Constitution Mining quarterly report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This Quarterly Report on Form 10-Q 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. The words "believe," "expect," "anticipate," "intend," "estimate," "may," "should," "could," "will," "plan," "future," "continue," and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate.

Important factors that may cause the actual results to differ from the forward-looking statements, projections or other expectations include, but are not limited to, the following:

? risks related to failure to obtain adequate financing on a timely basis and on acceptable terms for our planned exploration and development projects;

? risk that we fail to fulfill the payment obligations set forth in the agreement we entered into with Temasek Investments Inc. ("Temasek"), a company incorporated under the laws of Panama, under which we acquired three separate options, each providing for the acquisition of an approximately one-third interest in certain mineral rights to certain properties in Peru that abut the other property interests we acquired, which could result in the loss of our right to exercise the options to acquire the mineral and mining rights underlying these properties;

? risk that we cannot attract, retain and motivate qualified personnel, particularly employees, consultants and contractors for our operations in Peru;

? risks and uncertainties relating to the interpretation of drill results, the geology, grade and continuity of mineral deposits;

? results of initial feasibility, pre-feasibility and feasibility studies, and the possibility that future exploration, development or mining results will not be consistent with our expectations;

? mining and development risks, including risks related to accidents, equipment breakdowns, labor disputes or other unanticipated difficulties with or interruptions in production;

? the potential for delays in exploration or development activities or the completion of feasibility studies;

? risks related to the inherent uncertainty of production and cost estimates and the potential for unexpected costs and expenses;

? risks related to commodity price fluctuations;

? the uncertainty of profitability based upon our history of losses;

? risks related to environmental regulation and liability;

? risks that the amounts reserved or allocated for environmental compliance, reclamation, post-closure control measures, monitoring and on-going maintenance may not be sufficient to cover such costs;

? risks related to tax assessments;

? political and regulatory risks associated with mining development and exploration; and

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� other risks and uncertainties related to our prospects, properties and business strategy.

The forgoing list is not an exhaustive list of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on our forward-looking statements.

As used in this Quarterly Report, the terms "we," "us," "our," and "Constitution Mining" mean Constitution Mining Corp. and our subsidiaries, unless otherwise indicated.

Overview

We were incorporated in the state of Nevada under the name Crafty Admiral Enterprises, Ltd. on March 6, 2000. Our original business plan was to sell classic auto parts to classic auto owners all over the world through an Internet site and online store; however, we were unsuccessful in implementing the online store and were unable to afford the cost of purchasing, warehousing and shipping the initial inventory required to get the business started. As a result, we ceased operations in approximately July 2002.

During our fiscal year ended December 31, 2006, we reorganized our operations to pursue the exploration, development, acquisition and operation of oil and gas properties. On June 27, 2006, we acquired a leasehold interest in a mineral, oil and gas property located in St. Francis County, Arkansas for a cash payment of $642,006, pursuant to an oil and gas agreement we entered into on April 29, 2006 (the "Tombaugh Lease"). Shortly after acquiring the Tombaugh Lease, we suspended our exploration efforts on the property covered by the Tombaugh Lease in order to pursue business opportunities developing nickel deposits in Finland, Norway and Western Russia. On January 18, 2008, we assigned all of our right, title and interest in and to the Tombaugh Lease to Fayetteville Oil and Gas, Inc., which agreed to assume all of our outstanding payment obligations on the Tombaugh Lease as consideration for the assignment. On March 9, 2007, we changed our name to better reflect our business to "Nordic Nickel Ltd." pursuant to a parent/subsidiary merger with our wholly-owned non-operating subsidiary, Nordic Nickel Ltd., which was established for the purpose of giving effect to this name change. We were not successful pursuing business opportunities developing nickel deposits in Finland, Norway and Western Russia and again sought to reorganize our operations in November 2007.

In November 2007, we reorganized our operations and changed our name to "Constitution Mining Corp." to better reflect our current focus which is the acquisition, exploration, and potential development of mining properties. Since November 2007, we entered into agreements to secure options to acquire the mineral and mining rights underlying properties located in the Salta and Mendoza provinces of Argentina (the "Argentinean Properties") and in northeastern Peru. In 2009, we determined that it was in our best interest to no longer pursue the exploration and development of the Argentinean Properties and terminated our option agreements to acquire the mineral and mining rights underlying these properties. We are now exclusively pursuing the exploration and development of our property interests in Peru.

On October 21, 2009, we completed a reincorporation merger from the State of Nevada to the State of Delaware.

We are considered an exploration or exploratory stage company because we are involved in the examination and investigation of land that we believe may contain valuable minerals, for the purpose of discovering the presence of ore, if any, and its extent. There is no assurance that a commercially viable mineral deposit exists on any of the properties underlying our mineral property interests, and a great deal of further exploration will be required before a final evaluation as to the economic and legal feasibility for our future exploration is determined. We have no known reserves of any type of mineral. To date, we have not discovered an economically viable mineral deposit on any of the properties underlying our mineral property interests, and there is no assurance that we will discover one. If we cannot acquire or locate mineral deposits, or if it is not economical to recover any mineral deposits that we do find, our business and operations will be materially and adversely affected.

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Our current business plan calls for investing any surplus operating capital resulting from retained earnings into bullion accounts and does not include holding retained earnings, if any, in cash or cash equivalents. In the event that commercially exploitable reserves of minerals exist on any of our property interests and we are able to make a profit, our business plan is to sell enough mineral reserves to satisfy all of our expenses and invest all retained mineral reserves in bullion accounts established in Zurich, Switzerland. The price of precious and base metals such as gold and silver has fluctuated widely in recent years, and is affected by numerous factors beyond our control, including international, economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates, global or regional consumptive patterns, speculative activities and increased production due to new extraction developments and improved extraction and production methods. The effect of these factors on the price of base and precious metals, and, therefore, the change in the value of our retained earnings, if any, held in bullion accounts cannot accurately be predicted and is subject to significant fluctuation. There can be no assurance that the value of any bullion accounts established by us in the future to hold retained mineral reserves, if any, will not be adversely impacted by fluctuations in the price of base and precious metals resulting in significant losses.

The Peru Property

Our property interests located in Peru are in the exploration stage and we refer to these properties as the "Peru Property". These properties are without known reserves and the proposed plan of exploration detailed below is exploratory in nature. These properties are described below.

We entered into a Mineral Right Option Agreement with Temasek Investments Inc. ("Temasek"), a company incorporated under the laws of Panama, on September 29, 2008 (the "Effective Date"), as amended and supplemented by Amendment No. 1, dated May 12, 2009 ("Amendment No. 1"), Amendment No. 2, dated October 29, 2009 ("Amendment No. 2"), and Amendment No. 3, dated April 8, 2010 ("Amendment No. 3" and collectively, the "Option Agreement"), in order to acquire four separate options from Temasek, each providing for the acquisition of a twenty-five percent interest in certain mineral rights (the "Mineral Rights") in certain properties in Peru, that after each of the options were exercised would result in our acquisition of an aggregate one hundred percent of the Mineral Rights.

A description of the Mineral Rights is set forth below:

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We exercised the initial twenty-five percent option, which provided for the acquisition of a twenty-five percent interest in the Mineral Rights, by paying Temasek a total of $750,000 and issuing 2,000,000 shares of our common stock to Temasek, on or about October 23, 2008 in accordance with the terms of the Option Agreement.

We exercised the second twenty-five percent option, resulting in our acquisition of an aggregate of a fifty percent interest in the Mineral Rights, by paying Temasek an additional $750,000 and issuing an additional 2,500,000 shares of our common stock to Temasek, on or about November 2, 2009 in accordance with the terms of the Option Agreement.

On April 23, 2010, we announced that we completed the exercise of the third and fourth twenty-five percent options, resulting in our acquisition of an aggregate 100% interest in the Mineral Rights, by fulfilling the following conditions:

� Payment to Temasek of US$1,000,000;

� Issuance to Temasek of a total of 6,000,000 shares of our common stock (of which Temasek acknowledged that 2,000,000 shares were previously issued to Temasek in November 2009); and

� Issuance of a convertible note for US$7,000,000 (the "Convertible Note") payable to the order and the direction of Temasek.

The Convertible Note has a term of three years and accrues interest at a rate of 12% per annum. Interest under the Convertible Note is payable annually and the principal is payable upon maturity. Any interest and principal due under the Convertible Note is convertible (at Temasek's option) into units which consist of one (1) share of our common stock and one (1) warrant to purchase one (1) share of our common stock at an exercise price of $1.10 per share. The conversion price per unit is fixed at $0.80 per unit.

In connection with our acquisition of an aggregate 100% interest in the Mineral Rights, Temasek is entitled to an annual 2.5% net returns royalty related to the Mineral Rights.

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The Mineral Rights are owned by Compa��a Minera Mara��n S.A.C. ("Minera Mara��n"). Bacon Hill Invest Inc. ("Bacon Hill"), a corporation incorporated under the laws of Panama, owns 999 shares of the 1,000 shares of Minera Mara��n that are issued and outstanding. The single remaining share of Minera Mara��n by Temasek as nominee and on trust for our exclusive and sole benefit and interest. Temasek is obligated at all times to exercise all rights in respect of the share of Minera Mara��n it holds strictly in accordance with our instructions. The acquisition of 100% interest in the Mineral Rights occurred through the transfer by Temasek to us of all of the outstanding shares of Bacon Hill.

Expansion of Peru Property

On January 25, 2010 (the "Effective Date"), we entered into a Mineral Rights Option Agreement (the "Option Agreement") with Temasek. Pursuant to the Option Agreement, we acquired three separate options from Temasek, each providing for the acquisition of an approximately one-third interest in certain mineral rights (the "Mineral Rights"), in certain properties in Peru that abut the other property interests we own in Peru described above. Pursuant to the Option Agreement, the exercise of all three options would result in our acquisition of one hundred percent of the Mineral Rights. The Mineral Rights are currently owned by Minera Saramiriza S.A.C. ("Minera Saramiriza"), a corporation incorporated under the laws of Peru. Woodburn Investments, Inc. ("Woodburn"), a wholly-owned subsidiary of Temasek, owns 999 shares of the 1,000 shares of Minera Saramiriza that are issued and outstanding. Temasek owns the single remaining share of Woodburn. Our acquisition of each thirty-three percent interest in the Mineral Rights is structured to occur through the transfer to us of thirty-three percent of the outstanding shares of Woodburn upon the exercise of each of the three options.

A description of the Mineral Rights is set forth below:

We may exercise the initial option to acquire a thirty-three percent interest in the Mineral Rights by fulfilling the following conditions:

� Issuance of 500,000 shares of our common stock to Temasek within thirty (30) days from the Effective Date (issued March 19, 2010);

� Payment of $250,000 to Temasek within twelve months of the Effective Date (January 25, 2011); and

� Issuance of 1,000,000 shares of our common stock to Temasek or its designee within twelve months of the Effective Date (January 25, 2011).

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We may exercise the second option to acquire the second, thirty-three percent interest in the Mineral Rights, resulting in the acquisition of a sixty-six percent interest in the Mineral Rights, by fulfilling the following conditions:

� Exercise of the initial option to acquire a thirty-three percent interest in the Mineral Rights;

� Payment of an additional $1,000,000 to Temasek within twenty-four months of the Effective Date (January 25, 2012); and

� Issuance of an additional 1,000,000 shares of our common stock to Temasek or its designee within twenty-four months from the Effective Date (January 25, 2012).

We may exercise the third option to acquire the final, thirty-four percent interest in the Mineral Rights, resulting in the acquisition of a one-hundred percent interest in the Mineral Rights, by fulfilling the following conditions:

� Exercise of the first and second options to acquire an aggregate sixty-six percent interest in the Mineral Rights;

� Payment of an additional $2,000,000 to Temasek within thirty-six months of the Effective Date (January 25, 2013); and

� Issuance of an additional 2,000,000 shares of our common stock to Temasek or its designee within thirty-six months from the Effective Date (January 25, 2013).

Upon our acquisition of a 100% interest in the Mineral Rights, Temasek is entitled to an annual 2.5% net returns royalty. However, if we pay Temasek an additional $2,000,000 within ninety (90) days of its acquisition of a 100% interest in the Mineral Rights, Temasek will only be entitled to an annual 1.0% net returns royalty from us.

If we exercise the second, thirty-three percent option, resulting in the acquisition of a sixty-six percent interest in the Mineral Rights, but fail to exercise the final option and fail to acquire a 100% interest in the Mineral Rights, we and Temasek will form a joint venture in which we will be wholly responsible for developing a feasible mining project and all necessary facilities and Temasek shall retain a carried free interest in the mining rights. If we do not develop a feasible mining project within three years of the Effective Date, we will be required to pay Temasek an advance minimum mining royalty of $500,000 per year, which will be deducted from Temasek's net return royalty.

Exploration Program

Shortly after our initial acquisition of property interests in Peru in September 2008, we commenced the initial stages of our exploration and development program and carried out the following activities:

� Completed an initial social base line study to document all surface rights owners and people resident in the project area;

� Implemented a community relations program to inform local communities of the project and what potential opportunities that may exist for community involvement in the implementation phases of the development program;

� Submitted a Declaraci�n de Impacto Ambiental to the Ministry of Mines and Energy in Peru and received approval to start the exploration;

� Completed the field work for the Evaluaci�n de Impacto Ambiental semidetallado which, if approved by the Peruvian Ministry of Mines & Energy, will allow us to undertake extensive drilling and bulk sampling programs;

� Acquired churn drilling equipment for further evaluation and development of resources;

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� Set-up an operational base in the project area in the town of Saramiriza to continuously review the exploration program and prior experiences gained operating in this difficult terrain;

� Contracted various consulting firms and experienced and knowledgeable individuals with specific skills in the exploration of alluvial deposits to assist us with the exploration and development of the Peru property; and

� Commissioned and subsequently received a preliminary master plan which indicated the size and scope of our projected operations and areas where more information is required.

The principle objective of our planned exploration and development program is to bring a dredge and appropriately matched floating plant onto the property to assist us in conducting trial mining tests which requires that we undertake the following actions:

� Drill an area on the property where known mineralization exists at closely-spaced centers in accordance with mining industry standards;

� Extend the resource though a wider-spaced program of reconnaissance drilling so as to indicate the potential size of the deposit;

� Perform additional geotechnical and metallurgical studies to complement existing information in order to prepare the optimum processing route to be adopted in the exploitation phase; and

� Prepare scoping, prefeasibility, and full feasibility studies.

In the first quarter of 2009, a churn drill and ancillary equipment were purchased in the United States and shipped to Peru. The equipment cost approximately $85,000 and we acquired such funds through the issuance of securities in private equity offerings. After the process of importation and transport to site, the initial phase of the drilling program on the project commenced in late July 2009. Drilling capabilities were increased by the purchase of a second-hand bangka drilling rig at a cost of $15,000.

Gold bearing gravels were intersected in virtually all of the twenty six (26) holes drilled as part of this initial drilling program with the better mineralized horizons returning values in the 60 to 200 mg/m3 range (generally, grades in excess of 60 mg/m3 are considered economically viable) with reconnaissance holes up to 15 km apart indicating the widespread distribution of gold throughout the Mara��n basin.

Concurrent with the drilling, pitting was carried out at locations where significant gold mineralization was encountered in drilling. Pitting on the same . . .