Correspondence 0000950170-24-136277 from DYNARESOURCE, INC. (DYNR)
DYNARESOURCE, INC.
Date: Dec. 13, 2024 · CIK: 0001111741 · Accession: 0000950170-24-136277
AI Filing Summary & Sentiment
File numbers found in text: 000-30371
Referenced dates: November 14, 2024
Letter
Re:
December 13, 2024
Securities and Exchange Commission Division of Corporation Finance Office of Energy & Transportation Washington, D.C. 20549
DynaResource, Inc. Form 10-K for the Fiscal Year Ended December 31, 2023
Filed April 16, 2024
File No. 000-30371
To Whom It May Concern:
DynaResource, Inc. (“DynaResource”) is submitting this letter in response to the comments received from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) by letter dated November 14, 2024 with respect to the above-referenced Form 10-K (the “Form”).
DynaResource’s responses set forth in this letter are numbered to correspond to the numbered comments in the Staff’s letter. All capitalized terms used but not defined herein have the meanings assigned to such terms in the Form. For ease of reference, we have set forth the Staff’s comments and our responses below:
Form 10-K for the Fiscal Year Ended December 31, 2023
Staff comments 1-4:
Item 2. Properties, page 7
1. We note your disclosure of mineral resources however we are unable to locate the technical report summary that has been filed in support of the mineral resource. Item 1302(b)(1) of Regulation S-K requires a registrant to obtain a dated and signed technical report summary from the qualified person that identifies and summarizes the information reviewed and conclusions reached by the qualified person about a registrant's mineral resources.
Item 1302(b)(2) of Regulation S-K requires a registrant to file the technical report summary as an exhibit to the relevant registration statement or other Commission filing when disclosing for the first time mineral reserves or mineral resources or when there is a material change in the mineral reserves or mineral resources. Please confirm that your technical report summary has been filed and tell us the location of the report.
2. Item 1302(d)(4) of Regulation S-K requires your mineral resources that are disclosed correspond to your fiscal year end. The instruction also requires you to include certain assumptions with your mineral resource disclosure including the commodity price, the cut-off grade, the metallurgical recovery factor, and the point of reference, for example in-situ, mill feed, saleable product, etc. Please revise your mineral resource disclosure to comply with these requirements.
3. Item 1302(e) of Regulation S-K requires a comparison of the mineral resources at the end of the last fiscal year with the mineral resources as of the end of the preceding fiscal year, and an explanation of any material change between the two. Please revise to include this information in your filing.
4. We note that you have included a NI 43-101 underground resource estimate from 2011 in your filing. All mineral resource disclosure should be current as required by Item 1304(f)(2) of Regulation S-K. Mineral resources should also comply with the definitions established under Item 1300 of Regulation S-K and be prepared in accordance with Item 1302(d) of Regulation S-K. Please revise to remove the NI 43-101 resource.
DynaResource Response to Staff comments 1-4:
DynaResource acknowledges and recognizes the importance of the matters raised by Staff’s comments 1-4. The disclosures in question were based upon prior management’s understanding that the referenced 2011 NI 43-101 report together with additional more recent technical information received from the qualified person identified in the Form provided an appropriate and reliable basis for supporting the disclosures made at that time, and an updated technical report summary was not filed.
Notwithstanding the above, current management acknowledges that changes in the regulatory framework (including Regulation S-K Subpart 1300) have created a need for more robust disclosures, including technical report summaries and compliance with updated standards. While the oversight described above was not intentional, DynaResource is committed to aligning its disclosures with the current regulatory requirements.
Based on the foregoing, and in response to Staff’s comments 1-4, DynaResource proposes to file an amendment to the Form to remove all technical and other disclosures related to mineral resources and the 2011 NI 43-101 report. Attachment I hereto sets forth the updated language that we propose be included in the amendment to reflect such removed disclosure language.
Note 1 - Nature of Activities and Significant Accounting Policies Basis of Presentation, page 8
5.You disclose that your financial statements have been prepared on a going concern basis that contemplates the realization of assets and discharge of liabilities at their carrying value in the normal course of business for the foreseeable future. Considering your negative working capital as of December 31, 2023 and the significant net losses and cash used in operating activities for the years ended December 31, 2023 and 2022, please tell us how you concluded that substantial doubt about your ability to continue as a going concern did not exist. Please address your consideration of FASB ASC paragraphs 205-40-50-1 through 5 in your response.
DynaResource Response:
In accordance with FASB ASC 205-40-50-1 through 50-5, management evaluated whether conditions or events existed that raised substantial doubt about the company’s ability to continue as a going concern for a period of one year from the issuance of the financial statements.
a. Conditions and Events Identified
As of December 31, 2023, management acknowledges that the Company faced operational and financial challenges, such as negative working capital, significant net losses and negative cash flows from operating activities, and that this may cause concern about its ability to meet financial obligations. It must be noted that all capital expenditures are expensed as the Company is an exploration stage issuer under subpart 1300 of Regulation S-K. As such, certain non-recurring costs in 2023 such as exploration drilling of $2.5 million and mine expansion costs of $2.6 million are not reflected as capitalized assets on the Company’s balance sheet but instead expensed in the income statement, thus resulting in higher net losses overall. There are also other non-recurring items such as the litigation success fees that are not expected to be incurred in the future. Finally, after implementing mitigating actions and carefully evaluating the company’s financial condition, management believes that the Liquidity and Capital Resources disclosures in the Form are appropriate and accurately reflect the Company’s ability to address these challenges and continue operations within the foreseeable future.
b. Management’s Evaluation
In accordance with ASC 205-40-55-3, management identified key mitigating plans to address these uncertainties, including:
-Plans to reduce or delay expenditures: Expenditures related to capital improvements in 2023 were incurred to increase the mined material on a daily basis by providing tonnage from one additional mine (La Mochomera), increase the capacity to run a lower grade ore while remaining profitable and increase the recovery percentage from the mill by the addition of a concentrator ahead of the tailings pond and a concentrator and cone crusher at the front of the mill. Also, exploration drilling and study costs incurred in 2023 were expected to be non-recurring, with the possibility of postponing.
-Plans to increase ownership equity: Management considered plans to raise additional share capital from existing major shareholders with terms acceptable to the Company.
-New Site Management: The Company also hired new experienced mining and milling personnel who are more familiar with operations of this scale. Outputs throughout February and March of 2024 had already been increasing as additional efficiencies and modifications to processes were implemented.
These plans were evaluated based on their feasibility and effectiveness, considering the company’s resources and operational capabilities.
c. Results Supporting Reasonableness
Primary assumptions prevailing at the time of the 2023 going concern assessment (April 15, 2024):
-As at December 31, 2023 the Company had negative working capital of $10.3 million. To overcome this deficit management projected an achievable production forecast based on the planned increased capacity, after completion of capital improvements, at an average of 25,000 gold ounces in 2024, and average realized price of $2,162 per gold ounce sold. Management also assumed operating costs in line with those incurred in the preceding fiscal year end. This resulted in projected 2024 net operating income of $13.5 million with which the Company could meet its current financial obligations.
-As at December 31, 2023 the Francisco Arturo mining concession tax accrual amounts to $2.2 million and the Mercuria arbitration accrual amounts to $1 million, both of which are obligations recognized as current liabilities that are not expected by management to be paid out in cash yet continue to be carried in the Company’s balance sheet to apply the conservatism principle, until these obligations are fully discharged through successful legal resolution. Also, derivative liabilities of $1.8 million are classified as current liabilities but they are not cash based, bringing the total items that could be excluded from current liabilities to $5.0 million, therefore reducing the working capital deficit.
Furthermore, year-to-date 2024 results demonstrate that the company’s plans were reasonable and effective. Key highlights include:
-Management Transition: Since June 2024, the Company underwent a leadership transition, introducing a new management team focused on operational excellence and financial discipline. This included hiring experienced professionals to oversee the mining operations in Mexico, resulting in improved efficiency, cost control and production stability. Total operating costs on a cost per tonne milled basis have consistently decreased from Q4-2023 to Q3-2024.
-Production Growth: September year-to-date 2024 Ore Milled of 190,006 tonnes, exceeding September year-to-date 2023 Ore Milled of 153,367 tonnes by 24%. Mill throughput on a tonne per day (“tpd”) basis also increased from 515 tpd in Q4-2023 to 674 tpd in Q3-2024, reaching an average of over 800 tpd in October 2024. As a result, production for the year-to-date November 30, 2024 is already 23,710 gold ounces, and the Company is on track to achieve production of 25,000 gold ounces.
-Liquidity Improvements: Achieved a moderate positive operating cash flow in October 2024. This is an improvement over negative operating cash flow of $3.4 million over the period January to March 2024, approximating the date of issuance of the 2023 financial statements.
-Successful Execution of Plans:
oJune 2024: The Company and Ocean Partners formalized the extension of their commercial offtake agreement through December 31, 2028, and secured a Temporary Additional Credit Line (“TACL”) of $4 million, payable November 30, 2024, where Ocean Partners agreed to increase the existing Revolving Credit Line (“RCL”) from $10 million to $12.5 million after November 30, 2024 following the repayment of the TACL and RCL.
oJune 2024: Issued additional shares of preferred stock to the Company’s major shareholder Golden Post Rail LLC (“Golden Post”) in exchange for $2.5 million.
oOctober 2024: Completed a non-brokered private placement of common shares in exchange for $6 million with existing shareholders, including Ocean Partners and Golden Post.
oNovember 2024: Successfully completed rollover of $12.5 million RCL before November 30, 2024
The achievements above noted reflect the Company’s commitment to operational performance, maintaining liquidity and optimizing its capital structure as it continues to execute its operational plans in Mexico.
d. Conclusion
The Company’s performance, particularly since the second half of 2024, has aligned with our mitigating plans to address any liquidity challenges. Year-to-date revenues aided by high gold prices and operating cash flows as of October 31, 2024 have exceeded projections, key financial obligations have been met, completed sale of shares in both June and October 2024, and we have recently refinanced our short-term debt before the November 30, 2024 due date, which has improved liquidity. These results validate and support the reasonableness of our December 2023 assessment and mitigate previously identified uncertainties. While ongoing monitoring is required, the current evidence supports the Company’s ability to continue as a going concern. The Company remains committed to ongoing improvements in operations and financial management to ensure long-term sustainability.
Consolidated Balance Sheets, page 33
6.Please revise your consolidated balance sheet to parenthetically disclose the requirements of Rule 5-02.27(b) of Regulation S-X and include the disclosure requirements of Rule 5-02.27(c) under this heading, as applicable.
DynaResource Response:
Rule 5-02.27(b) and 5-02.27(c) of Regulation S-X are part of the SEC’s requirements for financial statement preparation; the rules address the treatment and disclosure of redeemable equity securities, which are often classified outside of permanent equity under certain conditions. This topic is covered in the Company’s response to Staff comment 8, see below, where this is addressed under the scope of ASC 480, which is more comprehensive, including guidance on instruments with obligations that are contingent or based on user discretion. In summary, Rule 5-02.27 and ASC 480 often address similar instruments, but Regulation S-X focuses on SEC presentation requirements, whereas ASC 480 provides the GAAP framework for accounting classification and measurement.
We believe our disclosures of redeemable equity securities as temporary equity in the 2023 10-K are appropriate and do not require revision.
Consolidated Statements of Operations and Comprehensive Income (Loss), page 35
7.We note you have incurred $8.3 million and 5.7 million of mine exploration costs in the years ended December 31, 2023 and December 31, 2022 respectively. We also note you describe these expenses at page 25 as "costs of extracting waste material to reach the materials to be extracted for processing." As these costs appear to be related to stripping activity rather than exploration activities, please explain why these costs are presented in a separate line item labelled as mine exploration costs and not included in your production costs.
DynaResource Response:
The costs are presented in a separate line item in order to give the reader more detailed information about the ratio of ore mined to ore processed through the mill. The Company could combine them but keeping them separate gives the reader more detailed information.
We acknowledge that the description of “mine exploration costs” may have led to confusion as it relates to activities more accurately categorized as stripping activity. We propose the following to address the Staff’s comment:
Classification of Costs: The referenced costs primarily represent stripping activity related to removing waste material to access ore deposits for processing. These costs are production-related and do not meet the definition of exploration activities under US GAAP, as they are not incurred to discover new mineral resources.
Current Presentation: These costs were classified under the “mine exploration costs” line item to distinguish them from exploration drilling and study costs, which are separately disclosed and distinctly described to avoid confusion. We recognize that using the term “mine exploration costs” could inadvertently mischaracterize these activities.
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CORRESP
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filename1.htm
CORRESP
December 13, 2024
Securities and Exchange Commission
Division of Corporation Finance
Office of Energy & Transportation
Washington, D.C. 20549
Re:
DynaResource, Inc.
Form 10-K for the Fiscal Year Ended December 31, 2023
Filed April 16, 2024
File No. 000-30371
To Whom It May Concern:
DynaResource, Inc. (“DynaResource”) is submitting this letter in response to the comments received from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) by letter dated November 14, 2024 with respect to the above-referenced Form 10-K (the “Form”).
DynaResource’s responses set forth in this letter are numbered to correspond to the numbered comments in the Staff’s letter. All capitalized terms used but not defined herein have the meanings assigned to such terms in the Form. For ease of reference, we have set forth the Staff’s comments and our responses below:
Form 10-K for the Fiscal Year Ended December 31, 2023
Staff comments 1-4:
Item 2. Properties, page 7
1. We note your disclosure of mineral resources however we are unable to locate the technical report summary that has been filed in support of the mineral resource. Item 1302(b)(1) of Regulation S-K requires a registrant to obtain a dated and signed technical report summary from the qualified person that identifies and summarizes the information reviewed and conclusions reached by the qualified person about a registrant's mineral resources.
Item 1302(b)(2) of Regulation S-K requires a registrant to file the technical report summary as an exhibit to the relevant registration statement or other Commission filing when disclosing for the first time mineral reserves or mineral resources or when there is a material change in the mineral reserves or mineral resources. Please confirm that your technical report summary has been filed and tell us the location of the report.
2. Item 1302(d)(4) of Regulation S-K requires your mineral resources that are disclosed correspond to your fiscal year end. The instruction also requires you to include certain assumptions with your mineral resource disclosure including the commodity price, the cut-off grade, the metallurgical recovery factor, and the point of reference, for example in-situ, mill feed, saleable product, etc. Please revise your mineral resource disclosure to comply with these requirements.
3. Item 1302(e) of Regulation S-K requires a comparison of the mineral resources at the end of the last fiscal year with the mineral resources as of the end of the preceding fiscal year, and an explanation of any material change between the two. Please revise to include this information in your filing.
4. We note that you have included a NI 43-101 underground resource estimate from 2011 in your filing. All mineral resource disclosure should be current as required by Item 1304(f)(2) of Regulation S-K. Mineral resources should also comply with the definitions established under Item 1300 of Regulation S-K and be prepared in accordance with Item 1302(d) of Regulation S-K. Please revise to remove the NI 43-101 resource.
2
DynaResource Response to Staff comments 1-4:
DynaResource acknowledges and recognizes the importance of the matters raised by Staff’s comments 1-4. The disclosures in question were based upon prior management’s understanding that the referenced 2011 NI 43-101 report together with additional more recent technical information received from the qualified person identified in the Form provided an appropriate and reliable basis for supporting the disclosures made at that time, and an updated technical report summary was not filed.
Notwithstanding the above, current management acknowledges that changes in the regulatory framework (including Regulation S-K Subpart 1300) have created a need for more robust disclosures, including technical report summaries and compliance with updated standards. While the oversight described above was not intentional, DynaResource is committed to aligning its disclosures with the current regulatory requirements.
Based on the foregoing, and in response to Staff’s comments 1-4, DynaResource proposes to file an amendment to the Form to remove all technical and other disclosures related to mineral resources and the 2011 NI 43-101 report. Attachment I hereto sets forth the updated language that we propose be included in the amendment to reflect such removed disclosure language.
Note 1 - Nature of Activities and Significant Accounting Policies Basis of Presentation, page 8
5.You disclose that your financial statements have been prepared on a going concern basis that contemplates the realization of assets and discharge of liabilities at their carrying value in the normal course of business for the foreseeable future. Considering your negative working capital as of December 31, 2023 and the significant net losses and cash used in operating activities for the years ended December 31, 2023 and 2022, please tell us how you concluded that substantial doubt about your ability to continue as a going concern did not exist. Please address your consideration of FASB ASC paragraphs 205-40-50-1 through 5 in your response.
DynaResource Response:
In accordance with FASB ASC 205-40-50-1 through 50-5, management evaluated whether conditions or events existed that raised substantial doubt about the company’s ability to continue as a going concern for a period of one year from the issuance of the financial statements.
a. Conditions and Events Identified
As of December 31, 2023, management acknowledges that the Company faced operational and financial challenges, such as negative working capital, significant net losses and negative cash flows from operating activities, and that this may cause concern about its ability to meet financial obligations. It must be noted that all capital expenditures are expensed as the Company is an exploration stage issuer under subpart 1300 of Regulation S-K. As such, certain non-recurring costs in 2023 such as exploration drilling of $2.5 million and mine expansion costs of $2.6 million are not reflected as capitalized assets on the Company’s balance sheet but instead expensed in the income statement, thus resulting in higher net losses overall. There are also other non-recurring items such as the litigation success fees that are not expected to be incurred in the future. Finally, after implementing mitigating actions and carefully evaluating the company’s financial condition, management believes that the Liquidity and Capital Resources disclosures in the Form are appropriate and accurately reflect the Company’s ability to address these challenges and continue operations within the foreseeable future.
3
b. Management’s Evaluation
In accordance with ASC 205-40-55-3, management identified key mitigating plans to address these uncertainties, including:
-Plans to reduce or delay expenditures: Expenditures related to capital improvements in 2023 were incurred to increase the mined material on a daily basis by providing tonnage from one additional mine (La Mochomera), increase the capacity to run a lower grade ore while remaining profitable and increase the recovery percentage from the mill by the addition of a concentrator ahead of the tailings pond and a concentrator and cone crusher at the front of the mill. Also, exploration drilling and study costs incurred in 2023 were expected to be non-recurring, with the possibility of postponing.
-Plans to increase ownership equity: Management considered plans to raise additional share capital from existing major shareholders with terms acceptable to the Company.
-New Site Management: The Company also hired new experienced mining and milling personnel who are more familiar with operations of this scale. Outputs throughout February and March of 2024 had already been increasing as additional efficiencies and modifications to processes were implemented.
These plans were evaluated based on their feasibility and effectiveness, considering the company’s resources and operational capabilities.
c. Results Supporting Reasonableness
Primary assumptions prevailing at the time of the 2023 going concern assessment (April 15, 2024):
-As at December 31, 2023 the Company had negative working capital of $10.3 million. To overcome this deficit management projected an achievable production forecast based on the planned increased capacity, after completion of capital improvements, at an average of 25,000 gold ounces in 2024, and average realized price of $2,162 per gold ounce sold. Management also assumed operating costs in line with those incurred in the preceding fiscal year end. This resulted in projected 2024 net operating income of $13.5 million with which the Company could meet its current financial obligations.
-As at December 31, 2023 the Francisco Arturo mining concession tax accrual amounts to $2.2 million and the Mercuria arbitration accrual amounts to $1 million, both of which are obligations recognized as current liabilities that are not expected by management to be paid out in cash yet continue to be carried in the Company’s balance sheet to apply the conservatism principle, until these obligations are fully discharged through successful legal resolution. Also, derivative liabilities of $1.8 million are classified as current liabilities but they are not cash based, bringing the total items that could be excluded from current liabilities to $5.0 million, therefore reducing the working capital deficit.
Furthermore, year-to-date 2024 results demonstrate that the company’s plans were reasonable and effective. Key highlights include:
-Management Transition: Since June 2024, the Company underwent a leadership transition, introducing a new management team focused on operational excellence and financial discipline. This included hiring experienced professionals to oversee the mining operations in Mexico, resulting in improved efficiency, cost control and production stability. Total operating costs on a cost per tonne milled basis have consistently decreased from Q4-2023 to Q3-2024.
-Production Growth: September year-to-date 2024 Ore Milled of 190,006 tonnes, exceeding September year-to-date 2023 Ore Milled of 153,367 tonnes by 24%. Mill throughput on a tonne per day (“tpd”) basis also increased from 515 tpd in Q4-2023 to 674 tpd in Q3-2024, reaching an average of over 800 tpd in October 2024. As a result, production for the year-to-date November 30, 2024 is already 23,710 gold ounces, and the Company is on track to achieve production of 25,000 gold ounces.
4
-Liquidity Improvements: Achieved a moderate positive operating cash flow in October 2024. This is an improvement over negative operating cash flow of $3.4 million over the period January to March 2024, approximating the date of issuance of the 2023 financial statements.
-Successful Execution of Plans:
oJune 2024: The Company and Ocean Partners formalized the extension of their commercial offtake agreement through December 31, 2028, and secured a Temporary Additional Credit Line (“TACL”) of $4 million, payable November 30, 2024, where Ocean Partners agreed to increase the existing Revolving Credit Line (“RCL”) from $10 million to $12.5 million after November 30, 2024 following the repayment of the TACL and RCL.
oJune 2024: Issued additional shares of preferred stock to the Company’s major shareholder Golden Post Rail LLC (“Golden Post”) in exchange for $2.5 million.
oOctober 2024: Completed a non-brokered private placement of common shares in exchange for $6 million with existing shareholders, including Ocean Partners and Golden Post.
oNovember 2024: Successfully completed rollover of $12.5 million RCL before November 30, 2024
The achievements above noted reflect the Company’s commitment to operational performance, maintaining liquidity and optimizing its capital structure as it continues to execute its operational plans in Mexico.
d. Conclusion
The Company’s performance, particularly since the second half of 2024, has aligned with our mitigating plans to address any liquidity challenges. Year-to-date revenues aided by high gold prices and operating cash flows as of October 31, 2024 have exceeded projections, key financial obligations have been met, completed sale of shares in both June and October 2024, and we have recently refinanced our short-term debt before the November 30, 2024 due date, which has improved liquidity. These results validate and support the reasonableness of our December 2023 assessment and mitigate previously identified uncertainties. While ongoing monitoring is required, the current evidence supports the Company’s ability to continue as a going concern. The Company remains committed to ongoing improvements in operations and financial management to ensure long-term sustainability.
Consolidated Balance Sheets, page 33
6.Please revise your consolidated balance sheet to parenthetically disclose the requirements of Rule 5-02.27(b) of Regulation S-X and include the disclosure requirements of Rule 5-02.27(c) under this heading, as applicable.
DynaResource Response:
Rule 5-02.27(b) and 5-02.27(c) of Regulation S-X are part of the SEC’s requirements for financial statement preparation; the rules address the treatment and disclosure of redeemable equity securities, which are often classified outside of permanent equity under certain conditions. This topic is covered in the Company’s response to Staff comment 8, see below, where this is addressed under the scope of ASC 480, which is more comprehensive, including guidance on instruments with obligations that are contingent or based on user discretion. In summary, Rule 5-02.27 and ASC 480 often address similar instruments, but Regulation S-X focuses on SEC presentation requirements, whereas ASC 480 provides the GAAP framework for accounting classification and measurement.
We believe our disclosures of redeemable equity securities as temporary equity in the 2023 10-K are appropriate and do not require revision.
5
Consolidated Statements of Operations and Comprehensive Income (Loss), page 35
7.We note you have incurred $8.3 million and 5.7 million of mine exploration costs in the years ended December 31, 2023 and December 31, 2022 respectively. We also note you describe these expenses at page 25 as "costs of extracting waste material to reach the materials to be extracted for processing." As these costs appear to be related to stripping activity rather than exploration activities, please explain why these costs are presented in a separate line item labelled as mine exploration costs and not included in your production costs.
DynaResource Response:
The costs are presented in a separate line item in order to give the reader more detailed information about the ratio of ore mined to ore processed through the mill. The Company could combine them but keeping them separate gives the reader more detailed information.
We acknowledge that the description of “mine exploration costs” may have led to confusion as it relates to activities more accurately categorized as stripping activity. We propose the following to address the Staff’s comment:
Classification of Costs: The referenced costs primarily represent stripping activity related to removing waste material to access ore deposits for processing. These costs are production-related and do not meet the definition of exploration activities under US GAAP, as they are not incurred to discover new mineral resources.
Current Presentation: These costs were classified under the “mine exploration costs” line item to distinguish them from exploration drilling and study costs, which are separately disclosed and distinctly described to avoid confusion. We recognize that using the term “mine exploration costs” could inadvertently mischaracterize these activities.