SEC Company Response from DYNARESOURCE, INC. (DYNR) (CIK 0001111741) (DYNR) — Apr 24, 2019
DYNARESOURCE, INC. (DYNR) (CIK 0001111741)
Date: April 24, 2019 · CIK: 0001111741 · Accession: 0001121781-19-000032
AI Filing Summary & Sentiment
File numbers found in text: 000-30371
Letter
DynaResource, Inc.
W. Las Colinas Blvd
Suite 1910 North Tower
Irving, Texas 75039
Office of Beverages, Apparel, and Mining
U. S. Securities and Exchange Commission
Division of Corporate Finance
F. Street, NE
Washington, DC 20549
Re: DynaResource, Inc.
Form 10-K for Fiscal Year Ended December 31, 2017
Filed April 16, 2018
File No. 000-30371
Ladies and Gentlemen:
This letter is in response to your oral comments on the above captured filing on February 25, 2019.
Those comments were issued during a conference call between SEC support staff and DynaResource, Inc. management as a follow up to our January 10, 2019 response to your December 18, 2018 letter.
Form 10-K for Fiscal Year Ended December 31, 2017
Notes to Consolidated Financial Statements
Note 1. Nature of Activities and Significant Accounting Policies
Property
Design, Construction and Development Costs, page 57
1. We have reviewed your response to comment 1 noting you do not believe the costs you capitalized for the medical facility, camp, office infrastructure improvements, tailings pond and liner improvements, new foundation for the Denver Mill, installation cost for Mill #3, other machinery and equipment and transportation equipment related to mine development. Considering you have not established proven and probable reserves for this mine and you continue to be in the exploration stage, please provide us with a detailed discussion of how you determined the probably future economic benefit for each of these capitalized costs, including: (a) your expected proceeds and associated costs from alternative future uses for each of these capitalize costs and (b) the salvage value for each of these capitalized amounts. Also tell us the basis for each of your material assumptions, including providing supporting evidence.
Response:
Because the DynaResource mining operations has only one source of revenue, the sale of minerals primarily gold and silver, extracted and processed from the mining operations, it is impractical to perform a separate detailed analysis of the probable future economic benefit for each of the capitalized costs.
While we have not established “proven and probable reserves” under SEC Guide 7 (although the Company does report 402,000 “Indicated” Oz Au and 741,000 “Inferred” Oz Au under the definitions described in Canadian National Instrument 43-101) the Company has established a proven revenue stream from its mining operations. Total revenues for the year ended December 31, 2018 were approximately $14,000,000, which represented an increase of approximately 30% over 2017 revenues. Forecasted revenue for the year ending December 31, 2019 is $30,000,000. Our analysis of the future economic benefit of the capitalized costs is based on our 2017 and 2018 revenue and the additional revenue we expect to generate through the expansion of our mining and processing facilities in 2019 and in future years. All the capitalized costs in 2017 discussed in your comment as well as the additional cost incurred in 2018 are necessary to support and process the increased mining production.
None of the capitalizable items have significant expected proceeds from alternative uses or if salvaged. Therefore, neither were factors considered in our determination of the future economic benefit of the assets.
The Company’s mining operations are in the Construction phase, and these assets qualify as construction assets as defined by Guide 7. Construction assets and facilities are infrastructure, building, machinery, plant and equipment necessary to extract, treat, and transport material from the mineral reserve. Per Guide 7, construction assets have a separate measurable life which may be longer or shorter than the measurable life of the mine.
Request:
The specific oral request was for the Company to provide a detail five-year projection of revenue and expenses from mining operations to document that we believe we will generate enough cash flow to recover our investment in the construction assets as defined above.
Response:
In response to this request we submit the attached three exhibits:
Exhibit A. – A five-year projected statement of operations compiled with the same format as the Company’s Form 10K statement of operations.
Exhibit B. – A five-year operating projection for the mining operations including detailed calculations of projected revenue, mining and production costs.
Exhibit C - A comparison between actual yield during the test mining phase and the projected yield as defined in the block model NI 43-101 report.
Key assumptions in the projection are as follows:
Revenue: Increase in daily mine production from 200 tonnes per day in April 2019 to 320 tonnes per day beginning in January 2020 and continuing through December 2023. Increase in daily plant processing from 190 tones per day in April 2019 to 310 tonnes per day beginning in January 2020 with an average feed grade of 11.50 g/t. This increase in production is based on opening additional mines (Tres Amigos), by July 2020. The increase in processing capacity is based on the completion of the rehabilitation of the third mill. Revenue is calculated based on a $1,250 an ounce gold price reduced by the buyer’s discount and processing costs based on the terms of the current sales contract.
Production Cost Applicable to Sales: Plant processing costs are estimated at $45 a ton consistent with historical processing costs.
Mine Production Cost Costs of mining ore for processing is estimated at $60 a ton based on historical costs.
Mine Exploration Costs: Costs of mining the waste materials necessary to reach the mineral deposits is the same as the mining the materials for production at $60 a ton. The ratio of waste material to production material was estimated by the mining team. It is higher in 2019 reflective of the cost of commencing the opening of the first Tres Amigos mine.
Transportation Costs: Transportation cost are estimated at 4.5% of revenue based on historical costs.
Camp, Warehouse and Facility Costs: Mining support costs reflect only a slight increase over 2018 cost. That facilities in place were constructed and staffed to support the projected level of production.
Property Holding Costs: Property holdings cost reflect the reductions of the Company’s mining concessions in 2018 from 69,121 hectares to 9,920 hectares.
General and Administrative Costs: - G&A expenses are projected to remain flat over the next five years.
Depreciation & Amortization - Depreciation expense is projected based on depreciation of current assets plus projected additions.
Non-Operating Costs The only non-operating cost include in the projection was interest expense which was calculated based on amortization of current notes with the assumption the convertible notes payable would be paid off from cash flow in 2020. No attempt was made to estimate the effect of foreign currency exchange gains and losses.
Based on this projection, Company management feels that the cash flow provided from mining operations will be sufficient to recover the Company’s investment in the construction assets and that the assets are properly accounted for in the Company’s financial statements.
The Company acknowledges that the Company and its management are responsible for the adequacy and accuracy of the disclosure in the filing, notwithstanding any review, comments, action or absence of action by the staff of the Commission.
Respectfully,
/s/
K.W. (“K.D.) Diepholz
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filename1.htm
DynaResource, Inc.
222
W. Las Colinas Blvd
Suite
1910 North Tower
Irving,
Texas 75039
Office
of Beverages, Apparel, and Mining
U.
S. Securities and Exchange Commission
Division
of Corporate Finance
100
F. Street, NE
Washington,
DC 20549
Re: DynaResource,
Inc.
Form
10-K for Fiscal Year Ended December 31, 2017
Filed
April 16, 2018
File
No. 000-30371
Ladies
and Gentlemen:
This
letter is in response to your oral comments on the above captured filing on February 25, 2019.
Those
comments were issued during a conference call between SEC support staff and DynaResource, Inc. management as a follow up to our
January 10, 2019 response to your December 18, 2018 letter.
Form
10-K for Fiscal Year Ended December 31, 2017
Notes
to Consolidated Financial Statements
Note
1. Nature of Activities and Significant Accounting Policies
Property
Design,
Construction and Development Costs, page 57
1. We
have reviewed your response to comment 1 noting you do not believe the costs you capitalized
for the medical facility, camp, office infrastructure improvements, tailings pond and
liner improvements, new foundation for the Denver Mill, installation cost for Mill #3,
other machinery and equipment and transportation equipment related to mine development.
Considering you have not established proven and probable reserves for this mine and you
continue to be in the exploration stage, please provide us with a detailed discussion
of how you determined the probably future economic benefit for each of these capitalized
costs, including: (a) your expected proceeds and associated costs from alternative future
uses for each of these capitalize costs and (b) the salvage value for each of these capitalized
amounts. Also tell us the basis for each of your material assumptions, including providing
supporting evidence.
Response:
Because
the DynaResource mining operations has only one source of revenue, the sale of minerals primarily gold and silver, extracted and
processed from the mining operations, it is impractical to perform a separate detailed analysis of the probable future economic
benefit for each of the capitalized costs.
While
we have not established “proven and probable reserves” under SEC Guide 7 (although the Company does report 402,000
“Indicated” Oz Au and 741,000 “Inferred” Oz Au under the definitions described in Canadian National Instrument
43-101) the Company has established a proven revenue stream from its mining operations. Total revenues for the year ended December
31, 2018 were approximately $14,000,000, which represented an increase of approximately 30% over 2017 revenues. Forecasted revenue
for the year ending December 31, 2019 is $30,000,000. Our analysis of the future economic benefit of the capitalized costs is
based on our 2017 and 2018 revenue and the additional revenue we expect to generate through the expansion of our mining and processing
facilities in 2019 and in future years. All the capitalized costs in 2017 discussed in your comment as well as the additional
cost incurred in 2018 are necessary to support and process the increased mining production.
None
of the capitalizable items have significant expected proceeds from alternative uses or if salvaged. Therefore, neither were factors
considered in our determination of the future economic benefit of the assets.
The
Company’s mining operations are in the Construction phase, and these assets qualify as construction assets as defined by
Guide 7. Construction assets and facilities are infrastructure, building, machinery, plant and equipment necessary to extract,
treat, and transport material from the mineral reserve. Per Guide 7, construction assets have a separate measurable life which
may be longer or shorter than the measurable life of the mine.
Request:
The
specific oral request was for the Company to provide a detail five-year projection of revenue and expenses from mining operations
to document that we believe we will generate enough cash flow to recover our investment in the construction assets as defined
above.
Response:
In
response to this request we submit the attached three exhibits:
Exhibit
A. – A five-year projected statement of operations compiled with the same format as the Company’s Form 10K statement
of operations.
Exhibit
B. – A five-year operating projection for the mining operations including detailed calculations of projected revenue, mining
and production costs.
Exhibit
C - A comparison between actual yield during the test mining phase and the projected yield as defined in the block model NI 43-101
report.
Key
assumptions in the projection are as follows:
Revenue:
Increase in daily mine production from 200 tonnes per day in April 2019 to 320 tonnes per day beginning in January 2020 and continuing
through December 2023. Increase in daily plant processing from 190 tones per day in April 2019 to 310 tonnes per day beginning
in January 2020 with an average feed grade of 11.50 g/t. This increase in production is based on opening additional mines (Tres
Amigos), by July 2020. The increase in processing capacity is based on the completion of the rehabilitation of the third mill.
Revenue is calculated based on a $1,250 an ounce gold price reduced by the buyer’s discount and processing costs based on
the terms of the current sales contract.
Production
Cost Applicable to Sales: Plant processing costs are estimated at $45 a ton consistent with historical processing costs.
Mine
Production Cost Costs of mining ore for processing is estimated at $60 a ton based on historical costs.
Mine
Exploration Costs: Costs of mining the waste materials necessary to reach the mineral deposits is the same as the mining the
materials for production at $60 a ton. The ratio of waste material to production material was estimated by the mining team. It
is higher in 2019 reflective of the cost of commencing the opening of the first Tres Amigos mine.
Transportation
Costs: Transportation cost are estimated at 4.5% of revenue based on historical costs.
Camp,
Warehouse and Facility Costs: Mining support costs reflect only a slight increase over 2018 cost. That facilities in place
were constructed and staffed to support the projected level of production.
Property
Holding Costs: Property holdings cost reflect the reductions of the Company’s mining concessions in 2018 from 69,121
hectares to 9,920 hectares.
General
and Administrative Costs: - G&A expenses are projected to remain flat over the next five years.
Depreciation
& Amortization - Depreciation expense is projected based on depreciation of current assets plus projected additions.
Non-Operating
Costs The only non-operating cost include in the projection was interest expense which was calculated based on amortization
of current notes with the assumption the convertible notes payable would be paid off from cash flow in 2020. No attempt was made
to estimate the effect of foreign currency exchange gains and losses.
Based
on this projection, Company management feels that the cash flow provided from mining operations will be sufficient to recover
the Company’s investment in the construction assets and that the assets are properly accounted for in the Company’s
financial statements.
The
Company acknowledges that the Company and its management are responsible for the adequacy and accuracy of the disclosure in the
filing, notwithstanding any review, comments, action or absence of action by the staff of the Commission.
Respectfully,
/s/
K.W. (“K.D.) Diepholz
Chairman
/ CEO
DYNARESOURCE,
INC.
EXHIBIT
A - FIVE YEAR PROJECTION
Year
Year
Year
Year
Year
Five
Year
2019
2020
2021
2022
2023
Total
REVENUE
22,650,063
$
35,984,600
$
35,984,600
$
35,984,600
$
35,984,600
$
166,588,463
COSTS
AND EXPENSES OF MINING OPERATIONS
Production
Cost Applicable to Sales
3,245,791
4,743,000
4,743,000
4,743,000
4,743,000
22,217,791
Mine Production
Costs
5,162,741
6,528,000
6,528,000
6,528,000
6,528,000
31,274,741
Mine Exploration
Costs
3,757,537
5,222,400
5,222,400
5,222,400
5,222,400
24,647,137
Camp,
Warehouse and Facilities
2,921,774
3,000,000
3,000,000
3,000,000
3,000,000
14,921,774
Transportation
1,165,249
1,620,000
1,620,000
1,620,000
1,620,000
7,645,249
Property
Holding Costs
250,000
250,000
250,000
250,000
250,000
1,250,000
General
and Administrative
2,433,157
2,400,000
2,400,000
2,400,000
2,400,000
12,033,157
Depreciation
and Amortization
299,180
300,000
300,000
300,000
300,000
1,499,180
Total
Operating Expenses
19,235,429
24,063,400
24,063,400
24,063,400
24,063,400
115,489,029
NET OPERATING
INCOME
3,414,635
11,921,200
11,921,200
11,921,200
11,921,200
51,099,435
OTHER
INCOME (EXPENSE)
Foreign
Currency Gains (Losses)
-
-
-
-
-
-
Interest
Expense
(470,000)
(304,000)
(38,000)
-
-
(812,000)
Derivatives
Mark-to-Market Gain (Loss)
-
-
-
-
-
-
Other
Income (Expense)
-
-
-
-
-
Total
Other Income (Expense)
(470,000)
(304,000)
(38,000)
-
-
(812,000)
NET INCOME BEFORE
TAXES
2,944,635
11,617,200
11,883,200
11,921,200
11,921,200
50,287,435
TAXES
-
-
-
-
-
-
NET INCOME
2,944,635
$
11,617,200
$
11,883,200
$
11,921,200
$
11,921,200
$
50,287,435
Exhibit
B
5
Year Summary - Underground Mining
San
Pablo, San Pablo East, Tres Amigos, San Pablo South
Mine
Mine
(Ore Tons)
500,000
Mine
(Ore g/t)
12.41
Mined
Gold Oz
199,493
Plant
Ore
Feed (Tons)
483,700
Ore
Feed (g/t)
11.41
Gold
Oz
177,461
Recovery
85%
Gross
Recovered Gold Oz
150,841
Non
Recovered Gold Ozs Deposited to Tailings
Estimate
Recoverability of 50% - 75%
26,620
Revenue
/ Cost
Gross
Revenue
$188,551,250
Net
Revenue
$164,258,900
Total
Operating Cost
$105,049,000
Other
Cost
$4,200,000
Net
Operating Profit
$55,009,900
Operating
Costs / Per Gold Oz
$696
All
Inclusive Cost / Per Gold Oz
$728
Case
Gold
Price ($US / Oz)
Operating
Cash
Million
USD
Base
Case
$1,200
$58.5
Base
Case
$1,250
$65.7
Base
Case
$1,300
$72.8
Base
Case
$1,500
$101.4
San
Jose de Gracia Underground Gold Mines
San
Jose de Gracia Underground Gold Mines
15
Month Projections (April, 2019 - June 2020)
15
Month Projections (April, 2019 - June 2020) Page 2
Apr-2019
May-2019
Jun-2019
Jul-2019
Aug-2019
Sep-2019
Oct-2019
Nov-2019
Dec-2019
Jan-2020
Feb-2020
Mar-2020
April,
2020
May
2020
June
2020
Total
Operating
Days
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
450
Mine
Ore
Tons Mined / Day
200
200
200
260
260
260
260
260
260
320
320
320
320
320
320
272
Ore
Tons / Mined
6,000
6,000
6,000
7,800
7,800
7,800
7,800
7,800
7,800
9,600
9,600
9,600
9,600
9,600
9,600
122,400
Gold
Grade (g/t)
10.00
10.00
10.00
12.50
12.50
12.50
12.50
12.50
12.50
12.50
12.50
12.50
12.50
12.50
12.50
12.13
Gold
Oz
1,929
1,929
1,929
3,135
3,135
3,135
3,135
3,135
3,135
3,858
3,858
3,858
3,858
3,858
3,858
47,745
Waste
tons
4,800
4,8