Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of the Company's financial condition and results of operations together with the Company's financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2023.
Forward-Looking Statements
This Quarterly Report on Form 10-Q and the exhibits attached hereto contain "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, including statements concerning our anticipated results and developments of our operations in future periods, planned exploration and development of our properties, plans related to our business and other matters that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.
Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as "expects," "anticipates," "plans," "estimates" or "intends," the negatives thereof, variations thereon and similar expressions, or stating that certain actions, events or results "may," "could," "would," "might" or "will" be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements. Forward-looking statements in this quarterly report relate to, among other things:
- our businesses and prospects and our overall strategy;
- the progress, potential and uncertainties of the Company's exploration program;
- our planned exploration activities across our portfolio of exploration targets;
- our planned or estimated capital expenditures for exploration and general and administrative costs;
- government regulations, including our ability to obtain, and the timing of, necessary government permits and approvals;
- expectations regarding the availability of our liquidity and capital resources, and our ability to scale down spending if sufficient resources are not available;
- our ability to obtain financing as needed and the terms of such financing transactions;
- progress in developing our projects and the timing of that progress;
- estimates and future assumptions set forth in the mineral resource estimate for the Richmond Hill property; and
- attributes and future values of the Company's projects or other interests, operations or rights.
Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors that could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation risks associated with or related to:
- the potential lack of proven and probable mineral reserves pursuant to S-K 1300;
- the potential failure to successfully execute management's strategy and manage our growth;
- the Company's history of losses and potential need for additional funding;
- our limited operating history;
- uncertainty as to future production at our mineral exploration and development properties;
- our ability to maintain sufficient liquidity and attract sufficient capital resources to implement our projects;
- ownership of surface rights at our Black Hills Property;
- mining exploration and development risks, including risks related to regulatory approvals, operational hazards and accidents, equipment breakdowns, labor and contractor disputes, contractual disputes related to exploration properties, unanticipated or increased operating costs and other unanticipated difficulties;
- potential health risks associated with mining and mineral exploration;
- mineralization estimates and the effect of changes in such estimates on the economic viability of our properties;
- fluctuations in commodity prices;
- future adverse legislation regarding the mining industry and climate change;
- uncertainties associated with potential litigation matters, including environmental lawsuits;
- our land reclamation requirements;
- our ability to maintain the adequacy of internal control over financial reporting;
- adverse technological changes and cybersecurity threats;
- title in our properties;
- competition in the gold and silver mining industries;
- economic and financial conditions, including volatility in interest and exchange rates, commodity and equity prices and the value of financial assets;
- our ability to attract and retain key management and mining personnel necessary to successfully operate and grow our business;
- volatility in the market price of our listed securities; and
- other factors set forth under "Item 1A. Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2023.
This list is not exhaustive of the factors that may affect the Company's forward-looking statements. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those described in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Except as required by law, the Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. The Company qualifies all the forward-looking statements contained in this Quarterly Report on Form 10-Q by the foregoing cautionary statements.
This management's discussion and analysis should be read in conjunction with the Company's financial statements and notes thereto as set forth herein. Readers are also urged to carefully review and consider the various disclosures made by the Company, which attempt to advise interested parties of the factors that affect its business, including without limitation, the disclosures made under "Risk Factors" of its most recent Form 10-K.
The Company's unaudited financial statements are stated in United States dollars and are prepared in accordance with U.S. GAAP.
Since the Company is an exploration stage company as defined under S-K 1300 and has not generated revenues to date, its business is subject to numerous contingencies and risk factors beyond its control, including exploration and development risks, competition from well-funded competitors, and its ability to manage growth.
Overview
The Company's goal is to create stockholder value through the acquisition, responsible exploration, and future development of high caliber gold properties in the Homestake District of South Dakota. Management and the technical teams cumulatively have several hundred years of international mining and exploration experience and key personnel have more than 50 combined years in the Homestake District, mostly with the Homestake Mining Company, as well as other exploration companies that have operated in the region. The Company believes that this experience uniquely positions the Company and will allow it to leverage its direct experience and knowledge of past exploration and mining activities in the Homestake District. Combined with the use of modern exploration and mining techniques, and new geologic understanding from experience in other mines, new research and information extracted from its new geophysical surveys, the Company hopes to focus its programs and build upon where the historic Homestake Mining Company left off in the 1990s.
The Homestake District has yielded approximately 44.6 million ounces of gold production as of March 31, 2024 with most of it coming from within a small geographic area. The production ledges of the Homestake Mine define a cumulative surface projection area of less than three square miles. Homestake Mining Company's historic gold production and exploration in the Homestake District was overwhelmingly focused on the underground mine. Modern statistical studies of ore deposit trends and understanding of the distribution of large gold camps around the world indicates that large gold deposits generally form in distinct camps and normally occur in clusters that show predictable distributions (Zipf's Law Applied to Ore Deposits). The Company believes this might be true for the Homestake District. Outside of the mine area, the Homestake District has been underexplored and heretofore has not been the subject of modern exploration efforts required to search for other deposits, especially under the cover of younger rocks that dominate the surface.
The Company has consistently pursued a strategy of expanding its portfolio of brownfield properties located exclusively within the Homestake District to build a strong land position with the goal of consolidating possible mineral potential. Property acquisitions are focused and based on past exploration, the access to proprietary data sets the Company has assembled over the years, new research and remote data acquisition (Magnetics, Gravity and Radiometric) that was recently conducted over the Homestake District that hosts the Homestake Gold Deposit.
Other than mineral resource estimate with an effective date of October 5, 2023 contained in our inaugural technical report summary for the Richmond Hill property, none of our other properties are sufficiently drilled to prepare an estimate of mineral resources under S-K 1300. The Company believes the Homestake District is in a safe, low-cost jurisdiction with well-developed infrastructure and is in a favorable regulatory environment in which authorities have consistently demonstrated a willingness to work with responsible operators to permit well-planned compliant projects.
Drill Programs and Results
Permitting and site preparations were initiated for the first drilling program on the iron-formation target and other Tertiary-age replacement targets in the Maitland area and drilling commenced in early 2022. The Company has since expanded its drilling operations to the Richmond Hill Project and has had up to four drill rigs operating on Dakota Gold properties. Dakota Gold has completed permit applications and environmental field work for exploration on several target areas and currently has nine active permits in place: four on the Maitland Project, three on the Richmond Hill Project, one on the City Creek Project and one on the Cambrian Unconformity Project. Permitting for targets for some of the other Dakota Gold Properties may be advanced for drilling as exploration activity continues throughout the year.
Dakota Gold completed 24 holes for 78,040 feet (23,787 meters) of core drilling on three projects in 2022. The areas drilled were the Maitland Project, the Richmond Hill Project, and the Cambrian Unconformity Project. The Company also completed 89 holes for 174,659 feet (52,992 meters) of core on two projects in 2023; the areas drilled were the Maitland Gold Project (78,589 feet; 23,954 meters) and the Richmond Hill Project (96,070 feet; 29,282 meters). In total, Dakota Gold has completed 113 drill holes for 252,699 feet (77,023 meters) since drilling started in 2022.
On February 8, 2023, the Company announced the discovery of the Unionville Zone in MA22C-009, which intercepted mineralized, Precambrian hosted, Tertiary-age, epithermal gold mineralization in a structurally controlled breccia. On May 4, 2023, the Company announced the discovery of the JB Zone in MA23C-017, which intercepted significant high-grade, Homestake-type, Precambrian mineralization over potentially mineable widths that has since been followed up with multiple gold intercepts in multiple limbs of Homestake iron formation, the geometry of which is analogous to the West-Ledge system at the Homestake Mine.
On April 13, 2023, the Company announced the commencement of an infill and step-out drilling program at the Richmond Hill property to convert and expand known gold mineralization identified by more than 900 historical drill holes, and expanded by new Dakota Gold drilling, into the maiden technical report summary for the Richmond Hill property. On September 27, 2023, the Company announced commencement of an infill drilling program at the Unionville Zone on the Maitland Project for the purpose of advancing to a S-K 1300 compliant resource for 2025. On April 30, 2024, the Company announced the completion of the inaugural S-K 1300 compliant technical report summary for the Richmond Hill property, which was filed as an exhibit to the Company’s Current Report on Form 8-K. This report does not include the infill drilling program at the Unionville Zone on the Maitland Project.
Richmond Hill Technical Report Summary
On April 30, 2024 the Company disclosed an inaugural Mineral Resource Estimate ("MRE") for the Richmond Hill property. Below is a summary of the Richmond Hill MRE, as disclosed in our Form 8-K filed on April 30, 2024.
Table 1-1: Richmond Hill Conceptual Pit-Constrained MRE at Variable Cutoff Grades
| Redox |
Classification |
Au g/t |
Tonnes |
Ounces Au |
| Oxide |
Indicated |
0.65 |
14,979,000 |
314,000 |
| Mixed |
Indicated |
0.74 |
22,849,000 |
547,000 |
| Hypogene |
Indicated |
1.04 |
14,001,000 |
469,000 |
| Total Indicated |
|
0.80 |
51,829,000 |
1,330,000 |
| |
|
|
|
|
| Oxide |
Inferred |
0.49 |
27,437,000 |
429,000 |
| Mixed |
Inferred |
0.63 |
19,957,000 |
407,000 |
| Hypogene |
Inferred |
0.86 |
10,668,000 |
296,000 |
| Total Inferred |
|
0.61 |
58,062,000 |
1,132,000 |
Notes:
- Weighted mean of oxide, mixed, and hypogene totals.
- Mineral resources are not mineral reserves and do not have demonstrated economic viability.
- There is no certainty that all or any part of the estimated mineral resources will be converted into mineral reserves.
- Pit-constrained resources are stated at a range of cutoff gold grades depending on oxide state.
- Oxide recovery = 87%, mixed recovery = 65%, hypogene recovery = 42%.
- Mineral resource tonnage and contained metal have been rounded to reflect the accuracy of the estimate, and numbers may not add due to rounding.
- Mineral resource tonnage and grades are reported as undiluted.
- MRE is current as of October 5, 2023.
- Pit-Constrained at $1,900/oz; Royalty = 3.8%; Mill & G&A Cost = $8.00; Mine Cost = $1.80.
- Cutoff grade Au g/t: Oxide 0.21 g/t, Mixed 0.29 g/t, Hypogene 0.44 g/t
- Pit slope at 50 degrees
Planned Activities
The Company's planned activities in fiscal 2024 will be focused on advancing exploration and resources development drilling on its Maitland and Richmond Hill projects. Additional field work, specifically data compilation, sampling and mapping, are planned for Dakota Gold's West Corridor, Blind Gold and Poorman Anticline properties during the 2024 field season.
Specifically at Richmond Hill, gold mineralization remains open in all directions and at depth. Additional drilling will be conducted within the resource area, defined in the inaugural resource estimation, where significant mineral potential exists but where drilling was of insufficient density to be included in the maiden resource. The additional drilling and the inclusion of silver will be incorporated into future resource estimates.
In addition, exploration will be conducted on targets outside the Richmond Hill resource area where untested targets exist or where potential mineralized structures and breccias project under Paleozoic and Tertiary cover rocks.
Also at Richmond Hill, work will continue on understanding the rare earth mineralization announced earlier this year, through additional assay and metallurgical investigation and a preliminary geologic model.
At Maitland, infill and step out drilling will continue in the JB and Unionville discovery areas for both Precambrian and Tertiary-age gold mineralization with the goal of completing an initial resource estimation for the Unionville system in 2025.
The Company continues to utilize its proprietary geophysical data sets to evaluate both regional and project specific targets. The Company continues to locate and compile historic data sets useful to the Company’s regional exploration programs.
Additional land acquisition will be pursued on an opportunistic basis to enhance the Company’s ongoing exploration efforts.
With four drill rigs operating at the Black Hills Property, the Company anticipates expenditures of approximately $30 million during the calendar year ending December 31, 2024. To fund expenditures at this level, the Company will be required to raise further capital. Should it be unable to raise capital, the Company can scale down the exploration program to maintain greater than 12 months of funding as of March 31, 2025.
The Company's projects are all at the exploration stage and do not generate revenues. Other than the mineral resource estimate contained in the technical report summary for the Richmond Hill property, the Company has not established that any of its properties or projects contain mineral resources or mineral reserves, as defined under S-K 1300. Expenditure projections are subject to numerous contingencies and risk factors beyond the Company's control, including exploration and development risks, competition from well-funded competitors, and the Company's ability to manage growth and assessments of ongoing exploration activities and results. The Company cannot offer assurance that its expenses will either meet or exceed its projections.
Liquidity and Capital Resources
The Company is in the exploration stage and currently does not generate revenues. As such, the Company finances its operations and the acquisition and exploration of its mineral properties through the issuance of common stock, and the Company could be materially adversely affected if it is unable to raise capital because of market or other factors.
As of March 31, 2024, the Company had working capital of approximately $12.22 million and a retained deficit of approximately $51.26 million. The Company had a net loss for the three months ended March 31, 2024, of approximately $8.59 million.
During the twelve months ending December 31, 2024, the Company anticipates cash expenditures of approximately $30 million.
Based on the Company's cash balance at March 31, 2024 of approximately $15.11 million and the anticipated ability to utilize the ATM program during the year, the Company believes that it will have sufficient funds to fund its activities for the next twelve months. The actual timing of expected expenditures and fundraising is dependent upon a number of factors, including the management of variable exploration expenditures.
Should it be unable to raise sufficient capital, the Company plans to scale down the exploration program in order to maintain greater than 12 months of funding from the date of these financial statements.
Results of Operations
Comparison of Three months ended March 31, 2024 and 2023
The Company had losses from operations for the three months ended March 31, 2024 and 2023 totaling approximately $8.79 million and $9.58 million, respectively, losses before income tax of approximately $8.61 million and $9.54 million respectively, leading to net losses of approximately $8.59 million and $9.27 million.
Exploration Expenses
During the three months ended March 31, 2024 and 2023, exploration expenses totaled approximately $6.55 million and $6.84 million, respectively. The Company's main driver for exploration expenditure relates to the number of drills operating at our projects. While the Company had four drills operating during both periods, the Company has improved cost efficiency. The Company also took a longer shutdown over late December 2023 and early January 2024, which reduced drilling and related costs including assays and core cutting. Partially offsetting the reduction in drilling costs were higher study costs relating to the completion of the technical report summary for the Richmond Hill property. Included in exploration costs were non-cash exploration-related stock-based compensation expenses of approximately $0.13 million and $0.20 million for the three months ended March 31, 2024 and 2023, respectively.
General and Administrative Expenses
Our general and administrative expenses for the three months ended March 31, 2024 and 2023, were approximately $2.25 million and $2.74 million, respectively. These expenditures were primarily for legal, accounting, and professional fees, investor relations, and other general and administrative expenses necessary for our operations. The decrease was primarily due to decreased stock-based compensation allocated to administration expenses of $0.67 million for the three months ended March 31, 2024 (compared to approximately $1.09 million for the three months ended March 31, 2023) and decreased support costs included in general and administrative costs of approximately $1.15 million for the three months ended March 31, 2024 (compared to $1.45 million for the three months ended March 31, 2023), partially offset by increased investor relations expenses of approximately $0.19 million for the three months ended March 31, 2024 (compared to approximately $0.03 million for the three months ended March 31, 2023).
Other Income and Expense
The Company earned interest income from bank accounts of approximately $0.22 million and $0.05 million and incurred interest expense of approximately $0.04 million and $Nil related to the VMC purchase for the three months ended March 31, 2024 and 2023, respectively.
Cash Flows Used in Operating Activities
During the three months ended March 31, 2024 and 2023, the Company's cash flows used in operating activities were approximately $10.17 million and $8.46 million, respectively. Cash used in operations for the three months ended March 31, 2024 increased period over period primarily as a result of timing of payments.
Cash Flows Used in Investing Activities
During the three months ended March 31, 2024 and 2023, cash flow used in investing activities were approximately $0.17 million and $0.07 million, respectively. In the three months ended March 31, 2024, the cash used in investing activities consisted of approximately $0.12 million for purchases of property and equipment, $0.03 million of mineral properties and $0.02 million of other assets. In the three months ended March 31, 2023, the cash used in investing activities consisted of approximately $0.04 million for purchases of property and equipment, $0.02 million of mineral properties and $0.01 million of other assets. The increase in property acquisition costs was due to the timing of acquisitions. The higher acquisition of property and equipment in the three months ended March 31, 2023 related to the completion of the new core storage facility.
Cash Flows from Financing Activities
During the three months ended March 31, 2024, cash used in financing activities totaled approximately $0.09 million, relating to ATM program costs. During the three months ended March 31, 2023, the Company issued 1,886,800 shares of common stock under the ATM program for net proceeds of approximately $4.90 million, 37,500 shares of common stock for the exercise of stock options for proceeds of approximately $0.01 million and 9,018 shares of common stock for the exercise of share purchase warrants for proceeds of $0.02 million and the Company paid income taxes related to vested RSUs and PSUs totaling approximately $0.04 million on behalf of its employees.
Critical Accounting Estimates
Management's discussion and analysis of financial condition and results of operations is based on the Company's consolidated financial statements, which have been prepared in accordance with U.S. GAAP. Preparation of financial statements requires management to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and the related disclosures of contingencies. Management bases its estimates on various assumptions and historical experience, which are believed to be reasonable; however, due to the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that the Company's consolidated financial statements are fairly presented in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from the Company's assumptions and estimates, and such differences could be material. Management believes that the following critical accounting estimates and judgments have a significant impact on the Company's consolidated financial statements; valuation of options granted to directors and officers using Black-Scholes and Monte Carlo models. The Company's accounting policies are described in greater detail in Note 2 to the Company's audited annual consolidated financial statements for the year ended December 31, 2023. There have been no material changes to the Company's critical accounting policies and estimates as compared to the Company's critical accounting policies and estimates described in the Form 10-K for the year ended December 31, 2023.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
At the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision of and with the participation of the Company's management, including its chief executive officer ("CEO") and chief financial officer ("CFO"), of the effectiveness of the design and operations of its disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). Based on that evaluation, the CEO and the CFO have concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company's disclosure controls and procedures were effective as of March 31, 2024.
Changes to Internal Controls and Procedures over Financial Reporting
Management, with the participation of the CEO and CFO, concluded that there were no changes in our internal control over financial reporting during the three months ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors
Except as described below, there have been no material changes from the risk factors as previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
We have added the following risk factor to those disclosed in "Item 1A. Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2023:
Risks Associated with Our Business
Mineral resource estimates are inherently imprecise, involve substantial expenditures and are frequently non-productive.
We have released an estimate of mineral resources at the Richmond Hill property. Mineral resource figures based on estimates made by geologists are inherently imprecise and depend on geological interpretation and statistical inferences drawn from drilling and sampling that may prove to be unreliable or inaccurate. Substantial expenditures are required to: (i) establish the existence of a potential ore body through drilling and metallurgical and other testing techniques; (ii) determine metal content and metallurgical recovery processes to process metal from the ore; (iii) determine the feasibility of mine development and mineral extraction; and (iv) construct, renovate or expand mining and processing facilities. It usually takes several years from the initial mineral resource estimate until mineral extraction is possible, if at all. During this time, the economic feasibility of a project may change because of increased costs, lower metal prices or other factors. As a result of these uncertainties, our exploration programs may not result in the development of any particular property. We cannot assure you that our mineral resource estimates are accurate, and even if the estimates are accurate, the economic viability of the Richmond Hill property may not justify exploitation or the estimates may not accurately reflect the future revenue we receive from mineral extraction.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended March 31, 2024, Dakota Gold acquired various databases, mining permits and real properties in Lawrence County, South Dakota for $3.3 million through a property purchase agreement with VMC, LLC (“VMC”). The deal closed on January 12, 2024 and the Company issued a total of 640,638 shares of common stock based on a volume-weighted average price of $2.57 per share for the first tranche of payment. The Company relied on the exemption from registration provided under Section 4(a)(2) under the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. During the three months ended March 31, 2024, the Company's exploration properties were not subject to regulation by the Federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977.
Item 5. Other Information
None.
Item 6. Exhibits.
The following exhibits are attached hereto or are incorporated by reference:
________________
* Filed herewith
** Furnished herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DAKOTA GOLD CORP.
| /s/ Jonathan Awde |
|
| By: Jonathan Awde |
|
| Chief Executive Officer (Principal Executive Officer) |
|
| Dated: May 10, 2024 |
|
| /s/ Shawn Campbell |
|
| By: Shawn Campbell |
|
| Chief Financial Officer (Principal Financial Officer) |
|
| Dated: May 10, 2024 |
|