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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, 2010

[   ]  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/A
  Former 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                 
      [X]
|------------------------------ | --------------------------------------------------
|Non-accelerated filer    [  
] | Smaller reporting company [  
  ]                 

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: 94,695,556
shares outstanding as of February 8, 2011.

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SANTA FE GOLD CORPORATIONINDEX TO FORM 10-Q

|               |                                                                                                                       | Page
|-------------- | --------------------------------------------------------------------------------------------------------------------- | ----
|               |                                                                                                                       |     
|               | PART IFINANCIAL INFORMATION                                                                                           |     
|               |                                                                                                                       |     
|Item 1.        | Financial Statements                                                                                                  | 3   
|               |                                                                                                                       |     
|               | Consolidated Balance Sheets, December 31, 2010 (Unaudited)
      and June 30, 2010                                    | 4   
|               |                                                                                                                       |     
|               | Consolidated Statements of Operations for the Three and Six
      Months Ended December 31, 2010 and 2009 (Unaudited) | 5   
|               |                                                                                                                       |     
|               | Consolidated Statements of Cash Flows for the Six Months
      Ended December 31, 2010 and 2009 (Unaudited)           | 6   
|               |                                                                                                                       |     
|               | Notes to the Unaudited Consolidated Financial Statements                                                              | 8   
|               |                                                                                                                       |     
|Item 2.        | Managements Discussion and Analysis of Financial Condition
      and Results of Operations                           | 19  
|               |                                                                                                                       |     
|Item 3.        | Quantitative and Qualitative Disclosures about Market Risk                                                            | 24  
|               |                                                                                                                       |     
|Item 4.        | Controls and Procedures                                                                                               | 25  
|               |                                                                                                                       |     
|               | PART IIOTHER INFORMATION                                                                                              |     
|               |                                                                                                                       |     
|Item 1.        | Legal Proceedings                                                                                                     | 25  
|               |                                                                                                                       |     
|Item 1A.       | Risk Factors                                                                                                          | 25  
|               |                                                                                                                       |     
|Item 2.        | Unregistered Sales of Equity Securities and Use of Proceeds                                                           | 25  
|               |                                                                                                                       |     
|Item 3.        | Defaults Upon Senior Securities                                                                                       | 25  
|               |                                                                                                                       |     
|Item 4.        | Submission of Matters to a Vote of Security Holders                                                                   | 25  
|               |                                                                                                                       |     
|Item 5.        | Other Information                                                                                                     | 25  
|               |                                                                                                                       |     
|Item 6.        | Exhibits                                                                                                              | 26  
|               |                                                                                                                       |     
|SIGNATURES     | 27                                                                                                                   
|               |                                                                                                                       |     
|CERTIFICATIONS |                                                                                                                      

2

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PARTIFINANCIALINFORMATION

ITEM1. FINANCIALSTATEMENTS

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SANTA FE GOLD CORPORATIONCONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                                                                                                       |   | December 31, |   |   | June 30,    |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ------------ | - | - | ----------- | -
|                                                                                                                                                                                                                                                       |   | 2010         |   |   | 2010        |  
|                                                                                                                                                                                                                                                       |   | (Unaudited)  |   |   |             |  
|ASSETS                                                                                                                                                                                                                                                 |  
|CURRENT ASSETS:                                                                                                                                                                                                                                        |   |              |   |   |             |  
|Cash and cash equivalents                                                                                                                                                                                                                              | $ | 2,631,649    |   | $ | 5,540,130   |  
|Accounts receivable                                                                                                                                                                                                                                    |   | 657,178      |   |   | -           |  
|Marketable securities                                                                                                                                                                                                                                  |   | 190,000      |   |   | -           |  
|Prepaid expenses and other current
      assets                                                                                                                                                                                                        |   | 233,736      |   |   | 267,208     |  
|Total Current Assets                                                                                                                                                                                                                                   |   | 3,712,563    |   |   | 5,807,338   |  
|MINERAL PROPERTIES                                                                                                                                                                                                                                     |   | 579,000      |   |   | 579,000     |  
|PROPERTY, PLANT AND EQUIPMENT, net                                                                                                                                                                                                                     |   | 13,516,842   |   |   | 3,790,215   |  
|OTHER ASSETS:                                                                                                                                                                                                                                          |   |              |   |   |             |  
|Construction in
      process                                                                                                                                                                                                                          |   | 6,520,693    |   |   | 15,177,362  |  
|Idle equipment, net                                                                                                                                                                                                                                    |   | 1,223,528    |   |   | 1,223,528   |  
|Restricted cash                                                                                                                                                                                                                                        |   | 410,374      |   |   | 410,374     |  
|Deferred financing costs                                                                                                                                                                                                                               |   | 363,858      |   |   | 413,017     |  
|Total Other Assets                                                                                                                                                                                                                                     |   | 8,518,453    |   |   | 17,224,281  |  
|Total Assets                                                                                                                                                                                                                                           | $ | 26,326,858   |   | $ | 27,400,834  |  
|                                                                                                                                                                                                                                                       |   |              |   |   |             |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                                                                                                                                                         |  
|CURRENT LIABILITIES:                                                                                                                                                                                                                                   |   |              |   |   |             |  
|Accounts payable                                                                                                                                                                                                                                       | $ | 566,346      |   | $ | 458,098     |  
|Accrued liabilities                                                                                                                                                                                                                                    |   | 281,922      |   |   | 320,566     |  
|Derivative instrument liabilities                                                                                                                                                                                                                      |   | 15,950,589   |   |   | 9,894,041   |  
|Notes payable, current portion                                                                                                                                                                                                                         |   | 137,363      |   |   | 138,821     |  
|Capital leases, current portion                                                                                                                                                                                                                        |   | 133,997      |   |   | 138,117     |  
|Deferred revenue,
      current portion                                                                                                                                                                                                                |   | 3,882,863    |   |   | 243,107     |  
|Accrued interest payable                                                                                                                                                                                                                               |   | 10,845       |   |   | 20,525      |  
|Total Current Liabilities                                                                                                                                                                                                                              |   | 20,963,925   |   |   | 11,213,275  |  
|LONG TERM LIABILITIES:                                                                                                                                                                                                                                 |   |              |   |   |             |  
|Senior
      secured convertible notes payable, net of discount of             
      $3,184,403 and $3,793,560, respectively                                                                                                                          |   | 10,765,597   |   |   | 10,156,440  |  
|Notes payable, net of current portion                                                                                                                                                                                                                  |   | 62,045       |   |   | 122,915     |  
|Capital leases,
      net of current portion                                                                                                                                                                                                           |   | 64,822       |   |   | 128,909     |  
|Deferred revenue, net of current
      portion                                                                                                                                                                                                         |   | -            |   |   | 3,756,893   |  
|Asset retirement
      obligation                                                                                                                                                                                                                      |   | 84,059       |   |   | 84,059      |  
|Total Liabilities                                                                                                                                                                                                                                      |   | 31,940,448   |   |   | 25,462,491  |  
|STOCKHOLDERS' EQUITY (DEFICIT):                                                                                                                                                                                                                        |   |              |   |   |             |  
|Common stock, $.002 par
      value, 200,000,000 shares authorized; 94,675,945 and             
      93,059,568 shares issued and outstanding, respectively; Includes non-vested 
                  shares
      of 575,000 and 765,000, respectively |   | 188,203      |   |   | 184,590     |  
|Additional paid
      in capital                                                                                                                                                                                                                       |   | 58,697,899   |   |   | 56,883,203  |  
|Accumulated (deficit)                                                                                                                                                                                                                                  |   | (64,591,634  | ) |   | (55,129,450 | )
|Accumulated other
      comprehensive income                                                                                                                                                                                                           |   | 91,942       |   |   | -           |  
|Total Stockholders' Equity
    (Deficit)                                                                                                                                                                                                               |   | (5,613,590   | ) |   | 1,938,343   |  
|                                                                                                                                                                                                                                                       | $ | 26,326,858   |   | $ | 27,400,834  |  

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

4

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SANTA FE GOLD CORPORATIONCONSOLIDATED STATEMENT OF
OPERATIONSAND COMPREHENSIVE INCOME(Unaudited)

|                                                                                  |   | For the Three Months Ended |   |   | For the Six Months Ended |  
|--------------------------------------------------------------------------------- | - | -------------------------- | - | - | ------------------------ | -
|                                                                                  |   | December
      31,         |   |   | December
      31,       |  
|                                                                                  |   | 2010                       |   |   | 2009                     |  
|                                                                                  |   |                            |   |   |                          |  
|SALES                                                                             | $ | 473,440                    |   | $ | 8,970                    |  
|                                                                                  |   |                            |   |   |                          |  
|OPERATING COSTS AND EXPENSES:                                                     |   |                            |   |   |                          |  
|Costs applicable to sales                                                         |   | 304,335                    |   |   | -                        |  
|Exploration and
      mine and mill start up costs                                |   | 682,378                    |   |   | 155,213                  |  
|General and administrative                                                        |   | 726,456                    |   |   | 567,566                  |  
|Depreciation and
      amortization                                               |   | 575,844                    |   |   | 108,569                  |  
|                                                                                  |   | 2,289,013                  |   |   | 831,348                  |  
|                                                                                  |   |                            |   |   |                          |  
|LOSS FROM OPERATIONS                                                              |   | (1,815,573                 | ) |   | (822,378                 | )
|                                                                                  |   |                            |   |   |                          |  
|OTHER INCOME (EXPENSE):                                                           |   |                            |   |   |                          |  
|(Loss) on disposal
      of assets                                                |   | -                          |   |   | -                        |  
|Interest income                                                                   |   | 1,930                      |   |   | 2,570                    |  
|Miscellaneous income                                                              |   | (1,166                     | ) |   | 1,100                    |  
|Foreign currency translation (loss)
      gain                                    |   | -                          |   |   | (200                     | )
|(Loss) on derivative
      instrument liabilities                                 |   | (3,197,189                 | ) |   | (842,150                 | )
|Accretion of discounts on notes
      payable                                     |   | (312,793                   | ) |   | (254,999                 | )
|Interest expense                                                                  |   | (185,687                   | ) |   | (42,871                  | )
|                                                                                  |   | (3,694,905                 | ) |   | (1,136,550               | )
|                                                                                  |   |                            |   |   |                          |  
|LOSS BEFORE PROVISION FOR INCOME TAXES                                            |   | (5,510,478                 | ) |   | (1,958,928               | )
|PROVISION FOR INCOME TAXES                                                        |   | -                          |   |   | -                        |  
|                                                                                  |   |                            |   |   |                          |  
|NET LOSS                                                                          |   | (5,510,478                 | ) |   | (1,958,928               | )
|                                                                                  |   |                            |   |   |                          |  
|OTHER COMPREHENSIVE INCOME:                                                       |   |                            |   |   |                          |  
|Unrealized gain on marketable securities                                          |   | 91,942                     |   |   | -                        |  
|                                                                                  |   |                            |   |   |                          |  
|NET COMPREHENSIVE LOSS                                                            | $ | (5,418,536                 | ) | $ | (1,958,928               | )
|                                                                                  |   |                            |   |   |                          |  
|Basic and Diluted Per Share Data 
             Net Loss - basic
      and diluted | $ | (0.06                      | ) | $ | (0.02                    | )
|                                                                                  |   |                            |   |   |                          |  
|Weighted Average Common Shares Outstanding: 
           Basic and diluted         |   | 92,433,783                 |   |   | 84,068,911               |  

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

5

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SANTA FE GOLD CORPORATIONCONSOLIDATED STATEMENTS
OF CASH FLOWS(Unaudited)

|                                                      |   | For the Six Months Ended |  
|----------------------------------------------------- | - | ------------------------ | -
|                                                      |   | December
      31,       |  
|                                                      |   | 2010                     |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                 |   |                          |  
|Net loss                                              | $ | (9,462,184               | )
|Adjustments to reconcile
      net loss to net cash   |   |                          |  
|used in operating activities:                         |   |                          |  
|Depreciation                                          |   | 1,148,001                |  
|Stock
      based compensation                        |   | 686,294                  |  
|Accretion of discounts on notes payable               |   | 609,157                  |  
|Foreign
      currency translation (gain)             |   | -                        |  
|Loss on derivative instrument liabilities             |   | 5,324,562                |  
|Loss
      on disposal of assets                      |   | -                        |  
|Amortization of deferred financing costs              |   | 49,159                   |  
|Net change in operating assets and
      liabilities: |   |                          |  
|Accounts receivable                                   |   | (657,178                 | )
|Prepaid
      expenses and other current assets       |   | 33,472                   |  
|Accounts payable and accrued liabilities              |   | 69,604                   |  
|Deferred
      revenue                                |   | (117,137                 | )
|Accrued interest payable                              |   | (9,680                   | )
|Net
      Cash (Used in) Operating Activities         |   | (2,325,930               | )
|                                                      |   |                          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                 |   |                          |  
|Purchase of marketable securities                     |   | (98,058                  | )
|Proceeds from disposal
      of assets                |   | -                        |  
|Purchase of property, plant and
      equipment       |   | (459,345                 | )
|Construction in
      progress                        |   | (1,758,614               | )
|Net
      Cash (Used in) Investing Activities         |   | (2,316,017               | )
|CASH FLOWS FROM FINANCING ACTIVITIES:                 |   |                          |  
|Proceeds from issuance of stock
      and warrants    |   | 2,000,001                |  
|Proceeds from notes
      payable                     |   | 77,306                   |  
|Proceeds from deferred revenue                        |   | -                        |  
|Payment of financing
      cost                       |   | (136,000                 | )
|Payments on notes payable                             |   | (139,634                 | )
|Payments on capital
      leases                      |   | (68,207                  | )
|Net
      Cash Provided by Financing Activities       |   | 1,733,466                |  
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS      |   | (2,908,481               | )
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD        |   | 5,540,130                |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD              | $ | 2,631,649                |  

6

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SANTA FE GOLD CORPORATIONCONSOLIDATED STATEMENTS
OF CASH FLOWS(Unaudited)

|                                                                              |   | For the Six Months Ended | 
|----------------------------------------------------------------------------- | - | ------------------------ | 
|                                                                              |   | December
      31,       | 
|                                                                              |   | 2010                     | 
|                                                                              |   |                          | 
|SUPPLEMENTAL CASH FLOW INFORMATION:                                           |   |                          | 
|                                                                              |   |                          | 
|Cash paid for interest                                                        | $ | 529,873                  | 
|                                                                              |   |                          | 
|Cash paid for income
      taxes                                              | $ | -                        | 
|                                                                              |   |                          | 
|SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
      AND FINANCING ACTIVITIES: |   |                          | 
|                                                                              |   |                          | 
|Stock issued for
      conversion of accrued interest                         | $ | -                        | 
|                                                                              |   |                          | 
|Equipment purchased
      with note payable                                   | $ | -                        | 
|                                                                              |   |                          | 
|Stock issued for
      conversion of accrued liability                        | $ | -                        | 
|                                                                              |   |                          | 
|Stock issued for
      conversion of note payable                             | $ | -                        | 
|                                                                              |   |                          | 
|Stock issued for
      services                                               | $ | 6,750                    | 

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

7

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SANTA FE GOLD CORPORATIONNOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010(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, and the 100% owned Black Canyon mica project in Arizona.

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 adjustments) considered necessary for a fair presentation
have been included. Operating results for the six month period ended December
31, 2010, are not necessarily indicative of the results that may be expected for
the year ending June 30, 2011. 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, 2010, 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 $9,462,184 for the six months ended December 31, 2010,
has a working capital deficit of $17,251,362 which includes a non-cash financial
derivative liability of $15,950,589 and deferred revenue of $3,882,863, and has
a total accumulated deficit of $64,591,634 at December 31, 2010. The Company
generated revenues of $1,250,262 from the initial sales of precious metals in
the six months ended December 31, 2010. To continue as a going concern, the
Company is dependent upon an increased ramp up of production on the Companys
Summit mine site; increased through put recovery of precious metals through the
Banner mill; and continued fund raising for project development and working
capital for operational and administrative expenses.

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.

8

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Estimates

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

Marketable Securities

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

Fair Value Measurements

The
carrying values of cash and cash equivalents, restricted cash, accounts payable
and accrued liabilities approximated their related fair values as of December
31, 2010, due to the relatively short-term nature of these instruments. The
carrying value of the Companys convertible debentures approximates the fair
value based on the terms at which the Company could obtain similar financing and
the short term nature of these instruments.

Derivative Financial Instruments

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

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

Derivative
financial instruments are initially measured at their fair value. For derivative
financial instruments that are accounted for as liabilities, the derivative
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, not silver production,
from our Summit silver-gold mine. Under the terms of the agreement, the Company
received an upfront cash advance of $4.0 million. The upfront cash advance will
be amortized by the difference between the market price and $400 per ounce for
those gold deliveries where the prevailing market price exceeds $400 per ounce.
These credits will be recognized as revenue along with the on-going production
payments for gold delivered pursuant to the agreement. Deferred revenue on
the Companys balance sheet is categorized as current if the Company expects to
recognize such revenue within the following twelve months. Based upon the terms
of the agreement, current deferred revenue approximated $3,882,863 at December
31, 2010.

9

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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. Consequently the
impact of outstanding stock equivalents has not been included in the current
period as they would be anti-dilutive.

Comprehensive Loss

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

Reclassifications

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

Recent Accounting Pronouncements

In
January 2010, the ASC guidance for fair value measurements and disclosure was
updated to require additional disclosures related to: i) transfers in and out of
level 1 and 2 fair value measurements and ii) enhanced detail in the level 3
reconciliation. The guidance was amended to provide clarity about: i) the level
of disaggregation required for assets and liabilities and ii) the disclosures
required for inputs and valuation techniques used to measure fair value for both
recurring and nonrecurring measurements that fall in either level 2 or level 3.
The adoption of the updated guidance by the Company, with the exception of the
level 3 disaggregation, which is effective for the Companys fiscal year
beginning July 1, 2011, did not have a material impact on the Companys
consolidated financial statements. The Company is evaluating the potential
impact of adopting the level 3 disaggregation of this guidance on the Companys
consolidated financial position, results of operations and cash flows.

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

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

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

10

---

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 statement.

NOTE 3 - DERIVATIVE INSTRUMENT LIABILITIES

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

The
fair market value of the derivative instruments liability at December 31, 2010,
was determined to be $15,950,589 with the following assumptions: (1) risk free
interest rate of 0.23% to 2.01%, (2) remaining contractual life of 0.70 to 5.00
years, (3) expected stock price volatility of 68.65% - 79.51%, 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, 2010, of $(5,324,562) and a corresponding increase in the
derivative instruments liability.

|                                                            |   | Derivative          |  |   | Derivative        |  |   | Derivative        |  
|----------------------------------------------------------- | - | ------------------- |  | - | ----------------- |  | - | ----------------- | -
|                                                            |   | Liability as of     |  |   | Liability as of   |  |   | (Loss) Through    |  
|                                                            |   | June
      30, 2010 |  |   | December 31, 2010 |  |   | December 31, 2010 |  
|Convertible Debentures:                                     |   |                     |  |   |                   |  |   |                   |  
|Purchase
      Agreement Warrants                           | $ | 6,585,752           |  | $ | 10,502,529        |  | $ | (3,916,777        | )
|Amendment 2 Warrants                                        |   | 637,296             |  |   | 1,006,683         |  |   | (369,387          | )
|Embedded
      Conversion Option                            |   | 2,670,993           |  |   | 4,441,377         |  |   | (1,770,384        | )
|Totals                                                      | $ | 9,894,041           |  | $ | 15,950,589        |  |   | (6,056,548        | )
|                                                            |   |                     |  |   |                   |  |   |                   |  
|Amount allocated to derivative
      liability at inception |   |                     |  |   |                   |  |   | 731,986           |  
|                                                            |   |                     |  |   |                   |  | $ | (5,324,562        | )

The
derivative liability is comprised of the following as of:

|                                                            |   | December 31, |  |   | June 30,  | 
|----------------------------------------------------------- | - | ------------ |  | - | --------- | 
|                                                            |   | 2010         |  |   | 2010      | 
|Current portion of derivative
      instruments liability   | $ | 15,950,589   |  | $ | 9,894,041 | 
|Long-term portion of derivative instruments
      liability |   | -            |  |   | -         | 
|                                                            | $ | 15,950,589   |  | $ | 9,894,041 | 

NOTE 4  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.

11

---

Interest accrued for 18 months from the date of closing.
Interest on the outstanding principal balance is then payable in quarterly
installments commencing on the first day of the 19th month following closing. In
connection with the transaction, the Company issued a five year warrant for each
$2.50 invested, for a total of 180,000 warrants, each warrant giving the note
holder the right to purchase one share of common stock at a price of $1.25 per
share. At the option of the holders of the convertible notes, the outstanding
principal and interest is convertible at any time into shares of the Companys
common stock at conversion price of $1.25 per share. The notes will be
automatically converted into common stock if the weighted average closing sales
price of the stock exceeds $2.50 per share for ten consecutive trading days. The
shares underlying the notes and warrants will be registered on request of the
note holders, provided the weighted average closing price of the stock exceeds
$1.50 per share for ten consecutive trading days.

Senior Secured Convertible Debenture

On
December 21, 2007, the Company entered into definitive agreements for the
placement with a single investor of a 7% Senior Secured Convertible Debenture in
the amount of $13,500,000. Proceeds from the debenture were issued in accordance
with a pre-determined funding schedule related to the Summit projects
anticipated construction requirements. The term of the debenture is 60 months,
at the end of which time all remaining principal and interest shall be due. The
debenture bears interest at the rate of 7% per annum. Interest 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 received a warrant to
purchase one share of common stock at a price of $1.00. The warrants are
exercisable from July 1, 2010 to December 31, 2014. The Company has received
total advances under the agreement of $13,500,000, and the Company 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, the
accrued interest on the debentures due June 30, 2009, in the collective
aggregate amount of $974,360, was automatically converted into 974,360 shares of
the Companys common stock effective as of June 30, 2009. The amendment also
provided that the accrued interest for the quarters ended September 30, 2009 and
December 31, 2009 shall be paid in shares of the Companys common stock, to be
valued at $1.00 per share at the time of payment and issuance. Accordingly the
Company issued 483,000 shares of its common stock for payment of $483,000 of
aggregate accrued interest for the quarters ended September 30, 2009 and
December 31, 2009. Additionally the amendment provided that on March 31, 2010,
the note holder had the option to make a six-month election, by providing
written notice of its election thirty days prior to March 31, 2010, to have the
March 31, 2010 and June 30, 2010 quarterly interest payments paid in shares of
the Companys common stock. The note holder chose not to make the election, and
consequently the accrued interest relating to the debentures, totaling $475,125
for the quarters ended March 31, 2010, June 30, 2010 and September 30, 2010, was
paid in cash. Commencing September 30, 2010, the note holder had 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 is to be based upon
the Market Price of the stock for the 30 trading days immediately preceding the
payment due date. The note holder chose not to make the election, and
consequently the accrued interest relating to the debentures, totaling $483,000
for the quarters ended September 30, 2010 and December 31, 2010, was paid in
cash.

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

12

---

|December 31, 2010                 |   | Principal  |  |   | Unamortized |   |   |            | 
|--------------------------------- | - | ---------- |  | - | ----------- | - | - | ---------- | 
|                                  |   | Amount     |  |   | Discount    |   |   | Net        | 
|Current portion                   | $ | -          |  | $ | -           |   | $ | -          | 
|Long-term portion, net of current |   | 13,950,000 |  |   | (3,184,403  | ) |   | 10,765,597 | 
|                                  |   |            |  |   |             |   |   |            | 
|                                  | $ | 13,950,000 |  | $ | (3,184,403  | ) | $ | 10,765,597 | 

|June 30, 2010                     |   | Principal  |  |   | Unamortized |   |   |            | 
|--------------------------------- | - | ---------- |  | - | ----------- | - | - | ---------- | 
|                                  |   | Amount     |  |   | Discount    |   |   | Net        | 
|Current portion                   | $ | -          |  | $ | -           |   | $ | -          | 
|Long-term portion, net of current |   | 13,950,000 |  |   | (3,793,560  | ) |   | 10,156,440 | 
|                                  |   |            |  |   |             |   |   |            | 
|                                  | $ | 13,950,000 |  | $ | (3,793,560  | ) | $ | 10,156,440 | 

Aggregate
yearly maturities of long term debt based upon payment terms at December 31,
2010, are as follows:

2011
    $
    -2012
    
    13,950,000Subtotal
    
    13,950,000Less: unamortized original discount
    
    (3,184,403
    )$
    10,765,597


As
of December 31, 2010, accrued interest payable on the convertible notes payable
and debentures was $6,375.

NOTE 5  NOTES PAYABLE

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

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. All amounts owed under the agreement were paid off in full prior to
September 30, 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.
All amounts owed under the agreement were paid off in full prior to September
30, 2010.

13

---

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

The
following summarizes notes payable at December 31, 2010 and June 30, 2010:

|                                                                                                                                                                                                          |   | December 31, |   |   |               |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------ | - | - | ------------- | -
|                                                                                                                                                                                                          |   | 2010         |   |   | June 30, 2010 |  
|                                                                                                                                                                                                          |   | (Unaudited)  |   |   |               |  
|Note payable for mineral
      property,                interest
      at 10%, payable in 4 annual
      installments                of
      $63,094, including interest through August 2012             | $ | 109,502      |   | $ | 156,906       |  
|                                                                                                                                                                                                          |   |              |   |   |               |  
|Installment sales contract on
      equipment,                interest
      at 6.75%, payable in 36 monthly
      installments                of
      $2,911, including interest through September 2011 |   | 22,744       |   |   | 39,180        |  
|                                                                                                                                                                                                          |   |              |   |   |               |  
|Installment sales contract on
      equipment,                interest
      at 9.25%, payable in 36 monthly
      installments                of
      $537, including interest through October 2012     |   | 10,452       |   |   | 13,141        |  
|                                                                                                                                                                                                          |   |              |   |   |               |  
|Financing contract on insurance
      premiums                interest
      at 6.99%, payable in 11 monthly
      installments                of
      $6,862, including interest through September 2010 |   | -            |   |   | 13,604        |  
|                                                                                                                                                                                                          |   |              |   |   |               |  
|Financing contract on insurance
      premiums                interest
      at 5.99%, payable in 11 monthly
      installments                of
      $13,098, including interest through October 2010  |   | -            |   |   | 38,905        |  
|                                                                                                                                                                                                          |   |              |   |   |               |  
|Financing contract on insurance
      premiums                interest
      at 6.99%, payable in 11 monthly
      installments                of
      $7,276, including interest through September 2011 |   | 56,710       |   |   | -             |  
|                                                                                                                                                                                                          |   |              |   |   |               |  
|Total Outstanding Notes Payable                                                                                                                                                                           |   | 199,408      |   |   | 261,736       |  
|Less: Current maturities                                                                                                                                                                                  |   | (137,363     | ) |   | (138,821      | )
|Obligations of notes payable due after one
      year                                                                                                                                                     | $ | 62,045       |   | $ | 122,915       |  

The
aggregate maturities of notes payable as of December 31, 2010, is as follows:

Year ending June 30,2011
    $
    62,0682012
    
    78,3842013
    
    58,956Total Outstanding Notes Payable
    $
    199,408


NOTE 6  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.

14

---

Minimum
future lease payments under capital leases, as of December 31, 2010, for each of
the following years and in aggregate, are as follows:

Year ended June 30,2011
    $
    74,7822012
    
    88,4052013
    
    43,0412014
    
    3,587Total minimum lease payments
    
    209,815Amount representing interest
    
    (10,996
    )Present value of future minimum lease
      payments
    
    198,819Current portion of capital lease obligations
    
    (133,997
    )Obligations of capital leases due after one
      year
    $
    64,822


NOTE 7  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 or 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s financial instruments consist of marketable securities and derivative
instruments which are measured at fair value on a recurring basis. Marketable
securities are comprised of 1,000,000 shares of common stock of Columbus Silver
Corporation which is traded on the TSX Venture Exchange (TSXV: CSC). The stock
was purchased in accordance with a Memorandum of Understanding entered into on
September 24, 2010 for the purpose of consummating a business combination. The
derivative instruments consist of certain embedded features contained within its
debt instruments and certain warrant contracts. The derivatives are measured on
their respective origination dates, at the end of each reporting period and at
other points in time when necessary, such as modifications, using Level 3 inputs
in accordance with GAAP. The Company does not report any financial assets or
liabilities that it measures using Level 2 inputs. The fair value measurement of
financial instruments and other assets as of December 31, 2010 are as follows:

15

---

|                                          |   |         |  |  |         |  |   |            |  |   | December 31, | 
|----------------------------------------- | - | ------- |  |  | ------- |  | - | ---------- |  | - | ------------ | 
|                                          |   | Level 1 |  |  | Level 2 |  |   | Level 3    |  |   | 2010         | 
|Marketable Securities                     | $ | 190,000 |  |  | ---     |  |   | ---        |  | $ | 190,000      | 
|Other Assets:                             |   |         |  |  |         |  |   |            |  |   |              | 
|Idle
      equipment, net                 |   | ---     |  |  | ---     |  | $ | 1,223,528  |  | $ | 1,223,528    | 
|                                          |   |         |  |  |         |  |   |            |  |   |              | 
|Value of derivative instruments liability |   | ---     |  |  | ---     |  | $ | 15,950,589 |  | $ | 15,950,589   | 

Idle
equipment includes equipment associated with the Black Canyon mica project and
which the Company has ceased operations and are classified as Level 3
non-financial assets. 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 months ended December
31, 2010.

NOTE 8 - STOCKHOLDERS (DEFICIT)

Issuances of Common Stock

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

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

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

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

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

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

Stock-based
compensation for stock granted in the prior year totaling $146,108 and $320,561
was recorded respectively for the three months and six months ended December 31,
2010.

Issuances of Options

On
November 10, 2010, the Company granted 150,000 three-year options at an exercise
price of $1.30 per share. The options have a six month vesting period from the
date of grant. The options were valued at $55,368 using the Black-Scholes option
pricing model. The options were valued using the following assumptions: (1) a
risk free interest rate of 0.63%, (2) an expected life of 3.0 years, (3)
expected stock price volatility of 75.51%, and (4) expected dividend yield of
zero. Stock-based compensation of $15,688 was recorded during the three months
ended December 31, 2010.

Stock-based
compensation for options issued in the prior year totaling $155,600 and $343,295
was recorded respectively for the three months and six months ended December 31,
2010.

16

---

Issuances of Warrants

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

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, 2010, are as follows:

|                                 |  | Stock
      Options |   |  | Stock
      Warrants | 
|-------------------------------- |  | ------------------- | - |  | -------------------- | 
|                                 |  |                     |   |  | Weighted             | 
|                                 |  |                     |   |  | Average              | 
|                                 |  | Shares              |   |  | Price                | 
|Outstanding at June 30, 2010     |  | 6,705,000           |   |  | $0.41                | 
|Granted                          |  | 150,000             |   |  | $1.30                | 
|Canceled                         |  | (10,000             | ) |  | $0.86                | 
|Expired                          |  | ---                 |   |  | ---                  | 
|Exercised                        |  | (95,000             | ) |  | $0.60                | 
|Outstanding at December 31, 2010 |  | 6,750,000           |   |  | $0.43                | 

Stock
options and warrants exercisable at December 31, 2010, are as follows:

|Outstanding and Exercisable Options |             | Outstanding and Exercisable Warrants
|----------------------------------- | ----------- | ------------------------------------
|                                    |             |                                     
|                                    |             |                                     
|                                    |             |                                     
|Exercise                            |             |                                     
|Price                               | Outstanding | Exercisable                         
|Range                               | Number      | Number                              
|$0.11                               | 4,000,000   | 4,000,000                           
|$0.46                               | 100,000     | 100,000                             
|$0.55                               | 175,000     | 175,000                             
|$0.60                               | 610,000     | 610,000                             
|$0.86                               | 1,085,000   | 1,085,000                           
|$1.00                               | 200,000     | 200,000                             
|$1.165                              | 30,000      | 30,000                              
|$1.30                               | 125,000     | 125,000                             
|$1.30                               | 150,000     | ---                                 
|$1.38                               | 150,000     | 150,000                             
|$1.70                               | 125,000     | 125,000                             
|                                    | 6,750,000   | 6,600,000                           
|                                    |             |                                     
|Outstanding Options                 | 3.05        | $0.43                               
|Exercisable Options                 | 3.06        | $0.41                               

17

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As
of December 31, 2010, the aggregate intrinsic value of all stock options and
warrants vested and expected to vest was approximately $9,085,309 and the
aggregate intrinsic value of currently exercisable stock options and warrants
was approximately $9,085,309. 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 $1.30 closing
stock price of the Common Stock on December 31, 2010. The total number of
in-the-money options and warrants vested and exercisable as of December 31,
2010, was 17,026,834.

The
total intrinsic value of options exercised during the three months ended
December 31, 2010, was $39,000. 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 options were exercised on
a cashless basis and no cash proceeds were received from the exercise of the
stock options.

The
total fair value of options and warrants granted during the three months ended
December 31, 2010, was approximately $779,653. The total grant-date fair value
of option and warrant shares vested during the three months ended December 31,
2010, was approximately $1,058,993.

NOTE 9  CONTEMPLATED ACQUISITION

The
Company entered into a non-binding Memorandum of Understanding on September 24,
2010 with Columbus Silver Corporation (TSXV: CSC) (Columbus Silver), pursuant
to which the Company will acquire all the outstanding shares of common stock of
Columbus Silver in exchange for the Companys common stock. The contemplated
exchange ratio is one share of Santa Fe common stock for every 5.82515 shares of
Columbus Silvers common stock. It is contemplated that Santa Fe will issue a
total of 8,787,527 shares in the transaction, the value of which shares will be
determined by the closing market price of the Companys common stock on the
effective closing date of the contemplated transaction. Following completion of
the transaction, it is estimated that the Company will be owned 91.37% by
current Company shareholders and 8.63% by Columbus Silver shareholders. In
accordance with the Memorandum of Understanding, the Company purchased 1,000,000
shares of Columbus Silver common stock on October 28, 2010 in a private
placement valued at $98,058, or CDN$0.10 per share. The proceeds of the issuance
are to be used by Columbus Silver as bridge financing for operational expenses
through December 31, 2010. The closing of the business combination is expected
to occur prior to April 30, 2011.

NOTE 10  SUBSEQUENT EVENTS

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

On
January 27, 2011, the Company advanced $200,000 to Columbus Silver Corporation
(TSXV: CSC) (Columbus Silver) in exchange for a promissory note bearing
interest at 4% per annum. All accrued interest and principal is due and payable
on December 31, 2012. The loan was extended for the purpose of providing
Columbus Silver with working capital until such time as the business combination
outlined in the Memorandum of Understanding dated September 24, 2010 is
consummated. The closing of the business combination is expected to occur by
April 30, 2011.

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ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

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 discussion summarizes the results of our operations for the three and
six month periods ended December 31, 2010, and compares those results to the
three and six month periods ended December 31, 2009. It also analyzes our
financial condition at December 31, 2010. This discussion should be read in
conjunction with the Managements Discussion and Analysis, including the audited
financial statements for the years ended June 30, 2010 and 2009 and Notes to the
financial statements, in our Form 10-K for the year ended June 30, 2010.

Overview

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) continuing the ramp up of
production at our Summit silver-gold property located in New Mexico, (2)
conducting further studies on our Ortiz gold project located in New Mexico and
(3) continuing to raise working capital for operating and administrative
expenses.

We
commenced processing operations at the Banner Mill in March 2010. Commissioning
of the mill proceeded satisfactorily and in July 2010, the mill facilities were
placed into service and depreciation started to be recognized on the plant. The
Company plans to ramp up production from the Summit mine and increase throughput
at the Banner Mill, and expects the Summit project will achieve commercial
production in 2011.

Basis of Presentation and Going Concern

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

The
Company has incurred a net operational loss of $9,462,184 for the six months ended
December 31, 2010, and has a total accumulated deficit of $64,591,634 and a
working capital deficit of $17,251,362 at December 31, 2010, which includes
non-cash derivative instrument liabilities aggregating $15,950,589 and deferred
revenue of $3,882,863.

Currently,
the Company has nominal revenue-generating operations as we ramp up to
commercial production at our Summit mine site and attain full throughput at our
Banner Mill. To continue as a going concern, the Company is dependent on
continued fund raising for project development and payment of general and
administration expenses until production at the Summit mine site ramps up to
full production and profitable operations are achieved. The Company has no
commitment from any party to provide additional working capital and there is no
assurance that such funding will be available if needed, or if available, that
its terms will be favorable or acceptable to the Company.

19

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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 the Company 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,
2010 and 2009

*Sales*

We
had revenues of $473,440 for the three months ended December 31, 2010, as
compared to $8,970 for the three months ended December 31, 2009. The increase of
$464,470 is due to precious metals recovery from trial shipments of concentrate
and flux material totaling $308,962, and the sale of refined gold of $164,478.
These increases were offset by a decrease in sales of aggregate material of
$8,970.

The
definitive gold sale agreement entered into on September 11, 2009 stipulates
that we deliver the contractual production quantity in refined gold. See the
Liquidity and Capital Resources section within this Item 2 for additional
information. The Summit Project is not currently configured or permitted to
produce refined gold. To fulfill the contractual terms of the definitive gold
sale agreement, refined gold is purchased on the open market for delivery into
the London metals account of the recipient. The agreement calls for the sale of
gold at the fixed price of $400 per ounce plus the upfront advance, representing
deferred revenue, which is to be credited by the difference between the market
price and the fixed price of gold for the number of ounces delivered. The
revenue component of $164,478 for the delivery of refined gold is comprised of
$47,340 representing sales of gold at the fixed price of $400 per ounce, and
$117,138 representing the realization of deferred revenue related to the upfront
cash advance.

*Operating
Costs and Expenses*

Costs applicable to sales were incurred aggregating $304,335 for the three months ended December 31, 2010, as compared to $-0- for the three months ended December 31, 2009. The increase of $304,335 is attributable to the costs associated with the trial shipments of concentrate and flux material for smelting feedstock totaling $139,857, and the cost of purchasing refined gold on the open market of $164,478 in order to satisfy the delivery requirements of the definitive gold sale agreement. Costs applicable to sales are higher than normally expected.  We anticipate these costs will decrease in relation to sales once we achieve full production at the mine and corresponding full throughput at the mill site later in calendar 2011.

Exploration
and mining costs were $682,378 for the three months ended December 31, 2010, as
compared to $155,213 for the three months ended December 31, 2009, an increase
of $527,165. The increase is attributable to expanding production operations at
the Summit mine site, increased throughput at the Banner Mill and a
corresponding decrease in capitalized payroll burden. The increase in costs is
primarily comprised of: $145,489 related to labor burden; $43,111 in shop
supplies; repairs and maintenance aggregating $46,754; general mill and mine
costs of $42,915; royalty fees of $119,270; property and liability insurance of
$33,580; property and resource taxes aggregating $25,577; and $50,110 related to
exploration associated costs.

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General
and administrative expenses increased to $726,456 for the three months ended
December 31, 2010, from $567,566 for the comparative three months ended December
31, 2009, an increase of $158,890. The increase is attributable primarily to
increased expenses in the following areas: employee stock compensation of
$131,703; amortized costs associated with options of $103,959, both related
primarily to awards granted from the 2007 Equity Incentive Plan on June 8, 2010;
payroll burden of $30,017; director fees of $12,500; and corporate filing fees
of $23,231. These increases were offset by decreases in various office related
operating costs aggregating $14,905; audit and accounting fees of $24,361; legal
costs of $76,247; investor relations of $15,860; consulting fees of $6,340 and
property taxes of $3,459.

Depreciation
and amortization expense increased to $575,844 for the quarter ended December 31
2010, as compared to $108,569 for the quarter ended December 31, 2009, an
increase of $467,275. The increase is attributable primarily to recognizing
depreciation of $437,606 on the Banner mill processing facilities which were
placed into service during the first quarter of our current fiscal year.

*Other
Income and Expenses*

Other
income and (expenses) for the three months ended December 31, 2010, were
$(3,694,905) as compared to $(1,136,550) for the comparable three months ended
December 31, 2009. The increase in net expenses of $2,558,355 is primarily
attributable to an increase in interest expense of $142,816; an increase in
accretion of discounts on notes payable of $57,794, and the loss recognized on
derivative instruments liability of $2,355,039.

The
increase in interest expense was due primarily to the fact that the portion of
interest expense on the debentures related to the construction of the mill
facilities was previously capitalized. In July 2010 based upon the commissioning
of the mill proceeding satisfactorily over the previous quarter, the mill
facilities were placed into service and the capitalization of interest expense
related to the mill construction ceased, contributing  $165,600 of interest expense to the current three month period.

*Loss
on Derivative Financial Instruments*

We
recognized a loss on derivative financial instruments of $3,197,189 for the
three months ended December 31, 2010, as compared to a loss of $842,150 for the
prior years comparable period, resulting in an increase loss of $2,355,039. 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
and warrants issued under our registered direct offerings. Otherwise, we
generally do not use derivative financial instruments for other purposes, such
as hedging cash flow or fair-value risks. The increase in the derivative loss
for the three months ended December 31, 2010, is attributable mainly to
adjustments to record the change in fair value for the embedded conversion
feature of derivative financial instruments, the warrants previously issued
under our registered direct offerings, changes in the market price of our common
stock, which is a component of the calculation model, and 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.

Operating Results for the Six Months Ended December 31, 2010
and 2009

*Sales*

We
had revenues of $1,250,262 for the six months ended December 31, 2010, as
compared to $13,446 for the six months ended December 31, 2009. The increase of
$1,236,816 is due to precious metals recovery from trial shipments of
concentrate and flux material for smelter feedstock of $1,085,784, and the sale
of refined gold of $164,478, delivered in accordance with the definitive gold
sale agreement entered into on September 8, 2009. These increases were offset by
a decrease in sales of aggregate material of $13,446.

The
definitive gold sale agreement entered into on September 11, 2009, stipulates
that we deliver the contractual production quantity in refined gold. See the
Liquidity and Capital Resources section within this Item 2 for additional
information. The Summit Project is not currently configured or
permitted to produce refined gold. To fulfill the contractual terms of the
definitive gold sale agreement, refined gold is purchased on the open market for
delivery into the London metals account of the recipient. The agreement calls
for the sale of gold at the fixed price of $400 per ounce plus the upfront
advance, representing deferred revenue, which is to be credited by the
difference between the market price and the fixed price of gold for the number
of ounces delivered. The revenue component of $164,478 for the delivery of
refined gold is comprised of $47,340 representing sales of gold at the fixed
price of $400 per ounce, and $117,138 representing the realization of deferred
revenue related to the upfront cash advance.

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*Operating
Costs and Expenses*

Costs applicable to sales were incurred aggregating $699,422 for the six months ended December 31, 2010, as compared to $264, attributable to aggregate sales, for the six months ended December 31, 2009. The increase of $699,158 is attributable to the trial shipments of flux materials and the concentrate for smelting feedstock of $534,642, and the purchase of refined gold on the open market totaling $164,780 in order to satisfy the delivery requirements of the definitive gold sale agreement.  These increases were offset by a decrease in costs related to aggregate sales of $264. Costs applicable to sales are higher than normally expected.  We anticipate these costs will decrease in relation to sales once we achieve full production at the mine and corresponding full throughput at the mill site later in calendar 2011.

Exploration
and mining costs were $1,072,397 for the six months ended December 31, 2010, as
compared to $287,463 for the six months ended December 31, 2009, an increase of
$784,934. The increase is attributable to expanding production operations at the
Summit mine site, increased throughput at the Banner Mill and a corresponding
decrease in capitalized payroll burden. The increase in costs is primarily
comprised of: $197,618 related to payroll burden; $102,949 in shop supplies;
vehicle operating costs of $3,213; repairs and maintenance aggregating $60,767;
general mill and mine costs of $74,384; royalty fees of $119,060; liability
insurance of $34,461; property and resource taxes aggregating $60,360; and
$130,734 for exploration associated costs.

General
and administrative expenses increased to $1,491,540 for the six months ended
December 31, 2010, from $957,474 for the comparative six months ended December
31, 2009, an increase of $534,066. The increase is primarily attributable to
increased expenses in the following areas: employee stock compensation of
$263,406 and amortized costs associated with options of $228,060, both related
primarily to awards granted from the 2007 Equity Incentive Plan on June 8, 2010;
payroll burden of $58,996; director fees of $25,000; investor relations costs of
$61,594; costs associated with travel and entertainment of $22,397; and
corporate filing fees of $28,490. These increases were offset by decreases in
audit and accounting fees of $32,771; legal and SEC related costs of $84,970;
consulting fees of $14,584; finance related costs of $5,043; and property taxes
of $3,408.

Depreciation
and amortization expense increased to $1,148,001 for the six months ended
December 31 2010, as compared to $214,480 for the six months ended December 31,
2009, an increase of $933,521. The increase is attributable primarily to
recognizing depreciation of $877,890 on the Banner mill processing facilities
which were placed into service during the first quarter of our current fiscal
year and additional equipment that entered into service.

*Other
Income and Expenses*

Other
income and (expenses) for the six months ended December 31, 2010, were
$(6,301,086) as compared to $(3,531,491) for the comparable six months ended
December 31, 2009. The increase in net expenses of $2,769,595 is primarily
attributable to an increase in interest expense of $314,189; an increase in
accretion of discounts on notes payable of $95,494 and the loss recognized on
derivative instruments liability of $2,360,866.

The
increase in interest expense was due primarily to the fact that the portion of
interest expense on the debentures related to the construction of the mill
facilities was previously capitalized. In July 2010 based upon the commissioning
of the mill proceeding satisfactorily over the previous quarter, the mill
facilities were placed into service and the capitalization of interest expense
related to the mill construction ceased, contributing $331,200 in interest expense to the  current six month period.

*Loss
on Derivative Financial Instruments*

We
recognized a loss on derivative financial instruments of $5,324,562 for the six
months ended December 31, 2010, as compared to a loss of $2,963,696 for the
prior years comparable period, resulting in an increase loss of $2,360,866. 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 and warrants issued under our
registered direct offerings. Otherwise, we generally do not use derivative
financial instruments for other purposes, such as hedging cash flow or
fair-value risks. The increase in the derivative loss for the six months ended
December 31, 2010, is attributable mainly to adjustments to record the change in
fair value for the embedded conversion feature of derivative financial
instruments; the warrants previously issued under our registered direct
offerings; changes in the market price of our common stock, which is a component
of the calculation model; and 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.

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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 until we reach profitable operations.

As
of December 31, 2010, we have cash and cash equivalents of $2,631,649, a working
capital deficit of $17,251,362, which includes a non-cash financial derivative
liability of $15,950,589 and deferred revenue of $3,882,863, and an accumulated
deficit of $64,591,634.

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.
Historically, we have relied upon equity related financing to fund our
deployment of our business plan. Currently we have no arrangements to borrow
funds for working capital requirements. We will require additional funding to
meet our corporate general and administrative commitments, to continue
feasibility studies on our mineral properties and to initiate exploration
programs. We expect the Summit project will achieve commercial production in
calendar year 2011 and that our operations for the remaining fiscal year 2011
will be funded mainly from anticipated sales of precious metals, the sale of our
equity 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.

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

On
January 14, 2010, we 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 a registered direct
offering. Pursuant to the transaction, we sold to the Purchasers an aggregate of
7,692,310 Shares and Warrants to purchase up to 3,846,155 additional Shares. The
Warrants are exercisable at an exercise price of $1.70 per share upon issuance
and have a term of five years. In connection with the placement we issued
461,539 warrants to Placement Agents, exercisable at $1.625 per share and having
a term of approximately 4.9 years. These Placement Agent warrants vested six
months from the date of issuance. We received net proceeds from the offering of
approximately $9,375,000, after deducting placement agent fees and other
offering expenses.

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

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On
December 29, 2010, we entered into a definitive security purchase agreements
with three institutional investors to sell an aggregate of $2 million of units,
each unit consisting of one share and one-half warrant per share to purchase a
share by way of the placement. Under the agreement, we sold 1,666,668 shares and
warrants to purchase 833,334 additional shares of our common stock. The warrants
will be exercisable at an exercise price of $1.50 per share immediately upon the
issuance of the stock and will expire five years from the date they are first
exercisable. In connection with the transaction, the Company paid the Placement
Agent a fee of $136,000 and issued 100,000 warrants exercisable at $1.50 per
share which have an exercise period of approximately 3.92 years. The warrants
are exercisable immediately after issuance. We received $1,864,001 net cash
proceeds from the placement.

The
units, including the shares and warrants (including the Placement Agent
warrants) and shares issuable upon exercise of the Warrants are issued pursuant
to the prospectus supplement dated as of December 29, 2010, which was filed with
the Securities and Exchange Commission (SEC) in connection with a takedown
from the Companys shelf registration statement on Form S-3 (File No. 333-163112),
which became effective on December 29, 2009, and the base prospectus contained
in such registration statement.

We
are utilizing 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; and pursuit of acquisition opportunities.

Factors Affecting Future Operating Results

We
continue 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 placements in January and December 2010, an important element of
the plan includes continuing to raise working capital 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.

The
Company entered into a non-binding Memorandum of Understanding on September 24,
2010 with Columbus Silver Corporation (TSXV: CSC) (Columbus Silver), pursuant
to which the Company will acquire all the outstanding shares of common stock of
Columbus Silver in exchange for the Companys common stock. The contemplated
exchange ratio is one share of Santa Fe common stock for every 5.82515 shares of
Columbus Silvers common stock. It is contemplated that Santa Fe will issue a
total of 8,787,527 shares in the transaction, the value of which shares will be
determined by the closing market price of the Companys common stock on the
effective closing date of the contemplated transaction. Following completion of
the transaction, it is estimated the Company will be owned 91.37% by current
Company shareholders and 8.63% by Columbus Silver shareholders. In accordance
with the Memorandum of Understanding, the Company purchased 1,000,000 shares of
Columbus Silver common stock on October 28, 2010 in a private placement valued
at $98,058.  Proceeds of the issuance are to be used by
Columbus Silver as bridge financing for operational expenses through December
31, 2010. The closing of the business combination is expected to occur prior to
April 30, 2011.

Off-Balance Sheet Arrangements

During
the three months ended December 31, 2010, we did not engage in any off-balance
sheet arrangements defined in Item 303(a) (4) of the SECs Regulation S-K.

ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

There
has been no material change in the market risks discussed in Item 7A of Santa Fe
Golds Form 10-K for the fiscal year ended June 30, 2010.

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ITEM 4  CONTROLS AND PROCEDURES

We
maintain disclosure controls and procedures (as defined in Rules 13a-15(d) and
15d-15(e) under the Securities and Exchange Act of 1934, as amended (the
Exchange Act)) that are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms, and that our
disclosure controls and procedures are effective in alerting management on a
timely basis to material information required to be disclosed in our periodic
reports. Under the supervision of, and the participation of our management, our
Chief Executive Officer and Principal Financial Officer, or persons performing
similar functions, has conducted an evaluation of our disclosure controls and
procedures as of December 31, 2010. This evaluation included certain areas in
which we have made, and are continuing to make, changes to improve and enhance
controls. Based on this evaluation, our Chief Executive Officer and Principal
Financial Officer has concluded that our disclosure controls and procedures are
effective in providing reasonable assurance that information required to be
disclosed by us in reports we file with the Securities and Exchange Commission
is recorded, processed, summarized and reported within the time periods
required, and are effective in alerting management on a timely basis to material
information required to be disclosed in our periodic reports.

During
  the quarter ended December 31, 2010, 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

Investing
in our common stock involves a high degree of risk. You should carefully
consider the risks and uncertainties described in our annual report on Form 10-K
for the year ended June 30, 2010, in addition to the other information included
in this quarterly report. If any of the risks described actually occurs, our
business, financial condition or results of operations would likely suffer. In
that case, the trading price of our common stock could fall.

As
of December 31, 2010, there have not been any material changes to the risk
factors disclosed in our Annual Report on Form 10-K for the fiscal year ended
June 30, 2010, although we may disclose changes to such risk factors or disclose
additional risk factors from time to time in our future filings with the
SEC.

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

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5. OTHER INFORMATION

Mine Safety Disclosures

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

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

Specified
disclosures relating to The Act and pertaining to the Summit Mine for the
quarter ended December 31, 2010 are as follows:

(i) Total number of violations
  of mandatory health or safety standards that could significantly and
  substantially (S&S) contribute to a safety or health hazard under the
  Federal Mine Safety and Health Act of 1977 (the Mine Safety Act) for which the
  Company received a citation from the Mine Safety and Health Administration
  (MSHA): - None (These are violations that could "significantly and
  substantially" contribute to a safety or health hazard as issued.); (ii) Total
  number of orders and citations issued under Section 104(b) of the Mine Safety
  Act (a failure to abate): - Two; (iii) Total number of citations and orders
  for unwarrantable failure to comply with mandatory health and safety standards
  under Section 104(b): - None; (iv) Total number of imminent danger orders under
  Section 107(a) of the Mine Safety Act issued to the Company: - None; (v) Total
  dollar value of proposed assessments from MSHA: - $200; (vi) Total number of
  mining related fatalities: - None; (vii) Mines for which the operator has
  received written notice of a pattern of violations or the potential to have such
  a pattern: - None; (viii) Pending legal action before the Mine Safety and Health
  Review Commission: - We have multiple citation protests pending before the
  Commission.

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.                          

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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 8, 2011 | SANTA FE GOLD CORPORATION                       
|----------------------- | ------------------------------------------------
|                        |                                                 
|                        | By: /s/ W. Pierce
      Carson                  
|                        | W. Pierce Carson,                               
|                        | Chief Executive Officer, President, Director and
|                        | Principal Accounting Officer                    

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