Business Context and Reporting Period
The filing is New Jersey Mining Company’s Form 10-K for the fiscal year ended December 31, 2018, filed April 1, 2019. The request metadata identifies Idaho Strategic Resources, Inc.; however, the filing text identifies the registrant as New Jersey Mining Company (NJMC). The company is a small reporting company and gold producer focused primarily on the 100%-owned Golden Chest Mine in Idaho and the majority-owned New Jersey Mill. It also holds exploration properties in Idaho and Montana and a 50% carried-to-production interest in the Butte Highlands project.
Operations include open-pit and underground mining at Golden Chest and processing through the 360-tonne-per-day New Jersey Mill. The company reported 24 full-time employees and had 123,413,569 common shares outstanding on March 1, 2019.
Key Financial Metrics
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Gold sales revenue | $3,629,837 | $4,281,571 | Down 15.2% |
| Gross profit (loss) | $(726,881) | $1,189,027 | Declined $1,915,908 |
| Gross margin | Approximately (20.0%) | Approximately 27.8% | Lower by approximately 47.8 percentage points |
| Net income | $752,279 | $(22,124) | Improved $774,403 |
| Net income attributable to NJMC | $830,014 | $39,154 | Improved $790,860 |
| Net cash from operating activities | $(1,415,135) | $337,619 | Declined $1,752,754 |
| Cash and cash equivalents | $248,766 | $124,617 | Up $124,149 |
| Total assets | $10,638,749 | $9,379,847 | Up $1,258,902 |
| Total liabilities | $1,492,842 | $2,532,360 | Down $1,039,518 |
| Total stockholders’ equity | $9,145,907 | $6,847,487 | Up $2,298,420 |
Revenue declined because the open pit progressed through lower-grade material between the Golden Chest and Skookum shoots. Cost of sales increased to $4,356,718 from $3,092,544, including depreciation and amortization of $367,939 versus $156,041 in 2017. The reported net income was substantially affected by a $2,947,862 gain on the sale of the Toboggan and Little Baldy properties to Hecla, which was not part of normal operations.
Cash flow from investing activities was $2,146,119, primarily reflecting $3,000,000 of proceeds from the property sale. Financing activities used $606,835, including $1,424,765 of principal payments on notes payable and related-party debt, partially offset by $1,206,856 of net equity proceeds and $16,200 from option exercises.
At December 31, 2018, notes payable totaled $641,863, comprising $217,679 due within one year and $424,184 due thereafter. Related-party notes and accrued interest totaled $236,827, with $47,591 classified as current. Forward gold contract liabilities had been eliminated by year-end after conversion or settlement. The company also reported an asset retirement obligation of $154,292 and a $103,320 reclamation bond.
Material Changes Versus the Prior Comparable Period
- Gold sales revenue fell 15.2%, while total cost of sales increased 40.9%, producing a gross loss compared with a gross profit in 2017.
- Net income improved primarily because of the $2.95 million gain on the Hecla property sale; operating cash flow nevertheless turned negative.
- Exploration expense increased to $467,296 from $71,851 as the company expanded core drilling and exploration activity.
- Property, plant and equipment increased to $6,567,350 from $5,890,961, reflecting equipment additions supporting underground production and drilling.
- Total liabilities decreased by $1,039,518, including the elimination of forward gold contract liabilities and substantial debt repayments.
- The company issued 9,608,578 shares for net cash proceeds of $1,206,856, issued 1,333,333 shares for the Crown Point property, issued 53,286 shares for services, and had 14,100,123 warrants outstanding at year-end.
- Golden Chest underground operations commenced ramp-up activity: 4,260 tonnes were mined at an average grade of 7.0 grams per tonne gold. Open-pit production recovered approximately 2,540 ounces of gold.
Guidance, Outlook, Commentary, Risks, and Unusual Items
Management expected open-pit grades to improve in 2019 and underground production to increase. Management stated that planned production, equity financing, and existing cash were expected to provide sufficient liquidity for planned operations and contractual obligations for the following 12 months. This expectation is dependent on improved production and cash generation, notwithstanding the $1.4 million operating cash outflow in 2018.
The company established a low-grade stockpile of approximately 55,200 tonnes at an estimated grade of 1.0 grams per tonne gold and planned additional drilling across the Murray Gold Belt, including Crown Point, Buckskin, Giant Ledge, Potosi, Butte Gulch, and Eastern Star. The filing states that Golden Chest, Butte Highlands, New Jersey, and other exploration properties have no mineral reserves recognized under SEC definitions.
Principal risks include the company’s limited operating history, historical losses, negative operating cash flow, dependence on future production and financing, fluctuations in gold and silver prices, permitting delays, environmental and reclamation liabilities, mine safety and operational risks, equipment availability, recovery and grade variability, title and royalty obligations, joint venture dependence, and the inherently speculative nature of mineral exploration. The company also disclosed two significant-and-substantial mine safety citations during 2018, with no related fatalities or legal actions requiring disclosure.
Gold concentrate sales were concentrated with H&H Metals, a related party and shareholder: H&H accounted for approximately 91% of 2018 gold sales. The company’s financial statements received an unqualified audit opinion, but the auditor did not express an opinion on internal control effectiveness because the company was not required to obtain such an audit.
Important Facts for Investors to Verify
- Confirm the registrant’s identity, because the supplied metadata names Idaho Strategic Resources, Inc. while the filing names New Jersey Mining Company.
- Separate recurring operating performance from the $2.95 million non-recurring gain on the Hecla property sale.
- Verify whether underground production and open-pit grade improvements in 2019 were achieved and whether operating cash flow became positive.
- Review liquidity against scheduled debt maturities, including $217,679 of notes payable due within one year and related-party obligations.
- Assess the effect of the 2018 equity issuance, outstanding warrants, and 7,054,500 outstanding options on future dilution.
- Evaluate customer and related-party concentration, particularly H&H Metals’ role in concentrate purchases and receivables.
- Confirm permitting, reclamation bonding, environmental exposure, and the status of the Bunker Hill Superfund cleanup proposals.
- Verify technical disclosure and reserve status for Golden Chest and Butte Highlands, since the filing states that no SEC-recognized mineral reserves exist.