Business Context and Reporting Period
New Jersey Mining Company, now identified in the request metadata as Idaho Strategic Resources, Inc., filed this unaudited Form 10-Q for the quarter ended September 30, 2016. The company was focused on restarting production at the 100%-owned Golden Chest Mine, developing and operating the New Jersey Mill, and advancing its mineral property portfolio. The filing states that Golden Chest production began in the fourth quarter of 2016.
At September 30, 2016, the company had 94,935,908 common shares outstanding. It consolidated the New Jersey Mill Joint Venture, Golden Chest LLC Joint Venture, and GF&H Company, and held a 50% interest in the Butte Highlands Joint Venture accounted for under the cost method.
Financial Performance and Condition
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 | Prior Comparable Period |
|---|---|---|---|
| Total revenue | $52,354 | $144,632 | $603,129 and $1,866,499, respectively |
| Net income (loss) | $(828,756) | $(1,144,006) | $120,087 and $(17,955), respectively |
| Net income (loss) attributable to the company | $(838,458) | $(1,167,317) | $129,501 and $26,326, respectively |
| Net cash used in operating activities | $(453,716) for the nine months | $(6,117) |
- Revenue consisted primarily of $123,518 in gold sales and $21,114 in milling income for the first nine months. Prior-year revenue was primarily generated from milling Golden Chest ore under the former Skookum lease.
- Operating loss was $352,699 for the quarter and $605,785 for the nine months. Pre-development costs of $199,821 were recorded in the quarter and nine-month period for the Golden Chest ramp-up.
- The company recorded a $466,783 loss from the fair-value remeasurement of forward gold contracts and $67,157 of note-discount amortization during the first nine months.
- Cash increased to $483,114 from $62,275 at December 31, 2015, principally because of forward gold contract proceeds and financing activity. Operating and investing cash outflows totaled $865,063, while financing activities provided $1,285,902.
- Total assets were $8.96 million versus $7.82 million at year-end 2015. Total liabilities increased to $3.98 million from $2.01 million, including $1.71 million of forward gold contract liabilities and $1.15 million payable to related parties.
- Current liabilities of $1.67 million exceeded current assets of $678,601, resulting in negative working capital of approximately $991,000.
- Debt included $884,694 of notes payable net of discount, plus $1.15 million of related-party notes and accrued interest. The company also had $1.71 million of forward gold contract liabilities.
- Stockholders’ equity declined to $4.98 million from $5.82 million, while the company’s accumulated deficit increased to $12.08 million.
Material Changes Versus the Prior Comparable Period
- First-nine-month revenue fell approximately 92% from $1.87 million to $144,632 because milling activity declined substantially after termination of the Skookum lease in September 2015.
- The company moved from prior-year nine-month net income attributable to the company of $26,326 to a $1.17 million attributable loss. The deterioration reflected reduced milling revenue, Golden Chest pre-development spending, higher interest costs, and the forward-contract fair-value loss.
- Operating cash usage increased from $6,117 to $453,716 for the nine months.
- The company purchased a 50% interest in Butte Highlands for $435,000, consisting of $225,000 cash and 3 million restricted shares valued at $210,000.
- In August 2016, the company acquired the remaining one-third interest in GF&H for $27,341 cash and 175,760 restricted shares valued at $26,364, then dissolved the entity.
- Property, plant and equipment and mineral properties increased as the company invested in Golden Chest development and related infrastructure.
- Accounts payable and accrued payroll increased due to increased spending and staffing in preparation for Golden Chest production.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management’s plan was to generate cash flow from milling fees, royalties, and future mine operations, with Golden Chest and the New Jersey Mill as the principal sources of anticipated operating revenue.
- The company stated that it began open-pit development, ore stockpiling, ore shipments, and underground dewatering during the third quarter. It reported that the first ore was shipped to the New Jersey Mill in September and that production resumed in the fourth quarter.
- In July 2016, the company entered into two forward gold contracts for net proceeds of approximately $1.24 million. The contracts require delivery of 1,404 ounces of gold over two years beginning December 1, 2016, or cash settlement at the counterparties’ option. The filing records the contracts as derivatives because of these provisions.
- The company disclosed substantial doubt about its ability to continue as a going concern. It stated that existing cash was insufficient to fund normal operations and debt obligations for the following 12 months without increased mine and milling revenue, deferred payments, and/or additional financing.
- Management identified dependence on profitable Golden Chest and mill operations, equity or debt financing, joint-venture funding, commodity prices, permitting, mineral estimates, operating costs, reclamation obligations, equipment availability, and relationships with joint-venture partners.
- Related-party financing increased by $475,000 through notes from the president and a major shareholder. Related-party conflicts and repayment obligations are material considerations.
- The filing reported no legal proceedings, no senior-security defaults, no material changes in internal control, and no mine-safety events requiring disclosure.
Key Facts an Investor Should Verify
- Whether Golden Chest achieved the projected fourth-quarter 2016 production restart and generated sufficient cash flow to address the going-concern uncertainty.
- Actual production volumes, grades, recovery rates, operating costs, and profitability at Golden Chest and the New Jersey Mill.
- The settlement terms, remaining ounces, cash-equivalent exposure, and fair value of the forward gold contracts.
- Availability and terms of additional financing, including related-party debt, and the company’s ability to meet scheduled principal and interest payments.
- The status of permits, reclamation obligations, mine development, and the $58,000 reclamation bond.
- Ownership, funding obligations, and future economics of the Butte Highlands Joint Venture and New Jersey Mill Joint Venture.
- The effect of outstanding warrants and options totaling 15.95 million potential shares on future dilution.
- The filing’s naming inconsistency: the submitted document identifies the registrant as New Jersey Mining Company, while the request metadata identifies Idaho Strategic Resources, Inc.