---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the year ended December 31, 2013

Commission file number: 000-31380

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act:

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.

Indicate by check mark whether the registrant submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations 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.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller-reporting company” in Rule 12b-2 of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2013, based on the last sales price on the OTC Bulletin Board on that date, was approximately $70,815,535.

 As of March 10, 2014, there were 94,710,197 common shares outstanding.

 

---

---

APPLIED MINERALS, INC.

YEAR 2013 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

---

NOTE REGARDING FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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," "will," "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 section of this Annual Report entitled “1A. RISK FACTORS.”

 

Given these risks and uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements. Projections and other forward-looking statements included in this report have been prepared based on assumptions, which we believe to be reasonable, but not in accordance with United States generally accepted accounting principles (“GAAP”) or any guidelines of the Securities and Exchange Commission (“SEC”). Actual results may vary, perhaps materially. You are strongly cautioned not to place undue reliance on such projections and other forward-looking statements. All subsequent written and oral forward-looking statements attributable to Applied Minerals, Inc. or to persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Except as required by federal securities laws, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

PART I

 

---

---

The other type of mineralization is iron-bearing.  The Western Area contains goethite and hematite. The mineralization is approximately 96% iron oxide on a mineralogical basis, of which hematite accounts for 75.9% and goethite 20.1%.  There exist separate areas of goethite and hematite but the majority of the iron-bearing mineralization in the Western Area exists as a goethite-hematite mix. The Western Area contains 670,450 tons of this iron-bearing mineralization.

Surface Piles

There are five surface piles that were created during the mining of halloysite clay by Filtrol between 1949 and 1976.  Filtol mined the Dragon Mine’s halloysite resource for use as a petroleum cracking catalyst.  Any clay that contained more than a minimal amount (~ 2%) of iron oxide was not usable for petroleum cracking and was discarded into one of five surface piles. We view the Surface Piles as a possible source of revenue.

Procedures Used to Develop the Tonnage and Grade Results

Surface surveying positioning of holes was carried out using sub-centimetre Trimble GPS Receivers (base station and Rover) with accuracy within 5mm. Underground surveying utilized a Topcon GTS3 Total Station which measures angle to one second and measures distances to parts per million. A DSI (Deviation Survey Instrument) SRG (Surface Recording Gyro) was utilized to measure deviation of the hole. A Brunton compass is used to determine a reference line. Readings are taken every 50’ during the survey and a final reference reading is used to calculate the hole’s overall drift. When run correctly the instrument is accurate to within 1 foot per 1000’ of depth.

Core drilling was carried out and for all boreholes the driller placed the core into a box, which was carefully labeled with borehole number, depth reached and any voids noted.  A LCF (Lithology Control File) was established for each area and w included all rock types identified. The borehole number, coordinates, elevation, inclination, azimuth and depths drilled were entered into a log showing the LCF.

The following analyses were carried out by Macaulay Scientific Consulting Ltd, Analytical Laboratory Services on the clay extracted from the drill holes:  Moisture Content; XRD identification; XRPD quantitative analysis; _XRPD Formamide test; SEM imaging; FTIR analysis; BET Surface Area / Porosity; Qualitative EDS; XRF; ICP—MS for trace elements; MINOLTA – Color and brightness measurements.  For analysis of the iron oxide, XRD, ICP-MS, BET Surface Area, Color and Brightness measurements were carried out by James Hutton Institute. ALS Minerals Laboratory in Reno, Nevada carried out analytical procedures ME-XRF21u, Iron oxide by XRF Fusion – normalized (XRF Instrument), OA-CRAE05x, LOIS for XRF (WST-SEQ) AND Au-ICP21, Au 30g FA ICP-AES Finish (ICP-AES Instrument)

Logging was carried out in line with the Lithology Control File. All of the data was then entered into a spreadsheet to show Borehole Number, coordinates, elevation and individual test results for each of the increments sampled and tested.

The Company utilized the PC/Core software package to convert raw borehole data and assumptions by the Company into a mathematical model using block model interpolation.  The program provides for the production of “Quality Array Reports,” each of which shows the correlation between one variable and all of the other variables in the model.

Deep Drilling for Other Minerals

During the first quarter of 2013, as part of the Company’s drill program carried out to explore for halloysite and iron oxide in the Dragon Pit area of the property, the Company drilled a hole in the Dragon Pit area. To explore the possibility of a copper porphyry, it continued to drill further, to 3,218 feet.   In the 2,056.5 – 2,166.0 ft. levels, there was sulphide mineralization showing a silver and tellurium signature.  The results of the drilling by themselves do not indicate a commercial deposit.  Whether there is any commercial deposit, however, cannot be determined from one drill hole and would have to be proven by further drilling and would have to take into account the costs of mining at that depth.

Clays

Kaolinite and halloysite are clays and members of the kaolin group of clays.   Both are aluminosilicate clays.  Kaolinite and halloysite are essentially chemically identical, but have different morphologies (shapes). Kaolinite typically appears in plates or sheets. Halloysite, in contrast, typically appears in the shape of hollow tubes.  On average, the halloysite tubes have a length in the range of 0.5 - 3.0 microns, an exterior diameter in the range of 50 - 70 nanometers and an internal diameter (lumen) in the range of 15 - 30 nanometers.  Formation of halloysite occurs when kaolinite sheets roll into tubes due to the strain caused by a lattice mismatch between the adjacent silicon dioxide and aluminum oxide layers.

---

Iron Oxide

Hematite is the mineral form of iron oxide exists in a range of colors, including black to steel or silver-gray, brown to reddish brown, or red.

Geothite is an iron hydroxide oxide mineral exists in a range of colors, including yellowish to reddish to dark brown. If goethite is sufficiently heated to eliminate the water, it is transformed into hematite.

Mixtures of goethite and hematite are color brown.

Processing Facilities

All of the mineralization extracted from the Dragon Pit, Western Area and surface piles requires processing before it can be commercially sold.  The Company recently commissioned a 45,000 tpa Hosokawa Alpine mineral processing facility.  This mill enables the Company to (i) control the processing of its mineral resource for qualities such as particle size, moisture and purity and (ii) apply a range of surface treatments to processed minerals.  These enhanced capabilities are necessary to produce material that meets the performance criteria required by the advanced application markets to which we are marketing our products.  Prior to the commissioning of the 45,000 tpa facility, the Company utilized a smaller mill to process its minerals.  The Company plans to utilize both facilities to process its mineral resource.

 

HALLOYSITE-BASED PRODUCTS

Dragonite

The Company primarily markets the following four grades of halloysite-based products under the Dragonite trademark:

·

Dragonite-XR

·

Dragonite-HP

·

Dragonite-Pure White

Dragonite-XR is a halloysite-based product that is specifically formulated to act as an advanced reinforcing filler used at loading of 20 – 50 weight % in plastic composites, offering improved mechanical properties such as modulus, yield strength and HDT. We believe this product grade offers unique advantages compared to other reinforcing fillers such as glass fiber, mica, wollastonite or talc.  These advantages include improvements in retention of impact resistance, elongation to break, and control over CTE and warpage in addition to a reduction in surface abrasiveness.  Dragonite-XR, when used as a synergist, can produce a flame retardance rating of up to V0 in certain polymers.

Dragonite-HP is a halloysite-based product that is specifically formulated to act as a high performance additive for engineering thermoplastics used at loadings of just 1-3 weight %.  Dragonite-HP offers both an improvement in mechanical properties and cycle time reduction.  This product grade offers a drop-in solution for polymer applications needing mechanical improvements without the density penalty associated with traditional fillers.

By using Dragonite-HP, customers can reduce their overall manufacturing and materials costs through cycle time improvements and thin walling.

Dragonite-Pure White is a halloysite-based product of extremely high purity that uniquely suited for cosmetic applications such as skin care, sun care, hair care and oral treatments.

 

Dragonite is a versatile halloysite product grade with a wide range of applications including controlled release, environmental remediation, agriculture, paints and coatings, and catalysts.

 

The Company is currently developing other product grades for application markets such as, but not limited to, technical ceramics, ceramic proppants, and ceramic binders.

 

All subsequent references to Dragonite imply all four grades.

Application Markets for Dragonite

The following is a description of the application markets to which the Company is marketing its halloysite-based Dragonite products:

Flame retardant additives for plastics.  Fire retardants are widely used in flammable and flame resistant plastics and are found in electronics, building insulation, polyurethane foam, and wire and cable.  There are three types of flame retardants used in plastics:

---

·	Minerals, including halloysite, aluminum trihydrate (ATH), magnesium dihydrate (MDH), glass fiber, organoclays, and a number of other less important minerals;

 

·	Halogenated compounds.  Halogenated compounds contain bromine or chlorine.

 

o

Halogenated flame retardants are used in conjunction with a synergist (something that enhances the effectiveness of an active agent) to enhance their efficiency. Antimony trioxide (ATO) is widely used as a synergist for halogenated fire retardants.

 

o

Halogenated fire retardants have been associated with health concerns due to the potential toxicity of the decomposition products, namely “Dioxins and Furans as well as environmental and bioaccumulation concerns and there has been action, in the form of treaties and federal and state legislation, to restrict certain uses of halogenated fire retardants;

·	Organophosphorus compounds.

Our research and development has demonstrated that Dragonite can be used as a partial replacement for ATH and MDH in certain applications and as a synergist to ATH and MDH in other applications. At typical loadings, ATH and MDH can adversely affect certain mechanical properties of the plastics. We believe that Dragonite in conjunction with ATH and MDH, exhibits a synergistic performance.

Our research and development has demonstrated that Dragonite can be used to replace 50% - 75% of ATO in plastic without affecting flame retardancy and while retaining the same rating under UL 94, the Standard for Safety of Flammability of Plastic Materials for Parts in Devices and Appliances testing.  The price of ATO has increased in recent years to $11,000 per ton. Our Dragonite product sells at a material discount to that amount.

Generally speaking, the use of Dragonite instead of other products should allow the manufacturer to use less fire retardant, which could lead to light weighting the manufactured product.

According to The Freedonia Group, world demand for flame retardant additives will be approximately 2.2 million metric tons in 2014.

Nucleation. Plastics and polymers are composed of long molecular chains which form irregular, entangled coils in the melted resin; the phase in which the resin is liquid and the molecules can move about freely.

 

Some plastics, namely amorphous types, retain such a disordered structure upon freezing; the state in which a liquid resin becomes solid and the molecules are frozen, or locked, in place and cannot move. In other plastics, referred to as semi-crystalline polymers, the chains rearrange upon freezing and form partly ordered regions. Examples of semi-crystalline polymers are polyethylene (PE), polypropylene (PP), nylon 6 and nylon 66.

Dragonite at a 1% loading has the following effects on polyethylene:  increase in modulus of 20% - 25%; increase in strength of 15%; and a retention of impact resistance.  Dragonite at a 1% loading has the following effects on polypropylene: increase in modulus of 20-25%; increase in strength of 20%; and a retention of impact resistance. Enhanced mechanical properties provide a manufacturer with the ability to down gauge for thinner/lighter parts.

There is one competitor in the market with nucleating effectiveness comparable to Dragonite in PE and better in PP. However, those products sell for at least twice the price of Dragonite.

In 2013, one customer began selling an adhesive using Dragonite.

Reinforcement.  Many plastics are reinforced allowing their use in plastics in increasingly demanding applications, where unreinforced polymers cannot perform satisfactorily.  Plastics filled with particulate or fibrous fillers are classified as polymer composites.  The major purpose of reinforcement is to improve the mechanical properties of the polymer.  As a result of improved mechanical performance, reinforced plastics can compete with stiffer materials like metal, leading to weight reduction opportunities. Reinforcing plastics also can improve electrical properties, melt flow and viscosity, and decrease permeability within plastics.

 

The Company has performed tests determining flex modulus (the ratio of stress to strain in flexural deformation, or the tendency for a material to bend), tensile strength (the maximum stress that a material can withstand while being stretched or pulled before failing or breaking), flexural strength (represents the highest stress experienced within the material at its moment of rupture), and impact strength (measure the material’s resistance to a sharp blow). At a 1% loading, the improvements for high-density polyethylene are a follows:  an increase in flex modulus of 30%; an increase in tensile strength of 15%; an increase in flexural strength or 15% and little to no change in impact resistance. While we are not competing with conventional reinforcements such as glass fibers typically loaded at 15% - 60%, Dragonite, at a very low loading of 0.3% - 1.0%, can impart 15% - 25% improvements.

---

Molecular Sieves and Catalysts.  A molecular sieve is a material with very small holes of precise and uniform size. These holes are small enough to block large molecules while allowing small molecules to pass. Many molecular sieves are used as desiccants (substances that induce or sustain a state of dryness).  Zeolites are a form of molecular sieve that are crystalline with a skeletal composed aluminosilicates.  Dragonite mixes very well with zeolites and helps entrap water and impurities both within the hollow tubular structure as well as porous outer walls, enhancing drying of natural gas and air, separation of liquid from product streams, and separation of impurities from a gas stream.

Ceramics. A ceramic is any of various hard, brittle, heat-resistant and corrosion-resistant materials made by shaping and then firing a nonmetallic mineral, such as clay, at a high temperature.  We intend to market our halloysite to two ceramic markets:  whiteware and technical ceramics.  Whiteware is a broad class of ceramic products that are white to off-white in appearance and frequently contain a significant vitreous, or glassy, component. Including products as diverse as fine china dinnerware, lavatory sinks and toilets, dental implants, and spark-plug insulators, whitewares all depend for their utility upon a relatively small set of properties: imperviousness to fluids, low conductivity of electricity, chemical inertness, and an ability to be formed into complex shapes. Examples of technical ceramics include ceramic disc brakes, missile nose cones, gas burner nozzles, and ballistic protection.

 

Binders.   Dragonite can be used as a binder for proppants and non-proppant ceramics.

A proppant is a solid material, typically treated sand or man-made ceramic materials, designed to keep an induced hydraulic fracture for oil or gas open during or following a fracturing treatment. It is added to a fracking fluid.  A ceramic is an inorganic, nonmetallic solid prepared by the action of heat and subsequent cooling.  Ceramic proppants are round and are only about one twentieth of an inch in diameter.  Roundness is important to assure that there are open spaces for the oil and gas to pass out of the fracture and into the drill hole.  One of the issues in proppant manufacturing is assuring that the proppants remain round during the proppant manufacturing process.  The nature of the binder is important in assuring that the proppant will remain round in the manufacturing process.   Preliminary development work indicates that Dragonite is an excellent binder, binding the other materials on the proppant effectively and assuring appropriate sphericity.

 

Cosmetics.  The halloysite in Dragonite has a tubular shape that may be suited for an array of cosmetic applications.   The adsorptive nature of the halloysite found in Dragonite clay can serve as a hypoallergenic skin cleanser capable of removing unwanted toxins and oils from the skin without the need for harsh chemicals.  Dragonite, due primarily to its presence of halloysite, is also capable of exfoliating the skin.  Dragonite has been shown to be capable of functioning as a non-irritating carrier and release mechanism of cosmetic ingredients for a long lasting application.  We are exploring the development of a brand of cosmetics in partnership with an established cosmetics products company.

 

Sales Process for Dragonite

The Company markets its Dragonite into two general types of application markets.  One type is a market in which Dragonite has not been previously used, or is to be used as a substitute for another additive, to enhance certain functionality of an application.  This type of market requires a number of steps before a sale can be consummated.  Like any new material that will be incorporated into a commercial manufacturing process, a significant amount of R&D and testing must be performed on behalf of the potential customer considering the incorporation of a grade of our Dragonite into its product line before the product in question can be commercialized.  During this process we frequently must work collaboratively with the potential customer to appropriately orient its manufacturing process to successfully incorporate our material.  The length of the sales process is difficult to predict given the number of variables involved.  In some instances we’re creating a distinctly new market for our product.  However, once we successfully obtain a customer we believe that customer relationship will extend for a number of years.

---

The other type of market is one in which halloysite clay, in some varying formulation, has been used previously in an application.  Within these established markets, we believe our Dragonite products offer an enhanced value proposition with respect to purity and other properties sought by customers.  The pricing of our products relative to those of our competitors, however, will always be a significant factor in determining our ability to penetrate these markets.

 

IRON OXIDE-BASED PRODUCTS

Amiron

The Company markets its Amiron line of advanced natural iron oxide-based products to the pigmentary and technical application markets.  The iron oxide resource at the Dragon Mine has a high content of Fe2O3, is of exceptional chemical purity, possesses high surface area, fine grains, good dispersability, good tinting strength, enhanced color saturation, low color variation, and a low level of heavy metals content.  For these reasons the Dragon Mine’s iron oxide resource is considered an advanced natural and has applications in markets traditionally served by more expensive synthetic oxides.

For pigmentary applications the Company markets

·

AMIRON:ST

·

AMIRON:HP

For technical applications the Company markets:

·

AMIRON:OH

·

AMIRON:H

AMIRON:ST is an oxide-based product formulated as semi-transparent pigment to be used in applications such as artistic paint, interior & exterior wood stains. Demand for semi-transparent iron oxide pigments is currently constrained, as they are traditionally difficult to stabilize and disperse and very high in cost. AMIRON, in contrast, is a natural cost competitive solution that offers desirable dispersibility, color consistency, and UV protection, all due to its inherent natural characteristics and a proprietary processing technique.

AMIRON:HP is an iron oxide-based product manufactured for use in applications such as semi- transparent cosmetics, food contact colorants, and pharmaceutical applications. These industries maintain strict quality requirements, resulting in most suppliers being forced to utilize synthetic products. AMIRON:HP presents a natural alternative that complies with the cosmetics industry standards, such as FDA 21 CFR 73.2250 subpart C.

AMIRON:OH and AMIRON:H are iron oxide-based products manufactured for uses in applications such as arsenic absorption from waste and drinking water and the desulfurization of gases and certain industrial by-products.  The relatively large surface area and highly reactive surface make AMIRON:OH and AMIRON:H an effective adsorptive material for a number of environmental remediation applications.

Other markets for iron oxide include animal feed and foundry.  For foundry use, iron oxides minimize expansion and gas-related defects. Iron oxides soften when heated, to allow for sand grains to expand without cracking the core or mold surface. Iron oxides will also release oxygen to readily combine with free nitrogen from the resin system, preventing nitrogen pinhole defects.

Sales Process for Amiron

For the most part, we are marketing our Amiron products into established markets.  In some instances we believe Amiron outperforms some competing natural iron oxide products or is a feasible partial replacement for a synthetic iron oxide product currently being used.  We believe the pricing of our product will, in large part, be a significant factor in its adoption by customers.

MARKETING METHODS

The Company markets its products through direct contact with potential customers, trade shows, our website, and the presentation of scientific papers at industry conferences.  Mr. Zeitoun, the CEO, Mr. Khanna, the CTO, Mr. Galante, the head of iron oxide operations, and Mr. Basroon, Vice President of Corporate Development are all involved in marketing.

In addition, we have entered into a non-exclusive international distribution agreement with Mitsui Plastics for all areas except North America and Australia and are currently negotiating a non-exclusive sales agency agreement with Mitsui Plastics for the remaining areas.  OPF Enterprises LLC also acts as a non-exclusive sales agent.  We have agreements with several individuals to serve as non-exclusive sales agents.

Our expert employees include:

•	Yash Khanna, Ph.D, Chief Technology Officer.  Dr. Khanna has over 35 years of highly diversified experience within the plastics industry focused primarily on new product development and marketing.

---

•

Elshad Abdullayev, Ph.D, Senior R&D Manager, is expert in the synthesis and characterization of polymers and composites.  He is senior R&D manager in charge of quality control of commercially produced halloysite as well as new product development. Mr. Abdullayev will have a new, sophisticated laboratory located at the Dragon Mine in which to perform quality control measures and research and development work.

Our expert consultants include:

•

Ian Wilson, Ph.D., Consulting Geologist.  Dr. Wilson has supervised our drilling program and wrote the JORC-compliant resource study referred to above.  Dr. Wilson is a member of iom3 (Institute of Materials, Minerals and Mining of the UK). From 1974 to 2001 he worked with English China Clays/Imerys mainly as a geologist and with management roles in Brazil, Spain, Sweden and China. Since his retirement in 2001, he has worked as an independent consultant dealing with many industrial minerals including halloysite.

•

Steve Hillier, Ph.D., James Hutton Institute (Scotland, UK).  He analyzes the mineralogical characteristics of the Dragon Mine deposit.  Dr. Hillier works closely with Dr. Wilson to characterize our property.  Dr. Hillier’s research interests revolve around a mixture of clay, soil and environmental mineralogy

•

Amit Dharia, Ph.D., Transmit Technology Group, LLC (“TTG”).  Dr. Dharia provides the Company contract research and development, testing, technical marketing and consulting services. Dr. Dharia also advises us with regard to our pursuit of opportunities within the polymer composite market and acts as an agent with respect to the sale of Dragonite into customer applications, which he plays a role in developing.

 

The Utah Department of Natural Resources sets the guidelines for exploration and other mineral related activities based on provisions of the Mined Land Reclamation Act, Title 40-8, Utah Code Annotated 1953, as amended, and the General Rules and Rules of Practice and Procedures, R647-1 through R647-5.We have received a large mine permit from the Department.  The Company does not believe that such regulations, including environmental regulations, have or will adversely affect the Company’s business or have a material impact on capital expenditures, earnings and competitive position of the Company.

 

We carry a Mine Safety and Health Administration (MSHA) license (#4202383) for the Dragon Mine  and report as required to MSHA.  The Company is subject to extensive regulation by the Mine Safety and Health Administration, which was created by the Mine Safety and Health Act of 1977. The regulations generally are designed to assure the health and safety of miners and our mine is periodically inspected by MSHA inspectors.  While the inspectors have from time to time found violations, the violations have not been serious and have been quickly corrected. The Company does not believe that such regulations have or will adversely affect the Company’s business or have a material impact on capital expenditures, earnings and competitive position of the Company.

HISTORY OF THE COMPANY

The Company was organized as Atlas Mining Company in 1924 as an Idaho corporation.  In 2009, it changed its state of incorporation to Delaware and changed its name to Applied Minerals, Inc.  The Company’s initial business was to own and operate the Atlas Mine in Mullan, Idaho. Several attempts were made over time to commercialize the Atlas Mine as a producer of silver, lead and other minerals, but none of those efforts were successful.  Efforts to commercialize were stopped in 1980.  The Company continues to own the Atlas Mine property but has no present intention to recommence mining efforts and has listed the property for sale.

---

Item 1A.

Risk Factors

AN INVESTMENT IN OUR SECURITIES IS VERY SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, ALONG WITH THE OTHER MATTERS REFERRED TO IN THIS ANNUAL REPORT, BEFORE YOU DECIDE TO BUY OUR SECURITIES. IF YOU DECIDE TO BUY OUR SECURITIES, YOU SHOULD BE ABLE TO AFFORD A COMPLETE LOSS OF YOUR INVESTMENT.

Our business activities are subject to significant risks, including those described below. Every investor or potential investor in our securities should carefully consider these risks. If any of the described risks actually occurs, our business, financial position and results of operations could be materially adversely affected. Such risks are not the only ones we face and additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business.

SPECIFIC RISKS APPLICABLE TO APPLIED MINERALS

FINANCIAL HISTORY

Losses.  We have experienced annual operating losses since our reactivation in September 1997.  For the year ended December 31, 2013 and 2012, the Company sustained losses from continuing operations of $13,063,526 and $9,732,399, respectively.

Accumulated Deficits. At December 31, 2013 and 2012, the Company had accumulated deficits of $62,390,769 and $48,758,446, respectively, in addition to limited cash and unprofitable operations.

NO SIGNIFICANT SALES.

Since January 1, 2009 when current management took over, the Company has sold only $313,519 of clay and iron oxide and in 2013, the Company had sales of only $54,825.

RELIANCE OF EQUITY AND DEBT SALES TO FINANCE  OPERATIONS

The Company has had to rely mainly on the proceeds from the sale of stock and convertible debt to fund its operations.  If the Company is unable to fund its operations through the commercialization of its minerals at the Dragon Mine, there is no assurance that it will be able to raise funds through the sale of equity or debt.  If so, it may have to file bankruptcy.

SUCCESS IS DEPENDENT ON PENETRATING MARKETS; COMPETITION

Obviously, in order for the Company to be successful, we must penetrate our target markets and achieve sales levels and generate sufficient cash flow to initially break even.  As outlined below, there is uncertainty that we will be able to do so.

Many of the applications for which we are selling for our halloysite-based material are applications for which halloysite has not been used previously.  As a result, there are a number of special obstacles that we need to overcome to achieve sales in these markets.  It is necessary to convince manufacturers to change their manufacturing processes and substitute our halloysite-based material for the product they are currently using, and in some cases, to use our halloysite-based material where no product was used before.  The process beginning with introducing our halloysite-based material to manufactures and ending with the manufacturing using our production its products can encounter inertia, skepticism, and different corporate priorities; requires educating potential customers on the benefits of our material and how to use our material (how much to add, when to add, and so forth) and often requires working with potential customers to assure that the potential customers test the materials under proper conditions.  While we believe that our halloysite-based material often adds significant value, we can say two things about the process that ends with manufacturers using our halloysite-based material:  it can take a long time and there is no certainty that we will be able to convince enough manufacturers to use our halloysite-base material.

THE COMPANY’S SUCCESS DEPENDS ON OUR CEO

Andre Zeitoun is the President and CEO of Applied Minerals, Inc. Mr. Zeitoun has played a critical role in leading the effort to commercialize our halloysite-based products, iron oxides and waste piles. If the Company loses the service of Mr. Zeitoun, there is no assurance that the Company would be able to attract and retain a qualified replacement.

OUR OPERATIONS MAY BE ADVERSELY AFFECTED BY RISKS AND HAZARDS ASSOCIATED WITH THE MINING INDUSTRY THAT MAY NOT BE FULLY COVERED BY INSURANCE.

 

	•	environmental hazards;
	•	unusual or unexpected geologic formations;
	•	rock bursts and ground falls;
	•	seismic activity;
	•	underground fires or floods;
	•	unanticipated hydrologic conditions, including flooding and periodic interruptions due to inclement or hazardous weather conditions;
	•	political and country risks;
	•	civil unrest or terrorism;
	•	industrial accidents; and
	•	labor disputes or strikes.
		timber fires

	•	personal injury or fatalities;
	•	damage to or destruction of mineral properties or producing facilities;
	•	environmental damage and financial penalties;
	•	delays in exploration, development or mining;
	•	monetary losses;
	•	legal liability; and
	•	temporary or permanent closure of facilities.

---

ESTIMATES OF MINERALIZED MATERIAL

The estimates of mineralized material set forth elsewhere herein are estimates and are not guarantees that the tonnages or grades actually exist.  Estimation is an interpretive process based on available data and certain assumptions.  You are strongly cautioned not to put undue reliance on estimate of mineralized material.  Moreover, estimates of mineralized material are not estimates of amounts that may be sold.  Estimates of mineralization are estimates of in situ amounts without taking into account mining losses (which would take into account the effects of a final mine plan) and processing losses.

COMMON STOCK:  MARKET, PRICING AND VOLATILITY

TENDER OFFERS OR TAKEOVER ATTEMPTS.

 

Certain provisions in our certificate of incorporation, our by-laws and Delaware law could make it more difficult for a third party to acquire control of us, even if that transaction could be beneficial to stockholders. These impediments include:

·

The Delaware Business Combinations with Interested Stockholders Act generally operates to prevent a wide variety of transactions between the corporation, on one hand, and an “interested shareholder” and its affiliates, on the other hand. It generally prohibits a publicly held Delaware corporation from engaging in a “business combination” with an” interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless (i) prior to such date the Board of Directors of the corporation approved either the business combination or the transaction in which the person became an interested stockholder, (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owns at least 85% of the outstanding voting stock of the corporation excluding shares owned by officers or directors of the corporation and by certain employee stock plans, or (iii) on or after such date the business combination is approved by the Board of Directors of the corporation and by the affirmative vote of at least 66 2/3% of the outstanding voting stock of the corporation that is not owned by the interested stockholder. A “business combination” generally includes mergers, asset sales and similar transactions between the corporation and the interested stockholder, and other transactions resulting in a financial benefit to the stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns 15% or more of the corporation’s voting stock or who is an affiliate or associate of the corporation and, together with his affiliates and associates, has owned 15% or more of the corporation’s voting stock within three years.

·

The articles of incorporation prohibit shareholders from acting by written consent

·

The bylaws contain advance notice provisions for nominations of directors and for presentation of business at stockholder meetings

TAX REFORM

There has been significant activity in Congress moving toward tax reform.  If tax reform takes place, certain provisions of current law that are favorable to the Company, particularly percentage depletion and not operating loss carryforwards, could be limited or eliminated.

MORE GENERALIZED RISKS.  We are subject to the risks that affect other mining companies and industrial companies in general.  Among these risks are the following.

ESTIMATES RELATING TO NEW DEVELOPMENT PROJECTS ARE UNCERTAIN AND WE MAY INCUR HIGHER COSTS AND LOWER ECONOMIC RETURNS THAN ESTIMATED

Mine development projects typically require a number of years and significant expenditures during the development phase. Such projects could experience unexpected problems and delays during development.

 

·

Changes in tonnage, grades and metallurgical characteristics of ore to be mined and processed;

·

Higher input commodity and labor costs;

·

The quality of the data on which engineering assumptions were made;

·

Adverse geotechnical conditions;

·

Availability of adequate and skilled labor force and supply and cost of water and power;

·

Fluctuations in inflation and currency exchange rates;

·

Availability and terms of financing;

·

Delays in obtaining environmental or other government permits or approvals or changes in the laws and regulations related to our operations or project development;

·

Changes in tax laws;

·

Weather or severe climate impacts; and

·

Potential delays relating to social and community issues, including, without limitation, issues resulting in protests, road blockages or work stoppages.

---

MINING ACCIDENTS OR OTHER ADVERSE EVENTS AT AN OPERATION COULD DECREASE OUR ANTICIPATED PRODUCTION.

 

Exploration development and/or production may be reduced below our historical or estimated levels as a result of mining accidents; unfavorable ground conditions; work stoppages or slow-downs; lower than expected ore grades; unexpected regulatory actions; or because our equipment or facilities fail to operate properly or as expected.

 

THERE IS COMPREHENSIVE FEDERAL, STATE AND LOCAL REGULATION OF THE EXPLORATION INDUSTRY THAT COULD HAVE A NEGATIVE IMPACT ON OUR MINING OPERATIONS.

Exploration and mining operations are subject to federal, state and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment.  Exploration and mining operations and some of the products we sell are also subject to federal, state and local laws and regulations that seek to maintain health and safety standards by regulating the design and use of exploration methods and equipment. No assurance can be given that environmental standards imposed by federal, state or local authorities will not be changed or that any such changes would not have material adverse effects on our activities.  Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on our financial position.  Additionally, we may be subject to liability for pollution or other environmental damages that we may elect not to insure against due to prohibitive premium costs and other reasons.  Management is aware of the necessity of obtaining proper permits prior to conducting any exploration activity.

 

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

---

ITEM 3.

LEGAL PROCEEDINGS

In accordance with ASC Topic 450, when applicable, we record accruals for contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. In addition to the matters described herein, we may become involved in or subject to, routine litigation, claims, disputes, proceedings and investigations in the ordinary course of business. Currently, we have no lawsuits, claims, proceedings and investigations pending involving us.

 

ITEM 4.

MINE SAFETY DISCLOSURES

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and this Item is included in exhibit 95 to this 10-K.

---

PART II

ITEM 5.

MARKET PRICE FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our common stock is quoted on the OTCQB under the symbol “AMNL.”  The following quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission, and may not represent actual transactions.

As of December 31, 2013, there were approximately 1,071 holders of record of our common stock.  This number does not include an indeterminate number of shareholders whose shares are held by brokers in street name.

On November 20, 2012, the shareholders of the Company approved the adoption of the Applied Minerals, Inc. 2012 Long-Term Incentive Plan (“LTIP”) and the Short-Term Incentive Plan (STIP”) and the performance criteria used in setting performance goals for awards intended to be performance-based under Code Section 162(m).  Under the LTIP, 8,900,000 shares are authorized for issuance.  The STIP does not refer to a particular number of shares, but would use the shares authorized in the LTIP for issuance under the STIP.  The CEO, the CFO, Named Executive Oofficers, and directors, among others, are eligible to participate in the LTIP and STIP.  Prior to the adoption of the LTIP and STIP, stock options were granted under individual arrangements between the Company and the grantees, and approved by the Board of Directors.   It is anticipated that future grants of options and stock awards will be made pursuant to the LTIP and/or STIP.

 

 

(1) The compensation plans not approved by stockholders were one-time grants and there were no additional securities that might be issued under the individual plans

---

 

 

* Cumulative return assumes a $100 investment of each respective security at December 31, 2008.

ITEM 6.

SELECTED FINANCIAL DATA

---

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Applied Minerals, Inc. (the “Company”) is a leading global producer of Halloysite Clay. Vertically integrated from Mine to Market, our niche focus and in-depth application knowledge allow us to offer our customers commercially consistent product grades, specifically tailored to achieve enhanced performance objectives.  Our key strategy is to further commercialize the halloysite, iron ore and other products on our minesite while investing in our mining facility resources, including personnel, plant and equipment.  See Business section above for further details on strategy and recent developments.

The following accounting policies have been identified by management as policies critical to the Company’s financial reporting:

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  In these consolidated financial statements, the warrant derivative liability, stock compensation, impairment of long-lived assets and valuation allowance on income taxes involve extensive reliance on management’s estimates.  Actual results could differ from those estimates.

Cash and cash equivalents include all highly-liquid investments with a maturity of three months or less at the date of purchase.  The Company minimizes its credit risk by investing its cash and cash equivalents, which sometimes exceeds FDIC limits, with major financial institutions located in the United States with a high credit rating.  The Company’s management believes that no concentration of credit risk exists with respect to the investment of its cash and cash equivalents.

Property and equipment are carried at cost.  Depreciation and amortization is computed on the straight-line method over the estimated useful lives of the assets, or the life of the lease, whichever is shorter, as follows:

Disclosures and measurements of fair value of the Company’s financial instruments reflects the amounts that the Company estimates to receive in connection with the sale of an asset or paid in connection with the transfer of a liability, when applicable, in an orderly transaction between market participants at the measurement date (exit price). For financial assets and liabilities that are periodically re-measured to fair value, the Company discloses a fair value hierarchy that prioritizes the use of inputs used in the applicable valuation techniques into the following three levels:

Level 1 – quoted prices in active markets for identical assets and liabilities

Level 2 – observable inputs other than quoted prices in active markets for identical assets and liabilities

Level 3 –significant unobservable inputs

The recorded value of certain financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, and accounts payable and accrued expenses approximate the fair value at December 31, 2013 and 2012 based upon the short-term nature of the assets and liabilities.  Based on borrowing rates currently available to the Company for loans with similar terms, and the remaining short term period outstanding, the carrying value of notes payable materially approximate fair value.  For the Company’s warrant and PIK note derivative liabilities fair value was estimated using a Binomial Lattice Model.

Revenue includes sales for halloysite and is recognized when title passes to the buyer and when collectability is reasonably assured.  Title passes to the buyer based on terms of the sales contract.  Product pricing is determined based on contractual arrangements with the Company’s customers.

Land and mining property are carried at cost.  The Company expenses prospecting and mining exploration costs.  At the point when a property is determined to have proven and probable reserves, subsequent development costs are capitalized.  When these properties are developed and operations commence, capitalized development costs will be charged to operations using the units-of-production method over proven and probable reserves.  Upon abandonment or sale of a mineral property, all capitalized costs relating to the specific property are written off in the period abandoned or sold and a gain or loss is recognized.

Through December 31, 2013 all costs associated with prospecting and exploration of the Company's mines have been deemed to have indeterminable recoverability and therefore have been expensed.

---

The Company follows ASC 718 (Stock Compensation) and 505-50 (Equity-Based Payments to Non-employees), which provide guidance in accounting for share-based awards exchanged for services rendered and requires companies to expense the estimated fair value of these awards over the requisite service period.  The Company instituted a formal long-term and short-term incentive plan on November 20, 2012, which was approved by its shareholders.  Prior to that date, we did not have a formal equity plan, but all equity grants, including stock options and warrants, were approved by our Board of Directors.  We determine the fair value of the stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete. During the quarter ended June 30, 2013 the Company employed the simplified method to determine the expected term for any options granted because the Company did not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.  The Company previously utilized the contractual term as the expected term.

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

 

ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02) requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. This ASU was effective for reporting periods beginning after December 15, 2012.  The adoption of this standard did not have an impact on our financial position or results of operations.

---

The following sets forth, for the periods indicated, certain components of our operating earnings, including such data stated as percentage of revenues:

* Includes $4,707,381 and $2,314,154 of noncash stock compensation expense for 2013 and 2012, respectively, relating to employee and consultant stock options.

Revenue generated during 2013 was $54,825, compared to $165,742 of revenue generated during the same period in 2012.  We believe that a number of potential customers are at various stages of the commercialization process and there are positive indications (but no assurances) that such potential customers may commercialize the use of our halloysite or iron ore.

Total operating expenses for 2013 were $13,458,375 compared to $10,478,162 of expenses incurred during the same period in 2012, an increase of $2,980,213 or 28%.  The increase was due primarily to a $1,008,689, or 28%, increase in exploration expense and a $2,028,370, or 31%, increase in general and administrative expense, mainly due to noncash stock compensation expense.

Exploration costs incurred during 2013 were $4,551,666 compared to $3,542,977 of costs incurred during the same period in 2012, an increase of $1,008,689 or 28%.  The majority of our exploration expenses were related to the continued exploration activities at our Dragon Mine property and the mineralogical analysis of the material mined from the property. The primary drivers of the increase in exploration costs included a $313,647, or 30%, increase in mine employee wages due to the hiring of a new Research & Development Manager; an increase in the number of miners in 2013, and a higher wage rate instituted during the second half of 2012; a $241,778 increase in contract labor as we engaged a third party drilling company related to the exploration of other minerals during the first quarter of 2013; a $184,044, or 35%, increase in geological consulting and expenditures relating to mineral characterization; and a $305,960, or 168%, in contract testing of clay and iron drill samples and testing in the proppant arena.  These additional expenditures were slightly offset by reduced equipment rentals and repairs in 2013.

General and administrative expenses for 2013 totaled $8,569,413 compared to $6,541,043 of expense incurred during the same period in 2012, an increase of $2,028,370 or 31%. The largest component of the variance was an increase in noncash stock compensation expense of $2,393,227 mainly due to equity options granted by the Board to certain members of management in November 2012, followed by increases in Directors and Officers insurance expense of $61,932; $91,629 of increased travel expense for increased trips to the mine; and an increase in corporate rent of $26,861 as the Company moved its corporate office to accommodate additional employees.  The increase in general and administrative expense was partially offset by a $585,558 decline in employee and consultant compensation expense resulting from a $750,000 bonus paid to management during the first quarter of 2012, partially offset by increases in compensation and benefits related to the hiring of a new CFO, CIO and Head of Iron Oxide.

Net Loss for 2013 was $13,063,526 compared to a loss of $9,732,399 incurred during 2012, an increase of $3,331,127 or 34%.  The increase in the Net Loss was due to a $239,997 decrease in Other Income, primarily from interest expense relating to the newly-issued PIK Notes, a $110,917 decrease in revenue, and a $2,980,213 increase in operating expenses, as described above.

---

The following sets forth, for the periods indicated, certain components of our operating earnings, including such data stated as percentage of revenues:

Revenue for 2012 was $165,742, compared to $92,952 generated during the same period in 2011.  The Company originated and increased sales of its Dragonite ™ product to select customers for use as a reinforcing additive for certain plastic applications in the past year. We are in various stages of product development, ongoing trials and building our stockpile levels. 

 

Total operating expenses for 2012 were $10,478,162 compared to $7,260,059 of expenses incurred during 2011, an increase of $3,218,103 or 44%.  The increase was due primarily to a $867,960, or 32%, increase in exploration costs, and a $2,284,184, or 54%, increase in general and administrative expense.

Exploration costs incurred during 2012 were $3,542,977 compared to $2,675,017 of costs incurred during the same period in 2011, an increase of $867,960 or 32%.  The majority of our exploration costs during the respective periods were related to the continued exploration activities at our Dragon Mine property and the mineralogical analysis of the material mined from the property.  The increase in exploration costs was related, primarily, to management’s decision to further expand its drilling and testing program, both for clay and iron ore, to additional areas of the Dragon Mine property, the testing of which has indicated the presence of clay mineral and an iron ore deposit. The additional mining activity was also performed to prepare for potential client visits and to break ground on a more innovative and efficient mining facility with more cutting-edge technology. The Company has invested in its minesite as it continues its commercialization and research efforts.  See Property, Plant and Equipment schedule in the Liquidity and Capital Resources section below for further details.  The primary drivers of the increase in exploration costs included a $332,712, or 46%, increase in employee wages primarily due to an increase in the number of miners from 15 to 20 and additional overtime required for the additional mining activity described above; the incurrence of $153,227 of employee health insurance expense not incurred during the same period in 2011 as the health insurance plan was not previously offered; a $146,097, or 41% increase in geologist consulting and sample testing activity; a $99,052, or 97%, increase in materials and supplies due to the increase in drilling and development activity at the mine; and a $159,660, or 270%, increase in equipment rentals utilized for the new facility.

General and administrative expenses incurred during 2012 totaled $6,541,043 compared to $4,256,859 of expense incurred during the same period in 2011, an increase of $2,284,184 or 54%. The increase was driven primarily by performance bonus payments to key management totaling $1,150,000; a $111,705, or 5% increase, in expense related to the issuance of options to certain employees; a $267,395, or 89%, increase in wage expense due to the addition of a Chief Technology Officer, General Counsel and Chief Financial Officer; a $112,853 increase in travel and related expense due primarily to a change in the terms of the Management Agreement with Material Advisors, LLC- prior to 2012, under the Management Agreement, Material Advisors was required to pay all travel, entertainment, office and marketing expenses and all other ordinary and necessary business expenses incurred by the Material Advisors and the Management Personnel in connection with the performance of the Management Agreement (“Expenses”); the incurrence of $132,533 of additional rent expense related to the lease of the corporate office; a $111,942 increase in legal, audit and accounting service fees; and a $322,828 increase in consulting partially relating to financial and investment banking services.

Other Income increased by 837,458, or 325%.  About $500,000 of this variance was due to additional interest expense recorded in 2011 due to an increase in the average balance of our PIK Notes, which we converted into common stock in October 2011.  In addition, the Company also recorded an additional $405,000 gain on the revaluation of our warrant derivative liability in 2012 when compared to 2011.

Loss from continuing operations for 2012 was $9,732,399 compared to a loss of $7,424,544 incurred during the same period in 2011, an increase of $2,307,855 or 31%.  The increase in the Loss from Continuing Operations was due to a $3,218,103 increase in operating expenses, as described above, offset by a $837,458 increase in Other Income and a $72,790 increase in revenue, as described above.

---

LIQUIDITY AND CAPITAL RESOURCES

The Company has incurred material recurring losses from operations while in the process of developing and commercializing halloysite clay and iron oxide.  The Company has incurred material recurring losses from operations.  At December 31, 2013, we had a total accumulated deficit of $61,821,972.  For the year ended December 31, 2013 and 2012, we sustained losses from continuing operations of $13,063,526 and $9,732,399, respectively.   From December 2008 through December 2013, our activities have been financed primarily through the sale of convertible debt and equity securities. During the first quarter of 2013, the Company raised $5,560,000 of cash proceeds through the sale of common stock, and in August 2013, the Company raised $10,500,000 of financing through the private placement of 10% Mandatorily Convertible PIK Notes due 2023.  We believe that we have sufficient resources to fund operations for the next 12 months and are continuing to evaluate our strategic direction aimed at achieving profitability and positive cash flow.

Cash used in operating activities in 2013 was $8,205,101 compared to $6,752,263 of cash used during the same period in 2012.  The $1,452,838 increase in cash used during the period was due primarily to a higher net loss realized during 2013 as the Company added key corporate and mining personnel, conducted additional drilling operations and conducted various testing and research relating to the commercialization of its halloysite clay, as discussed in Results of Operations.

Cash used in investing activities during 2013 was $2,046,358 compared to a use of $1,372,977 during the same period in 2012.  The key driver of this increase was the continued construction of the Company’s new mill. All of this investment has been classified as Property and Equipment on the Company’s consolidated balance sheet.

Cash provided by financing activities during 2013 was $15,580,908 compared to $1,310,807 of cash generated during the same period in 2012.  The key variance in financing activities occurred primarily due to the additional sale of $16,060,000 of common stock and PIK notes to certain qualified investors during 2013 over $1,625,000 in 2012:

·

September 2012- Sale of 1,250,000 shares of common stock for $1,625,000 in cash.

·

January 2013- Sale of 3,756,757 shares of its common stock at $1.48 per share for gross proceeds of $5,560,000.

·

August 2013- the Company announced that it successfully raised an additional $10,500,000 of financing through the private placement of 10% Mandatorily Convertible PIK Notes due 2023 ("Notes"). The Notes have a strike price of $1.40 per share and convert into 7,500,000 shares of the common stock of Applied Minerals, Inc.

No broker was used and no commission was paid for any of the foregoing transactions.

Our total assets as of December 31, 2013 were $15,215,287 compared to $7,818,460 as of December 31, 2012, or an increase of $7,396,827.  As described above, the Company raised over $16 million in financing in 2013 and utilized this cash in operational investments into the corporate infrastructure and its mining facility (see below).  Total liabilities were $13,728,720 at December 31, 2013 compared to $3,852,223 at December 31, 2012.  The increase is mainly due to the establishment of a PIK Note liability and related derivative resulting from the issuance of PIK Notes in August 2013 (See next section- Issuance of Convertible Debt).  Total stockholders’ equity declined from $3,966,237 at December 31, 2012 to $1,486,567 at December 31, 2013, mainly due to the losses incurred during 2013 as the Company is continuing to invest in its operations, offset by increased capital resulting from third party investments.

ISSUANCE OF CONVERTIBLE DEBT

In August 2013, the Company received $10,500,000 of financing through the private placement of 10% mandatory convertible Notes due 2023 ("Notes"). The principal amount of the Notes is due on maturity. The Company can elect to pay semi-annual interest on the Notes with additional PIK Notes containing the same terms as the Notes, except interest will accrue from issuance of such notes. The Company can also elect to pay interest in cash.

 

The Notes convert into the Company’s common stock at a conversion price of $1.40 per share, which is subject to customary antidilution adjustments. As of issuance, the Notes are convertible into 7,500,000 shares of the common stock.  The holders may convert the Notes at any time. The Notes are mandatorily convertible after one year when the weighted average trading price of a share of the common stock for the preceding ten trading days is in excess of the conversion price.

 

The Notes contain customary representations and warranties and several covenants.  The proceeds will be used for general corporate purposes.  No broker was used and no commission was paid in connection with the sale of the Notes.

These Notes were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation.  In addition to the customary antidilution provisions, the notes contain a down-round provision whereby the conversion price would be adjusted downward in the event that additional shares of the Company’s common stock or securities exercisable, convertible or exchangeable for the Company’s common stock were issued for cash consideration (e.g. a capital raise) at a price less than the conversion price.  Therefore, the estimated fair value of the conversion feature of $2,055,000 (based on observable inputs) was bifurcated from the Notes and accounted for as a separate derivative liability, which resulted in a corresponding amount of debt discount on the Notes.  The debt discount is being amortized using the effective interest method over the 10-year term of the Notes as Interest Expense, while the PIK Note Derivative is carried at fair value (using a binomial lattice model) until the Notes are converted or otherwise extinguished. Any changes in fair value are recognized in earnings.

OFF-BALANCE SHEET ARRANGEMENTS

There are no off-balance sheet arrangements between the Company and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

---

CONTRACTUAL OBLIGATIONS

The following table summarizes our contractual obligations as of December 31, 2013 that require us to make future cash payments.  For contractual obligations, we included payments that we have an unconditional obligation to make:

(1) Capital purchase obligations represent commitments for the construction or purchase of property, plant and equipment. They were not recorded as liabilities on our consolidated balance sheet as of December 31, 2013, as we had not yet received the related goods or taken title to the property.

---

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has no exposure to fluctuations in interest rates, foreign currencies, or other market factors.

ITEM 8.

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Applied Minerals, Inc.

We have audited the accompanying consolidated balance sheets of Applied Minerals, Inc. (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for the years then ended and for the period from January 1, 2009 (Beginning of Exploration Stage) to December 31, 2013.  Our audits also included the financial statement schedule of Valuation and Qualifying Accounts for each of the years ended December 31, 2013 and 2012 included in Item 15(a)(2). We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Applied Minerals, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria established in the 1992 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The Company’s management is responsible for these consolidated financial statements and financial schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A of the Company’s December 31, 2013 annual report on Form 10-K.  Our responsibility is to express opinions on these consolidated financial statements, financial statements schedule and the Company’s internal control over financial reporting based on our audits. The Company’s financial statements for the period from January 1, 2009 to December 31, 2011 were audited by other auditors whose report, dated March 15, 2012 expressed an unqualified opinion on those statements. The financial statements for the period from January 1, 2009 to December 31, 2011 reflect a net loss of $19,016,551 that is included in the related total for the period from January 1, 2009 to December 31, 2013. The other auditor’s report has been furnished to us, and our opinion, insofar as it relates to the amounts included for such prior period is based solely on the report of such other auditors.

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 the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the consolidated financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  Our audit of the internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Applied Minerals, Inc. as of December 31, 2013 and 2012, and the consolidated results of its operations and its cash flows for the years then ended and for the period from January 1, 2009 (Beginning of Exploration Stage) through December 31, 2013, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in the 1992 Internal Control - Integrated Framework issued by COSO.

/s/ EisnerAmper LLP

New York, New York

March 13, 2014

---

---

APPLIED MINERALS, INC.

(An Exploration Stage Mining Company)

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements.

---

APPLIED MINERALS, INC.

(An Exploration Stage Mining Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

 

The accompanying notes are an integral part of these consolidated financial statements.

---

APPLIED MINERALS, INC.

(An Exploration Stage Mining Company)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

The accompanying notes are an integral part of these consolidated financial statements.

---

APPLIED MINERALS, INC.

(An Exploration Stage Mining Company)

Consolidated Statements of Stockholders’ Equity (Deficit)

For each of the years ended December 31, 2009 through 2013