Idaho Strategic Resources, Inc. — 2018 Q2 Form 10-Q Summary
Filing identity and period: The supplied filing is for New Jersey Mining Company, not Idaho Strategic Resources, Inc. It covers the three and six months ended June 30, 2018, and was filed August 14, 2018. The company was a smaller reporting company with 122.5 million common shares outstanding as of August 1, 2018.
Business Context and Reporting Period
The company operated the Golden Chest gold mine and New Jersey Mill through a 65%-owned joint venture, with additional mineral properties and a 50% carried-to-production interest in the Butte Highlands project. Management’s stated strategy was to generate positive operating cash flow, reduce debt, expand production and build its mineral-property portfolio.
- Approximately 8,140 dry metric tonnes were processed during the quarter at a 2.0 gpt head grade and 90.3% recovery, producing 472 contained gold ounces in flotation concentrates.
- Open-pit production averaged 1,514 tonnes per day, while approximately 1,250 tonnes of underground material were mined at an average grade of 6.3 gpt.
- The company initiated exploration drilling at the Golden Chest and acquired additional Murray Gold Belt properties.
Financial Metrics
| Metric | Three months ended June 30, 2018 | Six months ended June 30, 2018 | Comparable 2017 period |
|---|---|---|---|
| Revenue | $489,555 | $1,590,946 | $1,262,690 / $1,952,008 |
| Gross profit (loss) | $(613,408) | $(606,796) | $426,030 / $587,664 |
| Gross margin | (125.3%) | (38.1%) | 33.7% / 30.1% |
| Net income attributable to the company | $2,005,986 | $1,752,747 | $200,672 / $(62,473) |
| Net margin | 409.8% | 110.2% | 15.9% / (3.2%) |
| Operating cash flow | Not separately provided | $(678,281) | $10,623 |
Revenue declined 61.2% in the quarter and 18.5% year to date. Cost of sales rose to $1.10 million for the quarter and $2.20 million for the first half, driven by lower-grade material, seasonal underground operating conditions, and higher depreciation and amortization. The reported profit was dominated by a $2.95 million gain on the sale of the Little Baldy and Toboggan properties.
- Cash and equivalents: $1.30 million at June 30, 2018, versus $124,617 at December 31, 2017.
- Total assets: $12.06 million, versus $9.38 million at year-end 2017.
- Total liabilities: $2.11 million, versus $2.53 million at year-end 2017.
- Total debt and related-party notes: Notes payable totaled $536,434; related-party notes and interest payable totaled $280,152; forward-gold-contract liability was $137,283.
- Liquidity: Current assets were $1.81 million versus current liabilities of $962,491, implying a current ratio of approximately 1.9x.
- Equity financing: First-half private placements generated $1.11 million net proceeds from 8.86 million units.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue fell from $1.26 million to $489,555 and the company moved from a $426,030 gross profit to a $613,408 gross loss.
- Six-month revenue fell from $1.95 million to $1.59 million and the gross profit of $587,664 became a $606,796 gross loss.
- Net income improved substantially because of the $2.95 million mineral-property-sale gain; excluding that unusual item, underlying profitability was materially weaker.
- Operating cash flow declined from $10,623 provided to $678,281 used, despite reported net income.
- Cash increased by $1.18 million, primarily from $3.0 million of property-sale proceeds and $1.11 million of equity financing, partly offset by capital spending, debt repayments, and negative operating cash flow.
- Related-party debt declined from approximately $812,911, including accrued interest, at year-end to $280,152. Certain notes to officers and a shareholder were paid in full in May 2018.
- Forward-gold-contract liabilities declined from $920,579 to $137,283. One related-party forward contract was converted into a conventional $492,783 note payable.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management stated that planned production for the following 18 months was expected to improve the operating cash-flow trend and that existing cash and anticipated operating cash flows were sufficient for planned operations and contractual obligations for the next 12 months. No formal production, revenue, or earnings guidance was provided.
- The company’s near-term results were sensitive to ore grade, mining conditions, recovery rates, gold prices, operating costs, and the timing of open-pit and underground production.
- At June 30, 2018, 111 ounces remained due under the GVC forward-gold contracts during the remainder of 2018. Concentrate sales also remained exposed to final pricing and settlement adjustments; 1,398 ounces of gold in concentrates were exposed to future price changes.
- The company recorded a $139,338 asset-retirement obligation, including a $10,771 revision to estimated reclamation costs during the first half.
- Future obligations included $633,333 of discounted mineral-property payments associated with the Four Square acquisition, including future cash payments and shares, and a 2% net smelter return royalty on the Butte Potosi property.
- The company disclosed two significant-and-substantial mine-safety citations during the quarter ended March 31, 2018. No related legal actions or mining fatalities were reported.
- Management concluded that disclosure controls were effective and that no material change occurred in internal control over financial reporting during the quarter.
Most Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing names New Jersey Mining Company, while the request identifies Idaho Strategic Resources, Inc.
- Assess operating performance excluding the $2.95 million one-time property-sale gain, particularly the gross loss and negative operating cash flow.
- Review production grades, recoveries, costs, and the expected timing of improvement in open-pit and underground operations.
- Verify the company’s ability to meet approximately $240,696 of debt principal due within 12 months, other mineral-property payments, and remaining forward-gold obligations.
- Evaluate dilution from 122.5 million shares outstanding, 13.7 million warrants, and 7.2 million outstanding options at June 30, 2018.
- Review the two disclosed mine-safety citations, reclamation obligations, commodity-price exposure, and assumptions underlying the 12-month liquidity assessment.