ITEM
1. DESCRIPTION OF BUSINESS
BACKGROUND
USCorp
(hereafter, the “Company”, “we” and “our” refer to USCorp) was formed in May
1989 in the state of Nevada as The Movie Greats Network, Inc. In August 1992,
the Company changed its name to The Program Entertainment Group, Inc. In August
1997, the Company changed its name to Santa Maria Resources, Inc. In September
2000, the Company changed its name to Fantasticon, Inc. and in January 2002
the
Company changed its name to USCorp.
In
April
2002, the Company acquired USMetals, Inc. (“USMetals”), a Nevada corporation, by
issuing 24,200,000 shares of Company Common Stock. USMetals became a wholly
owned subsidiary of the Company.
Southwest
Resource Development, Inc. (“Southwest”) was formed and organized under the laws
of the State of Nevada on April 3, 2004 as a wholly owned subsidiary of USCorp.
On or about May 29, 2004, Southwest acquired 8 lode and 21 placer mining claims
(the “Mining Claims”) formerly known as the Chocolate Mountain Region Claims and
the Picacho Area Claims.
Subsequently
both USMetals and Southwest have acquired additional mining claims and performed
significant exploration work, including the completion of feasibility studies,
as described more fully below (See “
USMETALS
- Summary of Organization and Business” and “
SOUTHWEST
RESOURCE DEVELOPMENT, INC.
-
Summary of Organization and Business”).
OVERVIEW
USCorp
is
an “exploration stage” company. The Company’s operations center on completing
exploration and beginning development of USMetals’ mining property known as the
Twin Peaks Project, and Southwest’s mining properties formerly known as the
Chocolate Mountain Region claims which the Company now refers to collectively
as
the Picacho Salton Project. The Company has realized no revenues from operations
to date.
All
of
the Company’s mining business activities are conducted at this time through its
subsidiaries, USMetals, Inc. (“USMetals”) and Southwest Resource Development,
Inc. (“Southwest”).
The
Company, through its wholly-owned subsidiary, USMetals, owns 143 Lode Mining
Claims in the Eureka Mining District of Yavapai County, Arizona, called the
Twin
Peaks Project; and through its wholly-owned subsidiary, Southwest, owns a total
of 106 claims, 84 Lode and 22 Placer Claims in the Mesquite Mining District
of
Imperial County, California, which the Company refers to as the Picacho Salton
Project.
A.
RECENT DEVELOPMENTS.
On
September 29, 2006 the Company’s Registration Statement on Form SB-2 was
declared effective by the US Securities and Exchange Commission registering
6,700,000 shares of the Company’s Class A common stock for resale pursuant to an
equity line arrangement with Dutchess Private Equities Fund, LP. The total
dollar amount under the equity line is $10,000,000. As of the date of the Annual
Report the Company has not submitted any puts to Dutchess.
On
November 2, 2006 we announced in a press release the addition of new lode and
placer claims to our California claims in the Mesquite Mining District of
Imperial County. We now have 106 claims in this area which we refer to
collectively as the Picacho Salton Project. These claims consist of three
separate groups of contiguous claims in close proximity to each other. Most
of
the claims are predominantly gold properties. 140 acres of these new claims,
the
equivalent of seven claims, contain a deposit of Pink Rhyolite (decorative
rock)
and construction grade aggregate.
During
2007 USMetals added two claims to the Twin Peaks Project bringing the total
to
143 contiguous claims.
In
the
spring of 2007 the Company’s transfer agent, US Stock Transfer Corporation was
acquired by ComputerShare, the world’s largest transfer agency.
On
May 2,
2007 we announced in a press release a $1.2 million commitment by a private
Swiss fund. The fourth and final traunch of $300,000 was received in early
October, 2007, completing the commitment. Subsequent to the period of this
Annual Report the first debenture was converted to 2,400,000 shares of common
stock. These shares are restricted from resale under rule 144.
On
May 9,
2007 we announced in a press release a Notice of Intent to drill has been
prepared for the BLM for the Twin Peaks Property. Surface geochemical sampling,
GPS coordinated claim and structural mapping of the area are underway.
Radionuclide survey samples have been taken from the northeast quadrant of
the
property that exhibit promising levels of radioactivity. We are also examining
the deposits of titanium magnetite on the property for possible
development.
On
July
26, 2007 we announced in a press release the completion of the Twin Peaks
Feasibility Study and the availability of its summary on our web site.
On
August
28, 2007 we announced in a press release the completion of a Feasibility Study
on the Picacho Salton Property and the availability of its summary on our web
site.
In
August
and September of 2007 we received $620,000 from a private east coast finance
group as the result of a private placement. The Company offered one unit for
$0.75 per unit consisting of one share of common stock and one warrant to
purchase ½ share of common stock at an exercise price of $0.40 per one full
share. The exercise period is two years, expiring in October 2009.
On
November 8, 2007 we announced in a press release the results of a recent report
prepared for the Company by Geological Support Services regarding the titanium
magnetite deposits at the Twin Peaks Project, which stated in part:
“
The
magnetite of the twin peaks has been sampled and sent off for assay…ore grade
shows it to have saleable levels of TiO
[titanium oxide]”.
B.
DESCRIPTION OF CURRENT BUSINESS OPERATIONS.
The
Company’s plan of operation and business objectives will be to engage in (a) the
precious metals exploration, mining, and refining business, and (b) the
acquisition of qualified candidates engaged in businesses that would compliment
the Company’s existing or proposed operations. All of the Company’s business
operations are conducted through its subsidiaries
USMETALS
- Summary of Organization and Business.
USMetals
(“USMetals”) was formed and organized under the laws of the State of Nevada on
May 3, 2000. On or about April 2, 2002, the Company acquired USMetals; including
its 141 lode mining claims (the “Mining Claims”). The purpose of USMetals is to
engage in the business of acquiring and developing mineral properties, exploring
for gold, silver, and other non-ferrous metals and minerals within the
contiguous United States. It is the further intention of USMetals to mine and
to
process any commercially-proven resources developed at its
properties.
The
Mining Claims of USMetals are located in West-Central Arizona, in the Eureka
Mining District of Yavapai County, Arizona, approximately 42 miles west of
Prescott, Arizona. Within the boundaries of USMetals’ Mining Claims, more
commonly referred to as the “Twin Peaks Project,” are the historic sites of the
Crosby, Hayes, Swiss Belle and Gloryhole Mines, past producers of gold and
silver. The claims are geographically located in the southwestern division
of
the Eureka Mining District, which includes many significant mines and prospects.
There are tungsten mines in the Camp Wood area, to the northeast, the existing
historic gold mines and prospects, which abut USMetals’ property to the
southeast along the Santa Maria River, and tungsten, copper, and zinc mines
to
the south and southeast. The area has a long history of mining activities.
Mining companies and prospectors can obtain experienced labor, affordable
housing, equipment repair, and mining services within the district.
The
Santa
Maria River traverses the Mining Claims and USMetals is the only company that
holds water rights to that section of the river, a valuable asset for a mining
company in this arid country.
All
of
USMetals’ mining properties are unpatented mining claims; consequently, the
Company has only possessory title with respect to such properties. The claims
were duly transferred by official deed from the prior owner to USMetals on
March
22, 2002. The real property upon which USMetals’ claims are located is subject
to a paramount lien by the United States of America; all of USMetals’ claims are
subject to the applicable rules and regulations of the United States Department
of the Interior, Bureau of Land Management, which administers USMetals’ use and
activities on said Mining Claims. USMetals has paid all of the required fees
in
order to maintain the 143 Mining Claims, which USMetals owns, for the current
periods. All of the necessary documents and affidavits have been filed with
the
Yavapai County Recorder, as was mentioned hereinabove.
The
Company and USMetals have had a number of strategic working relationships with
various independent contractors in order to develop its Mining Claims. USMetals
further relies on the declarations and valuations formed and given in past
geological exploration and geochemical studies. USMetals has had consulting
and/or independent contractor relationships with Boart Longyear, LLC, Geological
Support Services, LLC, Biozone, Inc. and Wondjina Research Institute. It should
be noted that if USMetals was forced to disassociate itself with one or more
of
the abovementioned independent contractors, it could readily secure the services
of other individuals or entities to perform the work or services of equal or
greater quality; the loss of any one or all of the abovementioned contractors
would not cause USMetals material adverse effects; however, each of these firms
has demonstrated its capability and reliability in assisting The Company and
USMetals to develop the Mining Claims, and, to date, the abovementioned
companies have provided invaluable assistance to The Company’s senior executive
management in evaluating the potential represented by USMetals’ Mining
Claims.
Geological
Support Services, LLC recently completed a feasibility study on the Twin Peaks
Project that identified proven reserves of 612,000 ounces of gold and 2,160,000
ounces of silver in 3.6 million tons of ore, grading at .17 oz. gold per ton
and
.6 oz. silver per ton and a revenue cutoff grade of .03 per ton, using a gold
price of $600 per Troy ounce and a silver price of $12 per Troy ounce. And
Geological Support Services, LLC also completed a feasibility study on of the
Picacho Salton Project that identified proven resources of 231,513 ounces of
gold in 6,614,666 tons of ore grading at .035 oz per ton with a cutoff grade
of
.015 using a gold price of $600 per troy ounce gold.
On
February 14, 2005 the Company filed a Form 8-K with the Securities and Exchange
Commission reporting that the Company concluded the acquisition of 2 additional
gold mining claims located near Kingman, Arizona from a private corporation.
Under
the
direction of our consulting geophysicist, we fully explored and tested the
property. Based on the exploration and test results, however, Management
determined it was not economically viable to pursue exploration or development
of this property. Due to certain conditions not being met, title to the claims
reverted back to the prior claim holder.
SOUTHWEST
RESOURCE DEVELOPMENT, INC.
- Summary of Organization and Business
Southwest
Resource Development, Inc. (“Southwest”) was formed and organized under the laws
of the State of Nevada on April 3, 2004 as a wholly owned subsidiary of USCorp.
On or about May 29, 2004, Southwest acquired 8 lode and 21 placer mining claims
(the “Mining Claims”) formerly known as the Chocolate Mountain Region Claims and
the Picacho Area Claims. In 2007 this claims group was expanded to a total
of
106 claims consisting of 22 placers and 84 lodes, on 4,600 acres, which the
Company now refers to collectively as the Picacho Salton Project. The purpose
of
Southwest is to engage in the business of acquiring and developing mineral
properties, exploring for gold, silver, and other non-ferrous metals and
minerals within the contiguous United States. It is the further intention of
Southwest to mine and to process any commercially-proven resources developed
at
its properties.
In
lieu
of cash payment for the original 8 lode and 21 placer claims acquired in 2004
the Company entered into what is essentially a joint venture with the former
owners whereby the former owners are entitled to receive 20% of all net smelter
returns of gold after expenses, whether paid in cash or in kind. The remaining
77 claims are wholly owned by USCorp’s subsidiary, Southwest.
The
Company has spent the last 5 years developing a plan that would bring multiple
properties under Company ownership. Through its wholly owned subsidiary,
Southwest, the Company has now acquired for development of a total of 4,600
acres of precious metal properties located in the Chocolate Mountain region
of
the Mesquite Mining District in Imperial County, California: Geological testing
has successfully recovered gold and silver from dry washes and feeder rills.
Laboratory analysis indicates these findings warrant continued development.
Geological Support Services, LLC has completed a feasibility study that
identified proven resources of 231,513 ounces of gold in 6,614,666 tons of
ore
grading at .035 oz per ton with a cutoff grade of .015 using a gold price of
$600 per troy ounce gold on of the Picacho Salton Project.
The
Chocolate Mountains region, located in southeastern Imperial county of
California, includes the Picacho State Park and surrounding areas that has
a
rich history of gold mining activities dating back to 1775. This property is
in
a district that has been producing gold since the 1800s. In 1890 a large stamp
mill was built beside the Colorado River at the town of Picacho. The Picacho
Mine was opened in the Picacho Basin area and a narrow gauge railroad began
hauling ore from the mine to the mill. By 1904, the town of Picacho had a
population of 2,500 people. The ruins of the mill are in the Picacho State
Recreation Area a few miles east of the Picacho Salton Project claims. Thousands
of people visit the old mill ruins each year. To the south and west of the
Picacho Salton Project claims there are ruins of many old placer and lode
workings as well as recently producing major mining operations.
Numerous
discoveries of placer gold throughout Imperial County have remained undeveloped
due to a common problem encountered by small miners. Due to the lack of an
adequate water supply to support placer gold recovery operations in the region,
scores of small and medium size mining operations have failed to successfully
recover precious metals known to exist throughout the region. Southwest believes
it has located a potentially adequate water source. Southwest intends to use
a
state of the art gold recovery system designed and developed for the specific
conditions found on these properties. Based on the recent reports of geologists
and engineers, Southwest believes this property has the potential to develop
into a significant gold producing operation.
Historically,
mining has been carried out in the Mesquite Mining District of Imperial County
using old hard rock mining and placer methods. However, in 1984, new mining
methods (“heap leaching”) were used to develop and mine low-grade ore bodies,
with an economically viable cut-off grade as low as .01 to .02 ounces of gold
per ton. Test production has determined the cutoff grade and the economic
viability of this property. Geological Support Services, LLC recently completed
a feasibility study that has identified proven resources of 231,513 ounces
of
gold in 6,614,666 tons of ore grading at .035 oz per ton with a cutoff grade
of
.015 using a gold price of $600 per troy ounce gold on the Picacho Salton
Project. Southwest intends to go into production as soon as possible after
approvals and financing are obtained.
Property
descriptions, locations and nature of ownership.
Picacho
Salton Project Claims in the Mesquite Mining District of Imperial County,
California, U.S.A, Group #1: 640 acres on four contiguous, unpatented Placer
Claims. Access to these claims is by a private dirt road 2 miles north of the
intersection of Highway 78 and Ogilby Road, near Glamis, California.
Picacho
Salton Project Claims in the Mesquite Mining District of Imperial County,
California, U.S.A, Group #2: 17 unpatented Placer Claims. These contiguous
claims cover 2,720 acres. All of these claims are just east of the intersection
of Highway 78 and Ogilby Road. Access to the property is by private dirt
road.
Picacho
Salton Project Claims in the Mesquite Mining District of Imperial County,
California, U.S.A, Group #3: 8 unpatented Lode Claims covering 160 acres. Means
of access to the property is by an unmarked private dirt road, south of Picacho
State Park.
On
November 1, 2006 USCorp announced the acquisition of the additional Mining
Property, through its wholly owned subsidiary Southwest. Situated on 1,280
acres
covering 64 lode mining claims of precious metal properties and located in
the
Mesquite Mining District of Imperial County, California, some of the new
property has common borders to Southwest’s other gold properties. Means of
access to the property is by an unmarked private dirt road, south of Picacho
State Park.
The
143
unpatented lode mining claims, covering 2,860 acres, which the Company refers
to
as the “Twin Peaks Project,” are located in the Eureka Mining District of
Yavapai County, Arizona, U.S.A. Access to the property from the west is by
county maintained and private dirt roads from Highway 93 (connecting Phoenix,
Arizona with Las Vegas, Nevada).
The
Company, through its wholly owned subsidiaries, owns unpatented mining claims
and pays an annual Maintenance Fee payment to the Bureau of Land Management
(BLM) for each of its claims. Maintenance Fee payments of $125 per claim are
due
on or before August 31 each year.
Maps
indicating the locations of our properties.
In
the
Map above “1”“2” “3” “4” and “5” represent the approximate locations of the
company’s Picacho Salton Project properties in the Mesquite Mining District of
Imperial County, California. These five locations are represented by the number
“2” in the map below.
History
of previous operations.
Twin
Peaks Project claims group, in the Eureka Mining District of Yavapai County,
Arizona: From a historical perspective, Spaniards arrived in the area over
400
years ago and used the Santa Maria River to gain access to the claims area.
According to historical sources, the local Indians used to mine gold and silver
in the area, which was refined and shipped to Spain. More recently, in the
1880’s, John Lawler and Charles Crosby pioneered the Eureka Mining District. In
1883, John Lawler discovered the area was rich in gold, silver, lead, and zinc.
Charles
Crosby first discovered the Crosby Mine and worked his claims from 1906 to
1933.
His works are on a mineralized structure and flat zone. When the Crosby Mine
opened in 1906, it processed 120 ounces of gold per day. It operated a 40-stamp
amolotion mill until World War II. The Crosby group of claims are in the
northeast corner of the Twin Peaks claims group.
From
the
mid-1920s to the mid-1930s, a prospector worked the Gloryhole claim, in the
southwest quadrant of the Company’s Twin Peaks claims group. The ore he mined
ran over 8 ounces of gold per ton. In 1941 and 1942, the claim was yielding
2.6
ounces of gold per ton. At that time, the ore was shipped to the railhead at
Hillside and by train to a smelter in El Paso, Texas.
In
1885,
the Hayes Silver Mine opened. The deposit at the mine was so rich - over 300
ounces of gold and silver per ton - that the owners shipped the ore directly
to
England for smelting and refining. The Hayes claims group are part of the
Company’s Twin Peaks claims group.
Picacho
Salton Project Claims in the Mesquite Mining District of Imperial County,
California: There has been no commercial scale mining on any of the Company’s
claims in this region.
The
present condition of the property, the work we have completed on the property,
our proposed program of exploration and development, and the current state
of
exploration and development of the property.
Twin
Peaks Project Claims Group: The Company has conducted exploration work on the
property, including drilling 3,000 feet of core samples (in addition to 10,000
feet drilled by prior owners) and road improvements to repair and create dirt
road accesses to the property, and re-stake all claims using GPS. The Company
relies on geological work of experts performed by us and under prior ownership
in support of our reports of the presence of gold, silver, uranium and other
mineralization on the property. Geological Support Services, LLC recently
completed a feasibility study on the Twin Peaks Project that identified proven
reserves of 612,000 ounces of gold and 2,160,000 ounces of silver in 3.6 million
tons of ore, grading at .17 oz. gold per ton and .6 oz. silver per ton and
a
revenue cutoff grade of .03 per ton, using a gold price of $600 per Troy ounce
and a silver price of $12 per Troy ounce. In December, 2007 we received a
Cultural Resource Survey (an archeological report) for proposed drill sites
as
part of the Company’s application filed in August 2007 with the BLM to conduct
additional drilling to prove up additional resources. The Company is not
conducting mineral extraction operations on this property yet.
On
November 1, 2006 USCorp announced the acquisition of what we then referred
to as
the “Picacho Salton Mining Property”, through its wholly owned subsidiary
Southwest. Situated on 1,280 acres covering 64 mining claims of precious metal
properties and located in the Mesquite Mining District of Imperial County,
California, some of these newly acquired claims have common borders to USCorp’s
Picacho Gold Property. The Company’s California properties are now collectively
known as the Picacho Salton Project.
Regarding
the Picacho Salton Project Claims Groups in the Mesquite Mining District of
Imperial County: The Company has performed exploration work on the property.
The
Company relies on geological work of experts performed by us under prior
ownership in support of our early reports of the presence of gold and silver
on
the property. Geological Support Services, LLC recently completed a feasibility
study that has identified proven resources of 231,513 ounces of gold in
6,614,666 tons of ore grading at. 035 oz per ton with a cutoff grade of .015
using a gold price of $600 per troy ounce gold on the Picacho Salton Project.
There are no current mineral extraction operations on this property. The
proposed program is exploratory in nature.
The
physical condition of the plant and equipment and the source of power utilized
with respect to each property.
At
this
time there are no physical plants on any of the Company’s properties. The
Company owns rights to water on the Santa Maria River which traverses the Twin
Peaks Project property. Power is available on properties adjacent to the Twin
Peaks Project and portable generators can be used as necessary. Power is also
available on properties adjacent to our placer claims in California and portable
generators can be used when necessary. There are natural wells located in
several places on our California claims. We will supplement well water with
trucked water if necessary.
Adequate
roads exist to each of our claims groups. Some existing roads may need to be
repaired or extended.
A
brief description of the rock formations and mineralization of existing or
potential economic significance on the properties, including the identity of
the
principal metallic or other constituents.
In
regards to the Twin Peaks Project, past geologic valuations have been confirmed
by recent geological work as reported in Geological Support Services’
feasibility study on the project indicating mineralized material on claims
within the boundaries of the Twin Peaks on the Crosby claims, Hayes claims
and
Gloryhole claims as follows: 1,200,000 tons of ore at the Crosby with 0.118
ounces of gold per ton and 0.520 ounces of silver per ton; 1,200,000 tons of
ore
at the Hayes with 0.128 ounces of gold per ton and 0.960 ounces of silver per
ton; 1,200,000 tons of ore at the Crosby with 0.258 ounces of gold per ton
and
0.584 ounces of silver per ton. The Company uses these historical and current
reports in support of its determination that economically viable mineralization
is present on the properties.
According
to past geologic valuations the Crosby claims are within an area of banded
gray
schist that is surrounded by light-colored granite and intruded by pegmatite,
rhyolite-porhyry, and basic dikes. The vein strikes N10E, and dips 25 to 30
degrees E, and attains a width of up to 18 inches in the old workings. Rich
ore
from the oxidized zone shows brecciated quartz with abundant cellular limonite.
The gold is usually found associated with the oxidized iron minerals. The Hayes
and Gloryhole claims are geologically similar to the Crosby claims, and the
gold
is also found in association with the oxidized iron minerals. Several structural
zones appear to control the mineralization within the claim group. It can be
considered that an alignment of a structural trend exists, with a bearing of
about N2OE between the Hayes Mine and the Crosby Mine, with the Swiss Belle
Mine
at midway along the trend. Another structural zone which is expressed by a
dike
and is reported to run from the Santa Maria River to the base of Hayes Peak,
has
an average bearing of about N53W. The Hayes Shaft was sunk within this dike.
The
dike probably passes slightly west of the Gloryhole Mine and then intersects
a
N2OE structural zone near the base of Hayes Peak. A sample taken at this
intersection assayed 1.167 oz/ton gold and 66.37 oz/ton silver. The structural
zones seem to influence wide areas adjacent to them, which is confirmed by
the
voluminous number of favorable assays and also by the Very Low Frequency
Electromagnetic survey. Cut off grade valuations were not performed.
Geological
Support Services, LLC recently completed a feasibility study on the Twin Peaks
Project that identified proven reserves of 612,000 ounces of gold and 2,160,000
ounces of silver in 3.6 million tons of ore, grading at .17 oz. gold per ton
and
.6 oz. silver per ton and a revenue cutoff grade of .03 per ton, using a gold
price of $600 per Troy ounce and a silver price of $12 per Troy
ounce.
Picacho
Salton Project Claims Groups in the Mesquite Mining District of Imperial County:
A past geochemical sampling program has indicated mineralized material at the
Goldstar placer claims; tonnage and grade valuations were not performed. The
Company used such reports in support of its determination that economically
viable mineralization may be present on the properties as stated in various
historical reports. Geological Support Services, LLC recently completed a
feasibility study that has identified proven resources of 231,513 ounces of
gold
in 6,614,666 tons of ore grading at .035 oz per ton with a cutoff grade of
.015
using a gold price of $600 per troy ounce gold on the Picacho Salton
Project.
On
November 1, 2006 USCorp announced the acquisition of the Picacho Salton Mining
Property, through its wholly owned subsidiary Southwest. Situated on 1,280
acres
covering 64 mining claims of precious metal properties and located in the
Mesquite Mining District of Imperial County, California, some of the recently
acquired claims have common borders to USCorp’s Picacho Gold Property, now
collectively referred to as the Picacho Salton Project Claims.
The
phased nature of the exploration process, and the place in the process our
current exploration activities occupy.
Phase
1
of the exploration process has been completed on a portion of the Hayes group
of
claims within the Twin Peaks Project. Phase I supplemented the previous
exploration effort with additional geological, geochemical and geophysical
surveys, drilling, excavations and road building. We also completed a scoping
study. Phase I was designed to furnish pertinent data for the design of Phase
II
Mining Operation Plan.
Phase
II
has largely been completed as of the date of this Annual Report. We have done
further exploration on our property, and designed a Test Production program
on
selected claims within the Twin Peaks claims group which we plan to initiate
in
fiscal 2008. This will include an electromagnetic flyover of the entire claim
group and completion of a geochemical survey using the boundaries of individual
claims to establish a base grid. This sample grid would be tightened in select
areas. Simultaneously, the geology will be mapped in order to determine the
overall extent of pathfinder mineralization for use in planning additional
drilling, gaining a more detailed understanding of the potential of the entire
site, and solidifying the mineral land position.
We
will
then commence with drilling and assaying in the areas previously targeted in
prior geological reports. The drilling program has been designed to confirm
the
geology and mineralization in the target areas; a broad program is not necessary
due to prior geological work. Extra samples will be retained for metallurgical
testing on promising zones.
The
results of testing the samples has allowed us to plan the conceptual mine and
milling plans, including flow-sheets that were used in the feasibility study
process along with the on-going economic and cost modeling evaluation of the
project. Finally while the results are being evaluated we have begun the
collection of the archeological and environmental data necessary for further
exploration, submission of the Mining Plans of Operations and approvals to
commence mining.
We
have
received a Test Production plan and budget for the Picacho Salton Project Claims
in the Mesquite Mining District of Imperial County from one of our Consulting
Geologists is summarized as follows:
Test
Production Program Budget and Plan
To
start
placer testing operations we must first purchase and modify a wash plant. The
pad and setup of the wash plant is next.
The
dirt
access road from the Highway to the site (approximately 2 miles) must be
reworked/repaired. We will also need a Front End Loader (“F.E.L.”) with Back-Hoe
attachment. For continuous hard work excavating trenches, digging test pits
and
carrying alluvial material back to the wash plant for processing on a daily
basis. It would be used for the duration of the test production
program.
The
sampling method is standard in geological exploration and is confined to dry
arroyo drainages and rills. Grab samples taken outside of the dry river beds
and
rills will be by prospectors pick or regular pick and shovel. Instruments to
be
used will be a VLF unit, an EM unit, microscopes, spectrometer, GPS unit,
possibly an I.R. unit, a magnetometer and miscellaneous sieves. A 10 or 12
kW
generator set will independently power the night lights and camper unit. We
need
to determine if the present wells go down a minimum of 400 feet to reach
adequate water supply to support test production wash plant.
We
will
make a decision whether to proceed with each successive phase of the exploration
program upon completion of the previous phase and upon analysis of the results
of that program.
We
will
follow QA/QC protocols provided by the Society for Mining, Metallurgy and
Exploration Guidance on best practices for Exploration
www.smenet.org.
Recent
Initial Exploration and Exploitation
Although
many companies and individuals are engaged in the mining business, including
large established mining companies, there is a limited supply of desirable
mineral lands available for claim staking, lease, or other acquisition in the
United States and other areas where USCorp contemplates conducting its
exploration and/or production activities. However, it has been determined by
qualified geologists and mining companies that USCorp’s Arizona properties have
mineralization of a variety of precious and non-precious minerals. Historically,
the specific geographic region in which USCorp intends to conduct its
exploratory and mining activities has been the subject of various general
samplings, which were performed by the State of Arizona, the United States
Department of the Interior Bureau of Mines, and the United States Department
of
the Interior Bureau of Land Management.
The
Company has relied upon a number of studies by companies that are not presently
affiliated or associated with USCorp to determine the feasibility and valuation
of USCorp’s pursuit to develop the Mining Claims. These studies are comprised of
several exploration techniques, such as geological and geophysical surveys,
drilling, and excavations, in order to determine the economic potential, and
subsequent exploration and mining, of the Claims. These different firms have
utilized varied means to calculate the potential of the exploration and
development of the Twin Peaks Project’s Mining Claims.
Early
Exploration Conducted and Valuations.
The
Twin
Peaks Project: Past geological studies indicated that beginning in 1981 a
geologist performed certain exploratory drillings in order to obtain samples
of
the contents from the Crosby Mine Site No. 6, located Yavapai County, Arizona
(one of the claims in USMetals’ Twin Peaks Project). The geologist drilled 28
core drill holes on the Crosby Mine site. His report was based on 200-foot
depth
cores. This area was 18,519 cubic yards, or approximately 20,000 tons of
mineralized material. The total area that was drilled was 1,500’ x 600’ x 200’.
A total of 744 core samples were taken from the 6,000-foot of core hole
drillings. The samples were assayed for gold and silver.
The
results indicated the presence of mineralization of gold and silver. The core
samples also revealed quartz monzonite porphyry formations throughout the area
of sampling. The many faults located in this area were of considerable
importance in controlling supergene enrichment; the largest quantity and highest
grade of ore occurs when these faults intersect or are closely spaced. There
was
significant evidence of this enrichment recorded from the samples taken from
the
Crosby Mine site area. And, the gold and silver that was found is natural to
the
formations of the enrichment zone.
Recent
Exploration and Samplings
Recent
geological surveys, provided by Geological Support Services, LLC, one of
USMetals’ principal advisors have confirmed prior geological reports. It was
verified that the Twin Peaks Project is on a mineralized structure and flat
zone
with gold and silver carrying mineralization.
Historically,
over 10,000 feet of core drillings were performed and over 1,500 fire assays
were conducted. These assays showed an overall average of .14 ounces of gold
per
ton and .595 ounces of silver per ton, on one area covering 3 claims.
The
geological, geophysical, and geochemical studies stated above were reviewed
and
evaluated by an independent mining, consulting, and geologic firm that was
engaged to evaluate the commercial feasibility of the claims. The report and
economic study recommended the continuation of exploration and the start of
production.
The
geological justification for the exploration project at the Twin Peaks Project
is that numerous past geological studies have found gold and silver
mineralization in economically viable quantities at various locations within
the
boundaries of the claims group. There are also areas within the claims group
that contain uranium and areas containing polymetals.
The
geological justification for the exploration project at the Picacho Salton
Project claims is that there is visible gold in the ground and past geological
studies have found gold and silver in economically viable quantities at various
locations within the boundaries of the claims groups.
In
2007
we conducted additional exploration, testing, surveying and re-staking of all
claims, and adding a total of 77 significant claims to the group of which 70
claims are primarily gold bearing and seven claims, approximately 140 acres,
are
Pink Rhyolite (decorative rock) and construction grade aggregate. Geological
Support Services LLC completed a feasibility study covering the gold claims,
it
says in part: “The feasibility study operating plan assumes an open caste quarry
type operation containing proven reserves of approximately 231,513 ounces of
gold in 6,614,666 tons of ore grading at .035 oz per ton with a cutoff grade
of
.015 using a gold price of $600 per troy ounce gold. The plan anticipates
conventional truck and shovel mining techniques. Processing to be phased
according to ore type and permit approvals. Phase 1 being a wash and
sedimentation gravity system with initial production capacity of 1000 tons
per
day ramping to 6000 tons per day. This type of operation has been proven to
achieve .02 ounce per ton recovery, in the targeted placers. With approval
of
cyanide leach permits, the implementation of leaching facilities will increase
recovery to the 87% target. Also along with the construction of the leaching
facilities, the milling circuit for processing the hard rock lode ore will
be
constructed. This grinding circuit will be designed to crush incoming hard
rock
down to 150- prior to gravity separation and leaching. Although this study
is
based upon production of 6000 tons a day it is anticipated that if additional
water resources are developed production could be increased to greater levels.
Mine life based on indicated reserves is in excess of 20 years. The feasibility
study assumes an economic base case utilizing a $600 per ounce gold price.
At
current fuel and labor prices, cash operating costs, including operating cost
and sustaining capital are estimated to be $260 dollars per ounce of gold
produced. Initial capital costs are anticipated to be $13,790,300 all amounts
are in U.S. Dollars.”
A
breakdown of the exploration timetable and budget, including estimated amounts
that will be required for each exploration activity.
The
six
month exploration timetable and budget for the Twin Peaks Project is as
follows:
Initial
capital costs are currently estimated to be $12,974,728. All amounts are in
US
dollars to complete an electromagnetic flyover, a comprehensive drilling
program, road repair and extensions, design and building of a test mill of
50 to
1,000 tons per day capacity. The estimate of six month time period is an
estimate of time need to perform tasks only and does not take into account
delays for governmental review and approval of our mining plan.
The
12
week exploration timetable and budget for the Picacho Salton Project claims
is
as follows:
Initial
capital costs are anticipated to be $13,790,300 all amounts are in U.S. Dollars
to complete an electromagnetic flyover, comprehensive road repair and
extensions, design and purchase of a wash plant of 10 tons per hour capacity.
The estimate of twelve week time period is an estimate of time needed to perform
tasks only and does not take into account delays for governmental review and
approval of our mining plan. At current fuel and labor prices, cash operating
costs, including operating cost and sustaining capital are estimated to be
$260
dollars per ounce of gold produced.
How
the exploration program will be funded.
The
Company anticipates that funding will be by equity or debt financing in the
form
of private placements, working interest joint venture, and/or gold bullion
loans
in the United States, Europe and Asia. To date we have received the proceeds
from a gold bullion loan in the amount of $635,000 as previously reported in
Current Report on Form 8-K dated September 27, 2005, $620,000 in proceeds from
a
private placement and $1,200,000 in proceeds from convertible debentures in
addition to contributions from the Company’s Chairman and CEO.
Identification
of who will be conducting any proposed exploration work, and a discussion of
their qualifications.
The
Company is utilizing the services of Geological Support Services, LLC, Wondjina
Research Institute and Biozone, Inc, for exploration and geological work on
the
Company’s properties. Given adequate financing we intend to use additional
qualified mining consultants and engineers subject to their availability and
willingness and our need, but we have not contracted with any other vendors
as
of the date of this Annual Report. A summary of the qualifications of Geological
Support Services, LLC follows:
Geological
Support Services, LLC, Robert A. Cameron, Ph.D. managing partner, is consulting
exploration geologist to the Company. Cameron has a Ph.D. in Geophysics from
Canterbury University, Kent, England. Since 1987 Cameron has consulted in the
mining industry as a geologist in various capacities for companies and projects
in the private sector in the United States, Mexico, Australia, New Zealand,
West
Germany, Poland and Canada. In addition to private consulting, he has worked
since 2001 as a professor of geology and geosciences.
Specific
Environmental Regulation.
Mining
is
subject to potential risks and liabilities associated with pollution of the
environment and the disposal of waste products occurring as a result of mineral
exploration and production. Environmental liability may result from mining
activities conducted by others prior to USMetals’ ownership of a property.
Insurance for environmental risks (including potential liability for pollution
or other hazards as a result of the disposal of waste products occurring from
exploration and production) is not generally available at a reasonable price
to
companies within the industry. To the extent USMetals is subject to
environmental liabilities, the payment of such liabilities would reduce funds
otherwise available to USMetals and could have a material adverse effect on
USMetals.
In
the
context of environmental compliance and permitting, including the approval
of
reclamation plans, USMetals must comply with standards, laws and regulations
which may entail greater or lesser costs and delays depending on the nature
of
the activity to be permitted, constructed and operated and how stringently
the
regulations are implemented by the applicable regulatory authority. It is
possible that the costs and delays associated with compliance with such laws,
regulations and permits could become such that a company would not proceed
with
the development of a project or the operation or further development of a mine.
Laws, regulations and regulatory policies involving the protection and
remediation of the environment are constantly changing at all levels of
government and are generally becoming more restrictive and the costs imposed
on
the development and operation of mineral properties are increasing as a result
of such changes. USMetals has made, and expects to make in the future,
significant expenditures to comply with such laws and regulations.
The
Environmental Protection Agency (
“EPA”
)
continues the development of a solid waste regulatory program specific to mining
operations under the Resource Conservation and Recovery Act (
“RCRA”
).
The
difficulty is that many Federal laws duplicate existing state
regulations.
Mining
companies in the United States are also subject to regulations under (i) the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(
“CERCLA”
)
which
regulates and establishes liability for the release of hazardous substances
and
(ii) the Endangered Species Act (
“ESA”
)
which
identifies endangered species of plants and animals and regulates activities
to
protect these species and their habitats. Revisions to CERCLA and ESA are being
considered by Congress; the impact on USMetals of these revisions is not clear
at this time. Environmental laws and regulations enacted and adopted in the
future may have a significant impact upon USMetals’ future operations.
Reclamation
plans which are approved by various environmental regulatory authorities are
subject to on-going review and modification. Although USMetals’ management
believes that the reclamation plans developed and implemented for its mine
sites
are reasonable under current conditions, any future re-determination of
reclamation conditions or requirements could significantly increase USMetals’
costs of implementation of such plans.
Competition.
There
is
aggressive competition within the minerals industry to discover and acquire
properties considered to have commercial potential. USMetals will compete for
promising gold exploration projects with other entities, many of which have
greater financial and other resources than USMetals. In addition, USMetals
will
compete with other firms in its efforts to obtain financing to explore and
develop mineral properties including the claims its already owns. Further,
the
mining industry is typified by companies with significantly greater financial
resources and market recognition than the Company. At present, the Company
is
not a significant factor within this industry.
Employees
and Independent Contractors.
As
of the
date of this Annual Report, the Company did not employ any persons other than
its executive officers and directors named herein, an Office Manager, Field
Operations, Administrative Assistant, and clerical help.
As
of the
date of this Annual Report, the Company and its wholly owned subsidiaries have
utilized one principal consultant/advisor: Geological Support Services, LLC
under Robert Cameron, PhD; which, in turn, employs subcontractors that perform
work indirectly for The Company and its subsidiaries.
Item
1A. Risk Factors
Lack
of Operating History and Earnings.
The
Company has no operating history or revenues. The Company expects to incur
further losses in the foreseeable future due to significant costs associated
with its business development, and the business development of its subsidiaries,
including costs associated with its acquisition of new mining claims and/or
operations. There can be no assurance that The Company’s operations will ever
generate sufficient revenues to fund its continuing operations that The Company
will ever generate positive cash flow from its operations, or that The Company
will attain or thereafter sustain profitability in any future
period.
Speculative
Nature of The Company’s Proposed Operations; Dependence Upon Management.
The
success of The Company’s operations, independently and through its subsidiaries,
and its proposed plan of operation will depend largely on the operations,
financial condition, and management of The Company. While management intends
to
engage in the business purposes stated herein, there can be no assurance that
it, or any of its subsidiaries, will be successful in conducting such business.
Presently, the Company is totally dependent upon the personal efforts of its
current management. The loss of any officer or director of The Company could
have a material adverse effect upon its business and future prospects. The
Company does not presently have key-man life insurance upon the life of any
of
its officers or directors. None of our management are chemists, metallurgists,
mining engineers or geologists and as such do not have the technical experience
in exploring for, starting, and/or operating a mine. Upon adequate funding
management intends to hire qualified and experienced personnel, including
additional officers and directors, and mining specialists, professionals and
consulting firms to advise management as needed; however there can be no
assurance that management will be successful in raising the necessary funds,
recruiting, hiring and retaining such qualified individuals. Such consultants
have no fiduciary duty to The Company or its shareholders, and may not perform
as expected. The success of The Company will, in significant part, depend upon
the efforts and abilities of management, including such consultants as are
or
may be engaged in the future.
Risks
Inherent In Exploration and Mining Operations.
Mineral
exploration is highly speculative and capital intensive. Most exploration
efforts are not successful, in that they do not result in the discovery of
mineralization of sufficient quantity or quality to be profitably mined. The
Company’s Mining Claims are also indirectly subject to all hazards and risks
normally incidental to developing and operating mining properties. These risks
include insufficient ore reserves, fluctuations in production costs that may
make mining of reserves uneconomic; significant environmental and other
regulatory restrictions; and the risks of injury to persons, property or the
environment. In particular, the profitability of gold mining operations is
directly related to the price of gold. The price of gold fluctuates widely
and
is affected by numerous factors that are beyond the control of any mining
company. These factors include expectations with respect to the rate of
inflation, the exchange rates of the dollar and other currencies, interest
rates, global or regional political, economic or banking crises, and a number
of
other factors. If the price of gold should drop dramatically, the value of
the
Mining Claims could also drop dramatically, and the Company might then be unable
to recover its investment in those interests or properties. Selection of a
property for exploration or development; the determination to construct a mine
and to place it into production, and the dedication of funds necessary to
achieve such purposes, are decisions that must be made long before the first
revenues from production will be received. Price fluctuations between the time
that such decisions are made and the commencement of production can drastically
affect the economics of a mine. The volatility of gold prices represents a
substantial risk, generally, which no amount of planning or technical expertise
can eliminate.
Uncertainty
of Reserves and Mineralization Estimates.
There
are
numerous uncertainties inherent in estimating proven and probable reserves
and
mineralization, including many factors beyond The Company’s control. The
estimation of reserves and mineralization is a subjective process and the
accuracy of any such estimates is a function of the quality of available data
and of engineering and geological interpretation and judgment. Results of
drilling, metallurgical testing and production and the evaluation of mine plans
subsequent to the date of any estimate may justify revision of such estimates.
No assurances can be given that the volume and grade of reserves recovered
and
rates of production will not be less than anticipated. Assumptions about prices
are subject to great uncertainty and gold prices have fluctuated widely in
the
past. Declines in the market price of gold or other precious metals also may
render reserves or mineralization containing relatively lower grades of ore
uneconomic to exploit. Changes in operating and capital costs and other factors
including, but not limited to, short-term operating factors such as the need
for
sequential development of ore bodies and the processing of new or different
ore
grades, may materially and adversely affect reserves.
Environmental
Risks.
Mining
is
subject to potential risks and liabilities associated with pollution of the
environment and the disposal of waste products occurring as a result of mineral
exploration and production. Insurance against environmental risks (including
potential liability for pollution or other hazards as a result of the disposal
of waste products occurring from exploration and production) is not generally
available to The Company (or to other companies within the gold industry) at
a
reasonable price. To the extent The Company becomes subject to environmental
liabilities, the satisfaction of any such liabilities would reduce funds
otherwise available and could have a material adverse effect on The Company.
Laws and regulations intended to ensure the protection of the environment are
constantly changing, and are generally becoming more restrictive.
Proposed
Federal Legislation.
Over
the
past twelve years, the U.S. Congress has adopted revisions of the General Mining
Law of 1872, which governs the creation of mining claims and related activities
on Federal public lands in the United States. Similarly, the U. S. Congress
and
the Clinton Administration eliminated the U.S. Bureau of Mines, which was the
agency responsible for gathering and maintaining data on mines throughout the
United States. Beyond changes to the existing laws, the Congress or the Bush
Administration may propose or adopt new laws; any such revisions could also
impair USMetals’ and Southwest’s ability to develop, in the future, any mineral
prospects that are located on unpatented mining claims on Federal
lands.
Title
to Properties.
The
validity of unpatented mining claims, which constitute all of The Company’s
property holdings, is often uncertain and such validity is always subject to
contest. Unpatented mining claims are unique property interests and are
generally considered subject to greater title risks than patented mining claims,
or other real property interests that are owned in fee simple. The Company
has
not filed any patent applications for any of its properties that are located
on
Federal public lands in the United States, (specifically, in the States of
Arizona and California), and, under changes to the General Mining Law, patents
may not be available for such properties. Although management believes it has
taken requisite action to acquire satisfactory title to its undeveloped
properties, it does not intend to go to the expense to obtain title opinions
until financing is secured to develop the property, with the attendant risk
that
title to some properties, particularly title to undeveloped properties, may
be
defective.
Competition.
There
is
aggressive competition within the minerals industry to discover and acquire
properties considered to have commercial potential. The Company will compete
for
promising gold exploration projects with other entities, many of which have
greater financial and other resources than The Company. In addition, the Company
will compete with other firms in its efforts to obtain financing to explore
and
develop mineral properties.
The
Company’s Financial Statements Contain a “Going Concern
Qualification.”
The
Company may not be able to operate as a going concern. The independent auditors’
report accompanying its financial statements contains an explanation that The
Company’s financial statements have been prepared assuming that it will continue
as a going concern. Note 1 to these financial statements indicates that The
Company is in the development stage and needs additional funds to implement
its
plan of operations. This condition raises substantial doubt about its ability
to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty. The
Company’s audit report and financial statements are included herein as “PART
F/S”.
Uncertainty
As To Management’s Ability To Control Costs And Expenses.
With
respect to The Company’s development of its mining properties and the
implementation of commercial operations, management cannot accurately project
or
give any assurance, with respect to its ability to control development and
operating costs and/or expenses. Consequently, if management is not able to
adequately control costs and expenses, such operations may not generate any
profit or may result in operating losses.
No
Dividends
.
The
Company has not paid any dividends nor, by reason of its present financial
status and contemplated financial requirements, does it anticipate paying any
dividends in the foreseeable future.
Risks
of Low-Priced Stocks And Possible Effect of “Penny Stock” Rules on
Liquidity.
Currently The Company’s stock is defined as a “penny stock” under Rule 3a51-1
adopted by the Securities and Exchange Commission under the Securities Exchange
Act of 1934, as amended. In general, a “penny stock” includes securities of
companies which are not listed on the principal stock exchanges or the National
Association of Securities Dealers Automated Quotation System (“NASDAQ”) or
National Market System (“NASDAQ NMS”) and have a bid price in the market of less
than $5.00; and companies with net tangible assets of less than $2,000,000
($5,000,000 if the issuer has been in continuous operation for less than three
years), or which has recorded revenues of less than $6,000,000 in the last
three
years. “Penny stocks” are subject to rule 15g-9, which imposes additional sales
practice requirements on broker-dealers that sell such securities to persons
other than established customers and “accredited investors” (generally,
individuals with net worth in excess of $1,000,000 or annual incomes exceeding
$200,000, or $300,000 together with their spouses, or individuals who are
officers or directors of the issuer of the securities). For transactions covered
by Rule 15g-9, a broker-dealer must make a special suitability determination
for
the purchaser and have received the purchaser’s written consent to the
transaction prior to sale. Consequently, this rule may adversely affect the
ability of broker-dealers to sell The Company’s stock, and therefore, may
adversely affect the ability of The Company’s stockholders to sell stock in the
public market.
Shares
Eligible for Future Sale.
A total
of 33,856,459 shares of Common Stock are issued and outstanding as of the date
of this Annual Report, of which approximately 17,746,775 shares thereof are
“restricted securities” as that term is defined under the Securities Act.
Therefore, all such restricted shares must be held indefinitely unless
subsequently registered under the Securities Act or an exemption from
registration becomes available. One exemption that may be available in the
future is Rule 144 adopted under the Securities Act. Generally, under Rule
144
any person holding restricted securities for at least one year may publicly
sell
in ordinary brokerage transactions, within a 3 month period, the greater of
one
(1%) percent of the total number of a company’s shares outstanding or the
average weekly reported volume during the four weeks preceding the sale, if
certain conditions of Rule 144 are satisfied by the company and the seller.
Furthermore, with respect to sellers who are “non-affiliates” of the company, as
that term is defined in Rule 144, the volume sale limitation does not apply
and
an unlimited number of shares may be sold, provided the seller meets a holding
period of 2 years. However, the SEC recently revised Rule 144, effective
February 15, 2008, which will shorten the holding period to six months in some
cases and remove the volume restrictions for any such sales. Sales under Rule
144 may have a depressive effect on the market price of The Company’s
securities, should a public market be available for The Company’s shares.
Safe
Harbor Statement:
Under
the United States Private Securities Litigation Reform Act of 1995, except
for
the statements of historical fact contained herein, the information presented
constitutes “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements,
including but not limited to those with respect to the price of gold, the timing
of the exploration of the Company’s properties, the timing of the development of
the Company’s properties, the timing and amount of estimated future production,
costs of production, mineralization and “reserve” determination involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the actual
results of current exploration and development activities, conclusions of
economic evaluations, changes in project parameters as plans continue to be
refined, future prices of gold, silver or other metals and minerals. Although
the Company has attempted to identify important factors that could cause actual
results to differ materially, there may be other factors that cause results
not
to be as anticipated, estimated or intended. There can be no assurance that
such
statements will prove to be accurate as actual results and future events could
differ materially from those anticipated in such statements. Accordingly,
readers should not place undue reliance on forward-looking
statements.
(
See
“Forward Looking Statements”, PART I
).
(D)
Reports to Security Holders
The
public may read and copy any materials filed with the SEC at the SEC’s Public
Reference Room at 450 Fifth Street, N.W, Washington, D.C. 20549. The public
may
obtain information on the operation of the Public Reference Room by calling
the
SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC. The address of that SEC internet site is
http://www.sec.gov
.