---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period endedDecember 31, 2009

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

For the transition period from _______ to _______

Commission File Number:001-12974

SANTA FE GOLD CORPORATION(Exact Name of Small Business Issuer 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)

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

N/AFormer name, former address, and
former fiscal year, if changed since last report

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

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

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

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

Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest practicable date:
92,218,716 shares outstanding as of February 12, 2010.

---

SANTA FE GOLD CORPORATIONINDEX TO FORM
10-Q



|**PART I** **FINANCIAL INFORMATION**
|------------------------------------
|                                    
|Item 1.                             
|                                    
|                                    
|                                    
|                                    
|                                    
|Item 2.                             
|                                    
|Item 4.                             
|                                    
|**PART II** **OTHER INFORMATION**   
|                                    
|Item 1.                             
|                                    
|Item 1A.                            
|                                    
|Item 2.                             
|                                    
|Item 3.                             
|                                    
|Item 4.                             
|                                    
|Item 5.                             
|                                    
|Item 6.                             
|                                    
|SIGNATURES                          
|                                    
|CERTIFICATIONS                      

2

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PARTIFINANCIALINFORMATION

ITEM1. FINANCIALSTATEMENTS

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SANTA FE GOLD CORPORATIONCONSOLIDATED BALANCE
SHEETS

|ASSETS                                                                                                                                                              |   |              |   |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------ | - | - | ----------- | -
|                                                                                                                                                                    |   | December 31, |   |   | June 30,    |  
|                                                                                                                                                                    |   | 2009         |   |   | 2009        |  
|                                                                                                                                                                    |   | (Unaudited)  |   |   |             |  
|CURRENT ASSETS:                                                                                                                                                     |   |              |   |   |             |  
|Cash and cash equivalents                                                                                                                                           | $ | 336,028      |   | $ | 509,846     |  
|Accounts receivable                                                                                                                                                 |   | 9,344        |   |   | -           |  
|Prepaid expenses and other current
      assets                                                                                                                     |   | 277,279      |   |   | 150,251     |  
|Total Current Assets                                                                                                                                                |   | 622,651      |   |   | 660,097     |  
|MINERAL PROPERTIES                                                                                                                                                  |   | 579,000      |   |   | 579,000     |  
|PROPERTY, PLANT AND EQUIPMENT, net                                                                                                                                  |   | 3,729,318    |   |   | 3,848,292   |  
|OTHER ASSETS:                                                                                                                                                       |   |              |   |   |             |  
|Construction in
      progress                                                                                                                                      |   | 12,817,356   |   |   | 9,800,997   |  
|Idle equipment, net                                                                                                                                                 |   | 1,233,528    |   |   | 1,258,500   |  
|Restricted cash                                                                                                                                                     |   | 410,374      |   |   | 410,374     |  
|Deferred financing costs                                                                                                                                            |   | 462,175      |   |   | 214,043     |  
|Total Other Assets                                                                                                                                                  |   | 14,923,433   |   |   | 11,683,914  |  
|                                                                                                                                                                    | $ | 19,854,402   |   | $ | 16,771,303  |  
|                                                                                                                                                                    |   |              |   |   |             |  
|LIABILITIES AND STOCKHOLDERS' (DEFICIT)                                                                                                                             |  
|CURRENT LIABILITIES:                                                                                                                                                |   |              |   |   |             |  
|Accounts payable                                                                                                                                                    | $ | 805,518      |   | $ | 1,245,303   |  
|Accrued liabilities                                                                                                                                                 |   | 126,377      |   |   | 383,352     |  
|Derivative instrument liabilities                                                                                                                                   |   | 6,824,753    |   |   | 2,643,500   |  
|Current portion
      of notes payable                                                                                                                              |   | 253,631      |   |   | 74,430      |  
|Current portion of capital leases                                                                                                                                   |   | 134,409      |   |   | 130,806     |  
|Current portion
      of senior secured convertible notes payable, net of discount         
             of $-0- and $8,027, respectively                           |   | -            |   |   | 10,192      |  
|Deferred revenue                                                                                                                                                    |   | 243,107      |   |   | -           |  
|Accrued interest
      payable                                                                                                                                      |   | 12,953       |   |   | 24,817      |  
|Total
      Current Liabilities                                                                                                                                     |   | 8,400,748    |   |   | 4,512,400   |  
|LONG TERM LIABILITIES:                                                                                                                                              |   |              |   |   |             |  
|Senior secured convertible notes
      payable, net of discount of             
         $4,332,056 and $4,514,554, respectively, net of current portion            |   | 9,617,944    |   |   | 9,435,446   |  
|Derivative instrument
      liabilities                                                                                                                             |   | 6,842,159    |   |   | 5,162,176   |  
|Notes payable, net of current portion                                                                                                                               |   | 142,559      |   |   | 196,088     |  
|Capital leases,
      net of current portion                                                                                                                        |   | 198,913      |   |   | 267,031     |  
|Deferred revenue                                                                                                                                                    |   | 3,756,893    |   |   | -           |  
|Asset retirement
      obligation                                                                                                                                   |   | 84,059       |   |   | 84,059      |  
|Total
      Liabilities                                                                                                                                             |   | 29,043,275   |   |   | 19,657,200  |  
|STOCKHOLDERS' (DEFICIT):                                                                                                                                            |   |              |   |   |             |  
|Common stock, $.002 par value, 200,000,000
      shares authorized;         
           84,526,406 and 82,316,112 shares issued and outstanding,
      respectively |   | 169,053      |   |   | 164,632     |  
|Additional paid in capital                                                                                                                                          |   | 49,539,896   |   |   | 49,926,931  |  
|Accumulated (deficit)                                                                                                                                               |   | (58,897,822  | ) |   | (52,977,460 | )
|Total
      Stockholders' (Deficit)                                                                                                                                 |   | (9,188,873   | ) |   | (2,885,897  | )
|                                                                                                                                                                    | $ | 19,854,402   |   | $ | 16,771,303  |  

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

F-3

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SANTA FE GOLD CORPORATIONCONSOLIDATED STATEMENTS
OF OPERATIONS(Unaudited)

|                                                       |   | Three Months Ended |   |   | Six Months Ended |  
|------------------------------------------------------ | - | ------------------ | - | - | ---------------- | -
|                                                       |   | December 31,       |   |   | December 31,     |  
|                                                       |   | 2009               |   |   | 2008             |  
|SALES                                                  | $ | 8,970              |   | $ | 6,367            |  
|                                                       |   |                    |   |   |                  |  
|OPERATING COSTS AND EXPENSES:                          |   |                    |   |   |                  |  
|Costs applicable to sales                              |   | -                  |   |   | 23,606           |  
|Exploration and
      mining costs                     |   | 92,977             |   |   | 133,671          |  
|General and administrative                             |   | 629,802            |   |   | 551,475          |  
|Depreciation and
      amortization                    |   | 108,569            |   |   | 45,774           |  
|Accretion of asset retirement obligation               |   | -                  |   |   | 1,250            |  
|                                                       |   | 831,348            |   |   | 755,776          |  
|                                                       |   |                    |   |   |                  |  
|(LOSS) FROM OPERATIONS                                 |   | (822,378           | ) |   | (749,409         | )
|                                                       |   |                    |   |   |                  |  
|OTHER INCOME (EXPENSE):                                |   |                    |   |   |                  |  
|(Loss) on disposal of assets                           |   | -                  |   |   | -                |  
|Interest income                                        |   | 2,570              |   |   | 27,413           |  
|Miscellaneous income                                   |   | 1,100              |   |   | 500              |  
|Foreign currency
      translation gain                |   | (200               | ) |   | 5,347            |  
|Gain (loss) on derivative instrument
      liabilities |   | (842,150           | ) |   | 1,415,856        |  
|Relief of debt                                         |   | -                  |   |   | -                |  
|Accretion of discounts on notes
      payable          |   | (254,999           | ) |   | (329,969         | )
|Interest expense                                       |   | (42,871            | ) |   | (90,591          | )
|                                                       |   | (1,136,550         | ) |   | 1,028,556        |  
|                                                       |   |                    |   |   |                  |  
|INCOME (LOSS) BEFORE PROVISION                         |   |                    |   |   |                  |  
|FOR INCOME TAXES                                       |   | (1,958,928         | ) |   | 279,147          |  
|PROVISION FOR INCOME TAXES                             |   | -                  |   |   | -                |  
|                                                       |   |                    |   |   |                  |  
|NET INCOME (LOSS)                                      | $ | (1,958,928         | ) | $ | 279,147          |  
|                                                       |   |                    |   |   |                  |  
|Income (Loss) per Share:                               |   |                    |   |   |                  |  
|Basic                                                  | $ | (0.02              | ) | $ | 0.00             |  
|                                                       |   |                    |   |   |                  |  
|Diluted                                                | $ | (0.02              | ) | $ | 0.00             |  
|                                                       |   |                    |   |   |                  |  
|Weighted Average Common Shares Outstanding:            |   |                    |   |   |                  |  
|Basic                                                  |   | 84,068,911         |   |   | 75,904,760       |  
|                                                       |   |                    |   |   |                  |  
|Diluted                                                |   | 84,068,911         |   |   | 75,904,760       |  

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

F-4

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SANTA FE GOLD CORPORATIONCONSOLIDATED STATEMENTS
OF CASH FLOWS(Unaudited)

|                                                             |   | Six Months Ended |  
|------------------------------------------------------------ | - | ---------------- | -
|                                                             |   | December 31,     |  
|                                                             |   | 2009             |  
|                                                             |   |                  |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                        |   |                  |  
|                                                             |   |                  |  
|Net income (loss)                                            | $ | (4,977,726       | )
|                                                             |   |                  |  
|Adjustments to reconcile
      net income (loss) to net cash |   |                  |  
|(used in) operating activities:                              |   |                  |  
|Depreciation                                                 |   | 214,480          |  
|Stock
      compensation                                     |   | 321,932          |  
|Accretion of discount on notes payable                       |   | 513,663          |  
|Accretion
      of asset retirement obligation               |   | -                |  
|Relief of debt                                               |   | -                |  
|Foreign
      currency translation (gain) loss               |   | (105             | )
|(Gain) loss on derivative instrument liabilities             |   | 2,963,696        |  
|Loss
      on disposal of assets                             |   | 3,572            |  
|Amortization of deferred financing costs                     |   | 39,868           |  
|Net change in operating assets and liabilities:              |   |                  |  
|Accounts receivable                                          |   | (9,344           | )
|Prepaid
      expenses and other current assets              |   | (127,028         | )
|Deposits                                                     |   | -                |  
|Accounts
      payable                                       |   | (439,680         | )
|Accrued liabilities                                          |   | (56,974          | )
|Accrued
      interest payable                               |   | (11,863          | )
|Net
      Cash Provided by (Used in) Operating Activities    |   | (1,565,509       | )
|                                                             |   |                  |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                        |   |                  |  
|Increase to restricted cash                                  |   | -                |  
|Proceeds from disposal
      of assets                       |   | 21,400           |  
|Purchase of property, plant and equipment                    |   | (78,682          | )
|Construction in progress                                     |   | (2,533,359       | )
|Net Cash (Used
      in) Investing Activities                |   | (2,590,641       | )
|                                                             |   |                  |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |   |                  |  
|Proceeds from convertible
      notes payable                |   | -                |  
|Proceeds from issuance of stock and warrants                 |   | 226,000          |  
|Proceeds from notes payable                                  |   | 212,762          |  
|Payments on notes payable                                    |   | (103,915         | )
|Payments on capital leases                                   |   | (64,515          | )
|Payments on line of credit                                   |   | -                |  
|Payments on convertible
      debenture notes                |   | -                |  
|Payment of financing costs                                   |   | (288,000         | )
|Deferred revenue                                             |   | 4,000,000        |  
|Net Cash Provided
      by Financing Activities              |   | 3,982,332        |  
|                                                             |   |                  |  
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             |   | (173,818         | )
|                                                             |   |                  |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD               |   | 509,846          |  
|                                                             |   |                  |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                     | $ | 336,028          |  

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

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SANTA FE GOLD CORPORATIONCONSOLIDATED STATEMENTS
OF CASH FLOWS(Continued)

|                                                        |   | Six Months Ended | 
|------------------------------------------------------- | - | ---------------- | 
|                                                        |   | December 31,     | 
|                                                        |   | 2009             | 
|SUPPLEMENTAL CASH FLOW INFORMATION:                     |   |                  | 
|Cash paid for interest                                  | $ | 64,202           | 
|                                                        |   |                  | 
|Cash paid for income taxes                              | $ | -                | 
|                                                        |   |                  | 
|SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
      AND |   |                  | 
|FINANCING ACTIVITIES:                                   |   |                  | 
|Stock issued for conversion
      of accrued interest   | $ | 483,000          | 
|                                                        |   |                  | 
|Equipment purchased with
      notes payable            | $ | 16,825           | 
|                                                        |   |                  | 
|Equipment purchased with
      capital leases           | $ | -                | 
|                                                        |   |                  | 
|Stock issued for conversion
      of accrued liability  | $ | 200,000          | 
|                                                        |   |                  | 
|Stock issued for conversion
      of note payable       | $ | 18,219           | 

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

F-5

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SANTA FE GOLD CORPORATIONNOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2009(Unaudited)

NOTE 1 NATURE OF OPERATIONSANDBASISOFPRESENTATION

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 project in New Mexico, the leased Ortiz gold property
in New Mexico, the 100% owned Black Canyon mica project in Arizona, the 100%
owned Planet micaceous iron oxide property in Arizona, and the lease with
purchase option contract on the Pilar gold property in Sonora, Mexico.

The
unaudited interim consolidated financial statements of the Company included
herein have been prepared in accordance with generally accepted accounting
principles for interim financial information and in accordance with the
instructions for Form 10-Q under Article 8.03 of Regulation S-X. These
statements do not include all of the information and notes to the financial
statements required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended
December 31, 2009, are not necessarily indicative of the results that may be
expected for the year ending June 30, 2010. The unaudited consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto for the fiscal year ended June 30, 2009, included
in the Companys Annual Report on Form 10-K, as filed with Securities and
Exchange Commission.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Going Concern

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

The
Company had a net loss of $4,977,726 for the six months ended December 31, 2009,
has a working capital deficit of $7,778,097 which includes a non-cash financial
derivative of $6,824,753 and has a total accumulated deficit of $58,897,822 at
December 31, 2009. In addition, the Company had only nominal revenue generating
operations in the six months ended December 31, 2009. To continue as a going
concern, the Company is dependent on continued fund raising for project
development and for administrative operating expenses. See NOTE 9  SUBSEQUENT
EVENTS.

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

Principles of Consolidation

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

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.

6

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Fair Value Measurements

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

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

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

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

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

The
Company measures financial instruments that it considers to be derivatives at
fair value on a recurring basis which consist of certain embedded features
contained within its debt instruments and certain warrant contracts. The
derivatives are measured on their respective origination dates, at the end of
each reporting period and at other points in time when necessary, such as
modifications, using Level 3 inputs in accordance with GAAP. The Company does
not report any financial assets or liabilities that it measures using Level 1 or
Level 2 inputs. The derivatives and their respective derivative values measured
using Level 3 inputs as of December 31, 2009 are as follows:

|                                                |  |         |  |  |         |  |   |            |  |   | December 31, | 
|----------------------------------------------- |  | ------- |  |  | ------- |  | - | ---------- |  | - | ------------ | 
|                                                |  | Level 1 |  |  | Level 2 |  |   | Level 3    |  |   | 2009         | 
|Other Assets:                                   |  |         |  |  |         |  |   |            |  |   |              | 
|Idle equipment, net                             |  | ---     |  |  | ---     |  | $ | 1,233,528  |  | $ | 1,233,528    | 
|                                                |  |         |  |  |         |  |   |            |  |   |              | 
|Value of derivative
      instruments liability |  | ---     |  |  | ---     |  | $ | 13,666,912 |  | $ | 13,666,912   | 

Idle
equipment includes equipment associated with the mica project which the Company
ceased operations and are classified as Level 3. The fair value of the idle
equipment was determined based upon an independent third party appraisal. The
appraised value was established based upon comparable sales of similar assets
and certain assumptions regarding market demand for these assets. As this
valuation was based upon unobservable inputs, we classified the idle equipment
as Level 3. There was no change in the carrying valuation of the idle equipment
during the six-month period ended December 31, 2009 and the reduction of $24,972
during this period resulted from the sale of equipment.

Derivative Financial Instruments

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

7

---

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

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

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

Deferred Revenue

Deferred
revenue represents a cash advance made under a definitive gold sale agreement to
sell a portion of the life-of-mine gold production only from our Summit
silver-gold mine. Under the terms of the agreement, the Company will receive two
upfront cash advances and on going 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. The upfront cash advances will be amortized over the
life of the agreement based upon the estimated ounces of gold to be delivered
under the life of the agreement. Deferred revenue on the Companys balance sheet
is categorized as current if the Company expects to recognize such revenue
within the following twelve months.

Net Earnings (Loss) per Common Share

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

Recent Accounting Pronouncements

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

8

---

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

NOTE 3  ADOPTION OF NEW ACCOUNTING POLICY

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

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

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

For
the six months ended December 31, 2009 and 2008, the Company recognized a loss
for the change in fair value of the embedded conversion derivative liability in
the amounts of $1,008,157 and $-0-, respectively.

For
the six months ended December 31, 2009, the Company recognized a loss for the
change in fair value of the warrant derivative liability in the amount of
$1,955,539. For the six months ended December 31, 2008, the Company recognized a
gain of $2,785,079.

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

9

---

NOTE 4 - DERIVATIVE INSTRUMENT LIABILITIES

The
fair market value of the derivative instruments liability at December 31, 2009,
was determined to be $13,666,912 with the following assumptions: (1) risk free
interest rate of 0.47% to 2.69%, (2) remaining contractual life of 1.70 to 5.01
years, (3) expected stock price volatility of 86% to 90%, 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 six months ended
December 31, 2009, of $(2,963,696) and a corresponding increase in the
derivative instruments liability.

|                                                              |   | Derivative      |  |   | Derivative        |  |   | Derivative Gain   |  
|------------------------------------------------------------- | - | --------------- |  | - | ----------------- |  | - | ----------------- | -
|                                                              |   | Liability as of |  |   | Liability as of   |  |   | (Loss) Through    |  
|                                                              |   | June 30, 2009   |  |   | December 31, 2009 |  |   | December 31, 2009 |  
|Convertible Debentures:                                       |   |                 |  |   |                   |  |   |                   |  
|Compound Embedded Derivatives                                 | $ | 4,907           |  | $ | -                 |  | $ | 4,907             |  
|Purchase
      Agreement Warrants                             |   | 6,543,873       |  |   | 8,532,062         |  |   | (1,988,189        | )
|Amendment 2 Warrants                                          |   | 1,256,896       |  |   | 1,421,662         |  |   | (164,766          | )
|Embedded
      Conversion Option                              |   | --              |  |   | 3,713,188         |  |   | (3,713,188        | )
|Totals                                                        | $ | 7,805,676       |  | $ | 13,666,912        |  |   | (5,861,236        | )
|                                                              |   |                 |  |   |                   |  |   |                   |  
|Amount at adoption of accounting change
      on July 1, 2009 |   |                 |  |   |                   |  |   | 2,705,031         |  
|Amount allocated to
      warrants at transaction inception   |   |                 |  |   |                   |  |   | 192,509           |  
|                                                              |   |                 |  |   |                   |  | $ | (2,963,696        | )

The derivative liability is comprised of the following as
of:

| |                                                             |   | December 31, |  |   | June 30,  | 
| | ----------------------------------------------------------- | - | ------------ |  | - | --------- | 
| |                                                             |   | 2009         |  |   | 2009      | 
| | Current portion of derivative
      instruments liability   | $ | 6,824,753    |  | $ | 2,643,500 | 
| | Long-term portion of derivative instruments
      liability |   | 6,842,159    |  |   | 5,162,176 | 
| |                                                             | $ | 13,666,912   |  | $ | 7,805,676 | 

NOTE 5 CONVERTIBLE NOTES PAYABLE AND
DEBENTURES

Convertible Senior Subordinated Notes

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

10

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Senior Secured Convertible Debenture

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

On
June 30, 2009, the Company entered into Amendment 2 on the Senior Secured
Convertible Debenture dated December 21, 2007. Pursuant to the amendment, all
the accrued interest on the debentures due June 30, 2009, in the collective
aggregate amount of $974,360, was automatically converted into 974,360 shares of
the Companys common stock effective as of June 30, 2009. Additionally, the
aggregate accrued interest on the outstanding principal amounts of the
debentures for the quarters ended September 30, 2009 and December 31, 2009 were
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.

The
components of the convertible notes payable and debentures are as follows as
of:

|December 31, 2009:                |   | Principal  |  |   | Unamortized |   |   |           | 
|--------------------------------- | - | ---------- |  | - | ----------- | - | - | --------- | 
|                                  |   | Amount     |  |   | Discount    |   |   | Net       | 
|Current portion                   | $ | -          |  | $ | -           |   | $ | -         | 
|Long-term portion, net of current |   | 13,950,000 |  |   | (4,332,056  | ) |   | 9,617,944 | 
|                                  |   |            |  |   |             |   |   |           | 
|                                  | $ | 13,950,000 |  | $ | (4,332,056  | ) | $ | 9,617,944 | 

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

Aggregate
yearly maturities of long term debt based upon payment terms at December 31,
2009, are as follows:

11

---

2010
    $
    -2011
    
    -2012
    
    13,950,000Subtotal
    
    13,950,000Less: unamortized original discount
    
    (4,332,056
    )$
    9,617,944


As
of December 31, 2009, accrued interest payable on the convertible notes payable
and debentures was $6,549.

NOTE 6  NOTES PAYABLE

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

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

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

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

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

The
following summarizes notes payable at December 31, 2009 and June 30, 2009:

12

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|                                                                                                                                                                                                 |   | December 31, |   |   |               |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ------------ | - | - | ------------- | -
|                                                                                                                                                                                                 |   | 2009         |   |   | June 30, 2009 |  
|                                                                                                                                                                                                 |   | (Unaudited)  |   |   |               |  
|Note payable for mineral property,   
               interest at 10%, payable in 4 annual installments
                  of $63,094, including interest
      through August 2012                | $ | 156,906      |   | $ | 200,000       |  
|                                                                                                                                                                                                 |   |              |   |   |               |  
|Installment sales contract on equipment, 
                 interest at 6.75%, payable in 36
      monthly installments             of $2,911,
      including interest through September 2011    |   | 55,099       |   |   | 70,518        |  
|                                                                                                                                                                                                 |   |              |   |   |               |  
|Installment sales contract on equipment,
                 interest at 9.25%, payable in 36
      monthly installments            of $537,
      including interest through October 2012          |   | 15,710       |   |   | -             |  
|                                                                                                                                                                                                 |   |              |   |   |               |  
|Financing contract on insurance premiums 
                 interest at 6.99%, payable in 11
      monthly installments             of $6,861.71,
      including interest through September 2010 |   | 53,482       |   |   | -             |  
|                                                                                                                                                                                                 |   |              |   |   |               |  
|Financing contract on insurance premiums 
                 interest at 5.99%, payable in 11
      monthly installments             of $13,098.12,
      including interest through October 2010  |   | 114,993      |   |   | -             |  
|Total Outstanding Notes Payable                                                                                                                                                                  |   | 396,190      |   |   | 270,518       |  
|Less: Current maturities                                                                                                                                                                         |   | (253,631     | ) |   | (74,430       | )
|Obligations of notes payable due after one year                                                                                                                                                  | $ | 142,559      |   | $ | 196,088       |  

The
aggregate maturities of notes payable as of December 31, 2009, is as follows:

Year
      ending June 30,2010
    $
    18,4872011
    
    138,8212012
    
    63,9602013
    
    6,446Total Outstanding Notes Payable
    $
    227,714


NOTE 7  CAPITAL LEASES

The
Company utilizes 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 December 31, 2009, for each of
the following years and in aggregate, are as follows:

Year ended June 30,2010
    $
    74,7822011
    
    149,5632012
    
    88,4992013
    
    43,0412014
    
    3,598Total minimum lease payments
    
    359,483Amount representing interest
    
    (26,161
    )Present value of future minimum lease
      payments
    
    333,322Current portion of capital lease obligations
    
    (134,409
    )Obligations of capital leases due after one
      year
    $
    198,913


13

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NOTE 8 - STOCKHOLDERS (DEFICIT)

Issuances of Common Stock

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

On
July 20, 2009, an individual exercised an option to purchase 20,000 shares of
common stock at $0.60 per share on a cashless basis. Under the cashless basis
exercise, 8,991 shares were issued.

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

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

On
August 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. The warrants were valued as a derivative
instrument liability and recorded separately at fair value at the time of
issuance, reducing the value of the equity recorded by the same amount. The
private placement was subject to a sales commission and an additional 1,887
shares of common stock were issued as a commission on the transaction.

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 30, 2009, a convertible debenture holder converted $241,500 of accrued
interest into 241,500 shares of the Companys stock. The aggregate amount of
accrued interest converted was recorded as capitalized interest expense during
the three months ended September 30, 2009.

On
November 10, 2009, a warrant holder exercised 239,989 warrants with an exercise
price of $1.00 per share to purchase shares of the Companys stock on a cashless
basis. Under the cashless basis, 67,335 shares were issued.

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

On
December 7, 2009, the Company issued 20,000 shares of common stock at a market
value of $29,400 for investor relations services. These services will be
provided through June 2010.

On
  December 11, 2009, a warrant holder exercised 651,945 warrants with an exercise
  price of $1.00 per share to purchase shares of the Companys stock on a
  cashless basis. Under the cashless basis, 207,235 shares were issued.

14

---

On
December 29, 2009, an option holder exercised 10,000 options with an exercise
price of $0.60 per share to purchase shares of the Companys stock on a cashless
basis. Under the cashless basis, 5,522 shares were issued.

On
December 31, 2009, a convertible debenture holder converted $241,500 of accrued
interest into 241,500 shares of the Companys stock. The aggregate amount of
accrued interest converted was recorded as capitalized interest expense during
the three months ended December 31, 2009.

Issuances of Options

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

Issuances of Warrants

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

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

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

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

Stock
option and warrant activity, both within the 1989 Stock Option Plan and 2007
Equity Incentive Plan and outside of these plans, for the six months ended
December 31, 2009, are as follows:

15

---

Stock
        Options
      
      
      
      
      
      Stock
        WarrantsWeighted
      
      
      
      
      
      
      
      
      WeightedAverage
      
      
      
      
      
      
      
      
      ExerciseShares
      
      
      Price
      
      
      
      
      
      Shares
      
      
      PriceOutstanding at June 30, 2009
      
      6,390,000
      
      $
      0.22
      
      
      
      
      
      11,616,506
      
      $
      1.01Granted
      
      200,000
      
      $
      1.00
      
      
      
      
      
      112,263
      
      $
      1.06Canceled
      
      100,000
      
      $
      0.94
      
      
      
      
      
      ---
      
      
      ---Expired
      
      ---
      
      
      ---
      
      
      
      
      
      75,001
      
      $
      1.58Exercised
      
      1,210,000
      
      $
      0.18
      
      
      
      
      
      891,934
      
      $
      1.00Outstanding at December 31, 2009
      
      5,280,000
      
      $
      0.25
      
      
      
      
      
      10,761,834
      
      $
      1.01


Stock options and warrants exercisable at December 31, 2009,
are as follows:

Outstanding and Exercisable Options
      
      
      
      Outstanding and Exercisable WarrantsWeighted
      
      
      
      
      
      WeightedAverage
      
      
      
      
      
      AverageContractual
      Weighted
      
      
      
      
      Contractual
      WeightedExercise
      
      
      Remaining
      Average
      
      Exercise
      
      
      Remaining
      AveragePrice
      Outstanding
      Exercisable
      Life
      Exercise
      
      Price
      Outstanding
      Exercisable
      Life
      ExerciseRange
      Number
      Number
      (in
        Years)
      Price
      
      Range
      Number
      Number
      (in
        Years)
      Price$0.11
      4,000,000
      4,000,000
      3.78
      $0.11
      
      $1.00
      3,483,203
      3,483,203
      2.08
      $1.00$0.46
      100,000
      100,000
      1.33
      $0.46
      
      $1.00
      6,750,000
      -
      5.00
      $1.00$0.55
      175,000
      175,000
      2.32
      $0.55
      
      $1.06
      253,773
      253,773
      4.53
      $1.06$0.60
      745,000
      745,000
      3.93
      $0.60
      
      $1.25
      274,858
      274,858
      2.93
      $1.25$1.00
      200,000
      -
      4.53
      $1.00$1.165
      60,000
      60,000
      4.38
      $1.1655,280,000
      5,080,000
      
      
      
      
      10,761,834
      4,011,834Outstanding Options
      3.78
      $0.25
      
      Outstanding Warrants
      3.99
      $1.01Exercisable Options
      3.75
      $0.22
      
      Exercisable Warrants
      2.29
      $1.02




As
of December 31, 2009, the aggregate intrinsic value of all stock options and
warrants vested and expected to vest was approximately $9,992,806 and the
aggregate intrinsic value of currently exercisable stock options and warrants
was approximately $7,351,806. The intrinsic value of each option share is the
difference between the fair market value of the common stock and the exercise
price of such option or warrant share to the extent it is "in-the-money".
Aggregate Intrinsic value represents the value that would have been received by
the holders of in-the-money options had they exercised their options on the last
trading day of the quarter and sold the underlying shares at the closing stock
price on such day. The intrinsic value calculation is based on the $1.38 closing
stock price of the Common Stock on December 31, 2009. The total number of
in-the-money options and warrants vested and exercisable as of December 31,
2009, was 9,091,834.

The
  total intrinsic value of options and warrants exercised during the period ended
  December 31, 2009, was approximately $443,729. Intrinsic value of exercised
  shares is the total value of such shares on the date of exercise less the cash
  received from the option or warrant holder to exercise the options. The total
  cash proceeds received from the exercise of stock options was approximately
  $-0- for the period ended December 31, 2009.

The
  total fair value of options and warrants granted during the period ended December
  31, 2009, was approximately $4,178. The total grant-date fair value of option
  shares vested during the period ended December 31, 2009, was approximately $36,792.

16

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As
of December 31, 2009, there was approximately $8,594 of total unrecognized
stock-based compensation cost, net of expected forfeitures, related to unvested
stock options or warrants granted. This cost is expected to be recognized over a
weighted-average period of 0.03 years.

NOTE 9  SUBSEQUENT EVENTS

The
Company has evaluated events and transactions that occurred between December 31,
2009 and February 10, 2010, which is the date the consolidated financial
statements were available for issue, for possible disclosure or recognition in
the consolidated financial statements. The Company has determined that there
were no such events or transactions that warrant disclosure or recognition in
the consolidated financial statements except as noted below.

On
January 1, 2010, the Company issued 75,000 five year options with an exercise of
$1.38, the market price on the date of the grant, to each of the two outside
directors.

On
January 7, 2010, the Company entered into a Placement Agent Agreement, pursuant
to which the Placement Agent agreed to use its reasonable best efforts to
arrange for the sale of up to $10 million of registered securities of the
Company, including shares of the Company's common stock, par value $.002 per
share and warrants to purchase shares of Common Stock in a registered direct
offering. In connection with the transaction, the Company will pay the Placement
Agent (i) a cash fee equal to 6% of the gross proceeds received by the Company
and (ii) warrants to purchase shares of common stock equal to 6% of the Shares
sold in the offering, under the same terms as the warrants issued to the
purchasers; except, the exercise price shall be 125% of the public offering
price per share and the expiration date shall be five years from the effective
date of the Company's S-3 Registration Statement. The Company also agrees to
reimburse the Placement Agent's expenses (with supporting invoices/receipts) up
to a maximum of 1% of the aggregate gross proceeds raised in the placement, but
in no event more than $25,000.

On
January 14, 2010, the Company entered into definitive security purchase
agreements with 23 institutional investors (collectively, 'Purchasers") to sell
an aggregate of $10.0 million of units, each unit consisting of one Share and
one-half of a Warrant to purchase a Share by way of the Placement. Pursuant to
the transaction, the Company has agreed to sell to the Purchasers an aggregate
of 7,692,310 Shares and Warrants to purchase up to 3,846,155 additional Shares.
The Warrants will be exercisable at an exercise price of $1.70 per share
beginning immediately after issuance and will expire 5 years from the date they
are first exercisable.

The
registered direct offering closed on January 20, 2010, and the Company has
received net proceeds of approximately $9,375,000, after deducting placement
agent fees and other offering expenses. The securities will be issued pursuant
to the Company's effective S-3 Registration Statement under which the securities
will be registered.

The
units, including the Shares and Warrants (including the Placement Agent
warrants) and shares issuable upon exercise of the Warrants will be issued
pursuant to a prospectus supplement dated as of January 20, 2010, which was
filed with the Securities and Exchange Commission ("SEC") in connection with a
takedown from Santa Fe's shelf registration statement on Form S-3, which became
effective on December 29, 2009, and the base prospectus contained in such
registration statement.

From
the date of the transaction, the Company has agreed that it will not issue
additional common stock or securities convertible into common stock for a period
of 90 days. The Company also agreed that in any subsequent financings completed
within six months of the closing, except for an underwritten public offering,
that the Purchasers shall have the right to participate up to 25% in the
subsequent financings. In any registered public offering, the Purchasers shall
have the right to participate, but no Purchaser shall have the right to purchase
any particular amount of such underwritten public offering.

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

On
  February 10, 2010, the Company announced it had agreed with a refiner in Arizona
  to supply a trial shipment of 3,000 tons of high-silica flux material. The flux
  material will be processed for precious metals recovery. The Company will be
  paid for the silver and gold content according to a formula that provides for
  deductions for smelting and refining charges, and for penalties for material
  falling outside of agreed silica content and other specifications. This flux
  material was previously qualified as an acceptable smelter feedstock. The flux
  material constitutes a beneficiated product of ore from the Summit mine upgraded
  in silica and precious metals contents through crushing and screening. If this
  initial trial shipment meets the expectations of the parties, it could lead
  to a long term contract.

17

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ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS AND PLAN OF
OPERATION

THIS FORM 10-Q MAY CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS
AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
AND BY THE SECURITIES AND EXCHANGE COMMISSION IN ITS RULES, REGULATIONS AND
RELEASES, WHICH REPRESENT THE COMPANYS EXPECTATIONS OR BELIEFS, INCLUDING BUT
NOT LIMITED TO, STATEMENTS CONCERNING THE COMPANY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. THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL
RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE COMPANYS CONTROL, AND
ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY OF IMPORTANT
FACTORS, INCLUDING UNCERTAINTY RELATED TO ACQUISITIONS, GOVERNMENTAL REGULATION,
MANAGING AND MAINTAINING GROWTH, THE OPERATIONS OF THE COMPANY AND ITS
SUBSIDIARIES, VOLATILITY OF STOCK PRICE AND ANY OTHER FACTORS DISCUSSED IN THIS
AND OTHER REGISTRANT FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. THE
COMPANY DOES NOT INTEND TO UNDERTAKE TO UPDATE THE INFORMATION IN THIS FORM 10-Q
IF ANY FORWARD-LOOKING STATEMENT LATER TURNS OUT TO BE INACCURATE. THE FOLLOWING
SHOULD BE READ IN CONJUNCTION WITH THE INFORMATION PRESENTED IN THE COMPANYS
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 2009.

General

Santa
Fe Gold Corporation (the Company, our or we) is a U.S. mining company,
incorporated in August 1991 in the state of Delaware, with a general business
strategy to acquire and develop mining properties amenable to low cost
production. We currently are focused on: (1) developing our Summit silver-gold
property located in New Mexico and placing the property into production, (2)
conducting further studies on our Ortiz gold project located in New Mexico, (3)
funding the re-opening and enhancement of our Black Canyon mica project located
in Arizona or alternatively selling the project, (4) raising working capital for
general operating and administrative expenses, and (5) acquiring high quality
gold, silver and/or copper properties.

Basis of Presentation and Going Concern

The
consolidated 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 liabilities as they become due. We had a net loss of $(4,977,726)
for the six months ended December 31, 2009, and have a total accumulated deficit of $(58,897,822) at December 31, 2009. To continue as a going concern,
we are dependent on continued fund raising for project development, execution of
our business strategy and payment of general and administrative operating
expenses.

18

---

We
will need to continue to raise additional working capital to deploy other
segments of our business plan and for corporate general and administrative
operating expenses. 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. As of December 31, 2009, we have cash on hand aggregating $336,028.
We will be required to raise additional working capital in equity or financing
transactions in order to satisfy our expected cash expenditures and continue to
deploy our current business strategies.

On
September 11, 2009, we entered into a definitive gold sale agreement to sell a
portion of the life-of-mine gold production only from our Summit silver-gold
mine. Under the terms of the agreement, we received $4.0 million and on going
production payments equal to the lesser of $400 per ounce and the prevailing
market, for each ounce of gold delivered pursuant to the agreement. The
agreement funded $500,000 in September 2009, and the balance of $3.5 million was
received under the terms of the agreement in October 2009 upon satisfaction of
the funding conditions of the agreement.

On
January 7, 2010, the Company entered into a Placement Agent Agreement , pursuant
to which the Placement Agent agreed to use its reasonable best efforts to
arrange for the sale of up to $10 million of registered securities of the
Company, including shares of the Company's common stock, par value $.002 per
share and warrants to purchase shares of Common Stock in a registered direct
offering.

On
  January 14, 2010, the Company entered into definitive security purchase agreements
  with 23 institutional investors (collectively, 'Purchasers") to sell an aggregate
  of $10 million of units, each unit consisting of one Share and one-half of a
  Warrant to purchase a Share by way of the Placement. Pursuant to the transaction,
  the Company has agreed to sell to the Purchasers an aggregate of 7,692,310 Shares
  and Warrants to purchase up to 3,846,155 additional Shares. See Liquidity
  and Capital Resourcessection belowfor additional description of
  thePlacement transaction.

The
Companys consolidated 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 we be unable to
continue in existence.

Derivative Financial Instruments

In
connection with the issuance of debt or equity instruments, we may issue options
or warrants to purchase our common stock. In certain circumstances, these
options or warrants may be classified as derivative liabilities, rather than as
equity. Additionally, the debt or equity instruments may contain embedded
derivative instruments, such as conversion options, which in certain
circumstances, may be required to be bifurcated from the associated host
instrument and accounted for separately as a derivative instrument liability.

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

RESULTS OF OPERATIONS

Operating Results for the Three Months Ended December 31,
2009 and 2008

***Sales***

We
had revenues of $8,970 for the three months ended December 31, 2009, as compared
to $6,367 for the three months ended December 31, 2008. The increase of $2,603
is due to an increase in walk-in sales for aggregate products.

***Operating
Costs and Expenses***

19

---

Costs
applicable to sales were incurred aggregating $-0- for the three months ended
December 31, 2009, and $23,606 for the three months ended December 31, 2008. The
decrease of $23,606 is attributable to not incurring any operating costs
allocable to the aggregate segment in the current reporting period.

Exploration
and mining costs were $92,977 for the three months ended December 31, 2009, as
compared to $133,671 for the three months ended December 31, 2008, a decrease of
$40,694. The change is mainly attributable to decreases in equipment leases
aggregating $29,007 and shop supplies of $13,520 and were offset by an increase
in property and casualty liability insurance of $10,427.

General
and administrative expenses increased to $629,802 for the three months ended
December 31, 2009, from $551,475 for the comparative three months ended December
31, 2008, an increase of $78,327. The change is attributable primarily to
increased expenses in the following areas: depreciation expense of $62,919
resulting from the purchase of equipment for the Summit Project and additional
fixed assets put into service; the recent establishment of two foreign
subsidiaries, total general and administrative expenses aggregating $41,385;
labor burden of $10,912; legal services of $81,181 related to financing
activities; auditing and accounting expenses of $29,884. These increases where
offset by a decrease in stock compensation of $137,274.

***Other
Income and Expenses***

Other
income and (expenses) for the three months ended December 31, 2009, were
$(1,136,550) as compared to $1,028,556 for the comparable three months ended
December 31, 2008. The decrease of $2,165,106 is primarily attributable to an
increase in the loss recognized on derivative instruments liability of
$2,258,006 and a decrease in interest income of $24,843. These were offset by
decreases in accretion of discounts on notes payable of $74,970 and interest
expense of $47,720.

***Loss
on Derivative Financial Instruments***

We
recognized a loss on derivative financial instruments of $(842,150) for the
three months ended December 31, 2009, as compared to a gain of $1,415,856 for
the prior years comparable period, resulting in a difference of $2,258,006. The
non-cash loss arises from adjustments to record the derivative financial
instruments at fair values in accordance with current accounting standards. The
derivative financial instruments arose in connection with senior secured
convertible notes and the issuance of warrants attached to stock subscriptions.
Otherwise, we generally do not use derivative financial instruments for other
purposes, such as hedging cash flow or fair-value risks. The decrease in the
derivative income in the three months ended December 31, 2009, is attributable
mainly to adjustments to record the embedded conversion feature of derivative
financial instruments at fair value in accordance with current accounting
standards, changes in the market price of our common stock, which is a component
of the calculation model. We use the Black-Scholes option pricing model to
estimate the fair value of this derivative. Because Black-Scholes uses our stock
price, changes in the stock price will result in volatility in the earnings in
future periods as we continue to reflect the derivative financial instruments at
fair values.

Operating Results for the Six Months Ended December 31, 2009
and 2008

***Sales***

We
had revenues of $13,446 for the six months ended December 31, 2009, as compared
to $23,143 for the six months ended December 31, 2008. The decrease of $9,697 is
due to a decrease in walk-in sales for aggregate products.

***Operating
Costs and Expenses***

Costs
applicable to sales were incurred aggregating $264 for the six months ended
December 31, 2009, and $23,606 for the six months ended December 31, 2008. The
decrease of $23,342 is attributable to not incurring any recurring operating
costs allocable to the aggregate segment in the current reporting period.

Exploration
  and mining costs were $173,834 for the six months ended December 31, 2009, and
  $240,815 for the six months ended December 31, 2008, a decrease of $66,981.
  The change is mainly attributable to decreases in equipment leases aggregating
  $43,819; shop supplies of $24,447; general mine expenses of $9,115; storage
  rental fees of $5,733; property taxes of $2,568; and were offset by an increase
  in property and casualty liability insurance of $28,287.

20

---

General
and administrative expenses decreased to $1,071,103 for the six months ended
December 31, 2009, from $1,150,647 for the comparative six months ended December
31, 2008, a decrease of $79,544. The change is attributable primarily to a
decrease in stock compensation of $291,464 and was offset by the following
increases: depreciation expense of $149,624, related to on-going equipment
purchases for the Summit Project and additional fixed assets put into service;
legal services of $85,551 relating to financing activities; auditing and
accounting expenses of $20,789; general and administrative expenses related to
the recent establishment of two foreign subsidiaries of $45,491; consulting and
commission fees of $36,325; and labor burden of $27,575.

***Other
Income and Expenses***

Other
income and (expenses) for the six months ended December 31, 2009, were
$(3,531,491) as compared to $2,304,906 for the comparable six months ended
December 31, 2008. The decrease of $5,836,397 is primarily attributable to an
increase in the loss recognized on derivative instruments liability of
$5,748,775; decreases in interest income of $50,096; miscellaneous income of
$57,984 and relief of debt of $48,872. These were offset by decreases in
accretion of discounts on notes payable of $11,863 and interest expense of
$69,380.

***Loss
on Derivative Financial Instruments***

We
recognized a loss on derivative financial instruments of $(2,963,696) for the
six months ended December 31, 2009, as compared to a gain of $2,785,079 for the
prior year comparable period, resulting in a difference of $5,748,775. The
non-cash loss arises from adjustments to record the derivative financial
instruments at fair values in accordance with current accounting standards. The
derivative financial instruments arose in connection with senior secured
convertible notes and the issuance of warrants attached to stock subscriptions.
Otherwise, we generally do not use derivative financial instruments for other
purposes, such as hedging cash flow or fair-value risks. The decrease in the
derivative income in the six months ended December 31, 2009, is attributable
mainly to adjustments to record the embedded conversion feature of derivative
financial instruments at fair value in accordance with current accounting
standards, changes in the market price of our common stock, which is a component
of the calculation model and offset by 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 our
stock price, changes in the stock price will result in volatility in the
earnings in future periods as we continue to reflect the derivative financial
instruments at fair values.

PLAN OF OPERATIONS

Liquidity and Capital Resources

To
continue with the deployment of our business strategies, we will require
significant additional working capital. We also will require additional working
capital for employment of necessary corporate personnel, and related general and
administrative expenses.

As
of December 31, 2009, we had cash on hand of $336,028, a working capital deficit
of $(7,778,097), which included a non-cash financial derivative of $(6,824,753) in
this amount, and an accumulated deficit of $(58,897,822).

We
are continuing to pursue a joint venture or sale of the Black Canyon mica
project. Management has determined to deploy its resources in the area of
precious metals based upon the current and projected market trends in this area.

We
  continue to seek funding to advance our business plan and strategies. We require
  funding to meet our corporate general and administrative commitments, to continue
  feasibility studies on our mineral properties and to initiate exploration programs.
  We anticipate going into production in the first calendar quarter of 2010 and
  that our operations for the remaining fiscal year 2010 will be funded mainly
  from anticipated sales of precious metals, the sale of our securities and possibly
  through the exercise of certain options and warrants. We believe we will be
  able to finance our continuing future activities, although there are no assurances
  of success in this regard or in our ability to obtain continued financing through
  capital markets, joint ventures, or other acceptable arrangements. If our plans
  are not successful, future operations and liquidity may be adversely impacted.
  In the event that we are unable to obtain required capital, we may be forced
  to reduce our exploration and operating expenditures or to cease development
  operations altogether.

21

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On
September 11, 2009, we entered into a definitive gold sale agreement to sell a
portion of the life-of-mine gold production only from our Summit silver-gold
mine. Under the terms of the agreement, we received $4.0 million and on going
production payments equal to the lesser of $400 per ounce and the prevailing
market, for each ounce of gold delivered pursuant to the agreement. The
agreement funded $500,000 in September 2009, and the balance of $3.5 million was
received under the terms of the agreement in October 2009 upon satisfaction of
the funding conditions of the agreement.

On
January 7, 2010, the Company entered into a Placement Agent Agreement , pursuant
to which the Placement Agent agreed to use its reasonable best efforts to
arrange for the sale of up to $10 million of registered securities of the
Company, including shares of the Company's common stock, par value $.002 per
share and warrants to purchase shares of Common Stock in a registered direct
offering. In connection with the transaction, the Company will pay the Placement
Agent (i) a cash fee equal to 6% of the gross proceeds received by the Company
and (ii) warrants to purchase shares of common stock equal to 6% of the Shares
sold in the offering, under the same terms as the warrants issued to the
purchasers; except, the exercise price shall be 125% of the public offering
price per share and the expiration date shall be five years from the effective
date of the Company's S-3 Registration Statement. The Company also agrees to
reimburse the Placement Agent's expenses (with supporting invoices/receipts) up
to a maximum of 1% of the aggregate gross proceeds raised in the placement, but
in no event more than $25,000.

On
January 14, 2010, the Company entered into definitive security purchase
agreements with 23 institutional investors (collectively, 'Purchasers") to sell
an aggregate of $10.0 million of units, each unit consisting of one Share and
one-half of a Warrant to purchase a Share by way of the Placement. Pursuant to
the transaction, the Company has agreed to sell to the Purchasers an aggregate
of 7,692,310 Shares and Warrants to purchase up to 3,846,155 additional Shares.
The Warrants will be exercisable at an exercise price of $1.70 per share
beginning immediately after issuance and will expire 5 years from the date they
are first exercisable.

The
registered direct offering closed on January 20, 2010, and the Company has
received net proceeds of approximately $9,375,000, after deducting placement
agent fees and other offering expenses. The securities will be issued pursuant
to the Company's effective S-3 Registration Statement under which the securities
will be registered.

The
units, including the Shares and Warrants (including the Placement Agent
warrants) and shares issuable upon exercise of the Warrants will be issued
pursuant to a prospectus supplement dated as of January 20, 2010, which was
filed with the Securities and Exchange Commission ("SEC") in connection with a
takedown from Santa Fe's shelf registration statement on Form S-, which became
effective on December 29, 2009, and the base prospectus contained in such
registration statement.

From
the date of the transaction, the Company has agreed that it will not issue
additional common stock or securities convertible into common stock for a period
of 90 days. The Company also agreed that in any subsequent financings completed
within six months of the closing, except for an underwritten public offering,
that the Purchasers shall have the right to participate up to 25% in the
subsequent financings. In any registered public offering, the Purchasers shall
have the right to participate, but no Purchaser shall have the right to purchase
any particular amount of such underwritten public offering.

The
Company intends to use the net proceeds for general corporate purposes,
including but not limited to, working capital for the Summit silver-gold
project; acquisition of additional feed sources for expansion of the Lordsburg
mill; advancement of the Ortiz gold project; exploration of the Pilar gold
project; and pursuit of acquisition opportunities

Factors Affecting Future Operating Results

We
have continued to deploy our plan to place the Company on an improved financial
footing. In addition to the significant capital raisings already achieved and
the securities placement in January 2010, important elements of the plan include
remaining current in the filing of our annual and quarterly financial reports
and continuing to raise funding as may be required to provide for operations on
our various property sites. If we continue to secure required financing on
acceptable terms, we believe we will be in a position to execute our business
plan on our property sites.

22

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Off-Balance Sheet Arrangements

During
the three months ended December 31, 2009, we did not engage in any off-balance
sheet arrangements defined in Item 303(a) (4) of the SECs Regulation S-K.

ITEM 4  CONTROLS AND PROCEDURES

We
maintain disclosure controls and procedures as defined in Rules 13a-15(e) 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 is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms, and is accumulated
and communicated to our management as appropriate to allow timely decisions
regarding required disclosure. Under the supervision of, and the participation
of, our management, including our Chief Executive Officer and Chief Financial
Officer, we have conducted an evaluation of our disclosure controls and
procedures as of December 31, 2009. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer has concluded that our disclosure
controls and procedures are effective.

During
the quarter ended December 31, 2009, there were no changes in our internal
controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.

PART IIOTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS

None

ITEM 1A. RISK FACTORS

Not
  Applicable

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF
PROCEEDS

On
November 10, 2009, a warrant holder exercised 239,989 warrants with an exercise
price of $1.00 per share to purchase shares of the Companys stock on a cashless
basis. Under the cashless basis, 67,335 shares were issued.

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

On
December 7, 2009, the Company issued 20,000 shares of common stock at a market
value of $29,400 for investor relations services.

On
December 11, 2009, a warrant holder exercised 651,945 warrants with an exercise
price of $1.00 per share to purchase shares of the Companys stock on a cashless
basis. Under the cashless basis, 207,235 shares were issued.

On
December 29, 2009, an option holder exercised 10,000 options with an exercise
price of $0.60 per share to purchase shares of the Companys stock on a cashless
basis. Under the cashless basis, 5,522 shares were issued.

On
December 31, 2009, a convertible debenture holder converted $241,500 of accrued
interest into 241,500 shares of the Companys stock. The aggregate amount of
accrued interest converted was recorded as capitalized interest expense during
the three months ended December 31, 2009.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

(a)      The
following exhibits are filed as part of this report:

| | 31.1 | Certification of Chief Executive
        Officer and Principal Accounting Officer of Periodic Report pursuant to
        Rule 13a-14a and Rule 15d-14(a).
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                          
| | 32.1 | Certification of Chief Executive
        Officer and Principal Accounting Officer pursuant to 18 U.S.C. 
        Section 1350.                          

SIGNATURES:

In
accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|Dated: February 12, 2010 | SANTA FE GOLD CORPORATION
|------------------------ | -------------------------
|                         |                          
|                         | By:                      
|                         |                          
|                         |                          
|                         |                          

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