---

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 endedSeptember 30, 2009

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

For the transition period from _______ to _______

Commission File Number: 001-12974

SANTA FE GOLD CORPORATION(Exact Name of Small Business Issuer as Specified in its Charter)

|Delaware                        | 84-1094315         
|------------------------------- | -------------------
|(State or other jurisdiction of | (I.R.S. Employer   
|incorporation or organization)  | Identification No.)

1128 Pennsylvania NE, Suite 200, Albuquerque, NM
87110(Address of Principal Executive Offices)

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

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

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

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

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

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

Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest 
practicable date:
84,052,149 shares outstanding as of November 20, 2009.

---

SANTA FE GOLD CORPORATIONINDEX TO FORM
10-QFOR THE QUARTER ENDED SEPTEMBER 30, 2009

TABLE OF CONTENTS

|           |                                                                                                                | **Page**
|---------- | -------------------------------------------------------------------------------------------------------------- | --------
|           |                                                                                                                |         
|           | **PART I****FINANCIAL INFORMATION**                                                                            | 3       
|           |                                                                                                                |         
|Item 1.    | Financial Statements                                                                                           | 3       
|           |                                                                                                                |         
|           | Consolidated Balance Sheets, September 30, 2009 (Unaudited)
      and June 30, 2009                            | 4       
|           |                                                                                                                |         
|           | Consolidated Statements of Operations for the Three Months
      Ended September 30, 2009 and 2008 (Unaudited) | 5       
|           |                                                                                                                |         
|           | Consolidated Statements of Cash Flows for the Three Months
      Ended September 30, 2009 and 2008 (Unaudited) | 6       
|           |                                                                                                                |         
|           | Notes to the Unaudited Consolidated Financial Statements                                                       | 8       
|           |                                                                                                                |         
|Item 2.    | Managements Discussion and Analysis and Plan of Operations                                                    | 15      
|           |                                                                                                                |         
|Item 4.    | Controls and Procedures                                                                                        | 20      
|           |                                                                                                                |         
|           | **PART II****OTHER INFORMATION**                                                                               | 19      
|           |                                                                                                                |         
|Item 1.    | Legal Proceedings                                                                                              | 19      
|           |                                                                                                                |         
|Item 1A.   | Risk factors                                                                                                   | 19      
|           |                                                                                                                |         
|Item 2.    | Unregistered Sales of Equity Securities and Use of Proceeds                                                    | 19      
|           |                                                                                                                |         
|Item 3.    | Defaults Upon Senior Securities                                                                                | 20      
|           |                                                                                                                |         
|Item 4.    | Submission of Matters to a Vote of Security Holders                                                            | 20      
|           |                                                                                                                |         
|Item 5.    | Other Information                                                                                              | 20      
|           |                                                                                                                |         
|Item 6.    | Exhibits                                                                                                       | 20      
|           |                                                                                                                |         
|SIGNATURES | 20                                                                                                            

2

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PARTIFINANCIALINFORMATION

ITEM1. FINANCIALSTATEMENTS

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SANTA FE GOLD CORPORATIONCONSOLIDATED BALANCE
SHEETSSEPTEMBER 30, 2009 AND JUNE 30, 2009

|ASSETS                                                                             |  
|---------------------------------------------------------------------------------- | -
|                                                                                   |  
|                                                                                   |  
|                                                                                   |  
|CURRENT ASSETS:                                                                    |  
|Cash and cash equivalents                                                          | $
|Prepaid expenses and other current
      assets                                    |  
|Total Current Assets                                                               |  
|MINERAL PROPERTIES                                                                 |  
|PROPERTY, PLANT AND EQUIPMENT, net                                                 |  
|OTHER ASSETS:                                                                      |  
|Construction in
      progress                                                     |  
|Idle equipment, net                                                                |  
|Restricted cash                                                                    |  
|Deferred financing costs                                                           |  
|Total Other Assets                                                                 |  
|                                                                                   | $
|                                                                                   |  
|LIABILITIES AND STOCKHOLDERS' (DEFICIT)                                            |  
|CURRENT LIABILITIES:                                                               |  
|Accounts payable                                                                   | $
|Accrued liabilities                                                                |  
|Derivative instrument liabilities                                                  |  
|Current portion
      of notes payable                                             |  
|Current portion of capital leases                                                  |  
|Current portion
      of senior secured convertible notes payable, net of discount |  
|of $2,263
      and $8,027, respectively                                           |  
|Deferred revenue                                                                   |  
|Accrued interest payable                                                           |  
|Total Current Liabilities                                                          |  
|LONG TERM LIABILITIES:                                                             |  
|Senior secured convertible
      notes payable, net of discount of                 |  
|$4,584,791
      and $4,514,554, respectively, net of current portion              |  
|Derivative instrument
      liabilities                                            |  
|Notes payable, net of current portion                                              |  
|Capital leases,
      net of current portion                                       |  
|Deferred Revenue                                                                   |  
|Asset retirement
      obligation                                                  |  
|Total
      Liabilities                                                            |  
|STOCKHOLDERS' (DEFICIT):                                                           |  
|Common stock, $.002 par value, 200,000,000
      shares authorized;                |  
|83,966,595
      and 82,316,112 shares issued and outstanding, respectively        |  
|Additional paid in capital                                                         |  
|Accumulated (deficit)                                                              |  
|Total
      Stockholders' (Deficit)                                                |  
|                                                                                   | $

The accompanying notes are an integral part of the consolidated
financial statements. F-3

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SANTA FE GOLD CORPORATIONCONSOLIDATED STATEMENTS
OF OPERATIONS(Unaudited)

|                                                       |   | Three Months Ended |  
|------------------------------------------------------ | - | ------------------ | -
|                                                       |   | September 30,      |  
|                                                       |   | 2009               |  
|                                                       |   |                    |  
|                                                       |   |                    |  
|SALES                                                  | $ | 4,476              |  
|                                                       |   |                    |  
|OPERATING COSTS AND EXPENSES:                          |   |                    |  
|Costs applicable to sales                              |   | 264                |  
|Exploration and
      mining costs                     |   | 80,857             |  
|General and administrative                             |   | 441,301            |  
|Depreciation and
      amortization                    |   | 105,911            |  
|Accretion of asset retirement obligation               |   | -                  |  
|                                                       |   | 628,333            |  
|                                                       |   |                    |  
|(LOSS) FROM OPERATIONS                                 |   | (623,857           | )
|                                                       |   |                    |  
|OTHER INCOME (EXPENSE):                                |   |                    |  
|(Loss) on disposal of assets                           |   | (3,572             | )
|Interest income                                        |   | 632                |  
|Miscellaneous income                                   |   | 2,178              |  
|Foreign currency
      translation gain                |   | 305                |  
|Gain (loss) on derivative instrument
      liabilities |   | (2,121,546         | )
|Relief of debt                                         |   | -                  |  
|Accretion of discounts on notes
      payable          |   | (258,664           | )
|Interest expense                                       |   | (14,274            | )
|                                                       |   | (2,394,941         | )
|                                                       |   |                    |  
|INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES        |   | (3,018,798         | )
|                                                       |   |                    |  
|PROVISION FOR INCOME TAXES                             |   | -                  |  
|                                                       |   |                    |  
|NET INCOME (LOSS)                                      | $ | (3,018,798         | )
|                                                       |   |                    |  
|Income (Loss) per Share:                               |   |                    |  
|Basic and diluted                                      | $ | (0.04              | )
|                                                       |   |                    |  
|Weighted Average Common Shares Outstanding:            |   |                    |  
|Basic and diluted                                      |   | 83,438,010         |  

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

F-4

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SANTA FE GOLD CORPORATIONCONSOLIDATED STATEMENTS
OF CASH FLOWS(Unaudited)

|                                                             |   | Three Months Ended |  
|------------------------------------------------------------ | - | ------------------ | -
|                                                             |   | September 30,      |  
|                                                             |   | 2009               |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                        |   |                    |  
|Net income (loss)                                            | $ | (3,018,798         | )
|Adjustments to reconcile net income (loss)
      to net cash |   |                    |  
|(used in) operating activities:                              |   |                    |  
|Depreciation                                                 |   | 105,911            |  
|Stock compensation                                           |   | 162,686            |  
|Accretion
      of discount on notes payable                 |   | 258,664            |  
|Accretion of asset retirement obligation                     |   | -                  |  
|Relief
      of debt                                         |   | -                  |  
|Foreign currency translation (gain) loss                     |   | (305               | )
|(Gain)
      loss on derivative instrument liabilities       |   | 2,121,546          |  
|Loss on disposal of assets                                   |   | 3,572              |  
|Amortization
      of deferred financing costs               |   | 15,289             |  
|Net change in operating
      assets and liabilities:        |   |                    |  
|Prepaid
      expenses and other current assets              |   | (65,646            | )
|Accounts payable                                             |   | 215,869            |  
|Accrued
      liabilities                                    |   | (73,311            | )
|Accrued interest payable                                     |   | (8,037             | )
|Net Cash (Used
      in) Operating Activities                |   | (282,560           | )
|                                                             |   |                    |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                        |   |                    |  
|Increase to restricted
      cash                            |   | -                  |  
|Proceeds from disposal of assets                             |   | 21,400             |  
|Purchase of property, plant
      and equipment              |   | (67,852            | )
|Construction in progress                                     |   | (736,088           | )
|Net
      Cash (Used in) Investing Activities                |   | (782,540           | )
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |   |                    |  
|Proceeds from convertible
      notes payable                |   | -                  |  
|Proceeds from issuance of stock and warrants                 |   | 226,000            |  
|Payments on notes payable                                    |   | (50,742            | )
|Payments on capital leases                                   |   | (32,039            | )
|Payments on line of credit                                   |   | -                  |  
|Payments on convertible debenture notes                      |   | -                  |  
|Deferred revenue                                             |   | 500,000            |  
|Net Cash Provided
      by Financing Activities              |   | 643,219            |  
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             |   | (421,881           | )
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD               |   | 509,846            |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                     | $ | 87,965             |  

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

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SANTA FE GOLD CORPORATIONCONSOLIDATED STATEMENTS
OF CASH FLOWS(Continued)

|                                                        |   | Three Months Ended | 
|------------------------------------------------------- | - | ------------------ | 
|                                                        |   | September 30,      | 
|                                                        |   | 2009               | 
|SUPPLEMENTAL CASH FLOW INFORMATION:                     |   |                    | 
|Cash paid for interest                                  | $ | 35,778             | 
|                                                        |   |                    | 
|Cash paid for income taxes                              | $ | -                  | 
|                                                        |   |                    | 
|SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
      AND |   |                    | 
|FINANCING ACTIVITIES:                                   |   |                    | 
|Stock issued for conversion
      of accrued interest   | $ | 241,500            | 
|                                                        |   |                    | 
|Equipment purchased with
      notes payable            | $ | 16,825             | 
|                                                        |   |                    | 
|Stock issued for conversion
      of accrued liability  | $ | 200,000            | 

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

F-5

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SANTA FE GOLD CORPORATIONNOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS September 30, 2009

NOTE 1 NATURE OF OPERATIONSANDBASISOFPRESENTATION

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

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Going Concern

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

The
Company had a net loss of $3,018,798 for the three months ended September 30,
2009, has a working capital deficit of $5,231,888 which includes a non-cash
financial derivative of $3,543,816 and has a total accumulated deficit of
$56,938,894 at September 30, 2009. In addition, the Company had only nominal
revenue-generating operations in the three months ended September 30, 2009. To
continue as a going concern, the Company is dependent on continued fund raising
for project development and for administrative operating 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.

Estimates

The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities

6

---

and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates
under different assumptions or conditions.

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 from our Summit
silver-gold mine. Under the terms of the agreement, the Company will receive two
upfront cash advances and on going production payments equal to the lesser of
$400 per ounce and the prevailing market price, for each ounce of gold delivered
pursuant to the agreement. The upfront cash advances will be amortized over the
life of the agreement based upon the estimated ounces of gold to be delivered
under the life of the agreement. Deferred revenue on the Companys balance sheet
is categorized as current if the Company expects to recognize such revenue
within the following twelve months.

Net Earnings (Loss) per Common Share

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

Recent Accounting Pronouncements

Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(FASB) Accounting Standards

7

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

In
August 2009, the FASB issued Accounting Standards Update (ASU) ASU 2009-05,
Measuring Liabilities at Fair Value(ASU 2009-05). ASU 2009-05 provides
guidance on measuring the fair values of liabilities under Accounting Standards
Codification (ASC) Topic 820, Fair Value Measurements and Disclosures (ASC
820). ASU 2009-05 describes various valuation methods that can be applied to
estimating the fair value of liabilities, requires the use of observable inputs,
and minimizes the use of unobservable valuation inputs. ASU 2009-05 is effective
for the Companys interim reporting period beginning October 1, 2009. The
Company is currently evaluating the potential impact, if any; the adoption of
ASU 2009-05 will have on its consolidated financial position or results of
operations.

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

NOTE 3  ADOPTION OF NEW ACCOUNTING POLICY

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

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

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

8

---

For
the three months ended September 30, 2009 and 2008, the Company recognized a
loss for the change in fair value of the embedded conversion derivative
liability in the amounts of $217,766 and $0, respectively.

For
the three months ended September 30, 2009 and 2008, the Company recognized a
loss in the change in fair value of warrant derivative liability the amounts of
$1,903,780 and a gain of $1,369,223, respectively.

NOTE 4 - DERIVATIVE INSTRUMENT LIABILITIES

The
fair market value of the derivative instruments liability at September 30, 2009,
was determined to be $12,820,582 with the following assumptions: (1) risk free
interest rate of 0.06% to 2.31%, (2) remaining contractual life of 0.17 to 5.26
years, (3) expected stock price volatility of 86.59%, 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 three months ended September 30,
2009, of $(2,121,546) and a corresponding increase in the derivative instruments
liability.

|                                                              |   | Derivative      |  |   | Derivative         |  |   | Derivative Gain    |  
|------------------------------------------------------------- | - | --------------- |  | - | ------------------ |  | - | ------------------ | -
|                                                              |   | Liability as of |  |   | Liability as of    |  |   | (Loss) Through     |  
|                                                              |   | June 30, 2009   |  |   | September 30, 2009 |  |   | September 30, 2009 |  
|Convertible Debentures:                                       |   |                 |  |   |                    |  |   |                    |  
|Compound Embedded Derivatives                                 | $ | 4,907           |  | $ | 6,339              |  | $ | (1,432             | )
|Purchase Agreement Warrants                                   |   | 6,543,873       |  |   | 8,310,241          |  |   | (1,766,368         | )
|Amendment 2 Warrants                                          |   | 1,256,896       |  |   | 1,581,205          |  |   | (324,309           | )
|Embedded Conversion Option                                    |   | --              |  |   | 2,922,797          |  |   | (2,922,797         | )
|Totals                                                        | $ | 7,805,676       |  | $ | 12,820,582         |  |   |                    |  
|                                                              |   |                 |  |   |                    |  |   |                    |  
|Amount at adoption of accounting
      change on July 1, 2009 |   |                 |  |   |                    |  |   | 2,705,031          |  
|Amount allocated to warrants at transaction inception         |   |                 |  |   |                    |  |   | 188,329            |  
|                                                              |   |                 |  |   |                    |  | $ | (2,121,546         | )

The
derivative liability is comprised of the following as of:

| |                                           |   | September 30, |  |   | June 30,  | 
| | ----------------------------------------- | - | ------------- |  | - | --------- | 
| |                                           |   | 2009          |  |   | 2009      | 
| | Current portion of derivative liability   | $ | 3,543,816     |  | $ | 2,643,500 | 
| | Long-term portion of derivative liability |   | 9,276,766     |  |   | 5,162,176 | 
| |                                           | $ | 12,820,582    |  | $ | 7,805,676 | 

NOTE 5 CONVERTIBLE NOTES PAYABLE AND
DEBENTURES

Convertible Senior Subordinated Notes

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

9

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Senior Secured Convertible Debenture

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

On
June 30, 2009, the Company entered into Amendment 2 on the Senior Secured
Convertible Debenture dated December 21, 2007. Pursuant to the amendment, all
the accrued interest on the debentures due June 30, 2009, in the collective
aggregate amount of $974,360, was automatically converted into 974,360 shares of
the Companys common stock effective as of June 30, 2009. Additionally, the
aggregate accrued interest on the outstanding principal amounts of the
debentures for the quarters ending September 30, 2009 and December 31, 2009,
shall be paid in shares of the Companys common stock, to be valued at $1.00 per
share at the time of payment and issuance. The amendment also provides that on
March 31, 2010, the note holder shall have the option to make a six-month
election, by providing written notice of its election thirty days prior to March
31, 2010, to have the March 31, 2010 and June 30, 2010 quarterly interest
payments paid in shares of the Companys common stock. Commencing September 30,
2010, the note holder shall have the option to make an annual election, by
providing 30 days prior written notice of its election, to have the subsequent
four quarterly interest payments paid in shares of the Companys common stock.
Valuation of the common stock shall be based upon the Market Price of the stock
for the 30 trading days immediately preceding the payment due date.

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

|September 30, 2009:               |   | Principal  |  |   | Unamortized |   |   |           | 
|--------------------------------- | - | ---------- |  | - | ----------- | - | - | --------- | 
|                                  |   | Amount     |  |   | Discount    |   |   | Net       | 
|                                  |   |            |  |   |             |   |   |           | 
|Current portion                   | $ | 18,219     |  | $ | (2,263      | ) | $ | 15,956    | 
|Long-term portion, net of current |   | 13,950,000 |  |   | (4,584,791  | ) |   | 9,365,209 | 
|                                  |   |            |  |   |             |   |   |           | 
|                                  | $ | 13,968,219 |  | $ | (4,587,054  | ) | $ | 9,381,165 | 

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

10

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

2009
    $
    18,2192010
    
    -2011
    
    -2012
    
    13,950,000Subtotal
    
    13,968,219Less: unamortized original discount
    
    (4,587,054
    )$
    9,381,165


As
of September 30, 2009, accrued interest payable on the senior secured
convertible notes aggregated $14,329.

NOTE 6  NOTES PAYABLE

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

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

|                                                            |   | September 30, |  |   |               | 
|----------------------------------------------------------- | - | ------------- |  | - | ------------- | 
|                                                            |   | 2009          |  |   | June 30, 2009 | 
|                                                            |   | (Unaudited)   |  |   |               | 
|Note payable for mineral property,                          |   |               |  |   |               | 
|interest at 10%, payable in 4 annual
      installments     |   |               |  |   |               | 
|of $63,094, including
      interest through August 2012    | $ | 156,906       |  | $ | 200,000       | 
|                                                            |   |               |  |   |               | 
|Installment sales contract on equipment,                    |   |               |  |   |               | 
|interest at 6.75%, payable in 36
      monthly installments |   |               |  |   |               | 
|of $2,911, including
      interest through September 2011  |   | 62,870        |  |   | 70,518        | 
|                                                            |   |               |  |   |               | 
|Installment sales contract on equipment,                    |   |               |  |   |               | 
|interest at 9.25%, payable in 36
      monthly installments |   |               |  |   |               | 
|of $537, including
      interest through October 2012      |   | 16,825        |  |   | -             | 

11

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|Total Outstanding Notes Payable                 |   | 236,601 |   |   | 270,518 |  
|----------------------------------------------- | - | ------- | - | - | ------- | -
|Less: Current maturities                        |   | (84,643 | ) |   | (74,430 | )
|                                                |   |         |   |   |         |  
|Obligations of notes payable due after one year | $ | 151,958 |   | $ | 196,088 |  

The aggregate maturities of notes payable as of September 30,
2009, is as follows:

Year ending June 30,2010
    $
    27,5972011
    
    86,5072012
    
    64,0562013
    
    58,441Total Outstanding Notes Payable
    $
    236,601


NOTE 7  CAPITAL LEASES

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

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

Year ended June 30,2010
    $
    112,1722011
    
    149,5632012
    
    88,4992013
    
    43,0412014
    
    3,598Total minimum lease payments
    
    396,873Amount representing interest
    
    (31,075
    )Present value of future minimum lease
      payments
    
    365,798Current portion of capital lease
      obligations
    
    (132,594
    )Obligations of capital leases due after one
      year
    $
    233,204


NOTE 8 - STOCKHOLDERS (DEFICIT)

Issuances of Common Stock

On
July 17, 2009, a director exercised options to purchase 1,150,000 shares of
common stock as follows: 1,000,000 shares at $0.10 per share, 75,000 shares at
$0.55 per share, and 75,000 shares at $0.60 per share. The total purchase price
for the exercise of the options was $186,250. The director utilized proceeds
from the Agreement to Sell Royalty dated May 19, 2009. At that time the director
also utilized the remaining $13,750 from

12

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the Agreement to Sell Royalty to purchase an additional 12,500
shares at $1.10 per share, the market closing price on July 17, 2009. Under the
Agreement to Sell Royalty, the entire $200,000 has been utilized and no further
amounts are due to the director under the agreement.

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

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

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

On
August 13, 2009, an individual exercised an option to purchase 20,000 shares of
common stock at $0.60 per share on a cashless basis. Under the cashless basis
exercise, 8,679 shares were issued.

On
August 17, 2009, the Company issued 18,868 shares of common stock at $1.06 per
share in connection with a private placement. As part of the private placement
the Company also issued 9,434 warrants with an exercise price of $1.06 per share
and an expiration of 5 years. The warrants were valued as a derivative
instrument liability and recorded separately at fair value at the time of
issuance, reducing the value of the equity recorded by the same amount. The
private placement was subject to a sales commission and an additional 1,887
shares of common stock were issued as a commission on the transaction.

On
August 25, 2009, an individual exercised an option to purchase 10,000 shares of
common stock at $0.60 per share on a cashless basis. Under the cashless basis
exercise, 4,286 shares were issued.

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

Issuances of Options

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

Issuances of Warrants

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

On
August 6, 2009, in connection with a private placement for 100,000 shares of the
Companys common stock, the

13

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

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

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

Stock
option and warrant activity, both within the 1989 Stock Option Plan and 2007
Equity Incentive Plan and outside of these plans, for the three months ended
September 30, 2009, are as follows:

|                                  |  | Stock Options |  |   |          |  |  | Stock Warrants |  |   |          | 
|--------------------------------- |  | ------------- |  | - | -------- |  |  | -------------- |  | - | -------- | 
|                                  |  |               |  |   | Weighted |  |  |                |  |   | Weighted | 
|                                  |  |               |  |   | Average  |  |  |                |  |   | Exercise | 
|                                  |  | Shares        |  |   | Price    |  |  | Shares         |  |   | Price    | 
|Outstanding at June 30, 2009      |  | 6,390,000     |  | $ | 0.22     |  |  | 11,616,506     |  | $ | 1.01     | 
|Granted                           |  | 200,000       |  | $ | 1.00     |  |  | 106,603        |  | $ | 1.06     | 
|Canceled                          |  | 60,000        |  | $ | 0.60     |  |  | ---            |  |   | ---      | 
|Expired                           |  | ---           |  |   | ---      |  |  | 75,001         |  | $ | 1.58     | 
|Exercised                         |  | 1,200,000     |  | $ | 0.18     |  |  | ---            |  |   | ---      | 
|Outstanding at September 30, 2009 |  | 5,330,000     |  | $ | 0.25     |  |  | 11,648,108     |  | $ | 1.01     | 

Stock
options and warrants exercisable at September 30, 2009, 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                               | 795,000     | 795,000                             
|$1.00                               | 200,000     | -                                   
|$1.165                              | 60,000      | -                                   
|                                    | 5,330,000   | 5,070,000                           

14

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Outstanding Options
    
    3.96
    
    $
    0.21
    
    
    
    
    
    Outstanding Warrants
    
    
    4.08
    
    $
    1.01Exercisable Options
    
    4.00
    
    $
    0.25
    
    
    
    
    
    Exercisable Warrants
    
    
    2.46
    
    $
    1.02


As
of September 30, 2009, the aggregate intrinsic value of all stock options and
warrants outstanding and expected to vest was approximately $1,952,900 and the
aggregate intrinsic value of currently exercisable stock options and warrants
was approximately $5,583,287. 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 $1.28 closing
stock price of the Common Stock on September 30, 2009. The total number of
in-the-money options and warrants outstanding and exercisable as of September
30, 2009, was 5,914,778.

The
total intrinsic value of options and warrants exercised during the period ended
September 30, 2009, was approximately $1,102,250. Intrinsic value of exercised
shares is the total value of such shares on the date of exercise less the cash
received from the option or warrant holder to exercise the options. The total
cash proceeds received from the exercise of stock options was approximately $-0-
for the period ended September 30, 2009.

The
total fair value of options and warrants granted during the period ended
September 30, 2009, was approximately $256,000. The total grant-date fair value
of option shares vested during the period ended September 30, 2009, was
approximately $-0-.

As
of September 30, 2009, there was approximately $75,921 of total unrecognized
stock-based compensation cost, net of expected forfeitures, related to unvested
stock options or warrants granted. This cost is expected to be recognized over a
weighted-average period of 0.27 years.

NOTE 9  SUBSEQUENT EVENTS

The
Company has evaluated events and transactions that occurred between September
30, 2009 and November 20, 2009, which is the date the consolidated financial
statements were available for issue, for possible disclosure or recognition in
the consolidated financial statements. The Company has determined that there
were no such events or transactions that warrant disclosure or recognition in
the consolidated financial statements except as noted below.

On
October 5, 2009, the New Mexico Office of the State Engineer issued a permit
required to proceed with the construction of the tailings dam impoundment at the
Banner Mill. Issuance of the permit was a condition to fully draw down the amount
of funds provided under the gold sale agreement, which the Company entered into
on September 11, 2009, to sell a portion of the life-of-mine gold production
from our Summit silver-gold mine only.

As
a result of the satisfaction of the funding conditions of the gold sale
agreement, the Company received an additional $3.5 million in October 2009. The
total amount of funds received by the Company against the gold sale agreement
equals $4.0 million.

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

On
November 17, 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.

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

THIS FORM 10-Q MAY CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS
AS SUCH TERM IS

15

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DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
AND BY THE SECURITIES AND EXCHANGE COMMISSION IN ITS RULES, REGULATIONS AND
RELEASES, WHICH REPRESENT THE COMPANYS EXPECTATIONS OR BELIEFS, INCLUDING BUT
NOT LIMITED TO, STATEMENTS CONCERNING THE COMPANYS OPERATIONS, ECONOMIC
PERFORMANCE, FINANCIAL CONDITION, GROWTH AND ACQUISITION STRATEGIES,
INVESTMENTS, AND FUTURE OPERATIONAL PLANS. FOR THIS PURPOSE, ANY STATEMENTS
CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE
FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,
WORDS SUCH AS MAY, WILL, EXPECT, BELIEVE, ANTICIPATE, INTENT,
COULD, ESTIMATE, MIGHT, PLAN, PREDICT OR CONTINUE OR THE NEGATIVE OR
OTHER VARIATIONS THEREOF OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL
RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE COMPANYS CONTROL, AND
ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY OF IMPORTANT
FACTORS, INCLUDING UNCERTAINTY RELATED TO ACQUISITIONS, GOVERNMENTAL REGULATION,
MANAGING AND MAINTAINING GROWTH, THE OPERATIONS OF THE COMPANY AND ITS
SUBSIDIARIES, VOLATILITY OF STOCK PRICE AND ANY OTHER FACTORS DISCUSSED IN THIS
AND OTHER REGISTRANT FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. THE
COMPANY DOES NOT INTEND TO UNDERTAKE TO UPDATE THE INFORMATION IN THIS FORM 10-Q
IF ANY FORWARD-LOOKING STATEMENT LATER TURNS OUT TO BE INACCURATE. THE FOLLOWING
SHOULD BE READ IN CONJUNCTION WITH THE INFORMATION PRESENTED IN THE COMPANYS
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 2009.

General

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

Basis of Presentation and Going Concern

The
consolidated financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and satisfaction of liabilities and
commitments in the normal course of business. Should we be unable to continue as
a going concern, we may be unable to realize the carrying value of our assets
and to meet our liabilities as they become due. We had a net (loss) of
$(3,018,798) for the three months ended September 30, 2009, and have a total
accumulated (deficit) of $(56,938,894) at September 30, 2009. To continue as a
going concern, we are dependent on continued fund raising for project
development, execution of our business strategy and payment of general and
administrative operating expenses.

We
will need to continue to raise additional working capital to deploy other
segments of our business plan and for corporate general and administrative
operating expenses. There is no assurance that such funding will be available
when needed, or if available, that its terms will be favorable or acceptable to
the Company. As of September 30, 2009, we have cash on hand aggregating $87,965.
We will be required to raise additional working capital in equity or financing
transactions in order to satisfy our expected cash expenditures and continue to
deploy our current business strategies.

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

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

16

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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 September 30,
2009 and 2008

***Sales***

We had revenues of $4,476 for the
three months ended September 30, 2009, and $16,776 for the three months ended
September 30, 2008. The decrease of $12,300 is due to a decrease in walk-in
sales for aggregate products.

***Operating
Costs and Expenses***

Costs
applicable to sales were incurred aggregating $264 for the three months ended
September 30, 2009, and $-0- for the three months ended September 30, 2008.

Exploration
and mining costs were $80,857 for the three months ended September 30, 2009, and
$107,144 for the three months ended September 30, 2008, a decrease of $26,287.
The change is mainly attributable to decreases in equipment leases aggregating
$14,811; shop supplies of $10,926; general mine expenses of $14,545; and offset
by an increase in property and casualty liability insurance of $17,860.

General
and administrative expenses decreased to $441,301 for the three months ended
September 30, 2009, from $599,172 for the comparative three months ended
September 30, 2008, a change of $157,871. The difference is attributable
primarily to a decrease in stock compensation of $154,190.

***Other
Income and Expenses***

Other
income and (expenses) for the three months ended September 30, 2009, were $(2,394,941) as compared to $1,276,350 for the comparable three months ended
September 30, 2008. The decrease of $3,671,291 is primarily attributable to an
increase in the loss recognized on derivative instruments liability of
$3,490,769; an increase in accretion of discounts on notes payable of $63,107; a
decrease in interest income of $25,253; a decrease in miscellaneous income of
$58,584; and a decrease in relief of debt of $48,872. These changes were offset
by a decrease in interest expense of $21,660.

***Loss
on Derivative Financial Instruments***

We
recognized a loss on derivative financial instruments of $(2,121,546) for the
three months ended September 30, 2009, as compared to a gain of $1,369,223 for
the prior year comparable period, resulting in a difference of $3,490,769. The
non-cash loss arises from adjustments to record the derivative financial
instruments at fair values in accordance with current accounting standards. The
derivative financial instruments arose in connection with senior secured
convertible notes and the issuance of warrants attached to stock subscriptions.
Otherwise, we generally do not use derivative financial instruments for

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other purposes, such as hedging cash flow or fair-value risks.
The decrease in the derivative income in the three months ended September 30,
2009, is attributable mainly to changes in the market price of our common stock,
which is a component of the calculation model and offset by the issuance of
additional warrants resulting in derivative treatment. We use the Black-Scholes
option pricing model to estimate the fair value of this derivative. Because
Black-Scholes uses our stock price, changes in the stock price will result in
volatility in the earnings in future periods as we continue to reflect the
derivative financial instruments at fair values.

PLAN OF OPERATIONS

Liquidity and Capital Resources

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

As
of September 30, 2009 we had cash on hand of $87,965, a working capital deficit
of $5,231,888, which included a non-cash financial derivative of $3,543,816 in
this amount, and an accumulated deficit of $56,938,894.

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

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

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

Factors Affecting Future Operating Results

We
have deployed our plan to place the Company on an improved financial footing. In
addition to the significant capital raisings already achieved, important
elements of the plan include maintaining currency in the filing of our annual
and quarterly financial reports and continuing to raise interim funding to
provide for operations on our various property sites. If we are able to 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.

Off-Balance Sheet Arrangements

During
the three months ended September 30, 2009, we did not engage in any off-balance
sheet arrangements defined in Item 303(a) (4) of the SECs Regulation S-K.

ITEM 4  CONTROLS AND PROCEDURES

We
maintain disclosure controls and procedures as defined in Rules 13a-15(e) and
15d-15(e) under the Securities and Exchange Act of 1934, as amended (the
Exchange Act) that are designed to ensure that information required to be

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disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms,
and is accumulated and communicated to our management as appropriate to allow
timely decisions regarding required disclosure. Under the supervision of, and
the participation of, our management, including our Chief Executive Officer and
Chief Financial Officer, we have conducted an evaluation of our disclosure
controls and procedures as of September 30, 2009. Based on this evaluation, our
Chief Executive Officer and Chief Financial Officer has concluded that our
disclosure controls and procedures are effective.

During
the quarter ended September 30, 2009, there were no changes in our internal
controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.

PART IIOTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS

None

ITEM 1A. RISK FACTORS

Not
  Applicable

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

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

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

On
July 27, 2009, the Company issued 94,339 shares of common stock at $1.06 per
share in connection with a private placement. As part of the private placement
the Company also issued 47,169 warrants with an exercise price of $1.06 per
share and an expiration of 5 years The private placement was subject to a sales
commission and an additional 9,433 shares of common stock were issued as a
commission on the transaction.

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

On
August 13, 2009, an individual exercised an option to purchase 20,000 shares of
common stock at $0.60 per share on a cashless basis. Under the cashless basis
exercise, 8,679 shares were issued.

On
August 17, 2009, the Company issued 18,868 shares of common stock at $1.06 per
share in connection with a private placement. As part of the private placement
the Company also issued 9,434 warrants with an exercise price of $1.06 per share
and an expiration of 5 years. The private placement was subject to a sales
commission and an additional 1,887 shares of common stock were issued as a
commission on the transaction.

On
August 25, 2009, an individual exercised an option to purchase 10,000 shares of
common stock at $0.60 per share on a cashless basis. Under the cashless basis
exercise, 4,286 shares were issued.

On
September 30, 2009, a convertible debenture holder converted $241,500 of accrued
interest into 241,500

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shares of the Companys stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

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

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

SIGNATURES:

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

|Dated: November 20, 2009 | 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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