Business Context and Reporting Period
New Jersey Mining Company, subsequently approved for renaming to Idaho Strategic Resources, Inc., filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2021. The company produces gold from the Golden Chest Mine, processes material at the New Jersey Mill, and holds additional mineral, exploration, rare-earth, and joint-venture interests in Idaho and Montana. The company reported 143.6 million common shares outstanding at September 30, 2021 and 150.2 million at November 1, 2021.
Financial Results and Key Metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $2.099 million | $1.556 million | $5.866 million | $4.281 million |
| Gross profit | $278,010 | $(107,237) | $568,855 | $24,033 |
| Operating income (loss) | $(187,310) | $(342,133) | $(1.895 million) | $(686,418) |
| Net income (loss) | $(237,671) | $(7,327) | $(2.041 million) | $(382,028) |
| Net loss attributable to NJMC | $(219,345) | $10,707 | $(1.975 million) | $(315,774) |
| Operating cash flow | Not separately provided | Not separately provided | $(758,113) | $121,737 |
| Cash and equivalents | September 30, 2021: $481,187 | December 31, 2020: $2.540 million |
Revenue increased 34% for the quarter and 37% for the nine-month period, driven primarily by higher gold grades and increased production. Total costs of sales were $1.821 million in the quarter and $5.297 million for nine months. Gross margin was approximately 13.2% in Q3 2021 and 9.7% for the first nine months, compared with negative gross margin in Q3 2020 and approximately 0.6% for the first nine months of 2020.
Cash cost per ounce was $1,256.75 in Q3 and $1,296.27 for nine months, compared with $1,855.58 and $1,372.68, respectively, in the prior-year periods. AISC per ounce was $1,592.34 in Q3 and $1,741.66 for nine months, compared with $2,368.21 and $1,628.91, respectively.
Cash used in investing activities was $2.685 million, including $2.346 million for mineral property purchases and $351,618 for property, plant and equipment. Financing activities provided $1.384 million, including $1.750 million of convertible debt proceeds, partially offset by debt repayments.
Liquidity, Debt, and Balance Sheet
- Total assets were $15.938 million at September 30, 2021, including $8.156 million of net property, plant and equipment and $5.768 million of net mineral properties.
- Current assets were $1.283 million versus current liabilities of $1.490 million, resulting in negative working capital of approximately $208,000.
- Total liabilities were $4.994 million, compared with $3.405 million at December 31, 2020.
- Notes payable totaled $1.789 million, including $657,738 due within one year and $1.131 million thereafter. Convertible debt totaled $1.950 million.
- The company had $126,713 of related-party notes payable and a $165,105 long-term Small Business Administration loan.
- Management stated that planned production, equity sales, and potential debt borrowings or restructurings, together with existing cash, are expected to fund operations and contractual obligations for the next 12 months.
Material Changes Versus the Prior Comparable Period
- Production and revenue improved, and the company moved from a Q3 2020 gross loss to a Q3 2021 gross profit.
- Operating and net losses increased for the nine-month period because of higher exploration spending, outside and in-house drilling, and $614,431 of stock-based compensation, primarily related to options granted in the first quarter.
- Cash declined by $2.059 million during the first nine months, compared with a $2.933 million increase in the prior-year period.
- Mineral properties increased by $2.313 million, principally from the purchase of approximately 508 acres adjacent to Alder Gulch for $1.700 million, the $78,000 Park Copper acquisition, and other additions.
- Property, plant and equipment increased by $928,411, while debt increased substantially to fund equipment and property activities.
- Shares outstanding increased from 137.6 million at year-end 2020 to 143.6 million at September 30, 2021. Convertible debt conversions reduced debt by $835,000 and issued 4.639 million shares during 2021.
Operations, Outlook, Risks, and Unusual Items
During Q3 2021, underground ore mined at Golden Chest totaled approximately 6,310 tonnes, open-pit production averaged approximately 1,180 tonnes per day, and the New Jersey Mill processed 12,554 dry metric tonnes at a 3.22 gpt flotation feed grade and 87.8% gold recovery. The company drilled 1,416 meters during the quarter and reported multiple gold-bearing intercepts at the Joe Dandy and Klondike areas.
Operations were temporarily affected by a rock fall and miner injury, which restricted access to the 833N stope for two weeks, and by a temporary road closure related to forest fires. The company reported four mine-safety citations during the quarter that could significantly and substantially contribute to a mine safety or health hazard; it reported no mining-related fatalities or related legal actions.
Management’s stated strategy is to generate positive cash flow, reduce debt, expand production and the asset base, and continue exploration. The filing does not provide formal production or revenue guidance. Management’s liquidity outlook depends on planned production, continued access to equity or debt financing, and possible debt restructurings.
Subsequent events included an October 2021 private placement generating net proceeds of $1.980 million, shareholder approval of a one-for-fourteen reverse stock split and a name change to Idaho Strategic Resources, Inc., both subject to FINRA approval, and the grant of 2.55 million additional stock options.
Key risks include limited cash, negative working capital, recurring operating losses, dependence on gold prices and provisional concentrate settlements, mine operating and safety events, COVID-19 impacts, exploration and development uncertainty, debt maturities, dilution from convertible debt, options and warrants, and reliance on future financing. At September 30, 2021, 1,711 ounces of gold had been sold but not finally settled and remained exposed to future price changes.
Important Facts for Investors to Verify
- Confirm the effectiveness and timing of the approved reverse stock split and corporate name change, including FINRA approval and post-split share counts.
- Evaluate whether operating cash flow and cash reserves are sufficient without additional equity issuance, debt, or restructuring.
- Review the maturity, collateral, interest rates, and conversion terms of the $1.950 million convertible debt and other debt obligations.
- Assess the impact of the October 2021 $1.980 million financing and the associated warrants on dilution and liquidity.
- Monitor Golden Chest production, grades, recoveries, cash costs, AISC, mine-safety citations, and the effects of the reported rock fall and forest-fire disruption.
- Reconcile management’s non-GAAP cash-cost and AISC measures to GAAP costs and assess the effect of exploration and stock-based compensation on reported losses.