PINX:RMES Red Metal Resources Ltd Annual Report 10-K Filing - 1/31/2012

Effective Date 1/31/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 10-K

 
(Mark One)
x
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended January 31, 2012

o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to ________________  

Commission File Number 000-52055

RED METAL RESOURCES LTD.
(Exact name of registrant as specified in its charter)

Nevada
 
20-2138504
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

195 Park Avenue Thunder Bay, Ontario P7B 1B9
(Address of principal executive offices)

Registrant’s telephone number, including area code: (807) 345-7384

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Name of each exchange on
which each is registered
N/A
 
N/A

Securities registered pursuant to Section 12(g) of the Act:  Common Stock, $0.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes [   ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes [   ] No [X]
 
 
 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  X ] No [   ] .

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
 
Large accelerated filer [   ]  
 
Accelerated filer                   [   ]
Non-accelerated filer   [   ]
 
Smaller reporting company [X]
(Do not check if a smaller reporting company)
   
 
Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.  As of July 29, 2011, the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of the common equity was $2,270,581.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of March 21, 2012 was 17,689,634.

 
 

 
 
TABLE OF CONTENTS

GLOSSARY OF SELECTED MINING AND TECHNICAL TERMS
1
   
NOTE ABOUT FORWARD-LOOKING STATEMENTS
2
   
ITEM 1: BUSINESS
2
   
GENERAL
2
UNPROVED MINERAL PROPERTIES
4
COMPETITION
24
RAW MATERIALS
24
DEPENDENCE ON MAJOR CUSTOMERS
25
PATENTS/TRADEMARKS/LICENSES/FRANCHISES/CONCESSIONS/ROYALTY AGREEMENTS/LABOR CONTRACTS
25
COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
25
EXPENDITURES ON RESEARCH AND DEVELOPMENT
25
NUMBER OF TOTAL EMPLOYEES AND NUMBER OF FULL-TIME EMPLOYEES
25
   
ITEM 1A: RISK FACTORS
26
   
ITEM 1B: UNRESOLVED STAFF COMMENTS
30
   
ITEM 2: PROPERTIES
30
   
ITEM 3:  LEGAL PROCEEDINGS
30
   
ITEM 4:  MINE SAFETY DISCLOSURES
30
   
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
31
   
ITEM 6:  SELECTED FINANCIAL DATA.
32
   
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
32
   
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
40
   
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
40
   
INDEX TO FINANCIAL STATEMENTS
40
   
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
41
   
ITEM 9A:  CONTROLS AND PROCEDURES
41
   
ITEM 9B:  OTHER INFORMATION
42
   
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
42
   
ITEM 11: EXECUTIVE COMPENSATION
44
   
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
46
   
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
46
   
DIRECTOR INDEPENDENCE
46
TRANSACTIONS WITH RELATED PERSONS
46
   
ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
48
   
ITEM 15: EXHIBITS
49
 
 

 
 
GLOSSARY OF SELECTED MINING AND TECHNICAL TERMS
 
The following is a glossary of selected mining terms used in the United States and Canada and referenced in this Annual Report on Form 10-K that may be technical in nature:
 
Table 1. Glossary
 
Term
Definition
Ag
Silver
Airborne survey
A survey made from an aircraft to obtain photographs, or measure magnetic properties, radioactivity, etc.
Assay
A chemical test performed on a sample of ores or minerals to determine the amount of valuable metals contained.
Au
Gold
Bulk sample
A large sample of mineralized rock, frequently hundreds of tonnes, selected in such a manner as to be representative of the potential mineral deposit (orebody) being sampled and used to determine metallurgical characteristics.
By-product
A secondary metal or mineral product recovered in the milling process.
Core
The long cylindrical piece of rock, about an inch in diameter, brought to surface by diamond drilling
Core sample
One or several pieces of whole or split parts of core selected as a sample for analysis or assay.
Cross-cut
A horizontal opening driven from a shaft and (or near) right angles to the strike of a vein or other orebody.  The term is also used to signify that a drill hole is crossing the mineralization at or near right angles to it.
Cu
Copper
Cut-off grade
The lowest grade of mineralized rock that qualifies as ore grade in a given deposit, and is also used as the lowest grade below which the mineralized rock currently cannot be profitably exploited.  Cut-off grades vary between deposits depending upon the amenability of ore to gold extraction and upon costs of production.
Diorite
An intrusive igneous rock composed chiefly of sodic plagioclase, hornblende, biotite or pyroxene.
Drift
A horizontal or nearly horizontal underground opening driven along a vein to gain access to the deposit.
Exploration
Prospecting, sampling, mapping, diamond drilling and other work involved in searching for or defining a mineral deposit.
Face
The end of a drift, cross-cut or stope in which work is taking place.
Fault
A break in the Earth's crust caused by tectonic forces which have moved the rock on one side with respect to the other.
Grade
Term used to indicate the concentration of an economically desirable mineral or element in its host rock as a function of its relative mass.  With gold or silver, this term may be expressed as grams per tonne (g/t) or ounces per tonne (opt or oz/t).
Gram
0.0321507 troy ounces
g/t
Grams per metric tonne
Hydrothermal
Processes associated with heated or superheated water, especially mineralization or alteration.
Km
Kilometre(s). Equal to 0.62 miles.
Leaching
The separation, selective removal or dissolving-out of soluble constituents from a rock or ore body by the natural actions of percolating solutions.
M
Metre(s). Equal to 3.28 feet.
Metamorphic
Affected by physical, chemical, and structural processes imposed by depth in the earth’s crust.
Mine
An excavation on or beneath the surface of the ground from which mineral matter of value is extracted.
 
 
1

 
 
Net Smelter Return
A payment made by a producer of metals based on the value of the gross metal production from the property, less deduction of certain limited costs including smelting, refining, transportation and insurance costs.
Orebody
A term used to denote the mineralization contained within an economic mineral deposit.
Outcrop
An exposure of rock or mineral deposit that can be seen on surface, that is, not covered by soil or water.
Oxidation
A chemical reaction caused by exposure to oxygen that results in a change in the chemical composition of a mineral.
Oz
Ounce. A measure of weight in gold and other precious metals, correctly troy ounces, which weigh 31.1 grams as distinct from an imperial ounce which weigh 28.4 grams.
Shaft
A vertical passageway to an underground mine for moving personnel, equipment, supplies and material including ore and waste rock.
Strike
The direction, or bearing from true north, of a vein or rock formation measure on a horizontal surface.
Stringer
A narrow vein or irregular filament of a mineral or minerals traversing a rock mass.
Sulphides
A group of minerals which contains sulfur and other metallic element such as copper and zinc.  Gold is usually associated with sulphide enrichment in mineral deposits.
Tailings
Material rejected from a mill after most of the recoverable valuable minerals have been extracted.
Vein
A fissure, fault or crack in a rock filled by minerals that have travelled upwards from some deep source.
Zone
An area of distinct mineralization.
 
NOTE ABOUT FORWARD-LOOKING STATEMENTS
 
This Annual Report on Form 10-K contains “forward-looking statements”.  These forward-looking statements are based on our current expectations, assumptions, estimates and projections about our business and our industry.  Words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “may,” and other similar expressions identify forward-looking statements.  In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements.  These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.  Factors that might cause such a difference include, but are not limited to, those discussed in the sections of this annual report titled “Risk Factors”, “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as well as the following:

 
·
general economic conditions, because they may affect our ability to raise money
 
·
our ability to raise enough money to continue our operations
 
·
changes in regulatory requirements that adversely affect our business
 
·
changes in the prices for minerals that adversely affect our business
 
·
political changes in Chile, which could affect our interests there
 
·
other uncertainties, all of which are difficult to predict and many of which are beyond our control
       
You are cautioned not to place undue reliance on these forward-looking statements, which relate only to events as of the date on which the statements are made.  We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date of this annual report.  You should refer to and carefully review the information in future documents we file with the Securities and Exchange Commission.
 
ITEM 1: BUSINESS
 
General

Red Metal Resources Ltd. was incorporated in Nevada on January 10, 2005 as Red Lake Exploration, Inc.  We changed our name to Red Metal Resources Ltd. on August 27, 2008.

 
2

 
 
On August 21, 2007, we formed Minera Polymet Limitada, a limited liability company, under the laws of the Republic of Chile.  We own 99% of Polymet, which holds our Chilean mineral property interests.  Under Chilean law, a resident of Chile must be a shareholder in a limitada.  To meet this requirement, 1% of Polymet is owned by a Chilean resident, an experienced manager who has organized an office and other resources for us to use and is Polymet’s legal representative in Chile. Polymet’s office is located in Vallenar, III Region of Atacama, Chile.
 
Our resident agent’s office is at 711 S. Carson Street, Suite 4, Carson City, Nevada, 89701.  Our business office is at 195 Park Avenue, Thunder Bay, Ontario, Canada, P7B 1B9.  Our telephone number is (807) 345-7384; our email address is info@redmetalresources.com; and our web address is www.redmetalresources.com.  Information on our web site is not a part of this annual report.
 
We are a start-up exploration stage company without operations.  We are in the business of acquiring and exploring mineral claims. All of our claims are located in the III Region of Atacama, Chile. We have not determined whether our claims contain mineral reserves that are economically recoverable.   We have not produced revenues from our principal business and are considered an exploration stage company as defined by “Accounting and Reporting by Development Stage Enterprises.”
 
Our ability to realize a return on our investment in mineral claims depends upon whether we maintain the legal ownership of the claims. Title to mineral claims involves risks inherent in the process of determining the validity of claims and the ambiguous transfer history characteristic of many mineral claims.  To the best of our knowledge, and after consultation with an attorney knowledgeable in the practice of mining, we believe that we have taken the steps necessary to ensure that we have good title to our mineral claims.  We have had our contracts and deeds notarized, recorded in the registry of mines and published in the mining bulletin and we review the mining bulletin regularly to determine whether other parties have staked claims over our ground.  We have discovered no such claims.

Chile’s mining and land tenure policies were established to secure the property rights of both domestic and foreign investors to stimulate development of mining in Chile. The government of Chile owns all mineral resources, but exploration and exploitation of these resources are permitted through exploration and mining concessions. A mineral concession must pass through three stages to become a permanent mining concession, namely, pedimento, manifestacion and mensura.
 
A pedimento is an initial exploration claim. It can be placed on any area, whereas the survey to establish a permanent mensura claim can only be completed on free areas where no other mensuras exist. A pedimento is valid for a maximum of two years. At the end of this period it may either be reduced in size by at least 50% and renewed for an additional two years or entered into the manifestacion process to establish a permanent mensura claim. New pedimentos can overlap existing pedimentos, but the pedimento with the earliest filing date takes precedence providing the claim holder maintains the pedimento in accordance with the mining code and the applicable regulations.
 
Manifestacion is the process by which a pedimento is converted to a permanent mining claim. At any stage during its two-year life, the holder of a pedimento can submit a manifestacion application, which is valid for 220 days. To begin the manifestacion process, the owner must request a survey (mensura) within 220 days. After the survey request is accepted, the owner has approximately 12 months to have the claim surveyed by a government-licensed surveyor, inspected and approved by the national mining service, and affirmed as a mensura (equivalent to a patented claim) by a judge. Thereafter, an abstract describing the claim is published in Chile’s official mining bulletin (published weekly) and 30 days later the claim is inscribed in the appropriate mining registry.
 
A mensura is a permanent property right that does not expire so long as the annual fees (patentes) are paid in a timely manner. Failure to pay the patentes for an extended period can result in the claim being listed for sale at auction, where a third party can acquire a claim for the payment of the back taxes owed and a penalty.
 
 
3

 
 
In Chile, we have both pedimento and mensura claims.  We cannot guarantee that any of our pedimento claims will convert to mensura claims. Some of our pedimentos are still in the registration process and some are in the manifestacion stage. We may decide, for geologic, economic or other reasons, not to complete a registration or manifestacion or to abandon a claim after it is registered.  Some of our pedimentos may have been staked over other owners’ claims as permitted by the Chilean mining code.  Our pedimento rights in these claims will not crystallize unless the owners of the underlying claims fail to pay their taxes or otherwise forfeit their interests in their claims.  Our purpose in over-staking is to claim free ground around others’ claims and to have the first right to forfeited claims if we want them.  Over-staking is easier and less costly than staking available ground around claims and ensures that all available ground is covered that might otherwise be missed.
 
We have a close working relationship with Minera Farellon Limitada, a Chilean company owned equally by Kevin Mitchell, Polymet’s legal representative in Chile, and Richard Jeffs, the father of our president, who holds more than 5% of our shares of common stock (see Table 24 below).  Minera Farellon investigates potential claims and often ties them up, by staking new claims, optioning or buying others’ claims, all at its own cost.  This gives us an opportunity to review the claims to decide whether they are of interest to us.  If we are interested, then we either proceed to acquire an interest in the property directly from the owner, or, if Minera Farellon has already obtained an interest, we take an option to acquire its interest. Minera Farellon, which is located in the city of Vallenar, also provides some of our logistical support in Vallenar under a month-to-month contract, which enables us to limit our operating expenses to those needed from time to time.
 
Unproved mineral properties
 
We have four active properties which we have assembled since the beginning of 2007— the Farellon, Perth, Mateo, and Veta Negra. These properties consist of both mining and exploration claims and are grouped into two district areas – Carrizal Alto area properties and Vallenar area properties.

 
4

 
Active properties
 
Table 2: Active properties
   
Property
Percentage, type of claim
Hectares
Gross area
Net areaa
Carrizal Alto area
Farellon
       
    Farellon 1 – 8 claim
100%, mensura
66
   
    Farellon 3 claim
100%, pedimento
300
   
    Cecil 1 – 49 claim
100%, mensura
230
   
    Cecil 1 – 40 and Burghley 1 – 60 claims
100%,  mensura in process
500
   
   
1,096
 
1,096
Perth
       
Perth 1 al 36 claim
100%, mensura
109
   
Lancelot I 1 al 30 claim
100%, mensura in process
300
   
Lancelot II 1 al 20 claim
100%, mensura in process
200
   
Rey Arturo 1 al 30 claim
100%, mensura in process
300
   
Merlin I 1 al 10 claim
100%, mensura in process
60
   
Merlin I 1 al 24 claim
100%, mensura in process
240
   
Galahad I 1 al 10 claim
100%, mensura in process
50
   
Galahad IA 1 al 46 claim
100%, mensura in process
230
   
Percival III 1 al 30 claim
100%, mensura in process
300
   
Tristan II 1 al 30 claim
100%, mensura in process
300
   
Tristan IIA 1 al 5 claim
100%, mensura in process
15
   
Camelot claim
100%,  manifestacion
300
   
   
2,404
   
   Overlapped claims (see Figure 4)
 
(121)
 
2,283
Vallenar area
Mateo
       
    Margarita claim
100%, mensura
56
   
    Che 1 & 2 claims
100%, mensura
76
   
    Irene & Irene II claims
100% ,mensura
60
   
    Mateo 1, 2, 3, 9,10,12, 13, 14 claims
100%, manifestacion
2,100
   
 
    Mateo 4 and 5 claims
100%, pedimento
600
   
   
2,892
   
  Overlapped claims (see Figure 6)
 
(469)
 
2,423
         
Veta Negra
       
Veta Negra 1 al 7 claim
Option to purchase, mensura
28
   
Exon 1 al 4 claim
Option to purchase, mensura
16
   
Trixy (19 claims)
100%, manifestacion
2,900
   
Pibe
Option to purchase, mensura in process
200
   
   
3,144
   
Overlapped claims (see Figure 8)
 
(238)
 
2,906
         
       
8,708
a Some pedimentos and manifestacions overlap other claims. The net area is the total of the hectares we have in each property (i.e. net of our overlapped claims).
 
 
5

 
 
Our active properties as of the date of this filing are set out in Table 2. These properties are accessible by road from Vallenar as illustrated in Figure 1.
 

Figure 1: Location and access to active properties.
 
6

 
 
Farellon property

The Farellon property consists of two groups of claims—the Farellon claims and the Cecil and Burghley claims—which are not contiguous but lie within the historical Carrizal Alto mining district southwest of the Carrizal Alto mine. Table 3 describes the claims and Figure 2 illustrates them.
 
Table 3: Farellon property          
   
Type
 
Claim  
Mensura
(ha)
   Pedimento
(ha)
 
Farellon 1 – 8
  66      
Cecil 1 – 49
  230      
Cecil 1 – 40
  200      
Burghley 1 – 60
  300      
Farellon 3
        300  
    796     300  
 
Figure 2: Farellon property

The Farellon 1 – 8 is the first mineral claim that we acquired in Chile. It covers 66 hectares and is centered about 309,150 east and 6,888,800 south UTM PSAD56 Zone 19 in Province of Huasco, Commune of Huasco, III Region of Atacama, Chile.
 
 
7

 
 
We acquired the claim on April 25, 2008 for $550,000 and owe a royalty equal to 1.5% of the net proceeds that we receive from the processor to a maximum of $600,000 with a monthly minimum of $1,000 when we start exploiting the minerals extract from the claim.  We can pay any unpaid balance of the royalty at any time. We have not yet exploited the claim.
 
On September 17, 2008, we bought the Cecil 1 – 49, Cecil 1 – 40 and Burghley 1 – 60 claims for $20,000. The Cecil and Burghley claims cover 730 hectares and are centered at 311,500 east and 6,890,000 south UTM PSAD56 Zone 19 and lie approximately 1.7 kilometers north of the Farellon 1 – 8 border. The claims cover a 1.8-kilometre strike length of a mineralized vein interpreted to be part of the same mineralizing system as the Farellon 1 – 8 vein. An investigation completed during the Farellon 1 – 8 acquisition uncovered a broad regional reconnaissance sampling program completed in 1996 showing results from the areas covered by the Cecil and Burghley claims. Results from the 1996 sampling show copper and gold grades similar to grades returned from the Farellon vein, indicating that the Cecil and Burghley claims could have similar mineralized bodies.  On December 1, 2009, we initiated the manifestacion process when we applied to convert the Cecil 1 – 40 and Burghley 1 – 60 exploration (pedimento) claims to mining (mensura) claims.

Between July 2010 and November 2011 we registered seven pedimento, Farellon 3-9, at a cost of $2,408 to cover 1,800 hectares of ground around our Farellon 1 – 8 claim.  Farellon 4-9 are not included on the map until we confirm that underlying ground is open for staking. As permitted by Chilean law, Farellon 4-9 are currently overlapping other pedimentos.
 
Location and means of access. The Farellon property is approximately 40 kilometers west of the Pan-American Highway, about 1 hour and 15 minutes by vehicle from the town of Vallenar which has a population of 40,000 and modern facilities.  High-tension power lines and a fiber-optic communications line run along the highway and both power and rail are connected to the Cerro Colorado iron ore mine only 20 kilometers from the Farellon property. The area is serviced from Copiapó, a city of 70,000 with daily air and bus services to Santiago and other centers.
 
The Farellon property can be accessed by driving approximately 20 kilometers north on the Pan-American Highway from Vallenar then turning northwest towards Canto del Agua.  From Canto del Agua, the Farellon property is approximately 10 kilometers along a well-maintained gravel road.  There are numerous gravel roads in the area, so a guide is necessary to access the property the first time.  All of the roads are well maintained and can support large machinery necessary to transport drills, backhoes and bulldozers.  Water is readily available in Canto del Agua and could probably be found on the Farellon property where all of the historic drill holes intersected water.
 
Exploration history .The Farellon property is in the Carrizal Alto mining district and lies 5 kilometers along strike south of the center of the historic Carrizal Alto copper-gold mine. Veins of the Farellon property were exploited as part of the Carrizal Alto mines. We have located no hard data summarizing all of the past mining activity, but tailings, slag dumps and the size of the shafts and some of the shallow surface workings are evidence of extensive historical mining.

Mine workings of various sizes are all along the Farellon property, but only one modern exploration program has been completed.  In 1996, the Farellon and two other veins, the Fortuna and the Theresa, were explored by an Australian junior mining company under the name Minera Stamford S.A.  Their exploration included a large mapping and surface sampling program followed by a 34-hole RC drilling program.  Of these 34 drill holes, 23 were drilled on the Farellon 1 – 8 claim.  The RC drilling program on the Farellon claim consistently intersected oxide and sulphide facies mineralization along a 2 kilometer-long zone covering the Farellon claim and strike extents to the south.  Mineralization is 2 to 35 meters wide with an average width of 5 meters.  The mineralized zone consists of one or more discrete veins and, in places, stockwork veining and mineralization.  While drilling covered the length of the property, gaps up to 350 meters are untested and infill drilling is required to confirm an economic ore body. Table 4 presents the significant intersections from the 23 holes drilled on the Farellon claim in the 1996 drilling.

 
8

 
 
Table 4: Farellon historic significant intersections (1996)
Drill hole
FAR–96
Significant intervals (m)
 
Assay results
From
To
Length
 
Gold (g/t)
Copper (%)
Cobalt (%)
06
49
54
 
5
   
0.15
0.73
0.01
07
25
34
 
9
   
0.38
1.05
0.02
09
57
84
 
27
   
0.51
0.91
0.03
010
31
36
 
5
   
1.00
0.68
0.04
011
20
26
 
6
   
0.67
0.46
0.02
013
86
93
 
7
   
0.87
1.68
0.04
014
77
83
 
6
   
0.66
0.85
0.06
015
59
79
 
20
   
0.99
0.98
0.06
99
109
 
10
   
0.18
1.02
0.03
016
24
26
 
2
   
0.95
1.57
0.02
64
70
 
6
   
0.73
0.81
0.07
020
14
16
 
2
   
0.46
1.85
0.05
39
43
 
4
   
0.75
0.90
0.03
021
22
25
 
3
   
4.17
5.29
0.11
022
29
39
 
10
   
1.53
1.31
0.04
100
108
 
8
   
3.72
2.49
0.06
023
50
53
 
3
   
0.48
1.10
0.06
59
64
 
5
   
0.28
0.78
0.03
132
147
 
15
   
0.60
1.42
0.03
024
33
36
 
3
   
0.94
2.89
0.06
025
65
85
 
20
   
0.97
1.22
0.02
028
55
58
 
3
   
0.12
0.52
0.06
029
30
34
 
4
   
0.18
1.15
0.07
82
87
 
5
   
0.09
0.96
0.01

Geology .The Farellon area has two major lithological units: Paleozoic metamorphic sediments consisting of schists, phyllites and quartzites; and the Franja Central diorites.  The metamorphosed sediments outcrop in the western part of the property and have been metamorphosed to lower greenschist facies and then extensively overprinted by hydrothermal alteration.  Hydrothermal alteration is directly associated with the shear zone.  The diorite underlies the eastern part of the project area and has been extensively intruded by northeasterly trending intermediate mafic dykes.  At the Farellon property, a small stock-like felsic body named Pan de Azucar intrudes the diorite.  The intrusive relationship between the diorite and metamorphic sediments always appear to be tectonic.  Within the property and at the main Carrizal Alto workings to the north, the major mineralization is intimately related to the south-southwest trending mylonitic sheared contact between the metamorphic sediments and the diorite.  The shear is considered a splay of the main Atacama Fault Zone and dips 30º to 65º west. This contact parallels the regional geological trend and coincides with a major lineament which extends for hundreds of kilometers.  The sheared contact is 50 meters to 200 meters wide over the 1.7-kilometre strike length of the Farellon property.  Veins are typically 3 to 15 meters wide, striking south-southwest and dipping approximately 65 degrees to the northwest.

Mineralization . The Farellon property lies within the Candelaria iron oxide-copper-gold (IOCG) belt of Chile. Ore bodies in the belt occur in veins, breccias, stringer bodies and layer parallel replacement bodies and are typically associated with north-south trending faults related to the Atacama Fault Zone.  All IOCG deposits have a strong association with iron oxides in the form of hematite or magnetite.  In the Candelaria region, larger ore bodies are located where the fault zones intersect a lithological contact with significant rheological contrast such as a sedimentary and volcanic intrusive contact.

Economic IOCG deposits are generally polymetallic and can include iron, copper, gold, zinc, lead, uranium and cobalt among others.  The Farellon property historically has been exploited for copper and to a lesser extent, gold.  Cobalt mineralization was observed during the 1996–97 exploration work, but we have found no records of cobalt extraction.

Drilling (2009). In September 2009, we completed a 725-metre RC drilling program on the Farellon property. Table 5 summarizes the results of our drilling.
 
 
9

 
 
The drilling program was designed to confirm historic drilling results and test mineralization down dip of previous drilling. Of the five holes drilled, three holes—FAR–09–A, B and E—tested historic intersections FAR–96–09, 021 and 022 summarized in Table 3; and two—FAR–09–C and D—tested depth extents of the previously known mineralization. Results of the drilling show grades and widths of mineralization consistent with historic exploration results and have given us valuable geological information showing the possibility of a shallow, 30-degree dip of the mineralization.

Table 5: Farellon drilling results (2009)
Drill hole
FAR – 09
Assay interval (m)
 
Assay grade
 
From
To
Core length
 
Gold (ppm)
Copper (%)
A
 
31
34
3.0
 
0.81
1.99
 
79
109
30.0
 
0.18
0.62
including
97
106
9.0
 
0.44
1.63
B
 
56
96
40.0
 
0.27
0.55
including
56
63
7.0
 
0.22
0.66
 
74
96
22.0
 
0.42
0.79
including
75
86
11.0
 
0.67
1.35
C
 
73
103
30.0
 
0.79
0.55
including
77
82
5.0
 
4.16
2.57
D
 
95
134
39.0
 
0.11
0.58
including
95
103
8.0
 
0.33
2.02
E
 
25
30
5.0
 
0.54
1.35
65
68
3.0
 
0.58
1.46
 
We commissioned Micon International Limited to prepare a technical report that complies with Canadian National Instrument 43-101 summarizing the information obtained from this drilling program. Micon concluded that our drilling confirmed the general location and tenure of the mineralization identified during the 1996 drilling program and noted some minor disparities between historical 1996 gold and copper assays and the recent 2009 gold and copper assays in two of the drill holes—FAR–09–A and E. In FAR–09–E. Micon recommended that we investigate these disparities during the next phase of drilling.
 
The drilling identified that the copper and gold mineralization exhibited a direct correlation in both location and relative intensity and provided useful information for outlining the relative location and spacing of drill holes in our next exploration programs.
 
All of our 2009 drill holes intersected oxide facies mineralization with only minor amounts of sulphides observed in drill hole FAR–09–D. When we have established the general trend of the mineralization we can conduct some drilling to identify the oxide-sulphide interface.
 
Following the 2009 drilling program, Micon recommended that we conduct a two-phase drilling program. The first phase would consist of approximately 1,200 meters of diamond drilling to assist in defining the structural controls on the mineralization, which could have been misinterpreted in the past due to the limited geological information obtained from the historic RC drilling, and the depth and nature of the sulphide mineralization.  
 
Phase I of drilling commenced in July 2011 with the goal not only of better defining structural controls on mineralization but to examine the continuity of mineralization along strike and at depth. The target of the program was to outline a 700m mineralized strike length down to 200m vertical depth with approximate 75m intercept spacing, and to infill gaps 300m further to the North to increase intercepts to 150m spacing.
 
Many of the existing intercepts in this area were from the 1996/97 drill program where no geological information can be located for these drill holes.  By infilling the area with drilling at 75 meter pierce points the aim was to increase confidence in the continuity and increase knowledge of the nature and structural controls on mineralization to aid further exploration planning. 2011 drill results confirmed that mineralization is still present downdip of past drilling intercepts and still open at depth. Infill drilling confirmed mineralization is still of economic grade and now starts the process of having consistent 75m spacing between drillholes.
 
 
10

 
 
2011 drilling confirmed the overall regional shear structural controls on mineralization occurring within the oblique fault contact between overlying Paleozoic Metasediments and underlying Jurassic intermediate intrusives. Supergene mineralization seems to occur within local faults not immediately within the lithological fault contact – possibly fault splays emanating off the main regional structure. In 2011 drillholes, supergene copper-gold mineralization was intersected 50-150m downhole with abundant carbonate and iron oxide precipitation.
 
Hypogene mineralization occurred below 150m hosted in quartz and carbonate veins which appear closer to the main shear fault zone contact. Approximately within 20m downhole of intersected hypogene mineralized veins the lithological contact was encountered, passing through to the underlying intrusive package. The 2011 drill program was generally positive in better defining structural controls on mineralization and proving continuity of mineralization along strike and at depth. However, more drilling is needed to continue to expand on the mineralized zone along strike and at depth, and prove up infill targets for an initial resource estimation.
 
Micon now recommends that we conduct a much larger phase of exploration consisting of 5,000 meters of diamond drilling and 10,000 meters of RC drilling, and geophysical surveys and geological mapping. A geophysics survey using both magnetics and induced polarization will help to identify further mineralized structures on the property that may not have been noticed in the historic mapping. A phase two drill program would be at defined spacing to outline the continuity of mineralization leading to a 3D model and initial resource estimation.  The depth of the drilling would be dependent on the results of the phase one drilling program. The estimated cost of this phase is $1.9 million.
 
QA/QC, sampling procedures and analytical methods. We conducted sampling on one-meter intervals, which is generally the industry-standard sampling practice for RC drilling. Sampling started at the collar of the hole and proceeded to the toe or bottom of the drill hole on one-meter increments. Generally, the sample recovery was good to excellent for the 2009 drilling program. Table 5 summarizes significant assay results.  They are reported as drill lengths as we have not established the width of the mineralized zone.
 
Drilling (2011). During June through September 2011 we conducted a combined RC/diamond drill program on the Farellon property. The program was designed to continue to expand on the results of the 2009 drill program, as well as to continue confirming historical results along the strike. During this program we completed 11 drillholes for a total of 2,233m. Significant results of assays are presented in the Table 6 below.
 
Table 6: Farellon drilling results (2011)
Drill Hole ID
Assay interval (m)
Assay grade
From
To
Length
Copper %
Gold g/t
FAR-11-001
36
49
13
2.51
0.35
FAR-11-001
78
85
7
0.43
0.04
FAR-11-002
No Significant Intersections . Zone faulted off
FAR-11-003
150
155
5
0.40
0.28
FAR-11-003
177
182
5
0.44
0.15
FAR-11-004
141
145
4
0.73
0.01
FAR-11-005
124
133
9
0.84
0.26
FAR-11-006
80
112
32
1.35
0.99
FAR-11-007
56
74
18
0.50
0.40
FAR-11-008
98
102
4
0.85
0.26
FAR-11-009
202
211.55
9.55
0.95
0.42
FAR-11-010
179.13
183
3.87
0.50
0.39
FAR-11-011
54
56
2
0.97
0.48
 
 
11

 
 
Figure 3 below illustrates the Farellon geology and the 2006, 2009 and 2011 drillhole collar locations as well as surface traces of mineralized vein systems:
 
Figure 3: Farellon property geology
 
QA/QC, sampling procedures and analytical methods. Samples were taken at intervals between 0.5 and 2 metres. Sampling started at the collar of the hole and proceeded to the toe or bottom of the drill hole.  Samples were taken at two metre intervals outside the previously identified main zone of interest.  Through the main zone of interest samples were taken at one metre intervals.   Generally, the sample recovery was good to excellent for the 2011 drilling program. Table 5 above summarizes significant assay results.  They are reported as drill lengths as we have not established the width of the mineralized zone.
 
Our quality assurance, quality control (QA/QC) protocol consists of the addition of standards, blanks and laboratory duplicates to the sample stream.  We inserted these into the sample series using the same number sequence as the samples themselves.  One of the QA/QC check samples is inserted every 25 samples and it alternates between standards, blanks and laboratory duplicates.  

perth property

On March 10, 2011, we purchased for $35,000 a group of 12 claims (the Perth) as described in Table 7 and illustrated in Figure 4.
 
 
12

 
 
Table 7: Perth property
Claim
Type
Mensura
(ha)
Manifestacion
(ha)
Perth 1 al 36 claim
109
 
Lancelot I 1 al 30 claim
300
 
Lancelot II 1 al 20 claim
200
 
Rey Arturo 1 al 30 claim
300
 
Merlin I 1 al 10 claim
60
 
Merlin I 1 al 24 claim
240
 
Galahad I 1 al 10 claim
50
 
Galahad I 1 al 46 claim
230
 
Percival III 1 al 30 claim
300
 
Tristan II 1 al 30 claim
300
 
Tristan IIA 1 al 5 claim
15
 
Camelot
 
300
 
2,104a
300a
aSome claims overlap others, reducing our net area to 2,283 hectares. See Figure 4.

Figure 4. The Perth property
 
 
13

 
 
The Perth property is adjacent to the west side of the historic Carrizal Alto mine and lies approximately 3.5 kilometers north of our Farellon project. It is a 45 minute drive from Vallenar city, with major road access, power and water supply close by. The project lies on a similar geologic contact as the Farellon and Carrizal Alto properties.
 
Location and means of access. The Perth property is centered about 308,750 east and 6,895,000 south UTM PSAD56 Zone 19 approximately 75 km northwest of the city of Vallenar with the highest point at approximately 925 meters above sea level.  The property is accessible by road from Vallenar. The Perth Caliza Property is accessed by taking the Pan American Highway north from Vallenar for 20 kilometres, then turning west onto the road to Canto del Agua a distance of 35 kilometres. Then take the Cardones Canyon road for 15 kilometres, turn southwest towards Cerro Cachina Grande along a secondary gravel road for 14 kilometres to the property.
 
Exploration history.  Exploration programs on the Perth property have historically been limited to surface sampling and mapping programs completed in 2007 and 2008. Mapping identified 12 individual veins on surface, significant results from channel samples across the veins are show in Table 8. Numerous artisanal mine workings on the property have previously been exploited for both copper and gold; however, no records of grade or tonnage can be located.
 
Table 8: Perth historic significant intersections
SAMPLE
Au g/t
Cu %
Co%
Length of Sample (m)
521617
2.5
0.39
0.03
1.0
521796
2.5
0.21
0.00
1.0
521629
2.8
0.76
0.19
3.5
56905
3.1
1.00
0.19
1.0
521610
3.5
0.30
0.02
0.5
521622
4.5
1.72
0.02
1.0
521788
4.5
0.19
0.00
2.0
56858
5.0
0.42
0.16
1.0
521789
5.5
0.29
0.00
2.0
521628
6.2
0.59
0.14
1.3
521609
10.7
0.35
0.07
1.0
 
Geology The Perth property overlies the contact between Paleozoic metamorphic sediments and a Cretaceous tonalitic batholith. A swarm of north northeast trending fault related copper gold bearing quartz veins crosscuts the property. Surface mapping and sampling records show twelve veins identified so far on the south end of the property. The veins average two metres wide but have been measured up to six metres wide.
 
Figure 5 below illustrates the Perth geology as well as the 2007 and 2011 reconnaissance sample gold g/t assay results:
 
 
14

 
 
 
Figure 5 Perth Property Geology

Termination of Perth property joint venture earn-in agreement

On March 14, 2011, we entered into an agreement on the Perth property with Revonergy Inc.  Revonergy Inc. paid $35,000 on signing the agreement, which allowed Revonergy to earn a 35% interest in the Perth property if it spent a minimum of $1,450,000 on a three phase exploration program, as follows:

 
·
Successful completion of a Phase I exploration program costing at least $115,000 one year from signing
 
·
Successful completion of a Phase II exploration program costing at least $300,000 two years from signing
 
·
Successful completion of a Phase III exploration program costing at least $1,000,000 and that can justify completing a preliminary feasibility study three years from signing

Revonergy failed to complete Phase I of the exploration program within the term specified, therefore the agreement has terminated.

mateo property

We have assembled a group of claims: the Che Uno and Che Dos, the Margarita, and the Irene Uno and Irene Dos mining claims, and the Mateo exploration claims as described in Table 9 and illustrated in Figure 6.  The Mateo exploration claims overlap the Che, Margarita and Irene claims to secure the areas around the claims. Some of them may overlap others’ prior claims. We will acquire rights to these overlapped prior claims only if the owners forfeit their rights, and we will exercise our rights only if we want the property. We acquired all of these claims for the same geological reasons and consider them one property, which we call the Mateo property.

 
15

 
 
Table 9: Mateo property
Claim
Type
Mensura
(ha)
Manifestaciona
(ha)
Pedimentoa
(ha)
Che Uno 1 – 8
32
   
Che Dos 1 – 10
44
   
Margarita 1 – 14
56
   
Irene Uno 1 – 2
10
   
Irene Dos 1 – 10
50
   
Mateo 1
 
300
 
Mateo 2
 
300
 
Mateo 3
 
200
 
Mateo 4
   
300
Mateo 5
   
300
Mateo 9
 
300
 
Mateo 10
 
300
 
Mateo 12
 
200
 
Mateo 13
 
200
 
Mateo 14
 
300
 
 
192
2,100
600
a Some of the claims are staked over the mensuras to claim the ground surrounding them. See Figure 6.

 
16

 
 

 
Figure 6: Mateo property

che uno and che dos claims
 
On October 10, 2008 Minera Farellon granted us the option to purchase the Che Uno and Dos claims. The Che claims cover 76 hectares centered about 339,002 east and 6,838,450 south UTM PSAD56 Zone 19. They are in the northwest corner of the Mateo property.  On April 12, 2011 we completed the acquisition of the Che claims by paying approximately $20,000 to Minera Farellon. 

We continue to owe a royalty equal to 1% of the net proceeds that we receive from the processor to a maximum of $100,000 with no monthly minimum when we start exploiting the minerals we extract from the claim.   We have not yet exploited the claim.

 
17

 
 
margarita claim
 
We bought the Margarita mining claim on November 27, 2008 through a public auction and at January 31, 2012 had spent a total of $17,528 (including legal and registration costs) for this claim.  The Margarita claim covers 56 hectares centered around 340,353 east and 6,838,347 south UTM PSAD56 Zone 19 located within the northeast corner of the Mateo claim.
 
 irene uno and irene dos claims

 On September 7, 2010, we entered into a purchase agreement with Minera Farellon to buy the Irene Uno and Irene Dos mining claims. Under the terms of the agreement, as amended, we paid $45,174 (equivalent of 21 million Chilean pesos) on May 10, 2011 to exercise the option and purchase the Irene claims.  The Irene claims cover 60 hectares centered about 341,002 east and 6,838,101 south UTM PSAD56 Zone 19, are located within the northeast corner of the Mateo property, and share their western border with the Margarita claim.

mateo claims
 
The Mateo claims consist of eight manifestaciones — Mateo 1 –3, 9-10, and 12 – 14, and two pedimentos — Mateo 4 and 5, covering 2,220 hectares, which we staked between November, 2008 and November 2011. The claims are centered about 337,675 east and 6,837,600 south UTM PSAD56 Zone 19 and cover a five-kilometer strike length of intensely altered volcanics with significant massive sulphide mineralization. 

Location and means of access. The Mateo property is centered about 337,675 east and 6,837,600 south UTM PSAD56 Zone 19 approximately 10 kilometers east of Vallenar with the highest point at approximately 1,050 meters above sea level.  A well-used road leads from the city of Vallenar and crosses through the middle of the west half of the properties and along the southern border of the east half of the properties.  Many unmarked dirt roads in the area provide reliable access to most areas of Mateo.

Description. The Mateo property is a copper-gold-silver project that lies in the Candelaria IOCG belt in the Chilean Coastal Cordillera.  The Mateo property has undergone limited modern exploration including surface and underground RC drilling and artisanal mining on three separate mine sites, the Irene, Margarita and Santa Theresa mines.  We have reviewed all available records of work completed to date, including some records of the mining activity. Our interpretation of the work completed to date indicates the potential for an economic ore body in mineralized mantos and skarn-style mineralization associated with IOCG deposits.  
 
Exploration history. Historical work includes several drill programs completed by different Chilean private and public companies.  Records exist from eight drillholes completed in 1994 on the Irene mine and include two full reports written by ENAMI (the Chilean national mining company) with interpretation of mineralization and recommendations for further exploration and mining work.
 
The Irene mine was investigated by ENAMI in 1994.  Work completed during this time included surface RC drilling, including 490 meters in four RC drillholes, and underground diamond drilling, including 220 meters in four drillholes.  We obtained ENAMI’s reports of mining activities from 1994 through 1997.  Approximately 11,875 tonnes of rock were mined in that time averaging 4.3% copper, 61.9 grams per tonne silver, and 1.01 grams per tonne gold.    During the period from June 2009 to December 2010 the vendor of the Irene, Minera Farellon, conducted small scale mining activities on a different area of the Irene claims and mined 1,705 tonnes grading 1.39% Cu, 1.39g/t Ag, 0.29g/t Au in sulphides and 1,477 tonnes grading 1.98% Cu in oxides.  The difference in grade between the historic work and the recent work is not an indication that further high grade material will not be found on the Mateo property and further modeling and exploration work needs to be completed to determine the best place to drill.

A private Chilean company, Minera Taurus, drilled 16 RC holes on the east end of the Irene claim, but we have no record from this drilling. An unknown company built a portal 250 meters long and approximately three meters wide by three meters high. The portal leads to three mined-out chimneys connected to the surface providing ventilation channels.  On a recent property visit with ENAMI’s geologists, we found an extension of the mineralized zone at the base of the tunnel below showing the potential for mineral resources.
 
 
18

 
 
Geology. Geologically, the Mateo property is located within the brittle-ductile north-south-trending Atacama Fault System that is known to host many of the major deposits in the Candelaria IOCG belt.  Known mineralization is hosted in an andesitic volcaniclastic sequence assigned to the Bandurrias Formation. Widespread iron oxide and potassic alteration indicates an IOCG mineralizing system further supported by significant amounts of economic grade mineralization.

Exploration (2011).  During August through October, 2011 we carried out an in-depth geological mapping and sampling program on the Mateo property.  The Mateo property has very diverse mineralization styles through the property which includes mantos, veins, breccias and porphyries with significant gold and copper. A total of 138 reconnaissance samples were collected over the property. The highest assay values returned from reconnaissance samples were 21g/t Au and 10.3% Cu but more common values were between 1-3g/t Au and 1-3% Cu. Table 10 summarizes the significant assay results.

Table 10: significant intersections
Sample
Cu%
Au g/t
201272
7.37
1.12
202871
2.63
1.14
202852
7.11
1.18
202849
10.3
1.73
201220
4.29
2.07
201277
9.39
2.42
202850
2.58
2.46
202810
2.44
2.49
202882
2.57
3.08
202812
0.50
3.10
202815
0.62
3.57
202880
1.46
5.70
202826
5.30
6.85
201217
3.46
10.11
202813
0.69
21.72
 
The detailed mapping identified nine significant mineralized zones where further work is recommended.
 
Figure 7 below illustrates the local Mateo geology including a thematic map of 2011 reconnaissance sample locations and corresponding percent copper assay ranges.
 
 
19

 
 
 
Figure 7: Mateo property geology
 
2011 Ground Magnetic Survey
 
During the month September 2011, we engaged Quantec International Project Services Ltd. to complete a ground magnetic survey on the Mateo Property. The ground magnetic survey consisted of 70 survey lines with an E-W orientation, and two control lines with a N-S orientation. The survey lines were separated by 100m, and data was collected at 10 m intervals on all lines. A total of 218.49 km of magnetic data was collected. The survey outlined areas of high and low magnetic response. Areas of high magnetic response indicated the presence of elevated levels of magnetic minerals such as magnetite, pyrotite and hematite whereas areas of low magnetic response may be caused by alteration processes such as magnetite destruction or may simply indicate rock types that never had magnetic minerals.
 
This ground magnetic survey demarcated the northern and western extent with a large, high magnetic anomaly with a southwest to northeast orientation. This magnetic high may correlate with the Jilguero Intermediate Intrusive formation which is only partially exposed on the property and underlies the Jurassic Punta Del Cobre volcanics, and mixed sedimentary sequence.
 
Two possible correlations with geology are drawn when looking at the magnetic geophysical response. Firstly, all artisanal mines, reconnaissance samples and documented surface mineralization is exposed on the Western edge of the magnetic high in an area where magnetic high-low gradients are greatest transitioning from high to low. Secondly, magnetic highs appear to persist away from the main magnetic high body in a NW direction. Although these persisting magnetic highs are only small stringers in appearance they possibly correlate to dominant NW trending faults on the property that are often mineralized. Visual correlations between magnetic high/low contrasts and geology seem strong enough to suggest further exploration including sampling and drilling along the steepest gradient of magnetic high/low dropoff.
 
 
20

 
 
veta negra
 
The Veta Negra property is made up of 19 Trixy exploration claims and three mining claims.

Table 11: Veta Negra property.
Claim
Mensura
(ha)
Manifestaciona
(ha)
Veta Negra 1-7
28
 
Exxon 1-4
16
 
Pibe 1-20
200
 
Trixy 1 (a,b,c)
 
300
Trixy 2 (a,b,c)
 
300
Trixy 3 (a,b,c)
 
300
Trixy 4 (a,b)
 
200
Trixy 5
 
300
Trixy 10
 
300
Trixy 12
 
300
Trixy 13
 
300
Trixy 14
 
300
Trixy 15(a,b,c)
 
300
 
244
2,900
a  Figure 8  below illustrates the Veta Negra claims.

 
Figure 8: Veta Negra property

 
21

 
 
pibe claims

On November 25, 2011, we entered into an option to purchase agreement with Manuel Antonio Cortez Araya to purchase the Pibe 1 - 20 mining claims. The Pibe claims are located in Sierra la Chinchilla, community of Vallenar, Province of Huasco, Region of Atacama; they cover 200 hectares with UTM coordinates: East 348,500,000, North 6,843,300,000. The option to purchase has a term of 36 months, requiring us to make semi-annual payments totaling $500,000. We made our first payment of $40,000 on December 12, 2011.

The claims are also a subject to a 1.5% royalty on the net proceeds that we receive from the processor to a maximum of $1,000,000 with no monthly minimum. The payments are due once exploitation begins.  We have not yet exploited the claim.

veta negra and exon claims

On June 30, 2011, we entered into an agreement with Minera Farellon to acquire its options to purchase the Veta Negra and Exon mining claims and the Trixy exploration claims for $107,500. Under the terms of the option, we agreed to transfer our interest in several generative claims with the net book value of $4,504. The claims are subject to a 1.5% royalty on the net sales of minerals extracted to a total of $500,000. The royalty payments are due monthly once exploitation begins.  At January 31, 2012, we paid $10,000 in option payments and capitalized an additional $8,480 as cost of transferred generative claims.

Location and means of access

The Veta Negra property is accessed from Vallenar by driving the Relincho, San Antonio, Los Morteros road east out of Vallenar along the Quebrada Jilgeuro Canyon to the 21km marker (before one reaches the village of San Antonio), there is black spray paint on rocks by the side of the road indicating the way to the Veta Negra and Exon mines at the UTM coordinates: East 338,097, North 6,839,203 at an altitude of 1,079 m above sea level. At this point turn north and drive for approximately 4 km until arriving at the Veta Negra artisanal mine.
The Veta Negra property is located approximately 25km from the Empresa Nacional de Mineria (ENAMI) crushing and processing facility.

Description

The Veta Negra property is a copper-gold project that lies in the Candelaria IOCG belt in the Chilean Coastal Cordillera.  The Mateo property has undergone limited modern exploration, in the form of near surface artisanal mining. Mineralization occurs in tabular mantos or veins which trend approximately North-South through the property. There are 3 recognized mantos of approximately 4-6m in thickness, the longest of which extends for 2km on surface. The depth to which these mantos extend is unknown at this time. Supergene copper and gold mineralization within these mantos is very conspicuous as chrysocolla, malachite, atacamite, chalcocite, and minor cuprite. Sampling and mapping has been undertaken throughout the property

Exploration history

The Veta Negra property has been artisanally mined on the two mining concessions on the property, the Veta Negra 1-8 and Exxon 1-4 concessions. Many small pits and excavations on the property that do not have records of tonnage or grade are evident all along the surface traces of the exposed mantos.

Geology

The mineralization on the Veta Negra property is hosted in the middle Cretaceous Cerrillos formation composed of brecciated, flow, tuff, microcrystalline andesite, arenites and conglomerates. Abundant copper oxide mineralization is found on surface in distinct veins or ‘mantos’ deposited at the upper contact of a black altered andesite and an overlying vesicular iron oxidized andesite (some vesicular volcanics in the area exhibit hornfel metamorphic facies).

Primary structures on the Veta Negra property are made up of regional scale Cretaceous extension faults which predominantly dip to the East at 30-50 degrees. These faults likely provided accommodation space and fluid pathways along contacts of the Cerrillos volcanic units. There is also evidence of anticline structures which are not fully understood and later dip slip fault offsets seen where the mantos exhibit minor offset along strike.

 
22

 
 
Younger upper Cretaceous – Eocene intermediate composition Granodiorites and Monzonites are found in the Eastern and Northern region of the Veta Negra claim in contact with the Cerrillos volcanics to the South and West. These later units may have provided the hydrothermal heat and fluid source to produce mineralization which could have been injected into the faulted Cerrillos volcanics.

Beyond the claim boundaries to the West lies the lower Cretaceous Pabellon and Totoralillo bioclastic carbonates, volcanic and conglomerate formations. Beyond these formations – a few kilometers still - lies the Jurassic - lower Cretaceous Punta Del Cobre or Bandurrias formation composed of Dacites, andesites and carbonates.

Exploration (2011)

During June and July 2011 we carried out a preliminary exploration program on the Veta Negra property. As a result of the program we discovered a defined and continuous copper mineralized manto continuing on from the main manto previously known to exist. At the conclusion of this program three mantos were traced on surface, one manto, the East Manto, was traced for 1.9km on surface before becoming buried by surface rock, a second manto, the West Manto, was traced for a one kilometer strike length and a third manto, the Far West Manto, was traced for a 500 metre strike length.

During this program, 65 reconnaissance samples were collected along the strike length of these three mantos. Table 12 summarizes the significant assay results.

Table 12: Results from reconnaissance samples
Sample ID
Easting
Northing
Au g/t
Cu %
Manto
200903
348488
6842508
0.16
1.01
East Manto
200932
348335
6843938
0.08
1.03
East Manto
200925
348440
6843689
0.43
1.08
East Manto
200913
348690
6842997
0.33
1.62
East Manto
200928
348522
6843441
0.19
1.68
East Manto
200943
348093
6844433
0.17
1.9
East Manto
200931
348349
6843900
0.2
1.91
East Manto
200905
348653
6842700
0.93
2.69
East Manto
200904
348545
6842549
0.20
3.56
East Manto
200958
347107
6844288
0
1.19
undefined
200957
347206
6843278
0.15
2.13
undefined
200908
348644
6841365
0.33
4.48
undefined
200961
346021
6843847
0.07
1.87
Far West Manto
200939
347947
6843726
0.35
1.11
West Manto
200921
348146
6843366
0.59
1.25
West Manto
200924
348183
6843307
0.19
1.3
West Manto
200937
348068
6843553
0.92
1.75
West Manto
200911
347927
6843510
0.14
1.84
West Manto
200938
348004
6843660
0.09
2.09
West Manto

Below Figure 9 illustrates the Veta Negra geology and the 2011 reconnaissance sample percent copper assay ranges:

 
23

 


Figure 9: Veta Negra Geology

Generative claims

As an exploration company, from time to time we will stake, purchase or option claims to allow ourselves the time and access to fully consider the geological potential of the claims. This allows us to generate new properties in areas that have not been explored. We have conducted groundwork on numerous generative claims of interest to us in the areas of our active properties. We have acquired several of these claims, have options to acquire others, and have staked claims in the same areas. We continue to compile data on and review other claims and discuss terms with various owners.
 
Abandoned claims

During the year ended January 31, 2012, we wrote off certain mineral claims with a paid cost of $15,471 and capitalized non-cash expenditures of $2,433 as we decided not to pursue exploration of the claims. We did not write off any acquisition costs during the year ended January 31, 2011.
 
Competition
 
The mineral exploration business is an extremely competitive industry.  We are competing with many other exploration companies looking for minerals.  We are one of the smallest exploration companies and a very small participant in the mineral exploration business.  Being a junior mineral exploration company, we compete with other similar companies for financing and joint venture partners, and for resources such as professional geologists, camp staff, helicopters and mineral exploration contractors and supplies.
 
Raw materials
 
The raw materials for our exploration programs include camp equipment, hand exploration tools, sample bags, first aid supplies, groceries and propane.  All of these types of materials are readily available from a variety of local suppliers.
 
 
24

 
 
Dependence on major customers
 
We have no customers.  Our first customer likely will be ENAMI, which refines and smelts copper from the ore that it buys from Chile’s small- and medium-scale miners.  ENAMI is located in Vallenar.  We could also deliver our ore to the Dos Amigos heap leach facility located approximately fifty kilometers south of Vallenar in Domeyko. 
 
Patents/Trademarks/Licenses/Franchises/Concessions/Royalty agreements/Labor Contracts
 
We have no intellectual property such as patents or trademarks, and, other than the royalties that we must pay if we begin to exploit our Chilean properties, no royalty agreements or labor contracts.  

Government controls and regulations

We are not required to obtain permits or submit operational plans in order to conduct exploration on our properties.  The mining business, however, is subject to various levels of government controls and regulations, which are supplemented and revised from time to time.  We cannot predict what additional legislation or revisions might be proposed that could affect our business or when any proposals, if enacted, might become effective.  Such changes, however, could require more operating capital and expenditures and could prevent or delay some of our operations.

The various levels of government controls and regulations address, among other things, the environmental impact of mining and mineral processing operations.  For mining and processing, legislation and regulations in various jurisdictions establish performance standards, air and water quality emission standards and other design or operational requirements for various components of operations, including health and safety standards.  Legislation and regulations also establish requirements for decommissioning, reclaiming and rehabilitating mining properties following the cessation of operations, and may require that some former mining properties be managed for long periods of time. As we are not mining or processing, and are unlikely to for some years, we have not investigated these regulations.

None of the exploration work that we have completed to date requires an environmental permit. We must repair any damage done to the land during exploration. Some of our claims are within the boundaries of a national park. According to the Mining Code of Chile, we will have to get written authorization from the government to mine or complete any exploration work within the park boundaries. We submitted an application to the government in December 2011 to explore within the park boundaries.  We expect to be given an answer to this application in April.
 
If our operations in Chile become profitable, any earnings that we remit abroad will be subject to Chilean withholding tax.
 
We believe that we are in substantial compliance with all material government controls and regulations at each of our mineral claims.

Costs and effects of compliance with environmental laws

We have incurred no costs to date for compliance with environmental laws for our exploration programs on any of our claims.

Expenditures on research and development

We have incurred no research or development costs since our inception on January 10, 2005.

Number of total employees and number of full-time employees

Red Metal does not have any employees. Caitlin Jeffs and Michael Thompson, both of whom are directors and officers, and John da Costa, who is an officer, all provide their services to the company as independent consultants.  Polymet retains Kevin Mitchell, who is Polymet’s legal representative and manager in Chile, two administrative employees, and one assistant geologist.  We contract for the services of geologists, prospectors and other consultants as we require them to conduct our exploration programs.

 
25

 
 
ITEM 1A: RISK FACTORS

In addition to the factors discussed elsewhere in this annual report, the following risks and uncertainties could materially adversely affect our business, financial condition and results of operations.  Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations and financial condition.
 
During the fiscal years ended January 31, 2011 and 2012 we earned no royalty revenue while our operating expenses totalled $2,928,188 and $672,618, respectively. If we do not find sources of financing as and when we need them, we may be required to cease our operations.
 
Mineral exploration and development are very expensive.  During the fiscal year that ended on January 31, 2012, we earned no royalty revenue while our operating expenses totalled $2,928,188. During the fiscal year that ended on January 31, 2011 we earned no royalty revenue while our operating expenses totalled $672,618. This resulted in a total accumulated loss of $5,985,007 since inception. As of January 31, 2012 we had cash of $24,467.  Since our inception we have sold our securities and borrowed money to fund our operations.  Our ability to continue our operations, including exploring and developing our properties, will depend on our ability to generate operating revenue, obtain additional financing, or enter into joint venture agreements.  Until we earn enough revenue to support our operations, which may never happen, we will continue to be dependent on loans and sales of our equity or debt securities to continue our development and exploration activities.  If we do not find sources of financing as and when we need them, we may be required to severely curtail, or even to cease, our operations.

Our auditors have expressed substantial doubt about our ability to continue as a going concern; as a result we could have difficulty finding additional financing.

Our financial statements have been prepared assuming that we will continue as a going concern.   Except for approximately $16,000 of royalty income that we received during the 2009 fiscal year from Minera Farellón, we have not generated any revenue since inception and have accumulated losses.  As a result, our auditors have expressed substantial doubt about our ability to continue as a going concern.  Our ability to continue our operations depends on our ability to complete equity or debt financings as we need capital or generate profitable operations.  Such financings may not be available or may not be available on reasonable terms.  Our financial statements do not include any adjustments that could result from the outcome of this uncertainty.

Unfavorable economic conditions may have a material adverse effect on us since raising capital to continue our operations could be more difficult.

The recent credit crisis and related turmoil in the global financial system had an impact on our business and financial position, and a similar financial crisis in the future may also impact us.  Depending upon the ultimate severity and duration of any economic downturn, the resulting effects on Red Metal could be materially adverse if it is unable to raise the working capital required to carry out its business plan.

Our business was formed in January 2005 and our operations, to date, have earned only minimal revenues.  Due to the high costs of acquiring and exploring claims, we may never be profitable.  We expect to continue to incur operating losses during the next 12 months.

We were incorporated on January 10, 2005 and to date have been involved primarily in organizational activities, acquiring and exploring mineral claims and obtaining financing.  We have earned minimal revenues and we are not profitable.  Whether we will be successful as a mining company must be considered in light of the costs, difficulties, complications and delays associated with our proposed exploration programs.  These potential problems include, but are not limited to, finding claims with mineral deposits that can be cost-effectively mined, the costs associated with acquiring the properties and the unavailability of human or equipment resources.  We have a very short history and had no more than minimal operations until April 25, 2008 when we acquired the mining claims known as Farellon Alto 1 – 8 in Chile.  We cannot assure you that we will ever generate significant revenue from our operations or realize a profit.  We expect to continue to incur operating losses during the next 12 months.

 
26

 
 
Our joint development and operating arrangements may not be successful.
 
We have in the past, and may in the future, enter into joint venture arrangements in order to share the risks and costs of developing and operating properties. In a typical joint venture arrangement, the partners own a proportionate share of the assets, are entitled to indemnification from each other and are only responsible for any future liabilities in proportion to their interest in the joint venture. If a party fails to perform its obligations under a joint venture agreement, we could incur liabilities and losses in excess of our pro-rata share of the joint venture.  We make investments in exploration and development projects that may have to be written off in the event we do not proceed to a commercially viable mining operation.

Our joint venture agreements may not always be successful.  For example, on March 14, 2011, our subsidiary, Minera Polymet, granted to Revonergy Inc. the right to earn a 50% joint venture interest in the Perth property.  However, Revonergy decided not to exercise that right and the agreement has been terminated.

In some instances members of the board of directors or an officer may be liable for losses incurred by holders of our common stock.  If a shareholder were to prevail in such an action in the U.S., it may be difficult for the shareholder to enforce the judgment against any of our directors or officers, who are not U.S. residents.

In certain instances, such as trading securities based on material non-public information, a director may incur liability to shareholders for losses sustained by the shareholders as a result of the director’s or officer’s illegal or negligent activity.  However, all of our directors and officers live and maintain a substantial portion of their assets outside the U.S.  As a result it may be difficult or impossible to effect service of process within the U.S. upon these directors and officers or to enforce in the courts any judgment obtained here against them predicated upon any civil liability provisions of the U.S. federal securities laws.

Foreign courts may not entertain original actions predicated solely upon U.S. federal securities laws against these directors; and judgments predicated upon any civil liability provisions of the U.S. federal securities laws may not be directly enforceable in foreign countries.

As a result of the foregoing, it may be difficult or impossible for a shareholder to recover from any of these directors or officers if, in fact, the shareholder is damaged as a result of the negligent or illegal activity of an officer or director.

Mineral exploration is highly speculative and risky; we might not find mineral deposits that can be extracted cost effectively on our claims.

Exploration for mineral deposits is a speculative venture involving substantial risk.  Problems such as unusual and unexpected rock formations often result in unsuccessful exploration efforts.  We cannot assure you that our claims contain mineral deposits that can be extracted cost effectively.

Mineral exploration is hazardous.  We could incur liability or damages as we conduct our business due to the dangers inherent in mineral exploration.

The search for minerals is hazardous.  We could become liable for hazards such as pollution, cave-ins and other hazards against which we cannot insure or against which we may elect not to insure.  We have no insurance for these kinds of hazards, nor do we expect to get such insurance for the foreseeable future.  If we were to suffer from such a hazard, the costs of rectifying it could exceed our asset value and require that we liquidate our assets.

 
27

 
 
In the future we may be required to comply with government regulations affecting mineral exploration and exploitation, which could adversely affect our business, the results of our operations and our financial condition.
 
The mining business is subject to various levels of government control and regulation, which are supplemented and revised from time to time.  We cannot predict what legislation or revisions might be proposed that could affect our business or when any such proposals, if enacted, might become effective.  Our exploration activities are subject to laws and regulations governing worker safety, and, if we explore within the national park that is part of our Farellon property, protection of endangered and other special status species will likely require compliance with additional laws and regulations.   The cost of complying with these regulations has not been burdensome to date, but if we mine our properties and process more than 5,000 tonnes of ore monthly, we will be required to submit an environmental impact study for review and approval by the federal environmental agency.  We anticipate that the cost of such a study will be significant.  If the study were to show too great an adverse impact on the environment, we might be unable to develop the property or we might have to engage in expensive remedial measures during or after developing the property, which could make production unprofitable.  This requirement could materially adversely affect our business, the results of our operations and our financial condition if we were to proceed to mine a property or process ore on the property.  We have no immediate or intermediate plans to process ore on any of our properties.
 
If we do not comply with applicable environmental and health and safety laws and regulations, we could be fined, enjoined from continuing our operations, and suffer other penalties.  Although we make every attempt to comply with these laws and regulations, we cannot assure you that we have fully complied or will always fully comply with them.
 
We might not be able to market any minerals that we find on our mineral claims due to market factors that are beyond our control.

Even if we discover minerals that can be extracted cost-effectively, we may not be able to find a ready market for our minerals.  Many factors beyond our control affect the marketability of minerals.  These factors include market fluctuations, the proximity and capacity of natural resource markets and processing equipment, government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting minerals and environmental protection.  We cannot accurately predict the effect of these factors, but any combination of these factors could result in an inadequate return on invested capital.

We are not certain that we can successfully compete in the mineral exploration business.  We do not represent a significant presence in this industry.

The mineral exploration business is an extremely competitive industry.  We are competing with many other exploration companies looking for minerals.  We are one of the smallest exploration companies and we do not represent a significant presence in the mineral exploration business.  Being a junior mineral exploration company, we compete with other similar companies for financing and joint venture partners, and for resources such as professional geologists, camp staff, helicopters and mineral exploration contractors and supplies.  We may not have the means to compete successfully for these resources.

We conduct operations in a foreign jurisdiction, and are subject to certain risks that may limit or disrupt our business operations.

Our head office is in Canada and our mining operations are in Chile.  Mining investments are subject to the risks normally associated with the conduct of any business in foreign countries including uncertain political and economic environments; wars, terrorism and civil disturbances; changes in laws or policies, including those relating to imports, exports, duties and currency; cancellation or renegotiation of contracts; royalty and tax increases or other claims by government entities, including retroactive claims; risk of expropriation and nationalization; delays in obtaining or the inability to obtain or maintain necessary governmental permits; currency fluctuations; restrictions on the ability of local operating companies to sell gold, copper or other minerals offshore for U.S. dollars, and on the ability of such companies to hold U.S. dollars or other foreign currencies in offshore bank accounts; import and export regulations, including restrictions on the export of gold, copper or other minerals; limitations on the repatriation of earnings; and increased financing costs.
 
 
28

 
 
These risks could limit or disrupt our exploration programs, cause us to lose our interests in our mineral claims, restrict the movement of funds, cause us to spend more than we expected, deprive us of contract rights or result in our operations being nationalized or expropriated without fair compensation, and could materially adversely affect our financial position or the results of our operations.  If a dispute arises from our activities in Chile, we could be subject to the exclusive jurisdiction of courts outside North America, which could adversely affect the outcome of the dispute.
 
While we take the steps we believe are necessary to maintain legal ownership of our claims, title to mineral claims may be invalidated for a number of reasons, including errors in the transfer history or our acquisition of a claim we believed, after appropriate due diligence investigation, to be valid, but in fact, wasn’t.  If ownership of our claims was ultimately determined to be invalid, our business and prospects would likely be materially and adversely affected.
 
Our ability to realize a return on our investment in mineral claims depends upon whether we maintain the legal ownership of the claims.  Title to mineral claims involves risks inherent in the process of determining the validity of claims and the ambiguous transfer history characteristic of many mineral claims.  We take a number of steps to protect the legal ownership of our claims, including having our contracts and deeds notarized, recording these documents with the registry of mines and publishing them in the mining bulletin.  We also review the mining bulletin regularly to determine whether other parties have staked claims over our ground.  However, none of these steps guarantees that another party could not challenge our right to a claim.  Any such challenge could be costly to defend and, if we lost our claim, our business and prospects would likely be materially and adversely affected.
 
We cannot guarantee that any of our pedimento claims will convert to mensura claims.
 
Some of our exploration claims (pedimentos) are still in the registration process.  We cannot guarantee that any of our pedimento claims will convert to mining claims (mensuras).  Some of our pedimentos may have been staked over other owners’ claims, as permitted by the Chilean mining code.  The pedimento with the earliest filing date takes precedence providing the claim holder maintains its claim in accordance with the mining code and the applicable regulations.  Our pedimento rights in these claims will not crystallize unless the owners of the underlying claims fail to pay their taxes or otherwise forfeit their interests in their claims.  We will exercise any right that we acquire through forfeiture only if the ground remains of interest to us.
 
We sometimes hold a significant portion of our cash in United States dollars, which could weaken our purchasing power in other currencies and limit our ability to conduct our exploration programs.

Currency fluctuations could affect the costs of our operations and affect our operating results and cash flows.  Gold and copper are sold throughout the world based principally on the U.S. dollar price, but most of our operating expenses are incurred in local currencies, such as the Canadian dollar and the Chilean peso.  The appreciation of other currencies against the U.S. dollar can increase the costs of our operations.

We sometimes hold a significant portion of our cash in U.S. dollars.  Currency exchange rate fluctuations can result in conversion gains and losses and diminish the value of our U.S. dollars.  If the U.S. dollar declined significantly against the Canadian dollar or the Chilean peso, our U.S.-dollar purchasing power in Canadian dollars and Chilean pesos would also significantly decline and we would not be able to afford to conduct our mineral exploration programs.  We have not entered into derivative instruments to offset the impact of foreign exchange fluctuations.
 
 
29

 
 
Because our directors are not independent they can make and control corporate decisions that may be disadvantageous to other common shareholders.
 
Our securities are not listed on a national securities exchange or quoted on an inter-dealer quotation system that requires that directors be independent.  Using the definition of “independent” in Section 803 of the Rules of the NYSE Amex, we have determined that none of our directors are independent. Our directors have a significant influence in determining the outcome of all corporate transactions or other matters, including mergers, consolidations, and the sale of all or substantially all of our assets.  They also have the power to prevent or cause a change in control. The interests of our directors may differ from the interests of the other stockholders and thus result in corporate decisions that are disadvantageous to other shareholders.
 
We do not expect to declare or pay dividends in the foreseeable future.

We have never paid cash dividends on our common stock and have no plans to do so in the foreseeable future. We intend to retain any earnings to develop, carry on, and expand our business.
 
“Penny stock” rules may make buying or selling our common stock difficult, and severely limit its marketability and liquidity.

Trading in shares of our common stock is subject to regulations adopted by the SEC commonly known as the “penny stock” rules.   The additional burdens imposed upon broker-dealers by the penny stock rules could discourage broker-dealers from participating in transactions involving shares of our common stock, which could severely limit its marketability and liquidity.  Under the penny stock rules, broker-dealers participating in penny-stock transactions must first deliver to their customer a risk disclosure document describing the risks associated with penny stocks, the broker-dealer’s duties in selling the stock, the customer’s rights and remedies, and certain market and other information.  The broker-dealer must determine the customer’s suitability for penny- stock transactions based on the customer’s financial situation, investment experience and objectives.  Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer, and provide monthly account statements to the customer.  The effect of these restrictions can decrease broker-dealers’ willingness to make a market in our shares of common stock, decrease the liquidity of our common stock, and increase transaction costs for sales and purchases of our common stock as compared to other securities.
 
ITEM 1B: UNRESOLVED STAFF COMMENTS
 
As a smaller reporting company we are not required to provide this information.
 
ITEM 2: PROPERTIES
 
Our executive offices are located at 195 Park Avenue, Thunder Bay, Ontario, Canada, P7B 1B9.  Our president, Caitlin Jeffs, provides this space free of charge although she is under no obligation to do so.  We also have a field and administrative office in Vallenar, Chile, which we rent from month to month at the rate of 550,000 Chilean pesos (approximately $1,000) per month.   We believe that these properties are suitable and adequate for our business operations.

We have assembled interests in four mineral properties in Chile—the Farellon, Perth, Mateo, and Veta Negra—which we have described above in Item 1.
 
ITEM 3:  LEGAL PROCEEDINGS
 
We are not a party to any pending legal proceedings and, to the best of our knowledge, none of our property or assets are the subject of any pending legal proceedings.
 
ITEM 4:  MINE SAFETY DISCLOSURES
 
Not applicable.
 
 
30

 
 
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Our common stock was quoted under the symbol RMES on the Pink Sheets from November 19, 2009 to November 21, 2010, and on the OTC Bulletin Board since September 21, 2010.  From September 16, 2008 to November 19, 2009 our common stock was quoted on the OTC Bulletin Board under the symbol RMET.  From January 16, 2007 to September 16, 2008, our symbol was RLKX. Table 13 presents the range of high and low bid quotes of our common stock for each quarter for the last two fiscal years as reported by the Pink OTC Markets.  The bid prices represent inter-dealer quotations, without adjustments for retail mark-ups, markdowns or commissions and may not necessarily represent actual transactions.
 
Table 13: High and low bids
   
High
   
Low
 
Fiscal year ended January 31, 2012
           
First quarter
  $ 0.45     $ 0.25  
Second quarter
  $ 0.45     $ 0.37  
Third quarter
  $ 0.58     $ 0.36  
Fourth quarter
  $ 0.52     $ 0.42  
Fiscal year ended January 31, 2011
               
First quarter
  $ 0.50     $ 0.20  
Second quarter
  $ 0.50     $ 0.40  
Third quarter
  $ 0.50     $ 0.20  
Fourth quarter
  $ 0.40     $ 0.25  
 
As of March 13, 2012 we had approximately 74 shareholders of record which includes the number of shareholders provided to us by our transfer agent as well as the holders included on the securities position report provided to us by Depositary Trust & Clearing Corporation.  This number does not include an indeterminate number of shareholders whose shares are held by brokers in street name. Our transfer agent is Empire Stock Transfer, 1859 Whitney Mesa Dr. Henderson, Nevada, 89014 and their phone number is 702-818-5898.
 
Dividends
 
We have not paid any cash dividends on our common stock since our inception and do not anticipate paying any cash dividends in the foreseeable future.  We plan to retain our earnings, if any, to provide funds for the expansion of our business.
 
Securities Authorized for Issuance under Equity Compensation Plans
 
Table 14 provides information as of January 31, 2012, regarding the compensation plan (2011 Equity Incentive Plan) under which equity securities of Red Metal are authorized for issuance.
 
Table 14. Equity compensation plans
Plan category
Number of securities to be issued upon exercise of outstanding options, warrants and rights
 
(a)
Weighted-average exercise price of outstanding options, warrants and rights
 
(b)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)
Equity compensation plans not approved by security holders
1,040,000
$0.50
560,000

 
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Recent Issuances of Unregistered Securities
 
On January 19, 2010, two-year warrants were issued to investors to purchase 250,000 shares of Red Metal’s common stock at an exercise price of $0.30. During the last quarter of our fiscal year, these holders exercised their warrants resulting in the issuance of 200,000 shares of our common stock on November 28, 2011 and 50,000 shares of our common stock on January 26, 2012, and net proceeds of approximately $75,000.
 
We sold these securities to non-US persons in offshore transactions, relying on the registration exemption in Rule 903 of Regulation S promulgated under the Securities Act of 1933, as amended. We did not engage in any directed selling efforts in the United States, and each investor represented to us that the investor was not a U.S. person and was not acquiring the stock for the account or benefit of a U.S. person.
 
ITEM 6:  SELECTED FINANCIAL DATA.
 
As a smaller reporting company we are not required to provide this information.
 
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Overview
 
Red Metal is a mineral exploration company engaged in locating, and eventually developing, mineral resources in Chile. Our business strategy is to identify, acquire and explore prospective mineral claims with a view to either developing them ourselves or, more likely, finding a joint venture partner with the mining experience and financial means to undertake the development. All of our claims are in the Candelaria IOCG belt in the Chilean Coastal Cordillera.
 
We have no revenue-generating operations and are dependent upon the equity markets for our working capital. Despite the current market volatility, prices of copper and gold overall are moving in a positive direction and we are optimistic that we can raise equity capital under these market conditions. We completed an offering of 6,723,333 units on April 7, 2011 at $0.30 per unit. Each unit consisted of one share of our common stock and one warrant for the purchase of one share of common stock exercisable at $0.50 per share for two years. We realized net cash proceeds of $1,862,462 from this offering and the payment of $130,000 in debt.

On September 2, 2011 we adopted the Red Metal Resources Ltd. 2011 Equity Incentive Plan and reserved 1,600,000 shares of our common stock for awards under the Plan. On the same day we issued options to purchase 1,040,000 shares of our common stock to directors, officers, employees and consultants who provide services to Red Metal.  The options have an exercise price of $0.50 per share and a term of 2 years.
 
Consistent with our historical practices, we continue to monitor our costs in Chile by reviewing our mineral claims to determine whether they possess the geological indicators to economically justify the capital to maintain or explore them. Currently, we have four employees in Chile and engage part time assistants during our exploration programs. Most of our support — such as, vehicles, office and equipment — is supplied under short-term contracts. The only long-term commitments that we have are for royalty payments on four of our mineral claims – Farellon, Che, Veta Negra and Pibe. These royalties are payable once exploitation begins. Two of the above claims – Veta Negra and Pibe – have option payments payable during the next three years under the option to purchase contracts.
 
Please refer to section ‘Unproved Mineral Properties’ under Item 1 of this report for detailed description of our unproved mineral assets and associated exploration campaigns.

The cost and timing of all planned exploration programs are subject to the availability of qualified mining personnel, such as consulting geologists and geo-technicians, and drillers and drilling equipment. Although Chile has a well-trained and qualified mining workforce from which to draw and few early-stage companies such as Red Metal are competing for the available resources, if we are unable to find the personnel and equipment that we need when we need them and at the prices that we have estimated today, we might have to revise or postpone our plans.
 
 
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Results of operations

summary of financial condition

Table 15 summarizes and compares our financial condition at January 31, 2012 to the year-ended January 31, 2011.

Table 15: Comparison of financial condition
   
January 31, 2012
   
January 31, 2011
 
Working capital deficit
  $ (1,401,135 )   $ (866,179 )
Current assets
  $ 69,623     $ 46,227  
Unproved mineral properties
  $ 796,828     $ 662,029  
Total liabilities
  $ 1,470,758     $ 912,406  
Common stock and additional paid in capital
  $ 5,483,934     $ 2,923,517  
Deficit
  $ (5,985,007 )   $ (3,056,819 )

comparison of prior quarterly results

Table 16 and Table 17 present selected financial information for each of the past eight quarters.
 
Table 16: Summary of quarterly results (2012)
   
April 30,
2011
   
July 31,
2011
   
October 31,
2011
   
January 31,
2012
 
Revenue
                       
Net loss
  $ (285,276 )   $ (782,841 )   $ (1,285,535 )   $ (574,536 )
Basic and diluted loss per share
  $ (0.02 )   $ (0.05 )   $ (0.08 )   $ (0.03 )

Table 17: Summary of quarterly results (2011)
   
April 30,
2010
   
July 31,
2010
   
October 31,
2010
   
January 31,
2011
 
Revenue
                       
Net loss
  $ (196,851 )   $ (118,279 )   $ (154,436 )   $ (203,052 )
Basic and diluted loss per share
  $ (0.02 )   $ (0.01 )   $ (0.02 )   $ (0.02 )
 
During the quarters ended July 31, 2011, October 31, 2011, and January 31, 2012 we experienced substantially higher operating expenses mainly due to the drilling program on the Farellon property and exploration campaigns on other properties, including associated travel and geological consulting expenses, which we incurred between May and September 2011, and subsequent data analysis. During the quarter ended October 31, 2011, we granted 1,040,000 stock options to certain directors, employees, and consultants that resulted in a non-cash expense of $527,318, increasing our net loss. During the quarter ended January 31, 2012, we began the due diligence review to potentially list our shares on the TSX Venture Exchange that resulted in higher legal costs.

Selected Financial Results
 
years ended january 31, 2012 and january 31, 2011
 
Our operating results for the years ended January 31, 2012 and 2011 and the changes in our operating results between those periods are summarized in Table 18.
 
 
33

 
 
Table 18: Changes in operating results
   
Year
ended January 31,
    Changes between the years ended January 31,  
   
2012
   
2011
   
2012 and 2011
 
Operating Expenses:
                 
 Administration
  $ 44,056     $ 87,382     $ (43,326 )
 Advertising and promotion
    202,125       111,835       90,290  
 Automobile
    30,769       24,124       6,645  
 Bank charges
    6,374       5,554       820  
 Consulting fees
    318,914       173,738       145,176  
 Interest on current debt
    104,314       37,466       66,848  
 IVA Expense
   
33,780
           
33,780
 
 Mineral exploration costs
   
1,156,868
      22,193      
1,134,675
 
 Office
    25,631       8,084       17,547  
 Professional development
    -       5,116       (5,116 )
 Professional fees
    225,858       111,878       113,980  
 Rent
    13,582       12,980       602  
 Regulatory
    28,433       15,000       13,433  
 Travel and entertainment
    96,014       50,455       45,559  
 Salaries, wages and benefits
    84,029       6,487       77,542  
 Stock based compensation
    527,318             527,318  
 Foreign exchange loss
    14,653       326       14,327  
 Write-down of unproved mineral properties
    15,470             15,470  
Net loss
  $ 2,928,188     $ 672,618     $ 2,255,570  

Operating expenses. Our operating expenses increased by $2,255,570, or 335%, from $672,618 for the year ended January 31, 2011 to $2,928,188 for the year ended January 31, 2012. 

The most significant year-to-date changes were:

 
We restructured our administrative operations, which resulted in savings of $43,326 for the year ended January 31, 2012, compared to the year ended January 31, 2011
 
We completed a drilling program on our Farellon property and accomplished exploration campaigns on our Mateo and Veta Negra properties, which resulted in an increase of
$1,134,675, or 5,112%, in mineral exploration expenses for the year ended January 31, 2012.
 
During the year ended January 31, 2012 we hired four assistant geotechnicians and additional office staff to keep up with the increased workload. This resulted in an increase of $77,542, or 1,195%, in salary and wage expense for the year ended January 31, 2012.
 
Our travel and entertainment expenses increased from $50,455 to $96,014, or 90%, for the year ended January 31, 2012. This increase was mainly associated with travel time incurred by consulting geologists during the drilling programs that were undertaken during the period. These travel expenditures were budgeted under the exploration campaign.
 
Due to higher accounting and financial advisory requirements we incurred $318,914 in consulting fees during the year ended January 31, 2012, an increase of $145,176, or 84% over the prior year.
 
During the year ended January 31, 2012, we completed a private equity financing and prepared and filed a registration statement on form S-1, which resulted in an increase in our professional and legal fees of $113,980, or 102%, for the period, and an increase in regulatory fees of $13,433, or 90%.
 
During the year ended January 31, 2012, we expensed $33,780 in Chilean value added tax charged on most operations in Chile.
 
To continue with our operational plans and to raise awareness of the drilling programs we increased our advertising and promotion costs during the year ended January 31, 2012 by $90,290, or 81%.
 
During the year ended January 31, 2012, we expensed $104,314 in interest on current debt, an increase of $66,848, or 178%.  This increase was associated with larger outstanding payables, mainly to related parties.
 
On September 2, 2011 we adopted the Red Metal Resources Ltd. 2011 Equity Incentive Plan and granted 1,040,000 options to our officers, directors, and consultants. We recorded $527,318 in employee stock option expense associated with these grants.  We had no such expense during the year ended January 31, 2011.

 
34

 
 
Net loss. We had a net loss of $2,928,188 for the year ended January 31, 2012, compared to a net loss of $672,618 for the year ended January 31, 2011.  The increase in net loss during the periods was due to the expense associated with the drilling program on our Farellon property as well as the exploration programs on our Mateo and Veta Negra properties, which resulted in increased exploration, travel, automobile costs, Chilean value added taxes, and increased salaries and wages; compensation in the form of employee stock option grants that we issued in September 2011; and an increase in our advertising and promotion activities in order to raise awareness of our exploration activities and seek additional external financing, which resulted in increased advertising costs as well as increased consulting, professional and regulatory fees.
 
Liquidity
 
going concern
 
The consolidated financial statements included in this annual report have been prepared on a going concern basis, which implies that we will continue to realize our assets and discharge our liabilities in the normal course of business. We have not generated any significant revenues from mineral sales since inception, have never paid any dividends and are unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. Our continuation as a going concern depends upon the continued financial support of our shareholders, our ability to obtain necessary debt or equity financing to continue operations, and the attainment of profitable operations. Our ability to achieve and maintain profitability and positive cash flow depends upon our ability to locate profitable mineral claims, generate revenue from mineral production and control our production costs. Based upon our current plans, we expect to incur operating losses in future periods, which we plan to mitigate by controlling our operating costs and sharing mineral exploration expenses through joint venture agreements.  At January 31, 2012, we had a working capital deficit of $1,401,135 and accumulated losses of $5,985,007 since inception. These factors raise substantial doubt about our ability to continue as a going concern. We cannot assure you that we will be able to generate significant revenues in the future. Our consolidated financial statements do not give effect to any adjustments that would be necessary should we be unable to continue as a going concern and therefore be required to realize our assets and discharge our liabilities in other than the normal course of business and at amounts different from those reflected in our financial statements.

internal and external sources of liquidity
 
To date we have funded our operations by selling our securities and borrowing funds, and, to a minor extent, from mining royalties.

Sources and uses of cash
 
years ended january 31, 2012 and 2011
 
Table 19 summarizes our sources and uses of cash for the years ended January 31, 2012 and 2011.

Table 19:  Summary of sources and uses of cash
   
January 31,
 
   
2012
   
2011
 
Net cash provided by financing activities
  $ 2,145,606     $ 244,890  
Net cash used in operating activities
    (1,944,032 )     (212,200 )
Net cash used in investing activities
    (170,089 )     (18,548 )
Effect of foreign currency exchange
    (15,673 )     (13,438 )
Net increase (decrease) in cash
  $ 15,812     $ 704  

 
 
35

 
 
Net cash provided by financing activities.

During the year ended January 31, 2012, as part of the private offering completed on April 7, 2011, we issued 6,290,000 units at $0.30 per unit for cash proceeds of $1,828,100, net of $58,900 in commissions paid to agents, and 433,333 units at $0.30 per unit in payment of $130,000 in debt. Each unit consists of one share of our common stock and a two-year warrant exercisable for one share of our common stock at $0.50 per share. We received $24,999 on exercise of a warrant for 83,333 shares at $0.30 per share. See Non-cash financing transactions below.

During the year ended January 31, 2012 we borrowed $101,000 from  significant shareholders; $62,389 Cdn (approximately $62,220 US) from a company controlled by two directors; $55,000 Cdn (approximately $54,715) from a director; and $78,500 US and $10,000 Cdn (approximately $10,454 US) from our CFO. We also repaid $14,382 in loans including accrued interest and recognized foreign exchange adjustment on $50,000 Cdn that we borrowed during the year ended January 31, 2011 from our CEO. See Non-cash financing transactions below.

During the year ended January 31, 2011, we issued 540,000 shares of our common stock to three subscribers for $135,000, borrowed $50,000 from a company owned by a significant shareholder; and borrowed $10,000 US and $50,000 Cdn (approximately $49,890 US) from our director.

Non-cash financing transactions. During the year ended January 31, 2012, as part of the private offering completed on April 7, 2011, the Company’s CEO converted loans in the amount of $50,000 into 166,666 units and the Company’s CFO converted loans in the amount of $80,000 into 266,667 units. In addition, a significant shareholder elected to convert $50,000 loan to exercise of a warrant for 166,667 shares at $0.30 per share.

During the year ended January 31, 2011, we did not have any non-cash financing transactions.

Net cash used in operating activities.

During the year ended January 31, 2012, we used net cash of $1,944,032 in operating activities. We used $2,928,188 to cover operating costs and increased prepaids and other receivables by $7,584. As part of our operating costs we recorded a non-cash employee stock based compensation expense of $527,318. These uses of cash were offset by increases in trade accounts payable and accrued liabilities by $10,018 and $31,380, respectively; accounts payable to related parties of $395,451 and accrued interest on our notes payable to related parties of $8,996.

During the year ended January 31, 2011, we used net cash of $212,200 in operating activities. We used $672,618 to cover operating costs, increased prepaids and other receivables by $20,397, and decreased our accrued liabilities by $495. These uses of cash were offset by net increases in accounts payable of $67,123, associated with of legal fees incurred in preparing and filing our form 10 and the amendments to it; accounts payable to related parties of $410,429 for administration, consulting, advertising and promotion, mineral exploration, and travel expenses; and accrued interest on our notes payable to related parties of $3,758.
   
Net cash used in investing activities.

During the year ended January 31, 2012, we spent $150,269 on acquisition of mineral claims, options to acquire mineral claims, and on property taxes associated with our mineral claims.

During the year ended January 31, 2011, we spent $18,548 on acquisition of mineral claims and on property taxes associated with our mineral claims.

Since inception through January 31, 2012, we have invested $1,177,038 in acquiring our mineral claims and $19,820 for acquisition of other capital assets.
 
 
36

 

Capital resources

Our ability to acquire and explore our Chilean claims is subject to our ability to obtain the necessary funding.  We expect to raise funds through loans from private or affiliated persons and sales of our debt or equity securities. We have no committed sources of capital.  If we are unable to raise funds as and when we need them, we may be required to curtail, or even to cease, our operations.
 
On April 7, 2011, we completed a private equity financing pursuant to which we received net cash proceeds after commissions, legal and closing fees of $1,862,462 and we paid $130,000 in debt. We paid the placement agent a cash commission of $58,900 and issued a warrant to purchase 196,333 shares of our common stock.  The securities offered were not registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. On May 13, 2011, we filed a registration statement on form S-1 to register 4,623,333 shares of our common stock, and 4,819,666 shares of our common stock underlying warrants which were a part of the above private equity financing.
 
Contingencies and commitments
 
We had no contingencies at January 31, 2012.  
 
We have the following long-term contractual obligations and commitments:
 
Our commitments under the Farellon, Che, Veta Negra and Pibe contracts are the only contractual obligations that we have.  Table 20 summarizes contractual obligations and commitments as of January 31, 2012 for the next five fiscal years.

Table 20: Contractual Obligations
         
Payments due by period
 
   
Less than 1
 year
   
1 – 3 years
   
3 – 5 years
   
More than 5
years *
   
Total
 
Option payments
  $ 147,500     $ 410,000     $ -     $ -     $ 557,500  
Royalty payments
                    -       2,220,000       2,220,000  
Total
  $ 147,500     $ 410,000     $ -     $ 2,200,000     $ 2,777,500  
*The royalty payments are due once exploitation begins.
 
 
Farellon royalty. We are committed to paying the vendor a royalty equal to 1.5% on the net sales of minerals extracted from the Farellon claims up to a total of $600,000. The royalty payments are due monthly once exploitation begins and are subject to minimum payments of $1,000 per month. We have no obligation to pay the royalty if we do not commence exploitation. As of the date of this report we have not commenced exploitation.
 
 
Che royalty. We are committed to paying a royalty equal to 1% of the net sales of minerals extracted from the claims to a maximum of $100,000 to the former owner. The royalty payments are due monthly once exploitation begins, and are not subject to minimum payments.
 
 
Veta Negra option. On June 30, 2011, Minera Farellon agreed to sell us its option to purchase the Veta Negra and Exon claims for the total cash payment of $107,500 ($17,500 payable to Minera Farellon to exercise the option, and $90,000 payable to the vendors). As of the date of this report, we must pay $97,500 payable in two installments over 14 months to exercise the option. If we complete acquisition of the property we are committed to paying the vendor a royalty equal to 1.5% of the net sales of minerals extracted from the claims to a total maximum of $500,000.  The royalty can also be bought for $500,000 at any time. The royalty payments are due monthly once exploitation begins, and are not subject to minimum payments.
 
 
Pibe option. On November 25, 2011 we entered into an option agreement to purchase the Pibe 1 - 20 mining claims for the total cash payment of $500,000. Under the option agreement we paid $40,000 on December 12, 2011 and must pay $460,000 in six installments over 36 months to exercise the option. If we complete acquisition of the property we are committed to paying the vendor a royalty equal to 1.5% of the net sales of minerals extracted from the claims to a total maximum of $1,000,000.  The payments are due once exploitation begins.  We have not yet exploited the claim.
 
 
37

 

Equity financing

To generate working capital, between January 31, 2010 and February 29, 2012 we issued 7,513,333 shares of our common stock and warrants for the purchase of 7,459,666 shares to raise $2,072,462 under Regulations S and D promulgated under the Securities Act of 1933.
 
Based on our operating plan, we anticipate incurring operating losses in the foreseeable future and will require additional equity capital to support our operations and develop our business plan.  If we succeed in completing future equity financing, the issuance of additional shares will result in dilution to our existing shareholders.

Debt financing

On February 22, 2010, we borrowed US $50,000 and issued a demand promissory note payable to the lender for the principal sum together with interest at 6% per annum.  See Related-party transactions below.

On March 2, 2011, we borrowed US $11,000 and issued a demand promissory note payable to the lender for the principal sum together with interest at 8% per annum.  See Related-party transactions below.

On August 25, 2011, we borrowed US $30,000 and issued a demand promissory note payable to the lender for the principal sum together with interest at 8% per annum.  See Related-party transactions below.

On September 19, 2011, we borrowed Cdn $62,389 (equivalent to US $62,220) and issued a demand promissory note payable to the lender for the principal sum together with interest at 8% per annum.  See Related-party transactions below.

On October 25, 2011, we borrowed US $10,000 and issued a demand promissory note payable to the lender for the principal sum together with interest at 8% per annum.  See Related-party transactions below.

On December 9, 2011, we borrowed Cdn $25,000 (equivalent to US $24,871) and issued a demand promissory note payable to the lender for the principal sum together with interest at 8% per annum.  See Related-party transactions below.

On January 12, 2012, we borrowed Cdn $30,000 (equivalent to US $29,845) and issued a demand promissory note payable to the lender for the principal sum together with interest at 8% per annum.  See Related-party transactions below.

On January 30, 2012, we borrowed US $8,500 and issued a demand promissory note payable to the lender for the principal sum together with interest at 8% per annum.  See Related-party transactions below.

Challenges and risks
 
We do not anticipate generating any revenue over the next twelve months. We plan to fund our operations through any combination of equity or debt financing from the sale of our securities, private loans, joint ventures or through the sale of part interest in our mineral properties. Although we have succeeded in raising funds as we have needed them, we cannot assure you that this will continue in the future.  Many things, such as the continued general downturn, worldwide, of the economy or a significant decrease in the price of minerals, could affect the willingness of potential investors to invest in risky ventures such as ours. In addition to the Perth joint venture earn-in agreement, we may consider entering into a joint venture partnership with a more senior resource company to complete a mineral exploration program on other properties in Chile. If we enter into a joint venture arrangement, we would likely have to assign a percentage of our interest in our mineral claims to our joint venture partner in exchange for the funding.
 
 
38

 

Investments in and expenditures on mineral interests
 
Realization of our investments in mineral properties depends upon our maintaining legal ownership, producing from the properties or gainfully disposing of them.

Title to mineral claims involves risks inherent in the difficulties of determining the validity of claims as well as the potential for problems arising from the ambiguous conveyancing history characteristic of many mineral claims. Our contracts and deeds have been notarized, recorded in the registry of mines and published in the mining bulletin. We review the mining bulletin regularly to discover whether other parties have staked claims over our ground. We have discovered no such claims. To the best of our knowledge, we have taken the steps necessary to ensure that we have good title to our mineral claims.

Foreign exchange
 
We are subject to foreign exchange risk for transactions denominated in foreign currencies.  Foreign currency risk arises from the fluctuation of foreign exchange rates and the degree of volatility of these rates relative to the United States dollar.  We do not believe that we have any material risk due to foreign currency exchange.
 
Trends, events or uncertainties that may impact results of operations or liquidity
 
The economic crisis in the United States and the resulting economic uncertainty and market instability may make it harder for us to raise capital as and when we need it and have made it difficult for us to assess the impact of the crisis on our operations or liquidity and to determine if the prices we will receive on the sale of minerals will exceed the cost of mineral exploitation.  If we are unable to raise cash, we may be required to cease our operations.  Other than as discussed in this report, we know of no other trends, events or uncertainties that have or are reasonably likely to have a material impact on our short-term or long-term liquidity.

Off-balance sheet arrangements
 
We have no off-balance sheet arrangements and no non-consolidated, special-purpose entities.
 
Related-party transactions

Related-party transactions are disclosed in Item 13 on page 45 of this annual report.

Critical Accounting Estimates
 
The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect certain of the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The most significant estimates with regard to these financial statements relate to carrying values of unproven mineral properties, determination of fair values of stock-based transactions, and deferred income tax rates.
 
 
39

 

Reclassifications
 
Certain comparative amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year’s presentation. These reclassifications had no effect on the consolidated results of operations or financial position for any year presented.
  
Financial instruments
 
Our financial instruments include cash, accounts receivable, accounts payable, accrued liabilities, accrued professional fees and accrued mineral property costs. The fair value of these financial instruments approximates their carrying values due to their short maturities.

Recently Adopted Accounting Guidance
 
The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. We do not expect the adoption of these pronouncements to have a material impact on our financial position, results of operations or cash flows.
 
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
As a smaller reporting company we are not required to provide this information.
 
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Index to Financial Statements
   
 
Page No.
Financial Statements
 
Report of Independent Registered Public Accounting Firm  
F-1
Consolidated Balance Sheets as of January 31, 2012 and January 31, 2011
F-2
Consolidated Statements of Operations  for the years ended January 31, 2012 and 2011, and the period from inception (January 10, 2005)
F-3
Consolidated Statement of Stockholders’ Deficit for the period from January 10, 2005 (inception) to January 31, 2012
F-4
Consolidated  Statements of Cash Flows for the years  ended January 31, 2012 and 2011, and the period from inception (January 10, 2005)
F-5
Notes to Consolidated  Financial Statements
F-6
 
 
40

 
 
   
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of Red Metal Resources, Ltd:

We have audited the accompanying consolidated balance sheets of Red Metal Resources, Ltd. (the “Company”) (an exploration stage company) as at January 31, 2012 and January 31, 2011 and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended and the cumulative period from January 10, 2005 (inception) to January 31, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, these financial statements present fairly, in all material respects, the financial position of the Company as at January 31, 2012 and January 31, 2011 and the results of its operations and its cash flows for the years then ended and for the period from January 10, 2005 (inception) to January 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has not generated significant revenues since inception, has incurred losses in developing its business, and further losses are anticipated. The Company requires additional funds to meet its obligations and the costs of its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


/s/DMCL


DALE MATHESON CARR-HILTON LABONTE LLP
CHARTERED ACCOUNTANTS


Vancouver, Canada
March 19, 2012
 
 

 
F - 1

 
 
RED METAL RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
 
   
January 31, 2012
   
January 31, 2011
 
             
ASSETS
Current assets
           
             
Cash
  $ 24,467     $ 8,655  
Prepaids and other receivables
    45,156       37,572  
Total current assets
    69,623       46,227  
                 
Equipment
    16,713       -  
Unproved mineral properties
    796,828       662,029  
Total assets
  $ 883,164     $ 708,256  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
               
                 
Accounts payable
  $ 206,675     $ 196,657  
Accrued liabilities
    121,701       91,990  
Due to related parties
    905,562       510,111  
Notes payable to related party
    236,820       113,648  
Total liabilities
    1,470,758       912,406  
                 
Stockholders' deficit
               
                 
Common stock, $0.001 par value, authorized 500,000,000, 17,189,634 and 10,216,301 issued and outstanding at January 31, 2012 and January 31, 2011
    17,190       10,217  
Additional paid in capital
    5,466,744       2,913,300  
Deficit accumulated during the exploration stage
    (5,985,007 )     (3,056,819 )
Accumulated other comprehensive loss
    (86,521 )     (70,848 )
Total stockholders' deficit
    (587,594 )     (204,150 )
Total liabilities and stockholders' deficit
  $ 883,164     $ 708,256  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
F - 2

 
 
RED METAL RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
Year ended
   
From January 10,
 
   
January 31
   
2005 (Inception)
 
   
2012
   
2011
   
to January 31, 2012
 
Revenue
                 
                   
Royalties
  $ -     $ -     $ 15,658  
                         
Operating expenses
                       
                         
Administration
    44,056       87,382       319,196  
Advertising and promotion
    202,125       111,835       527,235  
Automobile
    30,769       24,124       96,488  
Bank charges
    6,374       5,554       22,986  
Consulting fees
    318,914       173,738       785,262  
Interest on current debt
    104,314       37,466       213,108  
IVA expense
   
33,780
      -      
33,780
 
Mineral exploration costs
   
1,156,868
      22,193      
1,905,250
 
Office
    25,631       8,084       52,937  
Professional development
    -       5,116       5,116  
Professional fees
    225,858       111,878       694,137  
Rent
    13,582       12,980       55,275  
Regulatory
    28,433       15,000       77,079  
Travel and entertainment
    96,014       50,455       292,680  
Salaries, wages and benefits
    84,029       6,487       136,711  
Stock based compensation
    527,318       -       527,318  
Foreign exchange loss
    14,653       326       14,951  
Write-down of unproved mineral properties
    15,470       -       241,156  
Total operating expenses
    2,928,188       672,618       6,000,665  
                         
Net loss
  $ (2,928,188 )   $ (672,618 )   $ (5,985,007 )
                         
                         
Net loss per share - basic and diluted
  $ (0.19 )   $ (0.07 )        
                         
Weighted average number of shares outstanding - basic and diluted
    15,759,661       10,099,524          
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
F - 3

 
 
 RED METAL RESOURCES LTD.
 (AN EXPLORATION STAGE COMPANY)
 CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
 FOR THE PERIOD FROM JANUARY 10, 2005 (INCEPTION) TO  JANUARY 31, 2012
 
    Common Stock Issued           Accumulated        
 
 
Number of
Shares
   
Amount
   
Additional
Paid-in
Capital
   
Accumulated
Deficit
   
Other
Comprehensive
Loss
   
Total
 
Balance at January 10, 2005 (Inception)
    -     $ -     $ -     $ -     $ -     $ -  
 
                                               
Net loss
    -       -       -       (825 )     -       (825 )
 
                                               
Balance at January 31, 2005
    -       -       -       (825 )     -       (825 )
 
                                               
Common stock issued for cash
    5,525,000       5,525       53,725       -       -       59,250  
Common stock adjustment
    45       -       -       -       -       -  
Donated services
    -       -       3,000       -       -       3,000  
Net loss
    -       -       -       (12,363 )     -       (12,363 )
 
                                               
Balance at January 31, 2006
    5,525,045       5,525       56,725       (13,188 )     -       49,062  
 
                                               
Donated services
    -       -       9,000       -       -       9,000  
Net loss
    -       -       -       (43,885 )     -       (43,885 )
 
                                               
Balance at January 31, 2007
    5,525,045       5,525       65,725       (57,073 )     -       14,177  
 
                                               
Donated services
    -       -       2,250       -       -       2,250  
Return of common stock to treasury
    (1,750,000 )     (1,750 )     1,749       -       -       (1 )
Common stock issued for cash
    23,810       24       99,976       -       -       100,000  
Net loss
    -       -       -       (232,499 )     -       (232,499 )
 
                                               
Balance at January 31, 2008
    3,798,855       3,799       169,700       (289,572 )     -       (116,073 )
 
                                               
Common stock issued for cash
    357,147       357       1,299,643       -       -       1,300,000  
Net loss
    -       -       -       (1,383,884 )     -       (1,383,884 )
Foreign currency exchange loss
    -       -       -       -       (21,594 )     (21,594 )
                                                 
Balance at January 31, 2009
    4,156,002       4,156       1,469,343       (1,673,456 )     (21,594 )     (221,551 )
                                                 
Common stock issued for cash
    1,678,572       1,678       160,822       -       -       162,500  
Common stock issued for debt
    3,841,727       3,843       1,148,675       -       -       1,152,518  
Net loss
    -       -       -       (710,745 )     -       (710,745 )
Foreign currency exchange loss
    -       -       -       -       (35,816 )     (35,816 )
 
                                               
Balance at January 31, 2010
    9,676,301       9,677       2,778,840       (2,384,201 )     (57,410 )     346,906