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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 endedJune 30, 2009

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

For the transition period from _______ to______

Commission file number 0-20430

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 wasrequired 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.

1

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

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

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 $35,225,161.

As of October 7, 2009, there were 83,723,208 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                                                                                         | 8   
|ITEM 1B:    | UNRESOLVED STAFF COMMENTS                                                                            | 15  
|ITEM 2:     | PROPERTIES                                                                                           | 15  
|ITEM 3:     | LEGAL PROCEEDINGS                                                                                    | 37  
|ITEM 4:     | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS                                            | 37  
|            |                                                                                                      |     
|            | PART II                                                                                              |     
|            |                                                                                                      |     
|ITEM 5:     | MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER
      MATTERS AND PURCHASES OF EQUITY SECURITIES       | 38  
|ITEM 6:     | SELECTED FINANCIAL DATA                                                                              | 39  
|ITEM 7:     | MANAGEMENT'S DISCUSSION AND ANALYSIS OF
      FINANCIAL CONDITION AND RESULTS OF OPERATION           | 39  
|ITEM 7A:    | QUANITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                            | 46  
|ITEM 8:     | FINANCIAL STATEMENTS AND SUPPLEMENTARY
      DATA                                                    | 46  
|ITEM 9:     | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND FINANCIAL DISCLOSURE           | 47  
|ITEM 9A(T): | CONTROLS AND PROCEDURES                                                                              | 47  
|ITEM 9B:    | OTHER INFORMATION                                                                                    | 47  
|            |                                                                                                      |     
|            | PART III                                                                                             |     
|            |                                                                                                      |     
|ITEM 10:    | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE                                              | 47  
|ITEM 11:    | EXECUTIVE AND DIRECTOR COMPENSATION                                                                  | 51  
|ITEM 12:    | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
      AND RELATED STOCKHOLDER MATTERS | 54  
|ITEM 13:    | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
      AND DIRECTOR INDEPENDENCE                      | 56  
|ITEM 14:    | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                               | 57  
|            |                                                                                                      |     
|            | PART IV                                                                                              |     
|            |                                                                                                      |     
|ITEM 15:    | EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                              | 57  
|            |                                                                                                      |     
|SIGNATURES  |                                                                                                      | 65  

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.

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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 (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 five projects: Our Summit silver-gold
  and Ortiz gold projects located in New Mexico; our Black Canyon mica and Planet
  micaceous iron oxide projects located in Arizona; and our Pilar gold property
  in the State of Sonora, Mexico. SeeItem 2. Propertiesfor more information about our properties. We are constructing a mill and
  developing an underground mine at our Summit silver-gold project, which will
  be our first mine upon successful start-up, which is targeted for 2010. We expect
  commercial production to be achieved in 2010. 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. In December 2007, we raised additional 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
includes an upfront payment of $4,000,000, with an option to increase that
amount by $1,000,000, to $5,000,000. We used the majority of the funds raised to
acquire and construct the Summit mine and Banner mill and for working capital.
We anticipate using the upfront payment provided by the September 2009 gold sale
agreement to continue these efforts. SeeItem 7. Managements
Discussion and Analysis of Financial Condition and Results of Operationfor
more information.

Construction
of the Summit mine and related Banner mill was the focus of our activities in
2009. In April 2007, we received results of a preliminary feasibility study
carried out by an independent geological engineering firm that concluded that
development of the Summit deposit would be economically viable. Capital cost was
estimated as $13.4 million and the construction schedule was estimated to
require 12 months. In December 2007, we arranged a financing of $13.5 million by
way of a private placement of senior secured convertible debentures. We began
construction activities during the first quarter of 2008, including development
of the Summit mine and construction of the Banner mill. Underground mine
development and stockpiling of ore is on-going. Construction of the Banner mill
was completed in Q2 2009 except for the tailings disposal impoundment, for which
on October 2, 2009 we received a conditional permit that allows us to proceed
with construction. We estimate that construction of the tailings disposal
impoundment will be completed in Q4 2009, following which we expect to be in a
position to commence processing operations. We expect the Summit project will
achieve commercial production in 2010. As of June 30, 2009, we have $47.1
million in tax loss carry-forwards to shelter federal income tax otherwise
payable.

Our
principal executive offices are located at 1128 Pennsylvania NE, Suite 200,
Albuquerque, New Mexico 87110, and our telephone number is (505) 255-4852. Our
Summit operations in southwestern New Mexico are conducted through our
wholly-owned subsidiary, the Lordsburg Mining Company. Our operations in Mexico
are conducted through our wholly-owned subsidiary, Minera Sandia,

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S.A. de C.V. In connection with administration of the September
2009 gold sale agreement, we established a wholly-owned Barbados subsidiary,
Santa Fe Gold (Barbados) Corporation.

Please
refer to page 34 of this report for a glossary of certain terms used herein.

Recent Developments

On September
  11, 2009, we entered into a definitive gold sale agreement with Sandstorm Resources
  Ltd. (TSX-V: SSL) (Sandstorm) to sell a portion of the life-of-mine
  gold production (but not silver production) from our Summit silver-gold mine.
  Under the agreement, we will receive an upfront cash deposit 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.
  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 have the option, for the next nine months, to
  increase the size of the transaction by $1,000,000, to $5,000,000. If we exercise
  this option, the percentage of payable gold that Sandstorm will be entitled
  to purchase will increase by 25%. In certain circumstances, including failure
  to meet minimum production rates, interruption in production due to permitting
  issues and customary events of default, the agreement may be terminated. In
  such event, we may be required to return to Sandstorm the upfront cash deposit
  of $4.0 million less a credit for gold delivered up to the date of that event,
  which is determined using the difference between the market price and $400 per
  ounce for gold deliveries where the prevailing market price exceeded $400 per
  ounce.

On
December 21, 2007, we entered into a definitive agreement for the placement with
a single investor of senior secured convertible debentures in the amount of
$13,500,000. Proceeds from the debentures were used primarily for the
development of the Summit project. The debentures were issued in accordance with
a pre-determined funding schedule and the term of the debentures is 60 months.
In fiscal 2008, we received advances aggregating $5,350,000 under the agreement,
and in fiscal 2009 received advances aggregating $8,150,000, bringing the total
received to $13,500,000.

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

On
June 13, 2009, we entered into a purchase option contract on the Pilar gold
property consisting of two mineral exploitation concessions covering 240 acres
located 165 kilometers east-southeast of Hermosillo, State of Sonora, Mexico. We
believe this exploration-stage property shows promising potential for discovery
of an economic gold deposit, based on results from previous drilling that
returned encouraging gold intersections. We plan to carry out additional work
including surface mapping and sampling, geophysics and possibly drilling. Our
wholly owned Mexican subsidiary, Minera Sandia S.A. de C.V., entered into the
purchase option contract with Minera de Suaqui Grande, S. de R.L. de C.V. The
contract provides for option payments of $1,000 upon signing, $99,000 on March
13, 2010, and $125,000 on March 13, 2011. The last payment of $1,307,000 is due
March 13, 2012, and would complete the purchase. In connection with the
acquisition, we agreed to issue 117,000 restricted shares of common stock to
Minera de Suaqui Grande, S. de R.L. de C.V. under the terms of a consulting

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agreement, and agreed to pay creditors $11,150 in cash and
17,400 shares of restricted common stock valued at $19,836. We also agreed to
pay finders fees of $15,000 in cash and 25,000 shares of restricted common
stock valued at $28,500, and to match option and purchase payments when they
become due by payments either in cash or in restricted common stock. We are not
required to pay a production royalty under the agreements.

Competitive Business Conditions

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

Government Regulations and Permits

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

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

Concurrent
with the tailings disposal permit, New Mexico requires a Discharge Permit from
the NM Environmental Department and a Reclamation Permit from Mining and
Minerals Division under the NM Mining Act of 1993. Application for both of these
permits have been made, ruled administratively complete and financial assurance
for future reclamation has been established. The respective agencies have
informed us they are proceeding to issue the Discharge and Reclamation permits.

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 32 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.

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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.

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, 2009, our
total accumulated (deficit) was approximately $(53.0) million. To become
profitable, we must identify mineralization and establish reserves, and then
either develop properties ourselves or locate and enter into agreements with
third party operators. It could be years before we receive any revenues from
industrial mineral or precious metals production. We may suffer significant
additional losses in the future and may never be profitable. There can be no
assurance we will receive revenue from operations in the foreseeable future, if
at all. Even if we do achieve profitability, we may not be able to sustain or
increase profitability on a quarterly or annual basis.

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

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

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

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

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

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

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

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

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

The potential for profitability of gold and silver mining operations at
our Summit silver-gold property and at our Ortiz gold property and the values of
these properties are directly related to the market prices of gold and silver.
The prices of gold and silver may also have a significant influence on the
market price of our common stock. In the event that we obtain positive
feasibility results and progress to a point where a commercial production
decision can be made, our decision to put a mine into production and to commit
the funds necessary for that purpose must be made long before any revenue from
production would be received. A decrease in the price of gold or silver at any
time during future development or mining may prevent our properties from being
economically mined or result in the impairment of assets as a result of lower
gold or silver prices. The prices of gold and silver are affected by numerous
factors beyond our control, including inflation, fluctuation of the United
States dollar and foreign currencies,

9

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global and regional demand, the purchase or sale of gold by central
  banks, and the political and economic conditions of major gold producing countries
  throughout the world. During the last five years, the average annual market
  price of gold has progressively increased from $410 per ounce to $872 per ounce,
  as shown in the table below:

Average Annual Market Price of Gold, 2004-20082004
      
      
      2005
      
      
      2006
      
      
      2007
      
      
      2008$                                    410
      
      $
      445
      
      $
      603
      
      $
      695
      
      $
      872


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

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

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

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

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

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

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

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***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. There are numerous factors beyond our control that could affect markets
for both mica and feldspathic sand. No assurance can be given as to future
prices or demand for products, if any, that could be produced from our Black
Canyon mica project. Any decline in prices could have a material adverse effect
on project economics.

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

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

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

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

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

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

11

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

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

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

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

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

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

All
phases of our operations will be subject to federal, state and local
environmental 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

12

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adversely affect our operations, make our operations
prohibitively expensive, or prohibit them altogether. Environmental hazards may
exist on the Black Canyon mica property, the Summit silver-gold property, the
Lordsburg property, the Ortiz gold property, and the Planet micaceous iron oxide
property and on properties in which we may hold interests in the future that are
unknown to us at the present. Failure to comply with applicable environmental
laws, regulations and permitting requirements may result in enforcement actions,
including orders issued by regulatory or judicial authorities, causing
operations to cease or be curtailed, and may include corrective measures
requiring capital expenditures, installation of additional equipment, or
remedial actions.

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

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

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

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

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

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

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

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

13

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silver-gold property and Ortiz gold property are subject to the
property identification agreement with Mr. Carson.

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

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

Risks Related to our Common Stock

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

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 77,000 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.

14

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

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

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

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

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

None.

**ITEM 2.**     **PROPERTIES**

Summit Silver-Gold Project

***Overview***

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

Our
strategic objective is to develop the Summit project. In April 2007, we received
results of an engineering study that concluded the Summit deposit would form the
basis of an economically viable underground mining operation. On the basis of
the results of the study, we determined to proceed to secure the capital
necessary for development, and in December 2007 arranged for financing of $13.5
million by way of a private placement of senior secured convertible debentures.
Construction of the Banner mill and development of the Summit mine were
initiated in Q1 2008, with an anticipated construction period of a minimum of 12
months. The Summit mine development is on-going. Construction of the Banner mill
was completed in Q2 2009, except for the tailings dam and

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impoundment, for which on October 2, 2009 we received a
conditional permit allowing construction to proceed. We estimate that
construction of the tailings disposal impoundment will be completed in Q4 2009,
following which we expect to be in a position to commence processing operations.
We expect to achieve commercial production in 2010.

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

***Location
  and Access***

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

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

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

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

Figure X.1
  Claim Boundary Map



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***Mineral
Title***

Our
holdings at the Summit silver-gold property in Grant County, New Mexico consist
of 10 patented federal mining claims totaling approximately 117 acres and 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 2009 and 2010
assessment years (September 1, 2008 through August 31, 2010).

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

***History**
of Mining and Exploration*

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

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

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

Exploration
work estimated to have cost in excess of $8.0 million was carried out on the
Summit silver-gold property from 1984-1992. This work included drilling totaling
104,700 feet on the Summit and adjacent structures, of which 78,000 feet was
directed to the Summit structure. In 1984-85, Inspiration Mines Inc. reportedly
spent about $1.5 million conducting underground development, shallow core
drilling and sampling and mapping. In 1988-89, Novagold Resources Inc.
reportedly expended approximately $2 million in surface and airborne geophysical
surveys, underground mapping and

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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***

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

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***Metallurgical
Testing***

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

***Mineral
Processing Equipment***

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

***Permits***

With
the purchase of Lordsburg Mining in 2006, we acquired existing operating permits
for the Summit property and the Banner mill site. The New Mexico Mining and
Minerals Division issued these permits to Lordsburg Mining pursuant to the New
Mexico Mining Act. When modified and revised as necessary, these and other
permits for which we have applied or will apply could facilitate the
commencement of mining at the Summit property and resumption of mineral
processing operations at the Banner mill site.

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

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

***Preliminary
Feasibility Study***

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

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

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

CWG
prepared a mine design that employs rubber-tired equipment to gain access to the
minable mineralization through two declines, one on each end of the deposit,
which would be driven from existing headings to and along the mineralized
structure to a connecting point in the central part of the deposit. Further
development of the deposit would continue by extending a decline to the lower
limits of mineralization. Sufficient longhole drilling and trial extraction
methods would be done to further plan the operation.

At
gold and silver prices of $500 and $10 respectively, CWG estimated Summit
revenues over an initial seven-year mine life would total approximately $96
million, and pre-tax net income would total approximately $34 million. At higher
gold and silver prices of $650 and $13 per ounce respectively, CWG estimated
revenues would increase to approximately $130 million, pre-tax net income would
exceed $70 million, and payback of capital would be achieved in 18 months after
the commencement of production. The Company has $47.1 million in tax loss
carry-forwards to shelter federal income tax otherwise payable. Direct operating
costs, assuming that mine development and ore production would employ contract
mining, were estimated as $76.65 per ton of ore milled. The total capital cost
to bring the mine into production was estimated as $13.5 million, inclusive of
mine development, mill construction, bonding requirements, and project
management and working capital. CWG estimated the project could be developed and
brought into production in a twelve-month time frame.

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

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

***Development
Activities***

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

At
the Summit mine, a seven hundred foot long 12 x 12 decline ramp intersected
the predicted ore body in February 2009. Since then, we have proceeded to drive
two development headings in the ore zone structure, one an incline to the
southeast planned to intersect old workings and to serve as a

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secondary escape and a source of additional ventilation, and
the other a decline to the northwest toward additional ore bodies identified in
previous drilling. The southeastern heading is expected to achieve its
objectives in October 2009. The northwestern heading encountered the southern
extensions of the predicted ore bodies in August 2009. Assays of the ore bodies
show variable silver and gold values, with occasional very high grades
encountered. Assay results when averaged are consistent with the reserve grades
previously calculated for the Summit deposit (10.28 oz/ton silver and 0.143
oz/ton gold). Ore grade material is segregated at the mine and trucked to the
Lordsburg mill site. Mining operations are proceeding on the basis of two
10-hour shifts five days a week.

At
the Banner mill, construction was essentially completed in Q2 2009, except for
the tailings disposal impoundment. We experienced a delay in obtaining a permit
necessary for construction of the tailings disposal impoundment, which must be
constructed before processing operations can begin. On October 2, 2009 we
obtained a conditional permit allowing us to begin construction of the tailings
disposal impoundment. We estimate construction will be completed in Q4 2009,
following which we will be in a position to commence processing operations and
shake down of the mill. Ramp-up of mill throughput is planned to occur over a
period of several months in conjunction with increased output from the Summit
mine. We expect that the Summit project will achieve commercial production in
2010.

Ortiz Gold Project

***Overview***

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

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

***Location
and Access***

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

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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.

Figure X.2**Claim Boundary Map**

22

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***Mineral
  Title***

On
August 1, 2004, we entered into an option and lease agreement with Ortiz Mines,
Inc., a Missouri corporation, whereby we acquired exclusive rights for
exploration, development and mining of gold, silver, copper and other minerals
on 57,267 acres (approximately 90 square miles) of the Ortiz Mine Grant in Santa
Fe County, New Mexico. In November 2007, we relinquished 14,970 acres and
retained under lease 42,297 acres (66 square miles). We paid an initial sum of
$20,000 for a six-month option, and on February 1, 2005, paid the additional sum
of $30,000 in order to exercise the option and enter into the lease and also to
satisfy the obligation of the first years lease payment. Since February 1,
2006, we have paid annual lease payments of $71,184, $100,218, $126,891 and
$148,040, the last payment satisfying the lease payment through January 31,
2010. The lease provides for an initial term of seven years (12 years in certain
circumstances), continuing year-to-year thereafter for so long as we are
producing gold or other leased minerals in commercial quantities and otherwise
are performing our obligations under the lease. Among other terms, the lease
provides for annual lease payments that escalate per acre of ground we retain
under lease; a sliding-scale production royalty varying from 3% to 5% depending
on the price of gold; the requirement that we comply with governmental
permitting and other regulations; and other terms common in mining leases of
this type. The Ortiz gold project is subject to a property identification
agreement between us and our President and Chief Executive Officer. SeeItem 13.  Certain Relationships and Related Transactions.

***History
  of Mining and Exploration***

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

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

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

From
1972 through the early 1990s, several companies operating under lease with
Ortiz Mines, Inc. carried out exploration and pre-development activities in the
western portion of the Grant. These companies included Conoco, Inc., LAC
Minerals (USA), Inc. and the LAC-Pegasus Joint Venture. Expenditures by these
groups are estimated to have exceeded $40 million. Drilling resulted in the
identification of several deposits estimated to contain in the aggregate
approximately 2.0 million ounces of gold.

The
LAC-Pegasus Joint Venture carried out the majority of the work in the western
portion of the Grant, from 1989-1992. The Joint Venture focused on two deposits
in the southwestern part of the Grant, namely the Carache Canyon (Carache) and
Lucas Canyon (Lucas) deposits. These two deposits were

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the subject of 386,000 feet of core and reverse-circulation
drilling, metallurgical testing and pre-feasibility studies carried out by the
LAC-Pegasus Joint Venture and by consulting firms and contractors engaged by the
Joint Venture.

Independent
Mining Consultants, Inc. (IMC), an independent geological engineering firm,
was engaged by the LAC-Pegasus Joint Venture to audit estimations of the
quantities and grades of in-place mineralized material at the Carache and Lucas
deposits and to prepare conceptual open pit mine plans based on a gold price of
$385 per ounce. In 1992, IMC estimated the Carache gold deposit, within the
boundaries of a conceptual open pit, to contain mineralized material of 11.8
million tons grading 0.060 ounces of gold per ton, for 706,700 ounces of
contained gold. IMC estimated the Lucas gold-copper deposit, within the
boundaries of a conceptual open pit, to contain mineralized material of 7.6
million tons grading 0.043 ounces of gold per ton and 0.22% copper, for 325,600
ounces of contained gold and 33,440,000 pounds of contained copper.

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

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

Geology and Mineralization

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

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

- Gold-tungsten mineralization in a breccia pipe at Cunningham Hill adjacent
  to a volcanic vent, the Ortiz diatreme.
- Gold mineralization associated with a collapse breccia at Carache Canyon.

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

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

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

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

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

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

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

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

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

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

***Permitting***

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

***Work
  Program***

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

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

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

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

Black Canyon Mica Project

***Overview***

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

***Location
  and Access***

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

Figure X.3**Claim Boundary Map**

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***Mineral
  Title***

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

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

In
order to maintain our claims in good standing, we must pay annual assessment
fees to the Bureau of Land Management and record the payment of rental fees with
Yavapai and Maricopa Counties. Annual assessment and recording costs total
approximately $11,000. We have paid the required fees for the 2009 and 2010
assessment years (September 1, 2008 through August 31, 2010).

***Mining
and Processing Facilities***

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

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

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

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

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These expansions are required in order to achieve the higher
throughput necessary for sustained economic operation. Alternatively, we are
seeking to sell the project.

***Permits***

In
1999, we obtained approval for the Black Canyon Plan of Operations from the
Bureau of Land Management and the State of Arizona. An Environmental Assessment,
Clean Water Act Permit and Air Quality Procedures were all approved. An Aquifer
Protection Permit was not required because processing operations at the mine
site did not propose the use of water. These permits are no longer in current
standing and would have to be renewed or new permits obtained in order for the
project to resume production.

***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.

29

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***Mica***

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

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

***Feldspathic
  Sand***

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

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

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

***Work
  Program***

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

Planet Micaceous Iron Oxide (MIO) Project

***Overview***

The
Planet property consists of thirty-one patented mining claims totaling 523 acres
located in

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western Arizona. In September 2002, we leased the Planet
property for its potential to produce micaceous iron oxide (MIO), and in June
2008 exercised our option to purchase the property. MIO is an uncommon
flake-like form of crystalline hematite (Fe2O3) valued for the anti-corrosive
properties it contributes to coatings formulated to protect structural
steelwork.

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

***Location
  and Access***

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

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

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

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

Figure X.4**Claim Boundary Map**

31

---

***Mineral
  Title***

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

In
  March 2007, we commenced an action in the Superior Court of the State of Arizona
  against New Planet Copper Mining Company, seeking to confirm that our lease
  remained in good standing. On June 5, 2008, we reached a settlement agreement
  and agreed to exercise our option to purchase the property. The purchase price
  of $250,000, as specified under the terms of the 2000 lease agreement, may be
  paid with interest over a term of four years. We paid an initial purchase payment
  of $50,000 in August 2008, and a payment of $69,650 in September 2009. There
  also is provision for a 5% royalty to be paid on any future production.

***History
  of Mining and Exploration***

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

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

***Work
  Program***

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

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

***Geology
  and Mineralization***

At
the Planet deposit, MIO deposits associated with a mid-Tertiary, flat-lying,
regional detachment fault are found in the Triassic Buckskin Formation. Rocks in
the upper plate above the fault

32

---

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

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

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

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

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

***Conceptual
  Mining and Processing Plan***

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

33

---

***Micaceous
  Iron Oxide***

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

Based
on limited available market data, world production of MIO is estimated to be
20,000-30,000 tons (40-60 million lbs) annually, of which Europe and Asia
consume over eighty percent. Prices are quoted in the range $0.40 -$.60 per
pound for top quality material. Commercial deposits of high quality MIO are
geologically rare. One supplier from underground mines in Austria has dominated
the world market for many years; however, production from that source has been
declining. Elsewhere around the world, production comes from only a handful of
suppliers, operating on a small scale and, we believe, at high production costs.

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

**Pilar
  Gold Project**

***Overview***

In
June 2009, we entered into a purchase option contract on the Pilar gold property
consisting of two mineral exploitation concessions located 165 kilometers
east-southeast of Hermosillo, State of Sonora, Mexico. We believe this
exploration property shows promising potential for discovery of an economic gold
deposit, based on previous drilling that returned encouraging gold
intersections.

***Location
  and Access***

The
Pilar property is accessible by paved highway two hours drive east and south of
Hermosillo, the capital of State of Sonora, through the town of Suaqui Grande,
and then five miles north by gravel road.

Terrain
in the region is hilly to locally mountainous, with up to 2,000 feet of local
relief. Annual participation averages around 12 inches. Vegetation is sparse but
varied as is typical of the Sonoran desert. The area is largely undeveloped and
the land is utilized mainly for cattle grazing.

Pilar
is within a mineral belt that includes the La Colorado gold mine (260,000
ounces) to the west and the Mulatos gold mine (2.7 million ounces) to the north
and east, in or near the Sierra Madre mountain complex. The Sonoran Province
also holds the La Heradura gold mine, the largest gold mine in Mexico (owned by
Penoles and Newmont); the San Francisco gold mine; and the Chanate gold
mine.

34

---

***Mineral
  Title***

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

***History
  of Mining and Exploration***

The Pilar property contains a few prospect pits and minor underground
openings but has not produced any significant amount of gold or other
metals.

In
1996, some 6,000 meters of reverse circulation drilling is reported to have been
carried out in two drilling programs by a junior Canadian exploration company,
with the objective of testing geochemical gold anomalies. Summary results of the
drilling programs were reported in press releases. Although the drilling results
appear to have returned encouraging gold values, the property was
relinquished.

In
2008 the Pilar property was acquired by a private company controlled by an
experienced geologist. A trenching, mapping and sampling program was carried
out. The last 92 soil and rock samples collected by this group are reported to
have averaged 1.2 grams/tonne gold.

We
  visited the property in 2009 and carried out our own sampling program, with
  encouraging results.

***Geology
  and Mineralization***

Pilar
is hosted in Cretaceous Tarahumara andesitic volcanics intruded by Tertiary
granodiorite and cut by rhyolite dikes. The prime target for gold mineralization
is associated with andesites and silicified rhyolites along a northwest trending
ridge exhibiting 100-200 meters of local relief and extending 1,200 meters along
strike and 625 meters in width. The ridge was trenched, sampled and drilled in
1996 by the junior Canadian company.

The
1996 drilling was reported to show that gold is controlled by a number of
steeply dipping structures. At least four structures were reported to carry
potentially economic grades, with drill holes intersecting from 1 to 10
grams/tonne gold over widths ranging up to 20 meters. The best hole, an angle
hole, was reported to have intersected 16.5 meters of high grade gold
mineralization averaging 53.05 grams/tonne. Mineralization in that hole was
described as beginning 45 meters below surface and was estimated to represent
15.5 meters true width across structure.

The
Pilar Gold Property appears to have potential for discovery of an economic
near-surface gold deposit, with speculative unknown deeper potential. Processing
might be by heap leaching or

35

---

alternatively, if high enough grades are discovered, by milling
of higher grade ores followed by CIL or CIP recovery.

***Work
Program***

The
next steps in our evaluation of the Pilar property will involve (1) cleaning out
of existing trenches, followed by geological mapping and re-sampling, (2)
compilation of existing information, including an attempt to recover geologic
logs, assay data and other information from the 1996 drilling programs, (3)
formulation of a geological model incorporating all data, with emphasis on
structure and ore controls, (4) a geophysical survey to identify structural
zones and distribution of sulfides, (5) delineation of drill targets, and (6)
design and execution of a drilling program. A budget for the first years work
is estimated to be on the order of $100,000.

|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.                                                                                                                                    
|                 |                                                                                                                                                                       
|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                                                                                       

36

---

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

37

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|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.                                                                                                                                                                      

38

---

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

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

**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. $)2007
      HIGH
      LOW09/30/07
      $0.58
      $0.2412/31/07
      $0.79
      $0.402008
      HIGH
      LOW3/31/08
      $0.97
      $0.636/30/08
      0.92
      0.639/30/08
      0.87
      0.5612/31/08
      $0.77
      $0.542009
      HIGH
      LOW3/31/09
      $1.34
      $0.606/30/09
      $1.35
      $1.00


Holders of Common Equity

As
  of October 7, 2009, there were 83,723,208 common shares outstanding, the high
  and low sales prices of our common stock on the OTC Bulletin Board were $1.30
  and $1.25, respectively, and we had 779 holders of record of our common stock.

Penny Stock Rules

39

---

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.

Recent Sales and Issuance 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
  totalling 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.

40

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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 year ended June 30, 2009,
general and administrative stock compensation expense of $26,986 was recognized
relating to these transactions.

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. The Company also issued 141,510 warrants with a five year
  expiration date from the date of issue in connection with the private placement.

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 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.

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, discussed in NOTE 10 to
the consolidated financial statements for the years ended June 30, 2009 and
2008. 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
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.

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

On
August 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 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.

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.

41

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

Not required.

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

The
  following discussion should be read in conjunction with the Financial Statements
  of the Company and notes thereto included elsewhere in the Annual Report. See
  Financial Statements.

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.

Overview

We
have received no substantial revenue from the production of gold or other metals
since our inception, and historically have relied on equity and debt financings
to finance our ongoing operations. Our operations generated a net (loss) of
$(5,535,596) for the year ended June 30, 2009, and a net (loss) of $(4,423,592)
for the year ended June 30, 2008. In order to fund operations in the fiscal
years ended June 30, 2009 and 2008, we relied on proceeds from the sale of
equipment aggregating $68,184 for the two years, private placement sales of
convertible notes in October 2007 and February 2008 aggregating $687,143,
proceeds from the exercise of Additional Investment Rights in January, April and
June 2008 aggregating $643,614, the private placement sale in December 2007 of
senior secured convertible debentures of $13,500,000, and in June 2009 the
private placement sale of common stock of $300,000.

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

In
September 2009, we entered into a sale agreement for a portion of our gold
production from the Summit mine. The agreement provides 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. Under the agreement, we have a nine month option to
increase the upfront cash payment by $1.0 million, to a total of $5.0 million.
Proceeds will be used for on-going development of the Summit mine, completion of
construction of the Banner mill processing facilities and working capital.

The
results of operations for the fiscal years ended June 30, 2009 and 2008 reflect
under-capitalization of our Summit silver-gold project, which project requires
additional funding to be able to achieve production and profitability. We expect
results of operations similar to those in 2009 and 2008 to continue in the
foreseeable future, and do not expect them to change significantly until such
time as production commences at our Summit mine and/or additional capital and/or
debt facilities are secured. 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.

42

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We
  anticipate a need for at least $6.0 million over the next 12 months, and $9.5
  million over the next 36 months in order to satisfy past commitments, pay corporate
  overhead costs, complete Summit development, and fund feasibility studies and
  exploration programs as discussed under the Liquidity and Capital Resources
  section of this report. If we fail to procure adequate funding on acceptable
  terms, we may be required to reduce or eliminate substantially all business
  activities until such time as funding can be secured on a basis acceptable to
  us.

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

We
have a total accumulated deficit of $(52,977,460) at June 30, 2009. To continue
as a going concern, we are dependent on continued fund raising. However, we have
no commitment from any party to provide additional capital and there is no
assurance that such funding will be available when needed, or if available, that
its terms will be favorable or acceptable to us.

Results of Operations

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

**Sales**

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

**Exploration
  and Mining**

Exploration
and mining costs increased in fiscal 2009 to $522,697 from $245,621 in fiscal
2008. This increase of $277,076 in fiscal 2009 is attributable to increased
non-capitalized costs incurred on the Summit site and the Banner mill site. The
increased costs resulted from increases on land leases of $9,371, leased
equipment of $42,720, repairs and maintenance of $40,864, supplies and general
operating costs of $92,023, insurance of $47,474, relocation costs of $80,027
and fuel of $16,370. These increases were offset by decreases consulting fees
and related costs aggregating $50,659.

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

**General
  and Administrative**

General
and administrative increased to $1,912,155 for the fiscal year 2009, from
$1,504,380, for the fiscal year 2008, an increase of $407,775. The increase in
the current fiscal year is mainly attributable to increases in rent expense of
$7,472, compensation and payroll burden of $273,162, property taxes of $28,058,
investor relations of $277,140, travel and entertainment of $15,413, financing
costs of $139,454, vehicle operating costs of $39,377, and office operating
costs of $31,002. These increases were mainly offset by decreases in the current
fiscal year in non-recurring dismantling and relocation costs of the Black
Canyon mica plant aggregating $282,335 and accounting and legal costs of
$93,805.

**General
  and Administrative Stock Compensation**

43

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General
and administrative stock compensation increased to $944,049 for the current
fiscal year 2009 from $216,413 for the comparative fiscal year ended 2008, an
increase of $727,636. The increase is attributable to amortized costs associated
with deferred stock compensation for an officer and another key employee
aggregating $448,000, and amortized incentive stock options costs associated
with options issued to numerous employees.

Depreciation
  and Amortization

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

Other
  Income and Expense

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

Gain
  (loss) on Derivative Financial Instruments

We
recognized a loss on derivative instruments liability of $514,356 for fiscal
year 2009, as compared to a loss of $272,418 for the prior fiscal comparable
year 2008. The non-cash loss arose from adjustments to record the derivative
financial instruments at fair values in accordance with current accounting
standards. The derivative financial instruments arose in connection with senior
secured convertible notes. Otherwise, we generally do not use derivative
financial instruments for other purposes, such as hedging cash flow or
fair-value risks. The increase in the derivative loss in fiscal 2009 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 this derivative. Because Black-Scholes uses the
Companys stock price, changes in the stock price will result in volatility in
the earnings in future periods as the Company continues to reflect the
derivative financial instruments at fair values.

Liquidity and Capital Resources; Plan of Operation

As
of June 30, 2009, we had cash and cash equivalents of $509,846 as compared to
$3,255,754 at June 30, 2008. As of June 30, 2009, we had a working capital
deficit of 3,852,303, which is mainly attributable to the current portion of our
derivative instrument liabilities of $2,643,500.

On
December 21, 2007, we entered into a definitive agreement for the placement with
a single investor of senior secured convertible debentures in the amount of
$13,500,000. Proceeds from the debentures were used primarily for the
development of the Summit project. The debentures were issued in accordance with
a pre-determined funding schedule and the term of the debentures is 60 months.
In fiscal 2008, we received advances aggregating $5,350,000 under the agreement,
and in fiscal 2009 received advances aggregating $8,150,000, bringing the total
received to $13,500,000.

44

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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.

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

In
recent years we have not generated any significant revenues from operations and
have incurred significant operating losses. At June 30, 2009, we have an
accumulated (deficit) of $(52,977,460). Our consolidated financial statements
have been prepared on a going concern basis, which contemplates the realization
of assets and satisfaction of liabilities in the normal course of business. Our
primary source of funds provided during our fiscal year 2009 was from the sale
of convertible notes. We anticipate that our operations through fiscal 2010 will
be funded from the balance of proceeds from these placements; sale of our
securities; exercise of certain options and warrants; and/or through project
related debt or equity financings or advanced sale of our products. While we
believe we will be able to finance our continuing activities, there is no
assurance of success in this regard or in our ability to obtain continued
financing through capital markets, joint ventures, or other acceptable
arrangements. If our plans are not successful, operations and liquidity may be
adversely impacted. In the event that we are unable to obtain additional
required capital, we may be forced to reduce our exploration and operating
expenditures or to cease development operations altogether.

We
have developed a plan to place the Company on an improved financial footing.
Important elements of the plan include continued raising of interim funding to
provide for deployment of operations on our various property sites, and
development of our Summit property and commencement of production. During the
quarter ended December 31, 2007, 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
2010.

We
  are continuing to seek funding to advance our business plan and strategies.
  We require funds to meet our corporate commitments, to complete Summit development,
  to continue feasibility studies on our mineral properties, to initiate exploration
  programs, and to arrange a joint venture for restart of our Black Canyon mica
  mine. We project the need for a minimum of $6.0 million over the next 12 months,
  and a minimum of $9.5 million working capital during the next 36 months, estimated
  as follows:

Next 12 Months
      
      
      Next 36 MonthsCompletion of Summit development
      $
      4,000,000
      
      $
      4,000,000Exploration programs and feasibility studies
      
      1,000,000
      
      
      2,500,000Corporate overhead and related expenses
      
      1,000,000
      
      
      3,000,000Total funding requirements
      $
      6,000,000
      
      $
      9,500,000


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

45

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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.

Off-Balance Sheet Arrangements

As
of and subsequent to June 30, 2009, 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, impairment
of assets, depreciation of plant and equipment, and derivative instrument
liabilities.

Reclamation
  Costs

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

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

As
of June 30, 2009, the Company, pursuant to regulatory requirements, maintained
the following restricted assets associated with reclamation costs for the Black
Canyon property: $50,000 held on deposit on behalf of the Arizona State
Treasurer in a one-year automatically renewable short-term investment; and
$128,658 held on deposit on behalf of the U.S. Bureau of Land Management. A roll
forward of our asset retirement obligation through June 30, 2009, is as follows:

Balance at June 30, 2007
    $
    75,309Accretion for the year ended June 30, 2008
    
    5,000


46

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Accretion for the year ended June 30, 2009
    
    3,750Balance, June 30, 2009
    $
    84,059


Additionally
as of June 30, 2009, the Company maintained restricted assets of $230,716 held
on deposit on behalf of the New Mexico Energy, Minerals and Natural Resources
Department associated with reclamation costs for the Summit property.

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

Revenue
  Recognition

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

Depreciation

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

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

Derivative
  Instruments

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

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

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

47

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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
June 2009, the FASB issued SFAS 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles  a replacement of FASB No. 162 (SFAS 168). This Statement
replaces FASB No. 162 to identify the sources of authoritative accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. The provisions of SFAS 168 are effective for the Companys
interim and annual periods after September 15, 2009. The Company does not expect
the adoption of SFAS 168 to have a material impact on its consolidated financial
statements.

In
May 2009, the FASB issued SFAS 165, Subsequent Events (SFAS 165).
SFAS 165 requires an entity to recognize in the financial statements the effects
of all subsequent events that provide additional evidence about conditions that
existed at the date of the balance sheet. For non-recognized subsequent events
that must be disclosed to keep the financial statements from being misleading,
an entity will be required to disclose the nature of the event as well as an
estimate of its financial effect, or a statement that such an estimate cannot be
made. In addition, SFAS 165 requires an entity to disclose the date through
which subsequent events have been evaluated. SFAS 165 is effective for the
Company on June 1, 2009 and is required to be applied prospectively. The Company
does not expect the adoption of SFAS 165 to have a material impact on its
consolidated financial statements.

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

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

48

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2008 on a retroactive basis. The Company currently is
evaluating the potential impact, if any, of the adoption of FSP APB 14-1 on its
consolidated financial position, results of operations or cash flows.

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

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

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**

Information not required to be provided.

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

|Index to Financial Statements:                                                                                       | F-1       
|-------------------------------------------------------------------------------------------------------------------- | ----------
|                                                                                                                     |           
|Report of Independent Registered Public Accounting Firm                                                              | F-2       
|                                                                                                                     |           
|Consolidated Balance Sheets at June 30, 2009 and 2008                                                                | F-3       
|                                                                                                                     |           
|Consolidated Statements of Operations for the years ended
      June 30, 2009 and 2008                               | F-4       
|                                                                                                                     |           
|Consolidated Statement of Changes in Shareholders
      Equity (Deficit) for the years ended June 30, 2009 and 2008 | F-5       
|                                                                                                                     |           
|Consolidated Statements of Cash Flows for the years ended
      June 30, 2009 and 2008                               | F-6       
|                                                                                                                     |           
|Notes to Consolidated Financial Statements                                                                           | F-8 F -29

49

---











SANTA FE GOLD CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS

As of and for the Years Ended 
  June 30, 2009 and 2008

---

SANTE FE GOLD CORPORATION

TABLE OF CONTENTS





|REPORT OF INDEPENDENT REGISTERED
      PUBLIC ACCOUNTING FIRM | F-2       
|------------------------------------------------------------- | ----------
|                                                              |           
|FINANCIAL STATEMENTS:                                         |           
|                                                              |           
|Consolidated Balance Sheet                                    | F-3       
|                                                              |           
|Consolidated Statements of Operations                         | F-4       
|                                                              |           
|Consolidated Statement of Stockholders' (Deficit) Equity      | F-5       
|                                                              |           
|Consolidated Statements of Cash Flows                         | F-6       
|                                                              |           
|Notes to the Consolidated Financial Statements                | F-8 - F-29

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Shareholders and Board of Directors
  Santa Fe Gold Corporation

We have audited the accompanying consolidated balance sheets
  of Santa Fe Gold Corporation as of June 30, 2009 and 2008, and the related consolidated
  statements of operations, stockholders' (deficit) equity, and cash flows for
  the years then ended. These consolidated financial statements are the responsibility
  of the Company's management. Our responsibility is to express an opinion on
  these consolidated financial statements based on our audits.

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

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

In our opinion, the consolidated financial statements referred
  to above present fairly, in all material respects, the financial position of
  Santa Fe Gold Corporation, as of June 30, 2009 and 2008, and the results of
  its operations, and its cash flows for the years then ended, in conformity with
  accounting principles generally accepted in the United States of America.

/s/ Stark Winter Schenkein & Co., LLP

Denver, Colorado
  October 1, 2009

F-2

---

|SANTA FE GOLD CORPORATION  
|---------------------------
|CONSOLIDATED BALANCE SHEETS
|JUNE 30, 2009 AND 2008     

|ASSETS                                                                             |  
|---------------------------------------------------------------------------------- | -
|                                                                                   |  
|                                                                                   |  
|                                                                                   |  
|CURRENT ASSETS:                                                                    |  
|Cash and cash equivalents                                                          | $
|Interest receivable                                                                |  
|Prepaid expenses
      and other current assets                                    |  
|Total
      Current Assets                                                         |  
|MINERAL PROPERTIES                                                                 |  
|                                                                                   |  
|PROPERTY, PLANT AND EQUIPMENT, net                                                 |  
|OTHER ASSETS:                                                                      |  
|Construction in
      progress                                                     |  
|Idle equipment, net                                                                |  
|Restricted cash                                                                    |  
|Deferred financing costs                                                           |  
|Deposit                                                                            |  
|Total
      Other Assets                                                           |  
|                                                                                   | $
|                                                                                   |  
|LIABILITIES AND STOCKHOLDERS'
      (DEFICIT)                                      |  
|CURRENT LIABILITIES:                                                               |  
|Accounts payable                                                                   | $
|Accrued liabilities                                                                |  
|Line of credit                                                                     |  
|Derivative instrument liabilities                                                  |  
|Current portion
      of notes payable                                             |  
|Current portion of capital leases                                                  |  
|Current portion
      of senior secured convertible notes payable, net of discount |  
|of $8,027
      and $491,603, respectively                                         |  
|Accrued interest
      payable                                                     |  
|Total
      Current Liabilities                                                    |  
|LONG TERM LIABILITIES:                                                             |  
|Senior secured convertible notes
      payable, net of discount of                 |  
|$4,514,554 and $2,637,191, respectively, net of current portion                    |  
|Derivative instrument liabilities                                                  |  
|Notes payable, net
      of current portion                                        |  
|Capital leases, net of current portion                                             |  
|Asset retirement
      obligation                                                  |  
|Total
      Liabilities                                                            |  
|STOCKHOLDERS' (DEFICIT):                                                           |  
|Common stock, $.002 par value, 200,000,000
      shares authorized;                |  
|82,316,112
      and 75,473,510 shares issued and outstanding, respectively        |  
|Additional paid in capital                                                         |  
|Accumulated (deficit)                                                              |  
|Total
      Stockholders' (Deficit)                                                |  
|                                                                                   | $

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

F-3

---

|SANTA FE GOLD CORPORATION                 
|------------------------------------------
|CONSOLIDATED STATEMENTS OF OPERATIONS     
|FOR THE YEARS ENDED JUNE 30, 2009 AND 2008

|                                                  |   | 2009       |   |   | 2008       |  
|------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                  |   |            |   |   | (RESTATED) |  
|                                                  |   |            |   |   |            |  
|SALES                                             | $ | 72,624     |   | $ | -          |  
|                                                  |   |            |   |   |            |  
|OPERATING COSTS AND EXPENSES:                     |   |            |   |   |            |  
|Costs applicable to sales                         |   | 31,687     |   |   | -          |  
|Exploration and
      mining costs                |   | 522,697    |   |   | 245,621    |  
|General and administrative                        |   | 2,856,204  |   |   | 1,720,793  |  
|Depreciation and
      amortization               |   | 279,012    |   |   | 4,554      |  
|Accretion of asset retirement obligation          |   | 3,750      |   |   | 5,000      |  
|                                                  |   | 3,693,350  |   |   | 1,975,968  |  
|                                                  |   |            |   |   |            |  
|(LOSS) FROM OPERATIONS                            |   | (3,620,726 | ) |   | (1,975,968 | )
|                                                  |   |            |   |   |            |  
|OTHER INCOME (EXPENSE):                           |   |            |   |   |            |  
|(Loss) on disposal of assets                      |   | (3,978     | ) |   | (127,500   | )
|Interest income                                   |   | 85,178     |   |   | 28,886     |  
|Miscellaneous income                              |   | 62,718     |   |   | 11,155     |  
|Foreign currency
      translation gain (loss)    |   | 10,467     |   |   | (2,998     | )
|(Loss) on derivative instrument
      liabilities |   | (514,356   | ) |   | (272,418   | )
|Relief of debt                                    |   | 90,967     |   |   | 24,062     |  
|Accretion of discounts on notes
      payable     |   | (1,429,000 | ) |   | (1,092,431 | )
|Interest expense                                  |   | (216,866   | ) |   | (1,016,380 | )
|                                                  |   | (1,914,870 | ) |   | (2,447,624 | )
|                                                  |   |            |   |   |            |  
|(LOSS) BEFORE PROVISION FOR INCOME TAXES          |   | (5,535,596 | ) |   | (4,423,592 | )
|                                                  |   |            |   |   |            |  
|PROVISION FOR INCOME TAXES                        |   | -          |   |   | -          |  
|                                                  |   |            |   |   |            |  
|NET (LOSS)                                        | $ | (5,535,596 | ) | $ | (4,423,592 | )
|                                                  |   |            |   |   |            |  
|(Loss) per Share:                                 |   |            |   |   |            |  
|Basic and diluted                                 | $ | (0.07      | ) | $ | (0.06      | )
|                                                  |   |            |   |   |            |  
|Weighted Average Common Shares Outstanding:       |   |            |   |   |            |  
|Basic and diluted                                 |   | 76,989,929 |   |   | 74,260,393 |  

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

F-4

---

|SANTA FE GOLD CORPORATION                               
|--------------------------------------------------------
|CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
|FOR THE YEARS ENDED JUNE 30, 2009 AND 2008              

|                                                                          |  |              |  |   |         |  |   | Additional  |   |   |             |   |   |            |  
|------------------------------------------------------------------------- |  | ------------ |  | - | ------- |  | - | ----------- | - | - | ----------- | - | - | ---------- | -
|                                                                          |  | Common Stock |  |   | Paid-in |  |   | Accumulated |   |   |             |  
|                                                                          |  | Shares       |  |   | Amount  |  |   | Capital     |   |   | (Deficit)   |   |   | Total      |  
|                                                                          |  |              |  |   |         |  |   |             |   |   |             |   |   |            |  
|Balance, June 30, 2007 - Restated                                         |  | 71,082,286   |  | $ | 142,165 |  | $ | 42,912,662  |   | $ | (43,018,272 | ) | $ | 36,555     |  
|Shares issued for senior secured notes payable principal conversion       |  | 945,420      |  |   | 1,890   |  |   | 943,530     |   |   | -           |   |   | 945,420    |  
|Shares issued for senior secured notes payable
      interest conversion  |  | 2,745,804    |  |   | 5,493   |  |   | 971,673     |   |   | -           |   |   | 977,166    |  
|Recognized deferred warrant compensation                                  |  | -            |  |   | -       |  |   | 17,692      |   |   | -           |   |   | 17,692     |  
|Costs associated with issuance of options for
      services              |  | -            |  |   | -       |  |   | 198,721     |   |   | -           |   |   | 198,721    |  
|Beneficial conversion feature on senior secured notes payable             |  | -            |  |   | -       |  |   | 849,737     |   |   | -           |   |   | 849,737    |  
|Issuance of stock grants                                                  |  | 700,000      |  |   | 1,400   |  |   | (1,400      | ) |   | -           |   |   | -          |  
|Contribution to capital                                                   |  | -            |  |   | -       |  |   | 167,500     |   |   | -           |   |   | 167,500    |  
|Net (loss)                                                                |  | -            |  |   | -       |  |   | -           |   |   | (4,423,592  | ) |   | (4,423,592 | )
|                                                                          |  |              |  |   |         |  |   |             |   |   |             |   |   |            |  
|Balance, June 30, 2008 - Restated                                         |  | 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    |  
|Reclassification of capital to shareholder
      loan                     |  | -            |  |   | -       |  |   | (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 | )

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

F-5

---

|SANTA FE GOLD CORPORATION                 
|------------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS     
|FOR THE YEARS ENDED JUNE 30, 2009 AND 2008

|                                                        |   | 2009        |   |   | 2008       |  
|------------------------------------------------------- | - | ----------- | - | - | ---------- | -
|                                                        |   |             |   |   | (RESTATED) |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                   |   |             |   |   |            |  
|Net (loss)                                              | $ | (5,535,596  | ) | $ | (4,423,592 | )
|Adjustments to reconcile net (loss) to
      net cash   |   |             |   |   |            |  
|(used in) operating activities:                         |   |             |   |   |            |  
|Depreciation                                            |   | 279,012     |   |   | 4,554      |  
|Stock compensation                                      |   | 944,049     |   |   | 216,413    |  
|Stock
      issued for interest expense                 |   | 890,400     |   |   | 948,389    |  
|Stock issued for services                               |   | 403,536     |   |   | -          |  
|Services
      paid by shareholder on behalf of Company |   | -           |   |   | 167,500    |  
|Accretion
      of discount on notes payable            |   | 1,429,000   |   |   | 1,092,431  |  
|Accretion
      of asset retirement obligation          |   | 3,750       |   |   | 5,000      |  
|Relief
      of debt                                    |   | (90,967     | ) |   | (24,062    | )
|Foreign
      currency translation (gain) loss          |   | (10,467     | ) |   | 2,998      |  
|Loss on derivative instrument liabilities               |   | 514,356     |   |   | 272,418    |  
|Loss
      on disposal of assets                        |   | 3,978       |   |   | 127,500    |  
|Amortization
      of deferred financing costs          |   | 61,154      |   |   | 103,172    |  
|Net change in operating assets and liabilities:         |   |             |   |   |            |  
|Interest
      receivable                               |   | 1,424       |   |   | (1,424     | )
|Prepaid
      expenses and other current assets         |   | (47,806     | ) |   | (3,258     | )
|Deposits                                                |   | -           |   |   | 1,341      |  
|Accounts
      payable and accrued liabilities          |   | 760,482     |   |   | 580,020    |  
|Accrued
      interest payable                          |   | 5,377       |   |   | 154,666    |  
|Net Cash (Used
      in) Operating Activities           |   | (388,318    | ) |   | (775,934   | )
|                                                        |   |             |   |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                   |   |             |   |   |            |  
|Increase to restricted cash                             |   | (227,826    | ) |   | (3,890     | )
|Proceeds from disposal of assets                        |   | 68,184      |   |   | -          |  
|Purchase of property, plant and equipment               |   | (2,433,639  | ) |   | (716,432   | )
|Construction in progress                                |   | (7,801,137  | ) |   | (1,118,988 | )
|Purchase of mineral property                            |   | -           |   |   | (210,000   | )
|Net Cash (Used
      in) Investing Activities           |   | (10,394,418 | ) |   | (2,049,310 | )
|CASH FLOWS FROM FINANCING ACTIVITIES:                   |   |             |   |   |            |  
|Proceeds from convertible notes payable                 |   | 8,150,000   |   |   | 6,680,757  |  
|Proceeds from issuance of stock                         |   | 300,000     |   |   | -          |  
|Payments on notes payable                               |   | (74,095     | ) |   | -          |  
|Payments on capital leases                              |   | (82,907     | ) |   | -          |  
|Payments on line of credit                              |   | (11,400     | ) |   | (24,200    | )
|Payments on convertible debenture notes                 |   | (244,770    | ) |   | (945,411   | )
|Capital contribution by shareholder                     |   | -           |   |   | 167,500    |  
|Deferred finance costs                                  |   | -           |   |   | (270,000   | )
|Net Cash Provided
      by Financing Activities         |   | 8,036,828   |   |   | 5,441,146  |  
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS        |   | (2,745,908  | ) |   | 2,615,902  |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR            |   | 3,255,754   |   |   | 639,852    |  
|CASH AND CASH EQUIVALENTS, END OF YEAR                  | $ | 509,846     |   | $ | 3,255,754  |  

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

F-6

---

|SANTA FE GOLD CORPORATION                 
|------------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS     
|FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
|(Continued)                               

|                                                                      |   | 2009      |  |   | 2008    | 
|--------------------------------------------------------------------- | - | --------- |  | - | ------- | 
|SUPPLEMENTAL CASH FLOW INFORMATION:                                   |   |           |  |   |         | 
|Cash paid for interest                                                | $ | 95,573    |  | $ | 67,991  | 
|Cash paid for income taxes                                            | $ | -         |  | $ | -       | 
|SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
      AND               |   |           |  |   |         | 
|FINANCING ACTIVITIES:                                                 |   |           |  |   |         | 
|Stock issued for conversion
      of accrued interest                 | $ | 1,025,626 |  | $ | 28,777  | 
|Stock issued for conversion of senior secured
      convertible notes | $ | 617,768   |  | $ | 945,420 | 
|Equipment purchased with
      note payable                           | $ | 94,613    |  | $ | -       | 
|Equipment purchased with capital leases                               | $ | 480,744   |  | $ | -       | 
|Mineral property purchased
      with note payable                    | $ | -         |  | $ | 250,000 | 
|Stock grants issued                                                   | $ | -         |  | $ | 448,000 | 
|Capital contribution repaid
      in stock                            | $ | 204,000   |  | $ | -       | 

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

F-7

---

SANTA FE GOLD CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2009 AND 2008

NOTE 1 NATURE OF OPERATIONS

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

In November 2002, the Company ceased
  crushing and concentration activities at its Black Canyon project due to economic
  constraints. Limited marketing and sales continued during 2003-2005 at its Glendale
  mica processing facility. The Company is 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 is currently developing
  the Summit mine in Grant County and constructing processing facilities at the
  Banner mill site in Hidalgo County, and anticipates entering into the production
  stage in 2010.

In June 2009, the Company formed
  a wholly owned Mexican subsidiary, Minera Sandia S.A. de C.V, in order to conduct
  business and enter into contracts within the country of Mexico. On June 13,
  2009, Minera Sandia S.A. de C.V, entered into an option purchase contract on
  the Pilar Gold Property consisting of two mineral exploitation concessions covering
  240 acres located 165 kilometers east-southeast of Hermosillo, State of Sonora,
  Mexico. The option contract provides for option payments of $1,000 upon signing,
  $99,000 on March 13, 2010, and $125,000 on March 13, 2011. The final payment
  of $1,307,000 is due March 13, 2012, and would complete the purchase. In connection
  with the acquisition, the Company has also agreed to issue 117,000 restricted
  shares of its common stock and within 60 days to pay creditors $11,150 in cash
  and 17,400 in restricted common stock valued at $19,836. The Company has also
  agreed to pay finder’s fees of $15,000 in cash and 25,000 in restricted
  common stock valued at $28,500, and to match option and purchase payments when
  they become due by payments in either cash or in restricted common stock. The
  Company is not required to pay any residual royalty payments under the agreements.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Going Concern

F-8

---

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

The Company has incurred a net
  loss of $(5,535,596) for the fiscal year ended June 30, 2009, and has a total
  accumulated deficit of $(52,977,460) and a working capital deficit of $(3,852,303)
  at June 30, 2009. In addition, the Company has no significant revenue-generating
  operations. To continue as a going concern, the Company is dependent on continued
  fund raising for project development and payment of general and administration
  expenses. However, the Company has no commitment from any party to provide additional
  working capital and there is no assurance that such funding will be available
  when needed, or if available, that its terms will be favorable or acceptable
  to the Company. The Company anticipates entering into the production stage during
  2010 at the Summit Mine Project and deriving revenues from the sale of precious
  metals.

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,
  and Minera Sandia, S.A. de C.V., a Mexican corporation. All significant inter-company
  accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

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

Property, Plant and Equipment

Land, buildings, plant and vehicles
  are carried at cost. Replacements, maintenance and repairs that do not improve
  or extend the life of the respective assets are expensed as incurred. Major
  renewals and improvements are capitalized. Upon retirement, sale or other disposition,
  the cost and accumulated amortization are eliminated and the gain or loss is
  included in operations. Property and equipment consists of land, mining equipment
  and buildings, which are recorded at cost. 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. Autos are depreciated using the straight-line
  method over the estimated useful life of 5 years.

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.
  The remaining balance of this equipment has been classified as idle equipment.

Mineral Exploration Costs

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

F-9

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Derivative Financial Instruments

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

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

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

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

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

Reclamation Costs

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

The Companys asset retirement
  obligation through June 30, 2009, is as follows:

Balance at June 30, 2007
      $
      75,309Accretion expense for the year ended June 30, 2008
      
      5,000Balance at June 30, 2008
      
      80,309Accretion expense for the year ended June 30, 2009
      
      3,750Balance at June 30, 2009
      $
      84,059


Revenue Recognition

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

F-10

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Income Taxes

The Company accounts for income
  taxes in accordance with SFAS No. 109, Accounting for Income Taxes,
  and FASB Interpretation No. 48, Accounting for Uncertainty in Income
  Taxes- an interpretation of FASB Statement No. 109("FIN
  48"). SFAS No. 109 requires the Company to recognize deferred tax assets and
  liabilities for the expected future tax consequences of events that have been
  recognized in the Companys financial statements or tax returns. Under
  this method, deferred tax assets and liabilities are determined based on the
  difference between the financial statements carrying amounts and tax basis of
  assets and liabilities using enacted tax rates in effect in the years in which
  the differences are expected to reverse. A valuation allowance is recognized
  against deferred tax assets when it is more likely than not that the assets
  will not be realized. As of June 30, 2009 and June 30, 2008, the Company has
  recorded a valuation allowance against the full amount of its net deferred tax
  assets. FIN 48 describes a recognition threshold and measurement attribute for
  the recognition and measurement of tax positions taken or expected to be taken
  in a tax return and also provides guidance on derecognition, classification,
  interest and penalties, accounting in interim periods, disclosure and transition.

Net (Loss) Per Share

SFAS No. 128, "Earnings per
  Share," requires dual presentation of basic and diluted earnings or loss
  per share (EPS) with a reconciliation of the numerator and denominator
  of the basic EPS computation to the numerator and denominator of the diluted
  EPS computation. Basic loss per common share is computed based on weighted average
  shares outstanding and excludes any potential dilution from stock options, warrants
  and other common stock equivalents and is computed by dividing loss available
  to common shareholders by the weighted average number of common shares outstanding
  for the period. Diluted EPS reflects the potential dilution that could occur
  if securities or other contracts to issue common stock were exercised or converted
  into common stock or resulted in the issuance of common stock that then shared
  in the earnings of the entity. During the years ended June 30, 2009 and 2008,
  common stock equivalents are not considered in the calculation of the weighted
  average number of common shares outstanding for diluted EPS because they would
  be anti-dilutive, thereby decreasing the net loss per common share.

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 stock-based
  compensation in accordance with the provisions of SFAS No. 123R, Share-based
  Payment, whereby share-based compensation cost is measured at the
  grant date, based on the estimated fair value of the award, and is recognized
  as expense over the requisite vesting period. The Company determines the option
  value on the date of grant using the Black-Scholes option pricing model. Stock-based
  compensation costs recognized for the years ended June 30, 2009 and 2008 amounted
  to $944,049 and $216,413, respectively.

Estimates

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

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

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, 2009 and 2008, due to
  the relatively short-term nature of these instruments. The carrying value of
  the Company’s convertible debentures, notes payable, and capital leases
  approximates the fair value based on the terms at which the Company could obtain
  similar financing and the short term nature of these instruments.

F-11

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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.

Restatement and Reclassifications

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

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

Recent Accounting Pronouncements

In June 2009, the FASB issued
  SFAS 168, The FASB Accounting Standards Codification and the Hierarchy
  of Generally Accepted Accounting Principles  a replacement of FASB
  No. 162 (SFAS 168). This Statement replaces FASB No. 162
  to identify the sources of authoritative accounting principles and the framework
  for selecting the principles used in the preparation of financial statements
  of nongovernmental entities that are presented in conformity with generally
  accepted accounting principles in the United States. The provisions of SFAS
  168 are effective for the Companys interim and annual periods after September
  15, 2009. The Company does not expect the adoption of SFAS 168 to have a material
  impact on its financial statements.

In May 2009, the FASB issued SFAS
  165, “Subsequent Events” (“SFAS 165”). SFAS 165 requires
  an entity to recognize in the financial statements the effects of all subsequent
  events that provide additional evidence about conditions that existed at the
  date of the balance sheet. For non-recognized subsequent events that must be
  disclosed to keep the financial statements from being misleading, an entity
  will be required to disclose the nature of the event as well as an estimate
  of its financial effect, or a statement that such an estimate cannot be made.
  In addition, SFAS 165 requires an entity to disclose the date through which
  subsequent events have been evaluated. The Company adopted the provisions of
  SFAS 165 effective June 30, 2009. The adoption of SFAS 165 did not have a material
  impact on the Company's financial statements.

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

NOTE 3  MINERAL PROPERTIES

Mineral properties were comprised
  of acquisition costs related to the properties in New Mexico and Arizona, as
  shown below as of June 30, 2009 and 2008:

2009
      
      
      2008Summit 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


F-12

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NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

Property and equipment consist
  of the following at June 30, 2009 and 2008:

2009
      
      
      2008Leasehold improvements
      $
      1,645
      
      $
      1,645Office furniture and equipment
      
      37,779
      
      
      13,844Land
      
      163,000
      
      
      163,000Mine processing equipment and buildings
      
      3,668,876
      
      
      1,722,458Automotive
      
      179,164
      
      
      35,868Software
      
      87,848
      
      
      -4,138,312
      
      
      1,936,815Less: Accumulated depreciation
      
      (290,020
      )
      
      (21,664
      )$
      3,848,292
      
      $
      1,915,151


Depreciation expense for the years
  ended June 30, 2009 and 2008 was $279,012 and $4,554, respectively.

The Company is in the process of
  constructing the Banner mill operation near Lordsburg, New Mexico. The Company
  is also in the process of completing the site developments at the Summit mine
  in Grant County and in preparation of production in 2010. The estimated cost
  of the total project is $13,500,000.

Construction in progress consists
  of the following at June 30, 2009 and 2008:

|                             |   | 2009      |  |   | 2008      | 
|---------------------------- | - | --------- |  | - | --------- | 
|Construction in Progress     | $ | 8,928,125 |  | $ | 1,126,988 | 
|Capitalized Interest Expense |   | 872,872   |  |   | 95,190    | 
|                             | $ | 9,800,997 |  | $ | 1,222,178 | 

The following table shows the carrying
  value of equipment, which was idle at June 30, 2009 and 2008. The carrying value
  is based upon a third party appraisal obtained as of the year ended June 30,
  2007:

2009
      
      
      2008Mica processing equipment
      $
      1,651,339
      
      $
      1,669,339Black Canyon mine equipment
      
      2,192,090
      
      
      2,227,0903,843,429
      
      
      3,896,429Less: Allowance for impairment and depreciation
      
      (2,584,929
      )
      
      (2,584,929
      )$
      1,258,500
      
      $
      1,311,500


NOTE 5 - DERIVATIVE INSTRUMENT LIABILITIES

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

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

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

F-13

---

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

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

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

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

The fair value of the derivative
  instruments liability for these warrants issued under the placements at the
  time of issuance in the October 2007, and December 2007, transactions was determined
  to be $163,627 with the following assumptions: (1) risk free interest rate of
  3.50% to 4.05%, (2) remaining contractual life of 5 and 7 years, (3) expected
  stock price volatility of 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

F-14

---

$771,323 with the following assumptions: (1) risk free interest
  rate of 2.46% to 3.3%, (2) remaining contractual life of 1.5 and 7 years, (3)
  expected stock price volatility of 112% to 113%, and (4) expected dividend yield
  of zero. This derivative instruments liability was recorded as a discount to
  the convertible notes at the time of the transaction.

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

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

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

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

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

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

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

The fair market value of the derivative
  instruments liability at June 30, 2008, was determined to be $5,058,054 with
  the following assumptions: (1) risk free interest rate of 1.90% to 3.61%, (2)
  remaining contractual life between 0 .19 to 6.50 years, (3) expected stock price
  volatility of 104%, and (4) expected dividend yield of zero. The fair value
  of the derivative instruments liability at June 30, 2009, was determined to
  be $7,805,676 with the following assumptions: (1) risk free interest rate of
  0.19% to 2.54%, (2) remaining contractual life between 0.42 to 5.51 years, (3)
  expected stock price volatility of 89%, and (4) expected dividend yield of zero.
  Based upon the change in fair value, the Company has recorded a non-cash loss
  on derivative instruments for the year ended June 30, 2009, of $(514,356) and
  a corresponding increase in the derivative instruments liability. The impact
  of EITF 00-19 on the financial statements as of and through June 30, 2009, was
  as follows:

F-15

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|                                                                               |   | Derivative      |  |   | Derivative      |  |   | Derivative Gain |  
|------------------------------------------------------------------------------ | - | --------------- |  | - | --------------- |  | - | --------------- | -
|                                                                               |   | Liability as of |  |   | Liability as of |  |   | (Loss) Through  |  
|                                                                               |   | June 30, 2008   |  |   | June 30, 2009   |  |   | June 30, 2009   |  
|Convertible Debentures:                                                        |   |                 |  |   |                 |  |   |                 |  
|Compound Embedded Derivatives                                                  | $ | 236,662         |  | $ | 4,907           |  | $ | 231,755         |  
|Additional Investment Rights                                                   |   | 204,471         |  |   | -               |  |   | 204,471         |  
|Purchase Agreement Warrants                                                    |   | 3,337,285       |  |   | 6,543,873       |  |   | (3,206,588      | )
|Amendment 2 Warrants                                                           |   | 1,279,636       |  |   | 1,256,896       |  |   | 22,740          |  
|Totals                                                                         | $ | 5,058,054       |  | $ | 7,805,676       |  |   | (2,747,622      | )
|                                                                               |   |                 |  |   |                 |  |   |                 |  
|Amount allocated to convertible note discounts at transaction
      inception: |   |                 |  |   |                 |  |   | 2,233,266       |  
|                                                                               |   |                 |  |   |                 |  | $ | (514,356        | )

The derivative liability is comprised of the following as of June 30, 2009:

|                                          |   | 2009      |  |   | 2008      | 
|----------------------------------------- | - | --------- |  | - | --------- | 
|Current portion of derivative liability   | $ | 2,643,500 |  | $ | 2,884,189 | 
|Long-term portion of derivative liability |   | 5,162,176 |  |   | 2,173,865 | 
|                                          | $ | 7,805,676 |  | $ | 5,058,054 | 

NOTE 6SENIOR SECURED CONVERTIBLE NOTES
  PAYABLE AND DEBENTURES

Senior Secured Convertible Notes

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

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

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

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

F-16

---

During the period July 1, 2007
  to December 31, 2007, the Company paid on those senior secured convertible notes
  dated March 20, 2006 and subsequently amended on September 6, 2006, principal
  installments aggregating $1,890,831, with the issuance of 945,420 shares of
  the Company’s common stock at a value of $945,420 and cash payments of
  $945,406. Interest payments aggregating $988,507 were paid with the issuance
  of 2,745,804 shares of the Company’s common stock and cash aggregating
  $11,341. All principal and interest amounts due under the note and amendment
  were paid in full as of December 2007.

Convertible Senior Subordinated Notes

On October 30, 2007, the Company
  completed the placement of 10% Convertible Senior Subordinated Notes of $450,000.
  The notes were placed with three accredited investors for $150,000 each. The
  notes have a term of 60 months, and at such time all remaining principal and
  interest shall be due. The notes bear interest at 10% per annum. Interest will
  accrue for 18 months from the date of closing. Interest on the outstanding principal
  balance will then be payable in quarterly installments commencing on the first
  day of the 19th month following closing. In connection with the transaction,
  the Company issued a five year warrant for each $2.50 invested, for a total
  of 180,000 warrants, each warrant giving the note holder the right to purchase
  one share of common stock at a price of $1.25 per share. At the option of the
  holders of the convertible notes, the outstanding principal and interest is
  convertible at any time into shares of the Companys common stock at conversion
  price of $1.25 per share. The notes will be automatically converted into common
  stock if the weighted average closing sales price of the stock exceeds $2.50
  per share for ten consecutive trading days. The shares underlying the notes
  and warrants will be registered on request of the note holders, provided the
  weighted average closing price of the stock exceeds $1.50 per share for ten
  consecutive trading days. On April 30, 2009, a convertible senior subordinated
  note holder converted accrued interest of $22,875 into 19,891 shares of the
  Companys stock.

In connection with the October
  30, 2007, placement, on February 1, 2008, the Company received an additional
  $237,143 from an accredited investor and issued a note and related warrants
  under the same terms and conditions. In connection with the transaction, the
  Company issued a five year warrant for each $2.50 invested, for a total of 94,858
  warrants, each warrant giving the note holder the right to purchase one share
  of common stock at a price of $1.25 per share. On April 6, 2009, the investor
  converted $237,143 of principle and $28,391 of accrued interest into 214,401
  shares of the Companys stock. All principle and accrued interest amounts
  due under the note are paid in full.

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

F-17

---

management fee of 2% ($270,000) in connection with the transaction
  in January 2008, after the second advance under the agreement was received.
  As of June 30, 2009, the Company has received 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, is automatically
  converted into 974,360 shares of the Companys common stock to be effective
  as of June 30, 2009. Additionally, the 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 $1.00 per share at the time of payment and issuance.
  The amendment also provides 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. 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.

On January 9, 2008, January 10,
  2008, April 30, 2008 and June 2, 2008 the Company completed the placement of
  Additional Investment Rights aggregating $643,614 with two institutional investors.
  The notes have a term of 17 months and bear interest at 7% per annum. In connection
  with the transaction, the Company issued a five year warrant for each $2.00
  invested, each warrant giving the note holder the right to purchase common stock
  at a price of $1.00 per share. An aggregate of 321,807 warrants were issued
  under the notes. The Company can pay principal and accrued interest in cash
  or, at the Companys option, in shares of common stock. If the Company
  elects to pay principal and interest in shares of common stock, the value of
  each share of common stock will be equal to ninety percent (90%) of the average
  of the ten (10) lowest daily volume weighted average prices of the Companys
  common stock during the twenty (20) trading days immediately preceding the date
  of payment. At the option of each holder of the convertible notes, the principal
  amount outstanding under the notes is convertible at any time after the closing
  of the private placement into shares of our common stock at a conversion price
  of $1.00 per share. All principle and interest amounts due under the note dated
  January 10, 2008 have been paid in full as of the year ended June 30, 2009.
  Additionally during February and March 2009, a convertible debenture holder
  converted $380,625 of note principal into 380,625 shares of the Companys
  common stock, resulting in all principle amounts due under the notes dated January
  9, 2008 and April 30, 2009 being paid in full.

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

|                                  |   | Principal  |  |   | Unamortized |   |   |           | 
|--------------------------------- | - | ---------- |  | - | ----------- | - | - | --------- | 
|                                  |   | Amount     |  |   | Discount    |   |   | Net       | 
|                                  |   |            |  |   |             |   |   |           | 
|Current portion of long-term debt | $ | 18,219     |  | $ | (8,027      | ) | $ | 10,192    | 
|Long-term portion, net of current |   | 13,950,000 |  |   | (4,514,554  | ) |   | 9,435,446 | 
|                                  |   |            |  |   |             |   |   |           | 
|                                  | $ | 13,968,219 |  | $ | (4,522,581  | ) | $ | 9,445,638 | 

Aggregate yearly maturities of
  long term debt based upon payment terms at June 30, 2009, are as follows:

2009
      $
      18,2192010
      
      -2011
      
      -2012
      
      13,950,000Subtotal
      
      13,968,219Less: unamortized original discount
      
      (4,522,581
      )$
      9,445,638


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

NOTE 7  NOTES PAYABLE

F-18

---

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 principle 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 has also agreed to pay an additional
  $2,000 in legal and miscellaneous fees to document the amendment. Under the
  new amortization schedule, $43,094 is recorded as current and $156,906 is recorded
  as non-current. All other provisions of the original agreement remain unchanged
  including the provision for a 5% royalty to be paid on any future production
  from the property.

On July 25, 2008, the Company entered
  into an installment sales contract for $94,613 to purchase certain equipment.
  The term of the agreement is for 36 months at an interest rate of 6.75%, with
  the equipment securing the loan. The carrying amount of the equipment at June
  30, 2009 was $59,900.

The following summarizes notes payable
  for the years ended June 30, 2009 and 2008:

|                                                            |   | June 30, 2009 |   |   | June 30, 2008 |  
|----------------------------------------------------------- | - | ------------- | - | - | ------------- | -
|Note payable for mineral property,                          |   |               |   |   |               |  
|interest at 10%, payable in 4 annual installments           |   |               |   |   |               |  
|of $63,094, including interest
      through August 2012    | $ | 200,000       |   | $ | 250,000       |  
|Installment sales contract on equipment,                    |   |               |   |   |               |  
|interest at 6.75%, payable
      in 36 monthly installments |   |               |   |   |               |  
|of $2,911, including interest through September
      2011  |   | 70,518        |   |   | -             |  
|Total outstanding notes payable                             |   | 270,518       |   |   | 250,000       |  
|Less: current maturities                                    |   | (74,430       | ) |   | (50,000       | )
|Obligations of notes payable due after one
      year       | $ | 196,088       |   | $ | 200,000       |  

The aggregate maturities of notes payable
  for subsequent years is as follows:

Year ending June 30,2010
      $
      74,4302011
      
      80,8082012
      
      57,9222013
      
      57,358Total Outstanding Notes Payable
      $
      270,518


NOTE 8  CAPITAL LEASES

F-19

---

During the year ended June 30,
  2009, the Company utilized capital leases for the purchase of equipment. Lease
  terms and interest rates for the equipment are 60 months at 6.25%, 36 months
  at 5.34%, and 36 months at 5.78% . The assets and liabilities under capital
  leases are recorded at the lower of the present value of the minimum lease payments
  or the fair value of the asset. The assets are amortized or depreciated over
  the lower of their related lease terms or their estimated productive lives.

Minimum future lease payments under
  capital leases, as of June 30, 2009, for each of the following years and in
  aggregate, are as follows:

Year ended June 30,2010
      $
      149,5632011
      
      149,5632012
      
      88,4992013
      
      43,0412014
      
      3,599Total minimum lease payments
      
      434,264Amount representing interest
      
      (36,427
      )Present value of future minimum lease payments
      
      397,837Current portion of capital lease obligations
      
      (130,806
      )Obligations of capital leases due after one
        year
      $
      267,031


At June 30, 2009, the total amount
  of equipment and related accumulated depreciation purchased with capital leases
  is as follows:

Equipment
      $
      576,061Accumulated depreciation
      
      (56,691
      )Net equipment under capital
        leases
      $
      519,370


NOTE 9 - LINE OF CREDIT

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

In April 2007, the Company negotiated
  a non-interest bearing settlement of $75,000 in connection with liabilities
  related to the ELOC, payable in an initial installment of $35,000 and monthly
  payments of $2,200 commencing in May 2007 until paid in full. The unpaid balance
  at June 30, 2008, was $11,400. The balance was paid in full at June 30, 2009.

NOTE 10 - CONTINGENCIES AND COMMITMENTS

Office and Real Property Leases

F-20

---

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

In September 2009, the Company
  retroactively renewed its lease for real property located in Glendale, Arizona
  for a period of one year.

Future minimum lease payments under
  operating leases are $40,770 through June 30, 2010. Total rental expense was
  $51,492 and $44,020 for the years ended June 30, 2009 and 2008, respectively.

Employment Agreements

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

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

Property Identification Agreement

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

Royalty Agreement

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

On May 19, 2009, the Company entered
  into an agreement with the director to purchase the royalty for $200,000. At
  the directors discretion, the amount may be satisfied by the issuance
  of the Companys common stock or as payment of the purchase price for the
  exercise of the directors options. As of June 30, 2009, the entire $200,000
  is recorded as a current liability.

New Planet Project Royalty Agreement

F-21

---

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

Ortiz Gold Project

On August 1, 2004, the Company
  entered into an option and lease agreement with Ortiz Mines, Inc., a New Mexico
  corporation, whereby the Company acquired exclusive rights for exploration,
  development and mining of gold and other minerals on 57,267 acres (approximately
  90 square miles) of the Ortiz Mine Grant in Santa Fe County, New Mexico. On
  November 1, 2007, the Company relinquished 14,970 acres and retained under lease
  42,297 acres (66 square miles). The Company paid an initial sum of $20,000 for
  a six-month option, and on February 1, 2005, paid the additional sum of $30,000
  in order to exercise the option and enter into the lease and also to satisfy
  the obligation of the first years lease payment. On February 1, 2006,
  the Company paid $71,184 for the second years lease payment (through January
  31, 2007). On February 1, 2007, the Company paid the amount due of $100,218
  through January 31, 2008. On January 25, 2008, the Company paid the amount due
  of $126,891 through January 2009. In February of 2009 the company paid the amount
  due of $148,040 through January 31, 2010. The lease provides for an initial
  term of seven years (12 years in certain circumstances), continuing year-to-year
  thereafter for so long as the Company is producing gold or other leased minerals
  in commercial quantities and otherwise is performing its obligations under the
  lease. Among other terms, the lease provides for annual lease payments that
  escalate per acre of ground the Company retains under lease; a sliding-scale
  production royalty varying from 3% to 5% depending on the price of gold; the
  requirement that the Company comply with governmental permitting and other regulations;
  and other terms common in mining leases of this type. The Ortiz gold project
  is subject to the property identification agreement between the Company and
  its President and Chief Executive Officer.

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, 2010
      81,891
      126,891February 1, 2011
      36,891
      126,891February 1, 2012
      30,000
      126,891February 1, 2013
      60,000
      253,782February 1, 2014 and forward
      60,000
      253,782


Summit Silver-Gold Project

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

Title to Mineral Properties

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

NOTE 11 - STOCKHOLDERS EQUITY (DEFICIT)

**Issuances of Common Stock**

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

F-22

---

On June 25, 2008, the board of
  directors granted stock awards of 500,000 shares of restricted stock to an officer
  and 200,000 shares of restricted stock to an employee. The shares were subject
  to forfeiture contingent on attainment of certain performance objectives related
  to construction of the Summit project. The shares were valued at $0.64 per share,
  the closing price on the date of the grants, and the aggregate value of $448,000
  was capitalized as deferred stock compensation during the year ended June 30
  2008. The shares vested on December 31, 2008, and the aggregate value of $448,000
  was recognized as general and administrative compensation expense during the
  year ended June 30, 2009.

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

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

On May 19, 2009, the Company issued
  480,000 shares of the Company’s stock for services related to investor
  relations, including 380,000 shares issued to a shareholder who paid for expenses
  on the Company's behalf in prior years totalling 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 year ended June 30, 2009, general and administrative
  stock compensation expense of $26,986 was recognized relating to these transactions.

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.

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.

F-23

---

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.

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

F-24

---

intended to provide a financial incentive that will enable the
  Company to attract, retain and motivate the most qualified directors, employees,
  and consultants.

On July 25, 2007, the Company granted
  a five (5) year option to purchase 100,000 shares of common stock to a director.
  The option exercise price is $0.46 per share, the closing price on the date
  of grant and the options have a vesting period of one year from the date of
  grant. The options were valued at $38,003 using the Black-Scholes option pricing
  model and will be expensed over the vesting period. The options were valued
  using a volatility of 115%, a risk free interest rate of 4.8%, an expected life
  of 5.0 years and zero quarterly dividends. During the year ended June 30, 2008,
  the $37,849 was recognized as general and administrative stock compensation
  expense.

On December 13, 2007, the Board
  of Directors granted pursuant to the Companys compensation policy pertaining
  to outside directors, five year options to purchase 75,000 shares of common
  stock to each of two directors, and also granted 100,000 five year options to
  an employee who is the son the President and Chief Executive Officer. The options
  are exercisable at $0.55, the closing price on the date of the grant and vest
  on June 30, 2008. The options were valued at $111,619 using the Black-Scholes
  option pricing model. The options were valued using a volatility of 113%, a
  risk free interest rate of 3.45%, an expected life of 5.0 years and zero. General
  and administrative stock compensation expense was recorded for the year ended
  June 30, 2008, amounting to $111,619.

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

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

- On May 2, 2006, the Company granted a non-plan five (5) year option to
      purchase 50,000 shares of common stock to an employee, who is the son of
      the Companys President and Chief Executive Officer, in connection
      with an employment agreement. The option exercise price is $1.24 per share,
      the closing price on the date of grant and the options vested on the date
      of grant. The options were valued at $50,971 using the Black-Scholes option
      pricing model. On December 3, 2008, the options were cancelled and re-issued.
      The options were fully vested and amortized at the time of cancellation.
- 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.

F-25

---

- 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. General and administrative stock compensation
    of $42,832 was recorded during the year ended June 30, 2009.

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

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. General and administrative
  stock compensation of $10,512 was recorded during the year ended June 30, 2009.

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, 2009 and 2008 are as follows:

F-26

---

| |                              |  | Stock
      Options |   |   | Stock
      Warrants | 
| | ---------------------------- |  | ------------------- | - | - | -------------------- | 
| |                              |  |                     |   |   | Weighted             | 
| |                              |  |                     |   |   | Average              | 
| |                              |  | Shares              |   |   | Price                | 
| | Outstanding at June 30, 2007 |  | 9,600,000           |   | $ | 0.11                 | 
| | Granted                      |  | 550,000             |   | $ | 0.61                 | 
| | Canceled                     |  | ---                 |   |   | ---                  | 
| | Expired                      |  | ---                 |   |   | ---                  | 
| | Exercised                    |  | ---                 |   |   | ---                  | 
| | Outstanding at June 30, 2008 |  | 10,150,000          |   | $ | 0.14                 | 
| | Granted                      |  | 1,450,000           |   | $ | 0.66                 | 
| | Canceled                     |  | (610,000            | ) | $ | 0.75                 | 
| | Expired                      |  | ---                 |   |   | ---                  | 
| | Exercised                    |  | (4,600,000          | ) | $ | 0.11                 | 
| | Outstanding at June 30, 2009 |  | 6,390,000           |   | $ | 0.22                 | 

Stock options and warrants outstanding
  and exercisable at June 30, 2009, are as follows:

|                    |  | Outstanding and Exercisable Options |  |   |             |  |  | Outstanding and Exercisable Warrants | 
|------------------- |  | ----------------------------------- |  | - | ----------- |  |  | ------------------------------------ | 
|                    |  |                                     |  |   |             |  |  |                                      | 
|                    |  |                                     |  |   |             |  |  | Weighted                             | 
|                    |  |                                     |  |   |             |  |  | Average                              | 
|                    |  |                                     |  |   |             |  |  | Contractual                          | 
|Exercise            |  |                                     |  |   |             |  |  | Remaining                            | 
|Price               |  | Outstanding                         |  |   | Exercisable |  |  | Life                                 | 
|Range               |  | Number                              |  |   | Number      |  |  | (in Years)                           | 
|                    |  |                                     |  |   |             |  |  |                                      | 
|$0.10               |  | 1,000,000                           |  |   | 1,000,000   |  |  | 0.06                                 | 
|                    |  |                                     |  |   |             |  |  |                                      | 
|$0.11               |  | 4,000,000                           |  |   | 4,000,000   |  |  | 4.28                                 | 
|                    |  |                                     |  |   |             |  |  |                                      | 
|$0.46               |  | 100,000                             |  |   | 100,000     |  |  | 1.84                                 | 
|                    |  |                                     |  |   |             |  |  |                                      | 
|$0.55               |  | 250,000                             |  |   | 250,000     |  |  | 2.82                                 | 
|                    |  |                                     |  |   |             |  |  |                                      | 
|$0.60               |  | 920,000                             |  |   | 920,000     |  |  | 4.43                                 | 
|                    |  |                                     |  |   |             |  |  |                                      | 
|$1.165              |  | 120,000                             |  |   | -           |  |  | 4.89                                 | 
|                    |  |                                     |  |   |             |  |  |                                      | 
|                    |  | 6,390,000                           |  |   | 6,270,000   |  |  |                                      | 
|                    |  |                                     |  |   |             |  |  |                                      | 
|Outstanding Options |  | 3.56                                |  | $ | 0.22        |  |  | Outstanding Warrants                 | 
|Exercisable Options |  | 3.54                                |  | $ | 0.20        |  |  | Exercisable Warrants                 | 

NOTE 12  PENSION PLAN

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

NOTE 13 - INCOMETAXES

F-27

---

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:

2009
      
      
      2008Tax (expense) benefit at the federalstatutory rate
      $
      1,951,463
      
      $
      1,466,918State tax (expense) benefit
      
      315,678
      
      
      296,533Expiration of state operating losses
      
      (544,184
      )
      
      (541,596
      )Change in state tax rate
      
      (62,296
      )
      
      ---Decrease (increase) in valuation allowance
      
      (1,660,661
      )
      
      (1,201,855
      )Income tax expense
      $
      ---
      
      $
      ---


The components of the deferred
  tax asset and deferred tax liability at June 30, 2009 are as follows:

Deferred Tax AssetFederal net operating loss carry forwards
      $
      16,030,392State net operating loss carry
        forwards
      
      1,011,997Valuation allowance
      
      (17,042,389
      )Net deferred tax asset
      $
      ---


At June 30, 2009, the Company had
  net operating loss carry forwards for Arizona income tax purposes of approximately
  $6.6 million (2008- $14.4 million). These losses expire in varying amounts through
  June 30, 2012. At June 30, 2009, the Company had net operating loss carry forwards
  for New Mexico income tax purposes of approximately $10.0 million (2008- $4.3
  million). These losses expire in varying amounts through June 30, 2014.

At June 30, 2009, the Company had
  net operating loss carry forwards for federal income tax purposes of approximately
  $47.1 million (2008 - $41.4 million). These losses expire between June 30, 2019
  and June 30, 2029.

NOTE 14 - RELIEF OF DEBT

The Company recognized relief of
  debt totaling $90,967 from two separate events during the year ended June 30,
  2009. In 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.
  Separately, the Company wrote off $19,940 of notes payable and related accrued
  interest of $22,155 that extended beyond the Statute of Limitations for collectability.
  During the year ended June 30, 2008, the Company wrote off accounts payable
  resulting in relief of debt of $24,062.

NOTE 15  SUBSEQUENT EVENTS

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, discussed previously in NOTE 10. 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 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.

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.

F-28

---

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
  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.

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

On August 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 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.

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 September 11, 2009, the Company
  entered into a definitive gold sale agreement to sell a portion of the life-of-mine
  gold production, excluding silver produced, from the Summit silver-gold mine.
  Under the agreement, the Company will receive an upfront cash deposit 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. 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.
  The Company received an initial payment of $500,000 and on October 7, 2009 received
  the remaining $3,500,000 balance of the upfront cash deposit. The Company has
  the option, for the next nine months, to increase the size of the transaction
  by $1,000,000, to $5,000,000. If the Company exercises this option, the percentage
  of payable gold that the financing counter-party will be entitled to purchase
  will increase by 25%. 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 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 September 23, 2009, the Company
  entered into a capital lease for the purchase of equipment. The lease amount
  is for $16,825 over a term of 36 months at an interest rate of 9.25% .

On September 30, 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 on November
  1, 2009 and continuing until September 1, 2010.

All subsequent events as of October
  1, 2009, the date the financial statements were available to be issued, have
  been evaluated by the Company and disclosed above.

F-29

---



**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. 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, 2009. 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 alerting
  him on a timely basis to material information required to be disclosed in our
  periodic reports.

During
the fiscal year ended June 30, 2009, there were no changes in the Companys
internal controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.

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

None.

PART III

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

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

|Name              |  | Age |  | Position                                                                 |  | Date Elected                                                                                     
|----------------- |  | --- |  | ------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------
|                  |  |     |  |                                                                          |  |                                                                                                  
|Lawrence G. Olson |  | 71  |  | Chairman of the Board Former President
      and Chief Executive Officer |  | 1999 / served as President and
      Chief Executive Officer from October 2000 to October 7, 2003
|                  |  |     |  |                                                                          |  |                                                                                                  
|W. Pierce Carson  |  | 66  |  | President, Chief Executive Officer
      and Director                    |  | October 7, 2003                                                                                  
|                  |  |     |  |                                                                          |  |                                                                                                  
|John E. Frost     |  | 85  |  | 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 71, 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.

50

---

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

John
E. (Jack) Frost, age 85,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 2009, our board met two times and took action by unanimous consent one
time. All of our directors attended at least 75% of the meetings of our board
and its assigned committees during 2009. 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 andCorporateGovernance
    Audit
    CompensationName
    Committee
    Committee
    CommitteeEmployee Directors:W. Pierce Carson
    X(1)Non-Employee Directors:Lawrence G. Olson
    X
    X(1)
    XJohn E. Frost
    X
    X
    X(1)


___________________(1) Chairman

Our
board has adopted a charter for each committee. The charters are available on
our website at www.santafegoldcorp.com. The information contained on our
website is not, and should not be

51

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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 2009.

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

52

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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.

Until
the appointment of Mr. Frost to the Audit Committee in May 2007, the Audit
Committee was comprised solely of Mr. Olson. The Audit Committee met once during
fiscal 2009.

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 twice during fiscal 2009.

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, 2009, our officers, directors and greater than ten
percent beneficial owners complied with all applicable filing requirements.

Code of Business Conduct

53

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

Code of Ethics for CEO and Senior Financial Officers

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

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

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

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

Summary Compensation Table

The
following table summarizes the compensation awarded to, earned by or paid during
the last two fiscal years to Named Executive Officers, including (a) our
principal executive officer; (b) each of our Companys two most highly
compensated executive officers, other than the principal executive officer, who
were serving as executive officers at the end of the financial year ended June
30, 2009, 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, 2009:

54

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Summary Compensation Table

Name and Principal
      Position
      Year
      Salary ($)
      Bonus ($)
      Stock Awards ($)
      Option Awards ($)
      Non- Equity Incentive
      Plan Compen- sation ($)
      Non- qualified Deferred
      Compen-sation Earnings ($)
      **All Other** Compen-
      sation ($)
      Total ($)W. Pierce Carson
      President & CEO
    2009 2008
    222,413 207,125
    - -
    - 320,000(1)
    - -
    - -
    - -
    - -
    222,413 527,125


|(1) | On June 25, 2008, the board of directors granted to Mr.
      Carson an award of 500,000 shares of restricted common stock under our
      2007 EIP. The shares vested on December 31, 2008. The closing price of our
      common stock was $0.64 on the date of grant. The dollar value recognized
      for financial statement reporting purposes was calculated in accordance
      with FAS 123R.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Outstanding Equity Awards as of June 30, 2009

The
  following table summarizes the outstanding equity awards as of June 30, 2009,
  for each of our named executive officers:

Outstanding Equity Awards as of June 30, 2009

Option
        Awards
      Stock
        AwardsName
      Number of Securities
        Underlying Unexercised Options (#) Exercisable
      Number of Securities
        Underlying UnexercisedOptions (#) **Unexercisable**
      Equity Incentive Plan Awards: Number of Securities Underlying
        **Unexercised**UnearnedOptions
        (#)
      **Option**
        **Exercise** Price ($)
      Option ExpirationDate
      Numberof Shares or Units of Stock That Have
        Not **Vested** (#)
      Market Valueof **Shares**
        or Units of **Stock**
        That Have Not Vested ($)
      Equity
        Incentive Plan **Awards:**Numberof Unearned Shares,
        Units or Other Rights That
        Have Not Vested (#)
      Equity
        Incentive Plan Awards: **Market**
        **or Payout** Value of **Unearned**
        Shares, Units or Other Rights
        That **Have Not**Vested ($)W. Pierce Carson
      4,000,000
      N/A
      N/A
      0.11
      10/16/2013
      N/A
      N/A
      N/A
      N/A


Compensation of Directors

55

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The
  following table summarizes the compensation of our Companys directors
  for the fiscal year ended June 30, 2009:

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
    9,500
    -
    45,000
    -
    -
    -
    54,500John E. Frost
    9,500
    -
    45,000
    -
    -
    -
    54,500


(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 2009 in accordance with SFAS 123R.

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

During fiscal years 2009 and 2008, non-officer directors received no consulting
fees separate and distinct from directors fees as a result of actual services
rendered above and beyond those typical of a non-officer director. Total
director fees were $19,000 for the year ended June 30, 2009.

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

56

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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.

On
May 19, 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 October 7, 2009, 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   |  | 9,824,360(1)                         
|                                                                                                  |  |                |  |                                      
|Lawrence G. Olson 
      3045 S. 35thAvenue 
      Phoenix, AZ 85009                              |  | Common Stock   |  | 7,377,450                            
|                                                                                                  |  |                |  |                                      
|W. Pierce Carson 
      33 Camino de Avila 
      Tijeras, NM 87059                               |  | Common Stock   |  | 12,951,494(2)                        
|                                                                                                  |  |                |  |                                      
|John E. Frost 
      602 Sandy Port 
      Houston, TX 77079                                      |  | Common Stock   |  | 285,000(3)                           
|                                                                                                  |  |                |  |                                      
|Officers and Directors As a Group (3 Persons)                                                     |  | Common Stock   |  | 20,613,944 (4)                       

57

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|(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 974,360 shares that
      were issued for conversion of accrued interest due June 30,
2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes non- plan options to acquire 4,000,000 shares at
      an exercise price of $0.11 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(3) | 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, and 75,000 shares at an exercise
      price of $0.60 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(4) | Includes options to acquire an aggregate of 4,250,000
      shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(5) | Applicable percentage of ownership is based on 83,723,208
        shares of common stock outstanding as of October 7, 2009, together with
        securities exercisable or convertible into shares of common stock within
        60 days of October 7, 2009, for each stockholder. Beneficial ownership
        is determined in accordance with the rules of the Commission and generally
        includes voting or investment power with respect to securities. Shares
        of common stock subject to securities exercisable or convertible into
        shares of common stock that are currently exercisable or exercisable within
        60 days of October 7, 2009, 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, 2009:

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
    1,390,000
    $0.63
    5,710,000Equity compensation plan not approved by security
      holders(1)
    5,000,000
    $0.11
    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, and to a director, prior
to the adoption of the 2007 EIP.

**2007
  Equity Incentive Plan**

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

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

58

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stockholders. The 2007 EIP is also intended to provide a
financial incentive that will enable us to attract, retain and motivate the most
qualified directors, employees, and consultants. As of October 7, 2009, one
executive officer, two non-employee independent board members and approximately
thirty-three 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 9 to the Consolidated Financial
Statements).

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

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

In
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

59

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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. At Mr. Olsons discretion the amount may be satisfied
  by the issuance of our common stock or as payment of the exercise price of Mr.
  Olson s stock options.

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

The
following table discloses the fees for professional services provided by Stark
Winter Schenkein & Co., LLP for the 2009 and 2008 fiscal years respectively:

2009
    
    
    2008Audit Fees (1)
    $
    60,770
    
    $
    61,790Tax Fees (2)
    
    -0-
    
    $
    20,000$
    60,770
    
    $
    81,790


|(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

|Exhibit |  |                                                                                                                                                                         |  |                                                                                                                              
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------
|No.     |  | Description                                                                                                                                                             |  | Location                                                                                                                     
|2.1     |  | Agreement and Plan of Merger of Arizona Mica Properties,
      Inc. into Sanchez Mining, Inc., a wholly-owned subsidiary of Registrant,
      dated as of March 9, 1999 |  | Incorporated by reference to Exhibit 1 to Registrants
      8-K dated March 9, 1999, as filed with the SEC on March 24, 1999
|        |  |                                                                                                                                                                         |  |                                                                                                                              
|3.1     |  | Registrants Certificate of Incorporation dated August 8,
      1991                                                                                                    |  | Incorporated by reference to Exhibit 3.1 to the
      Registrants Registration Statement on Form S-4 (File No. 33-45162)    

60

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|Exhibit |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     |  | Description                                                                                                                                                                                                                                  |  | Location                                                                                                                                                                                 
|3.2     |  | Articles of Amendment to the Certificate of Incorporation
      dated December 5, 1991                                                                                                                                                       |  | Incorporated by reference to Exhibit 3.2 to the
      Registrants Registration Statement on Form S-4 (File No. 33-45162)                                                                
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|3.3     |  | Registrants Amended By-laws                                                                                                                                                                                                                 |  | Incorporated by reference to Exhibit 3.3 to the
      Registrants Registration Statement on Form S-4 (File No. 33-45162)                                                                
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|4.1     |  | Specimen stock certificate                                                                                                                                                                                                                   |  | Incorporated by reference to Exhibit 1 to the
      Registrants Registration Statement on Form 8-A as filed with the SEC on
      July 21, 1992                                         
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|4.2     |  | Rights Agreement dated July 19, 1995 between the
      Registrant and Montreal Trust Company of Canada                                                                                                                                       |  | Incorporated by reference to Exhibit 3.4 to the
      Registrants Annual Report on Form 10-K/A for the fiscal year ended June
      30, 1995                                            
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.1    |  | Agreements for Piedras Verdes property                                                                                                                                                                                                       |  | Incorporated by reference to Exhibit 10.10 to the
      Registrants Registration Statement on Form S-4 (File No. 33-45162)                                                              
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.2    |  | Purchase Agreement dated July 27, 1995 between the
      Registrant, Sanchez and Phelps Dodge                                                                                                                                                |  | Incorporated by reference to Exhibit 10.20 to the
      Registrants Annual Report on Form 10- K/A for the fiscal year ended June
      30, 1995                                         
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.3    |  | Memorandum of Agreement dated June 7, 1996, by and among
      West Africa Gold & Exploration Ltd., Eagle River International
      Limited, Lion Mining Finance Limited and the Registrant                                                  |  | Incorporated by reference to Exhibit 10.10 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1996 as filed with the SEC on September 30, 1996
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.4    |  | Stock Option Plan                                                                                                                                                                                                                            |  | Incorporated by reference to Exhibit A to Registrants
      DEF 14A as filed with the SEC on March 5, 1997                                                                              
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.5    |  | Memorandum of Agreement/Eagle River International Ltd.                                                                                                                                                                                       |  | Incorporated by reference to Exhibit 10.13 to
      Registrants Annual Report on Form 10-K for the year ended June 30, 1997,
      as filed with the SEC on September 30, 1997          
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.6    |  | Management Agreements dated February 1, 1998 between the
      Registrant, Alan Lindsay and Associates, Ltd. and ARH Management Ltd.                                                                                                         |  | Incorporated by reference to Exhibit 10.8 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1998 as filed with the SEC on September 30, 1998 
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.7    |  | Management Agreements dated August 15, 1994, by and
      between the Registrant and both of Alan P. Lindsay, Anthony R. Harvey;
      Management Agreement dated November 19, 1996, by and between the
      Registrant and Ryan A. Modesto |  | Incorporated by reference to Exhibit 10.15 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1998 as filed with the SEC on September 30, 1998
|        |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                          
|10.8    |  | Directors Agreement dated August 15, 1994, by and
      between the Registrant and Paul A. Hodges                                                                                                                                           |  | Incorporated by reference to Exhibit 10.16 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1998 as filed with the SEC on September 30, 1998

61

---

|Exhibit |  |                                                                                                                                                                      |  |                                                                                                                                                                                          
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     |  | Description                                                                                                                                                          |  | Location                                                                                                                                                                                 
|10.9    |  | Shareholders & Operators Agreement dated December
      19, 1995, by and among PD Cobre Del Mayo, Inc., the Registrant and Cobre
      Del Mayo, SA de CV           |  | Incorporated by reference to Exhibit 10.17 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1998 as filed with the SEC on September 30, 1998
|        |  |                                                                                                                                                                      |  |                                                                                                                                                                                          
|10.10   |  | Right of First Refusal Agreement dated June 18, 1998 by
      and among the Registrant, Seville Mineral Developments SA de CV and Minera
      Cortez Resources Ltd. |  | Incorporated by reference to Exhibit 10.12 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1998 as filed with the SEC on September 30, 1998
|        |  |                                                                                                                                                                      |  |                                                                                                                                                                                          
|10.11   |  | Mineral Property Option Agreement dated July, 1998, by
      and between the Registrant and Minera Cortez Resources Ltd.                                             |  | Incorporated by reference to Exhibit 10.13 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1998 as filed with the SEC on September 30, 1998
|        |  |                                                                                                                                                                      |  |                                                                                                                                                                                          
|10.12   |  | Shareholders Agreement by and among Registrant, Sanou
      Mining Corporation, West African Gold & Exploration, S.A. and Randgold
      Resources Ltd.             |  | Incorporated by reference to Exhibit 10.5 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1999 as filed with the SEC on September 29, 1999 
|        |  |                                                                                                                                                                      |  |                                                                                                                                                                                          
|10.13   |  | Mineral Property Option Agreement dated May 20, 1999, by
      and between the Registrant and Minera Cortez Resources Ltd.                                           |  | Incorporated by reference to Exhibit 10.16 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1999 as filed with the SEC on September 29, 1999
|        |  |                                                                                                                                                                      |  |                                                                                                                                                                                          
|10.14   |  | Agreement in Principal dated August 9, 1999 between the
      Registrant, Thomas Ford and Calgem, Inc.                                                               |  | Incorporated by reference to Exhibit 10.17 to the
      Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
      1999 as filed with the SEC on September 29, 1999
|        |  |                                                                                                                                                                      |  |                                                                                                                                                                                          
|10.15   |  | Non-Revolving Credit Line Agreement dated March 14, 2001,
      by and between the Registrant and Lawrence G. Olson                                                  |  | Incorporated by reference to Exhibit 10.16 to
      Registrants 10-K as filed with the SEC on October 15, 2001                                                                          
|        |  |                                                                                                                                                                      |  |                                                                                                                                                                                          
|10.16   |  | Settlement Agreement and Release by and among the
      Registrant, Anthony Harvey, ARH Management, Ltd., Alan Lindsay and Alan
      Lindsay and Associates, Ltd.   |  | Incorporated by reference to Exhibit 99 to the
      Registrants 8-K as filed with the SEC on July 25, 2002                                                                             
|        |  |                                                                                                                                                                      |  |                                                                                                                                                                                          
|10.17   |  | $5,000,000 Equity Line of Credit Agreement, by and
      between the Registrant and Cornell Capital Partners, LP dated June 19,
      2002                           |  | Incorporated by reference to Exhibit 10.17 to
      Registrants 10-K as filed with the SEC on September 27, 2002                                                                        
|        |  |                                                                                                                                                                      |  |                                                                                                                                                                                          
|10.18   |  | Registration Rights Agreement by and between the
      Registrant and Cornell Capital Partners, LP dated June 19, 2000                                               |  | Incorporated by reference to Exhibit 10.18 to
      Registrants 10-K as filed with the SEC on September 27, 2002                                                                        
|        |  |                                                                                                                                                                      |  |                                                                                                                                                                                          
|10.19   |  | Escrow Agreement by and among the Registrant, Cornell
      Capital Partners, LP, Wachovia, NA and Butler Gonzales LLP, dated June 19,
      2002.                   |  | Incorporated by reference to Exhibit 10.19 to
      Registrants 10-K as filed with the SEC on September 27, 2002                                                                        
|        |  |                                                                                                                                                                      |  |                                                                                                                                                                                          
|10.20   |  | Placement Agent Agreement by and between the Registrant
      and Westrock Advisors, Inc. dated June 19, 2002.                                                       |  | Incorporated by reference to Exhibit 10.20 to
      Registrants 10-K as filed with the SEC on September 27, 2002                                                                        

62

---

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

63

---

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

64

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|Exhibit |  |                                                                                                                                                                                |  |                                                                                                                                                                                                                  
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     |  | Description                                                                                                                                                                    |  | Location                                                                                                                                                                                                         
|10.48   |  | Amended Securities
        Purchase Agreement dated September 6, 2006, by and between the Registrant
        and Purchasers                                                    |  | Incorporated
        by reference to Exhibits 4.1-4.4 and Exhibit 99.1 to Registrants
        8-K dated September 6, 2006, as filed with the SEC on September 8, 2006,
        and amended on September 15, 2006
|        |  |                                                                                                                                                                                |  |                                                                                                                                                                                                                  
|10.49   |  | Real Property
        Purchase Agreement effective October 31, 2006, by and between Registrant
        and Muzz Investments, LLC                                               |  | Incorporated
        by reference to Exhibits 10.1 and 10.2 and Exhibit 99.1 to Registrants
        8-K dated November 3, 2006, as filed with the SEC on November 6, 2006                                       
|        |  |                                                                                                                                                                                |  |                                                                                                                                                                                                                  
|10.50   |  | Amended Securities
        Purchase Agreement dated February 23, 2007, by and between the Registrant
        and Purchasers                                                    |  | Incorporated
        by reference to Exhibits 4.1-4.3 and Exhibit 99.1 to Registrants
        8-K dated February 23, 2007, as filed with the SEC on February 26, 2007                                           
|        |  |                                                                                                                                                                                |  |                                                                                                                                                                                                                  
|10.51   |  | Registrants
        2007 Equity Incentive Plan, effective July 25, 2007, approved by security
        holders on July 24, 2007                                                |  | Incorporated
        by reference to Registrants DEF14Adated June 18, 2007, as filed
        with the SEC on May 23, 2007                                                                                       
|        |  |                                                                                                                                                                                |  |                                                                                                                                                                                                                  
|10.52   |  | Senior subordinated
        Promissory Note dated October 31, 2007, by and between Registrant and
        Purchasers                                                           |  | Incorporated
        by reference to Exhibits 4.1-4.3 and Exhibit 99.1 to Registrants
        8-K dated October 31, 2007, as filed with the SEC on November 1, 2007                                             
|        |  |                                                                                                                                                                                |  |                                                                                                                                                                                                                  
|10.53   |  | Securities Purchase
        Agreement dated December 21, 2007, by and between Registrant and Purchaser                                                                         |  | Incorporated
        by reference to Exhibits 4.1-4.5 and Exhibit 99.1 to Registrants
        8-K dated December 21, 2007, as filed with the SEC on December 26, 2007                                           
|        |  |                                                                                                                                                                                |  |                                                                                                                                                                                                                  
|10.54   |  | Settlement Agreement
        dated June 5, 2008, by and between Registrant and New Planet Copper Mining
        Company                                                        |  | Incorporated
        by reference to Exhibit 99.1 to Registrants 8-K dated June 5, 2008
        , as filed with the SEC on June 10, 2008                                                                        
|        |  |                                                                                                                                                                                |  |                                                                                                                                                                                                                  
|10.55   |  | Purchase and
        Sale Agreement dated June 30, 2008, by and between Registrant and St.
        Cloud Mining Company                                                        |  | Incorporated
        by reference to Exhibits 10.55 and 99.1 to Registrants 8-K dated
        June 30, 2008, as filed with the SEC on July 1, 2008                                                              
|        |  |                                                                                                                                                                                |  |                                                                                                                                                                                                                  
|10.56   |  | Change
        of Control Agreement between the Registrant and Ryan P. Carson dated May
        19, 2009                                                                       |  | Provided
        herewith                                                                                                                                                                                        
|        |  |                                                                                                                                                                                |  |                                                                                                                                                                                                                  
|10.57   |  | Change
        of Control Agreement between the Registrant and Michael P. Martinez dated
        May 19, 2009                                                                  |  | Provided
        herewith                                                                                                                                                                                        
|        |  |                                                                                                                                                                                |  |                                                                                                                                                                                                                  
|10.58   |  | 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. |  | Provided
        herewith                                                                                                                                                                                        
|        |  |                                                                                                                                                                                |  |                                                                                                                                                                                                                  
|10.59   |  | Agreement
        dated June 13, 2009, by and between Registrant and Minera de Suaqui Grande
        S. de R.L. de C.V.                                                        |  | Provided
        herewith                                                                                                                                                                                        
|        |  |                                                                                                                                                                                |  |                                                                                                                                                                                                                  
|10.60   |  | Finders
        Agreement dated June 13, 2009, by and between Registrant and Finder                                                                                            |  | Provided
        herewith                                                                                                                                                                                        

65

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|Exhibit |  |                                                                                                                                                        |  |                                                                                                                                                                                                 
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     |  | Description                                                                                                                                            |  | Location                                                                                                                                                                                        
|        |  |                                                                                                                                                        |  |                                                                                                                                                                                                 
|10.61   |  | 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, 2009                                                     
|        |  |                                                                                                                                                        |  |                                                                                                                                                                                                 
|10.62   |  | 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, 2009                                      
|        |  |                                                                                                                                                        |  |                                                                                                                                                                                                 
|14.1    |  | Code of Ethics
        for CEO and Senior Financial Officers adopted June 15, 2006                                                                     |  | Incorporated
        by reference to Exhibit 14.1 to Registrants 10-KSB for the period ending
        June 30, 2006, dated February 14, 2007, as filed with the SEC on February
        16, 2007
|        |  |                                                                                                                                                        |  |                                                                                                                                                                                                 
|21.1    |  | Subsidiaries
        of the Registrant                                                                                                                 |  | Provided
        herewith                                                                                                                                                                       
|        |  |                                                                                                                                                        |  |                                                                                                                                                                                                 
|31.1    |  | Certification
        of Principal Executive Officer and Chief Financial Officer pursuant to
        Rule 13a-14(a)/15d-14(a)                          |  | Provided
        herewith                                                                                                                                                                       
|        |  |                                                                                                                                                        |  |                                                                                                                                                                                                 
|32.1    |  | Certification
        of Principal Executive Officer and Chief Financial Officer pursuant to
        18 U.S.C. Section 1350                            |  | Provided
        herewith                                                                                                                                                                       

66

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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 October 7, 2009.

SANTA FE GOLD
CORPORATION

| | By:    | /s/ W. Pierce Carson                       
| | ------ | -------------------------------------------
| | Name:  | W. Pierce Carson                           
| | Title: | President and Chief Executive
      Officer

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant in the capacities
indicated on October 7, 2009.

|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               |  |                                      

67

---