under Section
      104(b) of the Mine Safety Act (a failure to abate): - Three;                                                                                                                                                                                                                                                                                                                                                                                             
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(iii) | Total number of citations and orders for unwarrantable
      failure to comply with mandatory health and safety standards under Section
      104(b): - None;                                                                                                                                                                                                                                                                                                                                                              
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(iv)  | Total number of imminent danger orders under Section
      107(a) of the Mine Safety Act issued to the Company: - None;                                                                                                                                                                                                                                                                                                                                                                                                    
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(v)   | Total dollar value of proposed assessments from MSHA: -
      $4,308; (vi) Total number of mining related fatalities: - None;                                                                                                                                                                                                                                                                                                                                                                                              
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(vi)  | Mines for which the operator has received written notice
      of a pattern of violations or the potential to have such a pattern: -
      None;                                                                                                                                                                                                                                                                                                                                                                           
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(vii) | Pending legal action before the Mine Safety and Health
      Review Commission: - We have multiple citation protests pending before the
      Commission.                                                                                                                                                                                                                                                                                                                                                                  

PART III

|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
      GOVERNANCE
|-------- | ------------------------------------------------------------

The Companys present directors
and officers as well as those who served during fiscal 2011 are as follows:

|Name              | Age | Position                                                                 | Date Elected                                                                                     
|----------------- | --- | ------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------
|                  |     |                                                                          |                                                                                                  
|Lawrence G. Olson | 73  | Chairman of the Board Former
      President and Chief Executive Officer | 1999 / served as President and
      Chief Executive Officer from October 2000 to October 7, 2003

97

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|Name             | Age | Position                                        | Date Elected   
|---------------- | --- | ----------------------------------------------- | ---------------
|W. Pierce Carson | 68  | President, Chief Executive Officer and Director | October 7, 2003
|John E. Frost    | 87  | 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 73, 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 68, was named President and Chief Executive Officer and a director in
October 2003, following a consulting assignment with us. Dr. Carson has 40 years
of international mining experience and has managed the discovery, financing,
development and operation of precious metals, base metals and industrial mineral
properties in the United States, Australia and other countries. From 1981 to
2000, he worked for Nord Pacific Limited and Nord Resources Corporation in
senior management capacities, including president and chief executive officer.
Prior to 1981, he managed exploration programs for Exxon Minerals Company and
Kennecott Copper Company. Dr. Carson holds a Bachelors Degree in Geology from
Princeton University and MS and PhD Degrees in Economic Geology from Stanford
University.

John E. (Jack)
Frost, age 87, joined our board of directors in May 2007. Dr. Frost has
over 50 years of international mining experience in a wide range of metallic and
non-metallic minerals and has been closely involved in the discovery and/or
acquisition of more than 40 mineral deposits. Since 1986, Dr. Frost has served
as principal of Frost Minerals International, Inc., a provider of management and
consulting services to the mining industry. From 1967 until 1986, he worked for
Exxon Minerals Company and its affiliates in a number of senior management
capacities, including president of Exxon Minerals International. His
responsibilities at Exxon Minerals included establishing and managing Exxon
Minerals domestic and international minerals exploration programs. Prior to
1967, he managed exploration and mining activities for Duval Corporation and
Philippine Iron Mines. Dr. Frost holds a B.S. Degree in Mining Engineering, an
M.S. Degree in Geology and a Ph.D. in Geology, all from Stanford University.

Board Meetings and Committees

During fiscal 2011, our board met
once and took action by unanimous consent four times. All of our directors
attended at least 75% of the meetings of our board and its assigned committees
during 2011. 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 Director:     |                |           |             
|W. Pierce Carson       | X(1)           |           |             
|Non-EmployeeDirectors: |                |           |             
|Lawrence G. Olson      | X              | X(1)      | X           
|John E. Frost          | X              | X         | X(1)        

___________________
  (1) Chairman

98

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

Nominating and Corporate Governance Committee

The primary purposes of the committee
are:

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

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

The committee was constituted in May
2007, and did not meet during fiscal 2010.

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

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

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

Audit Committee

The primary purposes of the committee
are:

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

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

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

99

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The Audit Committee met once during
fiscal 2011.

Compensation Committee

The primary purposes of the committee
are:

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

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

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

The committee was constituted in May
2007, and met once during fiscal 2011.

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, 2011,
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:

100

---

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

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

|ITEM 11. | EXECUTIVE AND DIRECTOR COMPENSATION
|-------- | -----------------------------------

Summary Compensation Table

The following table summarizes
the compensation awarded to, earned by or paid during the last three fiscal
years to Named Executive Officers, including (a) our principal executive
officer; (b) each of our Companys two most highly compensated executive
officers, other than the principal executive officer, who were serving as
executive officers at the end of the financial year ended June 30, 2011, and
whose total compensation exceeded $100,000 per year; and (c) up to two
additional individuals for whom disclosure would have been provided under (b)
but for the fact that the individual was not serving as an executive officer of
our Company at the end of the year ended June 30, 2011.

Summary Compensation Table

Name and
      Principal Position
    Year
    Salary ($)
    Bonus ($)
    Stock
      Awards ($)
    Option
      Awards ($)
    Non- Equity
      Incentive Plan Compen- sation
      ($)
    Non-
      qualified Deferred Compen-
      sation Earnings ($)
    All Other
      Compen- sation ($)
    Total ($)W. Pierce Carson President &
      CEO
    2011 2010 2009
    239,229 227,837 222,413
    - - -
    - 172,000(1)-
    55,129(2)62,543(1)-
    - - -
    - - -
    - - -
    294,358 462,380 222,413


| | (1) | On June 8, 2010, the board of directors granted Mr.
      Carson an award of 200,000 shares of restricted common stock and 200,000
      options under our 2007 EIP. The shares vest 50% after 12 months with the
      remaining 50% vesting after 24 months. The options have a vest date of
      December 31, 2010 and a term of five years. The exercise price of the
      options is $0.86 per share, the closing price of our common stock on the
      date of grant. The dollar value recognized for financial statement
      reporting purposes for both the grant of stock and options was calculated
      in accordance with FAS 123R.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (2) | On May 17, 2011, the board of directors granted Mr.
      Carson an award of 150,000 options under our 2007 EIP. The options have a
      vest date of December 31, 2011 and a term of five years. The exercise
      price of the options is $1.01 per share, the closing price of our common
      stock on the date of grant. The dollar value recognized for financial
      statement reporting purposes for the options was calculated in accordance
      with FAS 123R.                                                                                                                                                                      

101

---

Outstanding Equity Awards as of June 30, 2011

The following table summarizes
  the outstanding equity awards as of June 30, 2011, for each of our named executive
  officers:

Outstanding Equity Awards as of June 30, 2011

Option Awards
    Stock AwardsName
    Number of
      Securities Underlying UnexercisedOptions (#) Exercisable
    Number of
      Securities Underlying**Unexercised**Options (#)
      **Unexercisable**
    Equity Incentive
      Plan Awards: Number of
      Securities **Underlying**
      **Unexercised**UnearnedOptions
      (#)
    **Option**
      **Exercise** Price($)
    Option
      **Expiration** Date
    Number of
      Shares or Units of Stock That
      Have Not Vested (#)
    Market
      Value of Shares or
      Units of Stock That
      Have Not Vested ($)
    EquityIncentive Plan Awards:Numberof UnearnedShares, Units
      or Other Rights That Have NotVested (#)
    Equity
      **Incentive** Plan Awards:
      **Market** **or Payout** Value
      of **Unearned** Shares, Units
      or Other Rights That **Have
      Not** Vested ($)W. Pierce Carson
    4,000,000 200,000 N/A
    N/A N/A N/A
    N/A N/A 150,000
    0.11 0.86 1.01
    10/16/2013 6/08/2015
      5/17/2016
    N/A
    N/A
    100,000
    86,000


Compensation of Directors

The following table summarizes
the compensation of our Companys directors for the fiscal year ended June 30,
2011:

Compensation of Directors

Name(1)
    Fees Earned
      or Paid in Cash ($)
    Stock
      Awards ($)
    Option
      Awards ($)(2)
    Non-Equity
      Incentive Plan Compen- sation
      ($)
    Non-
      qualified Deferred Compen-
      sation Earnings ($)
    All Other
      Compen- sation ($)
    Total
      ($)Lawrence G. Olson
    36,000
    -
    31,035
    -
    -
    -
    67,035John E. Frost
    36,000
    -
    31,035
    -
    -
    -
    67,035


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

(2) This column represents the fair value of the options
awarded in fiscal 2011 in accordance with FAS 123R.

Effective July 1, 2010, we adopted
  an increase in the annual non-employee independent director fee to $25,000 per
  year and an increase in annual committee fees to $4,000 per committee membership
  and $2,000 per committee chairmanship, to be paid quarterly, plus $1,000 for
  each full-day board meeting, and $500 for 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 75,000 shares 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.

102

---

During fiscal years 2011, 2010
and 2009, non-officer directors received no consulting fees separate and
distinct from directors fees as a result of actual services rendered above and
beyond those typical of a non-officer director. Total director fees were $72,000
for the year ended June 30, 2011.

Employment Agreements

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

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

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

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

The following table sets forth,
as of September 12, 2011, 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.

|                                                                                   |  |                |  |  | Common Stock Beneficially Owned |    
|---------------------------------------------------------------------------------- |  | -------------- |  |  | ------------------------------- | ---
|                                                                                   |  |                |  |  |                                 |    
|Name and Address Of Beneficial Owner                                               |  | Title of Class |  |  | Number of Shares                |    
|                                                                                   |  |                |  |  |                                 |    
|                                                                                   |  |                |  |  |                                 |    
|Christian Mustad Bodmenstrasse, Chalet
      Corcovado 3778 Schoenried Switzerland |  | Common Stock   |  |  | 5,195,000                       |    
|                                                                                   |  |                |  |  |                                 |    
|Sulane Holdings, Inc. P.O. Box 414
      CH-1630 Bulle Switzerland                 |  | Common Stock   |  |  | 10,307,360                      | (1)

103

---

|Lawrence G. Olson 3045 S. 35thAvenue Phoenix, AZ 85009      |  | Common Stock |  |  | 7,827,450  | (2) |  | 8.2%  | 
|----------------------------------------------------------- |  | ------------ |  |  | ---------- | --- |  | ----- | 
|                                                            |  |              |  |  |            |     |  |       | 
|W. Pierce Carson 33 Camino de Avila
      Tijeras, NM 87059 |  | Common Stock |  |  | 13,251,494 | (3) |  | 13.4% | 
|                                                            |  |              |  |  |            |     |  |       | 
|John E. Frost 602 Sandy Port
      Houston, TX 77079        |  | Common Stock |  |  | 535,000    | (4) |  | 0.6%  | 
|                                                            |  |              |  |  |            |     |  |       | 
|Officers and Directors As a Group (3 Persons)               |  | Common Stock |  |  | 21,613,944 | (5) |  | 21.7% | 

|(1) | Includes shares issuable under December 2007 convertible
      debenture financing authorizing Sulane to convert outstanding debt at a
      conversion price of $1.00 per share. Also includes an aggregate of
      1,457,360 shares that were issued for conversion of accrued interest due
      June 30, 2009, September 30, 2009 and December 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes options issued under the 2007 EIP to acquire
      75,000 shares at an exercise price of $1.38 per share, 50,000 shares at an
      exercise price of $0.86 per share, and 75,000 shares at an exercise price
      of $1.21 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(3) | Includes non-plan options to acquire 4,000,000 shares at
      an exercise price of $0.11 per share, and options issued under the 2007
      EIP to acquire 200,000 shares at an exercise price of $0.86 per
    share..                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(4) | Includes options issued under the 2007 EIP to acquire
      100,000 shares at an exercise price of $0.46 per share, 75,000 shares at
      an exercise price of $0.55 per share, 75,000 shares at an exercise price
      of $0.60 per share, 75,000 shares at an exercise price of $1.38 per share,
      50,000 shares at an exercise price of $0.86 per share, and 75,000 shares
      at an exercise price of $1.21 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(5) | Includes options to acquire an aggregate of 4,850,000
      shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(6) | Applicable percentage of ownership is based on 94,794,412
      shares of common stock outstanding as of September 12, 2011, together with
      securities exercisable or convertible into shares of common stock within
      60 days of September 12, 2011, for each stockholder. Beneficial ownership
      is determined in accordance with the rules of the Commission and generally
      includes voting or investment power with respect to securities. Shares of
      common stock subject to securities exercisable or convertible into shares
      of common stock that are currently exercisable or exercisable within 60
      days of September 12, 2011, are deemed to be beneficially owned by the
      person holding such options for the purpose of computing the percentage of
      ownership of such person, but are not treated as outstanding for the
      purpose of computing the percentage ownership of any other
  person.

Equity Compensation Plans

The following table contains
information regarding our Equity Compensation Plans as of June 30, 2011:

Plan
      Category
    Number of
      securities to be issued upon exercise of
      outstanding options, warrants and rights
      (a)
    Weighted
      average exercise price of outstanding options,
      warrants and rights (b)
    Number of securities
      remaining available for future issuance under
      equity compensation plans (excluding securities
      reflected in column (a)) (c)2007 Equity Incentive Plan approved by security holders
    2,955,000
    $0.86
    2,945,000Equity compensation plan not approved
      by security holders(1)
    4,400,000
    $0.23
    N/A


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

2007 Equity Incentive Plan

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

104

---

The purpose of the 2007 EIP is to
provide the employees, non-employee directors, and consultants who are selected
for participation in the 2007 EIP with added incentives to continue in the
long-term service of the Company and to create in such persons a more direct
interest in the future success of our operations by relating increases in
compensation to increases in stockholder value, so that the income of the
participants in the 2007 EIP is more closely aligned with the financial
interests of our stockholders. The 2007 EIP is also intended to provide a
financial incentive that will enable us to attract, retain and motivate the most
qualified directors, employees, and consultants. As of September 12, 2011, one
executive officer, two non-employee independent board members and approximately
forty-eight other employees and consultants are eligible to receive grants under
the 2007 EIP.

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

|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS
|-------- | ----------------------------------------------------

In October 2003, prior to his
becoming an officer and director of the Company, we entered into a confidential
property identification agreement with W. Pierce Carson, our current President
and Chief Executive Officer. Under terms of the agreement, Mr. Carson, on the
basis of his prior knowledge, provided a list of 24 specific mineral properties
with potential for exploration and development that might represent attractive
acquisition opportunities for us. We agreed to pay compensation to Mr. Carson in
the form of a royalty of 1.0% of the value of future production, if any, derived
from identified properties that we acquire. In the event an identified property
is acquired and subsequently sold, we agreed to pay Mr. Carson an amount equal
to 10.0% of the value of the sale. The Ortiz gold property acquired in August
2004 and the Summit silver-gold property acquired in May 2006 are two of the 24
properties identified and are subject to the property identification agreement
(See NOTE 13 to the Consolidated Financial Statements).

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 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. 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.

In September 2005, we entered
into a consulting agreement with Ryan P. Carson, an attorney who is the son of
our President and Chief Executive Officer. Terms of the contract provided for
compensation of $4,000 per month and payment of certain expenses for an initial
three-month period. In November 2005, the contract was extended for a six-month
period, after which the contract extended on a month-to-month basis until
terminated by either party. We issued a bonus of 50,000 unregistered shares of
common stock in consideration for the contract extension. On May 2, 2006, the
individual was offered and accepted employment at a salary of $5,000 per month.
In connection with employment, we granted 50,000 stock options at an exercise
price of $1.24 per share, which was the closing price on May 2, 2006. On April
25, 2007, we granted the individual 50,000 stock options at an exercise price of
$0.74 per share, and on December 13, 2007, we granted the individual 100,000
options at an exercise price of $0.55 per share, which were the closing prices
on the dates granted. On December 3, 2008, we granted the individual 100,000
options and also cancelled and reissued the options previously granted on May 2,
2006 and April 25, 2007, at an exercise price of $0.60 per share, which was the
closing price on December 3, 2008. On June 8, 2010, we granted the individual
100,000 options at an exercise price of $0.86 per share, the closing price on
the date of grant. Additionally, on June 8, 2010 we granted the individual
100.000 shares of restricted stock. The shares were valued at $0.86 per share,
the closing price on the date of grant.

105

---

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

On November 15, 2006, Mr. Olson
exercised stock options to purchase 1,000,000 shares of common stock at $0.10
per share and 1,000,000 shares of common stock at $0.11 per share, in exchange
for payment of accrued interest owed and reduction of principal on the note
payable, aggregating $210,000. In addition, Mr. Olson agreed to contribute to
capital the remaining unpaid principal on the note of $600,000. In connection
with the contribution to capital, we granted a 25% net proceeds royalty in the
Black Canyon mica claims, toward an end settlement of $600,000.On May 19, 2009, we entered into an agreement with Mr.
Olson to purchase the royalty for $200,000. On July 17, 2009, the $200,000 owed
to Mr. Olson was satisfied by applying credit of $186,250 for payment of the
exercise price of stock options exercised on that date, including 1,000,000
options at an exercise price of $0.10 per share, 75,000 options at $0.55 per
share and 75,000 options at $0.60 per share, and by satisfying the remaining
amount of $13,750 by the issuance of 12,500 shares of stock at a price of $1.10
per share, the closing price on July 17, 2009.

|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICE
|-------- | -------------------------------------

The following table discloses the
fees for professional services provided by Stark Schenkein, LLP for the 2011 and
2010 fiscal years respectively:

2011
    
    
    2010Audit Fees (1)
    $
    82,609
    
    $
    81,595Tax Fees (2)
    
    -0-
    
    
    -0-$
    82,609
    
    $
    81,595


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

PART IV

|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|-------- | ---------------------------------------

(a)

Exhibit No.
    Description
    Location2.1
    Agreement and Plan of Merger of Arizona Mica
      Properties, Inc. into Sanchez Mining, Inc., a wholly-owned subsidiary of
      Registrant, dated as of March 9, 1999
    Incorporated by reference to Exhibit 1 to
      Registrants 8-K dated March 9, 1999, as filed with the SEC on March 24,
      19993.1
    Registrants Certificate of Incorporation dated
      August 8, 1991
    Incorporated by reference to Exhibit 3.1 to the
      Registrants Registration Statement on Form S-4 (File No. 33-45162)3.2
    Articles of Amendment to the Certificate of
      Incorporation dated December 5, 1991
      Incorporated by reference to Exhibit 3.2 to the
        Registrants Registration Statement on Form S-4 (File No. 33-45162)


106

---

3.3
      Registrants Amended By-laws
      Incorporated by reference to Exhibit 3.3 to the
        Registrants Registration Statement on Form S-4 (File No. 33-45162)4.1
      Specimen stock certificate
      Incorporated by reference to Exhibit 1 to the
        Registrants Registration Statement on Form 8-A as filed with the
        SEC on July 21, 19924.2
      Rights Agreement dated July 19, 1995 between
        the Registrant and Montreal Trust Company of Canada
      Incorporated by reference to Exhibit 3.4 to the
        Registrants Annual Report on Form 10-K/A for the fiscal year ended
        June 30, 199510.1
      Agreements for Piedras Verdes property
      Incorporated by reference to Exhibit 10.10 to
        the Registrants Registration Statement on Form S-4 (File No. 33-45162)10.2
      Purchase Agreement dated July 27, 1995 between
        the Registrant, Sanchez and Phelps Dodge
      Incorporated by reference to Exhibit 10.20 to
        the Registrants Annual Report on Form 10- K/A for the fiscal year
        ended June 30, 199510.3
      Memorandum of Agreement dated June 7, 1996, by
        and among West Africa Gold & Exploration Ltd., Eagle River International
        Limited, Lion Mining Finance Limited and the Registrant
      Incorporated by reference to Exhibit 10.10 to
        the Registrants Annual Report on Form 10-K for the fiscal year ended
        June 30, 1996 as filed with the SEC on September 30, 199610.4
      Stock Option Plan
      Incorporated by reference to Exhibit A to Registrants
        DEF 14A as filed with the SEC on March 5, 199710.5
      Memorandum of Agreement/Eagle River International
        Ltd.
      Incorporated by reference to Exhibit 10.13 to
        Registrants Annual Report on Form 10-K for the year ended June 30,
        1997, as filed with the SEC on September 30, 199710.6
      Management Agreements dated February 1, 1998
        between the Registrant, Alan Lindsay and Associates, Ltd. and ARH Management
        Ltd.
      Incorporated by reference to Exhibit 10.8 to
        the Registrants Annual Report on Form 10-K for the fiscal year ended
        June 30, 1998 as filed with the SEC on September 30, 199810.7
      Management Agreements dated August 15, 1994,
        by and between the Registrant and both of Alan P. Lindsay, Anthony R.
        Harvey; Management Agreement dated November 19, 1996, by and between the
        Registrant and Ryan A. Modesto
      Incorporated by reference to Exhibit 10.15 to
        the Registrants Annual Report on Form 10-K for the fiscal year ended
        June 30, 1998 as filed with the SEC on September 30, 199810.8
      Directors Agreement dated August 15, 1994,
        by and between the Registrant and Paul A. Hodges
      Incorporated by reference to Exhibit 10.16 to
        the Registrants Annual Report on Form 10-K for the fiscal year ended
        June 30, 1998 as filed with the SEC on September 30, 199810.9
      Shareholders & Operators Agreement
        dated December 19, 1995, by and among PD Cobre Del Mayo, Inc., the Registrant
        and Cobre Del Mayo, SA de CV
      Incorporated by reference to Exhibit 10.17 to
        the Registrants Annual Report on Form 10-K for the fiscal year ended
        June 30, 1998 as filed with the SEC on September 30, 199810.10
      Right of First Refusal Agreement dated June 18,
        1998 by and among the Registrant, Seville Mineral Developments SA de CV
        and Minera Cortez Resources Ltd.
      Incorporated by reference to Exhibit 10.12 to
        the Registrants Annual Report on Form 10-K for the fiscal year ended
        June 30, 1998 as filed with the SEC on September 30, 1998


107

---

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, 199810.12
    Shareholders Agreement by and among
      Registrant, Sanou Mining Corporation, West African Gold & Exploration,
      S.A. and Randgold Resources Ltd.
    Incorporated by reference to Exhibit 10.5 to
      the Registrants Annual Report on Form 10-K for the fiscal year ended June
      30, 1999 as filed with the SEC on September 29, 199910.13
    Mineral Property Option Agreement dated May 20,
      1999, by and between the Registrant and Minera Cortez Resources Ltd.
    Incorporated by reference to Exhibit 10.16 to
      the Registrants Annual Report on Form 10-K for the fiscal year ended June
      30, 1999 as filed with the SEC on September 29, 199910.14
    Agreement in Principal dated August 9, 1999
      between the Registrant, Thomas Ford and Calgem, Inc.
    Incorporated by reference to Exhibit 10.17 to
      the Registrants Annual Report on Form 10-K for the fiscal year ended June
      30, 1999 as filed with the SEC on September 29, 199910.15
    Non-Revolving Credit Line Agreement dated March
      14, 2001, by and between the Registrant and Lawrence G. Olson
    Incorporated by reference to Exhibit 10.16 to
      Registrants 10-K as filed with the SEC on October 15, 200110.16
    Settlement Agreement and Release by and among
      the Registrant, Anthony Harvey, ARH Management, Ltd., Alan Lindsay and
      Alan Lindsay and Associates, Ltd.
    Incorporated by reference to Exhibit 99 to the
      Registrants 8-K as filed with the SEC on July 25, 200210.17
    $5,000,000 Equity Line of Credit Agreement, by
      and between the Registrant and Cornell Capital Partners, LP dated June 19,
      2002
    Incorporated by reference to Exhibit 10.17 to
      Registrants 10-K as filed with the SEC on September 27, 200210.18
    Registration Rights Agreement by and between
      the Registrant and Cornell Capital Partners, LP dated June 19, 2000
    Incorporated by reference to Exhibit 10.18 to
      Registrants 10-K as filed with the SEC on September 27, 200210.19
    Escrow Agreement by and among the Registrant,
      Cornell Capital Partners, LP, Wachovia, NA and Butler Gonzales LLP, dated
      June 19, 2002.
    Incorporated by reference to Exhibit 10.19 to
      Registrants 10-K as filed with the SEC on September 27, 200210.20
    Placement Agent Agreement by and between the
      Registrant and Westrock Advisors, Inc. dated June 19, 2002.
    Incorporated by reference to Exhibit 10.20 to
      Registrants 10-K as filed with the SEC on September 27, 200210.21
    $150,000 Subscription Agreement between the
      Registrant and Floyd R. Bleak dated August 13, 2001
    Incorporated by reference to Exhibit 10.21 to
      Registrants 10-K as filed with the SEC on September 27, 200210.22
    300,000 share Stock Loan Agreement between the
      Registrant and Floyd R. Bleak dated October 11, 2001
    Incorporated by reference to Exhibit 10.22 to
      Registrants 10-K as filed with the SEC on September 27, 200210.23
    $200,000 Loan Agreement between the Registrant
      and Patty J. Ryan dated August 27, 2001
    Incorporated by reference to Exhibit 10.23 to
      Registrants 10-K as filed with the SEC on September 27, 200210.24
    $200,000 Loan agreement between the Registrant
      and Luis Barrenchea dated September 4, 2001
    Incorporated by reference to Exhibit 10.24 to
      Registrants 10-K as filed with the SEC on September 27, 200210.25
      Amendment to March 15, 2001 $800,000 Loan Agreement
        between the Registrant and Lawrence G. Olson dated October 12. 2001  Incorporated by reference to Exhibit 10.25 to Registrants
        10-K as filed with the SEC on September 27, 2002


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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, 200210.27
      $100,000 Loan agreement between the Registrant
        and Luis Barrenchea dated December 4, 2001
      Incorporated by reference to Exhibit 10.27 to
        Registrants 10-K as filed with the SEC on September 27, 200210.28
      $3,000,000 Purchase Agreement between the Registrant
        and Muzz Investments, LLC dated January 17, 2002
      Incorporated by reference to Exhibit 10.28 to
        Registrants 10-K as filed with the SEC on September 27, 200210.29
      Lease Agreement between the Registrant and Muzz
        Investments, LLC dated January 17, 2002
      Incorporated by reference to Exhibit 10.29 to
        Registrants 10-K as filed with the SEC on September 27, 200210.30
      Amendment No. 2 to Loan Agreement dated March
        15, 2001 for $800,000 between the Registrant and Lawrence G. Olson dated
        June 28, 2002
      Incorporated by reference to Exhibit 10.30 to
        Registrants 10-K as filed with the SEC on September 27, 200210.31
      Directors Agreements dated April 26, 2002,
        by and between the Registrant and Stanley A. Ratzlaff and M. William Lightner
      Incorporated by reference to Exhibit 10.31 to
        Registrants 10-K as filed with the SEC on September 27, 200210.32
      Settlement Agreement dated July 9, 2002 by and
        between the Registrant and Anthony Harvey and Alan Lindsay
      Incorporated by reference to Exhibit 1 to Registrants
        8-K dated July 11, 2002, as filed with the SEC on July 25, 200210.34
      Stock Purchase Agreement dated April 10, 2003
        by and between the Registrant and Frontera Cobre del Mayo, Inc.
      Incorporated by reference to Exhibit 1 to Registrants
        8-K dated April 10, 2003, as filed with the SEC on April 25, 200310.35
      Settlement Agreement dated June 22, 2003 by and
        between the Registrant and Anthony Harvey and Alan Lindsay
      Incorporated by reference to Exhibit 10.35 to
        Registrants 10-K/A as filed with the SEC on May 18, 200510.36
      Amendment to $200,000 Loan agreement between
        the Registrant and Luis Barrenchea dated September 4, 2002
      Incorporated by reference to Exhibit 10.36 to
        Registrants 10-K/A as filed with the SEC on May 18, 200510.37
      Amendment to $100,000 Loan agreement between
        the Registrant and Luis Barrenchea dated October 19, 2002
      Incorporated by reference to Exhibit 10.37 to
        Registrants 10-K/A as filed with the SEC on May 18, 200510.38
      Amendment to $100,000 Loan agreement between
        the Registrant and Luis Barrenchea dated December 3, 2003
      Incorporated by reference to Exhibit 10.38 to
        Registrants 10-K/A as filed with the SEC on May 18, 200510.39
      Employment Agreement between the Registrant and
        W. Pierce Carson dated October 7, 2003
      Incorporated by reference to Exhibit 10.39 to
        Registrants 10-KSB as filed with the SEC on December 28, 200510.40
      Change of Control Agreement between the Registrant
        and W. Pierce Carson dated October 7, 2003
      Incorporated by reference to Exhibit 10.40 to
        Registrants 10-KSB as filed with the SEC on December 28, 200510.41
      Property Identification Agreement between the
        Registrant and W. Pierce Carson dated October 6, 2003
      Incorporated by reference to Exhibit 10.41 to
        Registrants 10-KSB as filed with the SEC on December 28, 2005


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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, 200510.43
    Option Agreement between the Registrant and
      Metallica Ventures LLC dated August 12, 2003
    Incorporated by reference to Exhibit 10.43 to
      Registrants 10-KSB as filed with the SEC on December 28, 200510.44
    Assignment and Assumption of Planet Lease
      Agreement between the Registrant and Metallica Ventures LLC dated
      September 22, 2005
    Incorporated by reference to Exhibit 10.44 to
      Registrants 10-KSB as filed with the SEC on December 28, 200510.45
    Letter Agreement between the Registrant and
      Metallica Ventures LLC dated September 22, 2005
    Incorporated by reference to Exhibit 10.45 to
      Registrants 10-KSB as filed with the SEC on December 28, 200510.46
    Securities Purchase Agreement dated March 21,
      2006 by and between the Registrant and Purchasers
    Incorporated by reference to Exhibits 4.1-4.5
      and Exhibit 99.1 to Registrants 8-K dated March 21, 2006, as filed with
      the SEC on March 23, 200610.47
    Share Sale Agreement dated May 4, 2006, by and
      between the Registrant and Imagin Minerals, Inc. and St. Cloud Mining
      Company
    Incorporated by reference to Exhibit 10.1 and
      Exhibit 99.1 to Registrants 8-K dated May 4, 2006, as filed with the SEC
      on May 10, 200610.48
    Amended Securities Purchase Agreement dated
      September 6, 2006, by and between the Registrant and Purchasers
    Incorporated by reference to Exhibits 4.1-4.4
      and Exhibit 99.1 to Registrants 8-K dated September 6, 2006, as filed
      with the SEC on September 8, 2006, and amended on September 15, 200610.49
    Real Property Purchase Agreement effective
      October 31, 2006, by and between Registrant and Muzz Investments, LLC
    Incorporated by reference to Exhibits 10.1 and
      10.2 and Exhibit 99.1 to Registrants 8-K dated November 3, 2006, as filed
      with the SEC on November 6, 200610.50
    Amended Securities Purchase Agreement dated
      February 23, 2007, by and between the Registrant and Purchasers
    Incorporated by reference to Exhibits 4.1-4.3
      and Exhibit 99.1 to Registrants 8-K dated February 23, 2007, as filed
      with the SEC on February 26, 200710.51
    Registrants 2007 Equity Incentive Plan,
      effective July 25, 2007, approved by security holders on July 24, 2007
    Incorporated by reference to Registrants
      DEF14Adated June 18, 2007, as filed with the SEC on May 23, 200710.52
    Senior subordinated Promissory Note dated
      October 31, 2007, by and between Registrant and Purchasers
    Incorporated by reference to Exhibits 4.1-4.3
      and Exhibit 99.1 to Registrants 8-K dated October 31, 2007, as filed with
      the SEC on November 1, 200710.53
    Securities Purchase Agreement dated December
      21, 2007, by and between Registrant and Purchaser
    Incorporated by reference to Exhibits 4.1-4.5
      and Exhibit 99.1 to Registrants 8-K dated December 21, 2007, as filed
      with the SEC on December 26, 200710.54
    Settlement Agreement dated June 5, 2008, by and
      between Registrant and New Planet Copper Mining Company
    Incorporated by reference to Exhibit 99.1 to
      Registrants 8-K dated June 5, 2008 , as filed with the SEC on June 10,
      200810.55
    Purchase and Sale Agreement dated June 30,
      2008, by and between Registrant and St. Cloud Mining Company
      Incorporated by reference to Exhibits 10.55 and
        99.1 to Registrants 8-K dated June 30, 2008, as filed with the SEC
        on July 1, 2008


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10.56
      Change of Control Agreement between the Registrant
        and Ryan P. Carson dated May 19, 2009
      Incorporated by reference to Exhibit 10.56 in
        Registrants 10-K dated June 30, 2009, as filed with the SEC on October
        13, 200910.57
      Change of Control Agreement between the Registrant
        and Michael P. Martinez dated May 19, 2009
      Incorporated by reference to Exhibit 10.57 in
        Registrants 10-K dated June 30, 2009, as filed with the SEC on October
        13, 200910.58
      Purchase option dated June 13, 2009, by and between
        Registrants subsidiary Minera Sandia S.A. de C.V. and Mineral de
        Suaqui Grande S. de R.L. de C.V.
      Incorporated by reference to Exhibit 10.58 in
        Registrants 10-K dated June 30, 2009, as filed with the SEC on October
        13, 200910.59
      Agreement dated June 13, 2009, by and between
        Registrant and Minera de Suaqui Grande S. de R.L. de C.V.
      Incorporated by reference to Exhibit 10.59 in
        Registrants 10-K dated June 30, 2009, as filed with the SEC on October
        13, 200910.60
      Finders Agreement dated June 13, 2009, by and
        between Registrant and Finder
      Incorporated by reference to Exhibit 10.60 in
        Registrants 10-K dated June 30, 2009, as filed with the SEC on October
        13, 200910.61
      Amendment No. 2 dated June 30, 2009, to Securities
        Purchase Agreement dated December 21, 2007, by and between Registrant
        and Purchaser
      Incorporated by reference to Exhibit 10.1 to
        Registrants 8-K dated June 30, 2009, as filed with the SEC on August
        25, 200910.62
      Gold Sale Agreement dated September 11, 2009,
        by and between Registrant and Purchaser
      Incorporated by reference to Exhibits 99.1- 99.2
        to Registrants 8-K dated September 11, 2009, as filed with the SEC
        on September 17, 200910.63
      Placement Agreement dated January 7, 2010, by
        and between Registrant and Placement Agent
      Incorporated by reference to Exhibit 1.1 to Registrants
        8-K dated January 14, 2010, as filed with the SEC on January 20, 2010.10.64
      Securities Purchase Agreement dated January 14,
        2010, by and between Registrant and Purchasers
      Incorporated by reference to Exhibit 10.1 to
        Registrants 8-K dated January 14, 2010, as filed with the SEC on
        January 20, 2010.10.65
      Memorandum of Understanding dated September 24,
        2010, by and between Registrant and Columbus Silver Corporation
      Incorporated by reference to to Exhibits 99.1-
        99.2 to Registrants 8-K dated September 24, 2010, as filed with
        the SEC on September 27, 2010.10.66
      Placement Agreement dated December 29, 2010,
        by and between Registrant and Placement Agent
      Incorporated by reference to Exhibit 1.1 to Registrants
        8-K dated December 29, 2010, as filed with the SEC on January 5, 2011.10.67
      Securities Purchase Agreement dated December
        29, 2010, by and between Registrant and Purchasers
      Incorporated by reference to Exhibit 10.1 to
        Registrants 8-K dated December 29, 2010, as filed with the SEC on
        January 5, 2011.10.68
      Promissory Note dated January 27, 2011, by and
        between Registrant and Columbus Silver Corporation
      Incorporated by reference to Exhibits 99.1- 99.2
        to Registrants 8-K dated January 27, 2011, as filed with the SEC
        on February 2, 2011.14.1
      Code of Ethics for CEO and Senior Financial Officers
        adopted June 15, 2006
      Incorporated by reference to Exhibit 14.1 to
        Registrants 10-KSB for the period ending June 30, 2006, dated February
        14, 2007, as filed with the SEC on February 16, 200721.1
      Subsidiaries of the Registrant
      Incorporated by reference to Exhibit 21.1 in
        Registrants 10-K dated June 30, 2009, as filed with the SEC on October
        13, 200931.1
      Certification of Principal
        Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
      Provided herewith32.1
      Certification of Principal Executive
        Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
      Provided herewith


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(b) Reports on Form 8-K

On August 9, 2011, the Company filed a
Form 8-K relating to procurement of senior secured financing.

On August 31, 2011, the Company
filed a Form 8-K relating to a Complaint filed in the United States District
Court for the District Of New Mexico against Ortiz Mines, Inc. (OMI) in
connection with a purported termination of the Companys leasehold rights on the
Ortiz Grant in Santa Fe County, New Mexico.

On September 7, 2011, the Company
filed a Form 8-K relating to a conditional agreement to acquire Columbus Silver
Corporation in an all-cash transaction.

SIGNATURES

Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, on September 13, 2011.

| | SANTA FE GOLD CORPORATION
| | -------------------------
| |                          
| | By:                      
| | Name:                    
| | Title:                   

Pursuant to the requirements of
the Securities Exchange Act of 1934, this report has been signed by the
following persons on behalf of the registrant in the capacities indicated on
September 13, 2011.

|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         |                                      

112

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