Idaho Strategic Resources, Inc. (filed as New Jersey Mining Company) — Q2 2012 Form 10-Q
Business context and reporting period
Unaudited quarterly report for the three and six months ended June 30, 2012, filed August 10, 2012. The registrant reported as a development-stage mining company focused on gold exploration in northern Idaho, operation of the New Jersey mineral processing mill, and drilling, engineering, and management services for joint-venture partners. The filing states that planned operations had begun but revenue was not yet sufficient to consistently cover corporate costs. Common shares outstanding on August 1, 2012 were 45,305,862.
Financial condition and results
| Metric | Three months ended June 30, 2012 | Six months ended June 30, 2012 | Comparable prior period |
|---|---|---|---|
| Total development-stage income | $403,653 | $879,838 | $278,053 and $508,623, respectively |
| Operating expenses | $240,395 | $638,879 | $276,112 and $516,750, respectively |
| Net income (loss) attributable to company | $(143,328) | $(465,647) | $1,210 and $(714), respectively |
| Net loss per share | Nil | $(0.01) | Nil and Nil, respectively |
| Cash flow from operating activities | Not separately reported | $455,150 | $214,390 |
- Second-quarter income increased 45.2% year over year, primarily from higher drilling and exploration contract income. Six-month income increased 73.0%.
- Operating income before other income and expense was approximately $163,258 for the quarter and $240,959 for the six months, implying operating margins of approximately 40.4% and 27.4%, respectively. These are not reported GAAP metrics.
- The company recorded $310,853 of equity in loss from Golden Chest LLC in the quarter and $714,793 for the first six months. This was the principal driver of the 2012 losses and reflects the change to equity-method accounting beginning January 1, 2012.
- Cash and cash equivalents fell to $152,415 at June 30, 2012 from $612,989 at December 31, 2011. Net cash used in the period was $460,574.
- Six-month investing cash outflow was $1.715 million, including $1.020 million for property, plant, and equipment and $695,000 contributed to Golden Chest LLC. Financing provided $799,165, including $829,609 from the Mill Joint Venture noncontrolling interest.
- Current assets were $343,241 versus current liabilities of $397,367, producing a reported working-capital deficit of approximately $54,126. Total liabilities were $706,274 and total equity was $5.793 million.
- Debt and lease obligations included $100,937 of current notes payable, $256,886 of non-current notes payable, and capital lease obligations of $30,336 current and $42,800 non-current.
- Property, plant, and equipment increased to $4.923 million from $3.967 million, primarily from investment in the New Jersey Mill Joint Venture. The mill was expanded to 15 tonnes per hour and had completed commissioning.
Material changes, outlook, and risks
- Golden Chest exploration slowed considerably in the second quarter because of Marathon Gold USA’s financial condition; 3,167 meters of drilling were completed during the quarter.
- The company contributed $695,000 to Golden Chest during the first half of 2012. Additional cash-call commitments could continue through 2012.
- No gold production was planned for 2012. Management planned continued exploration at Golden Chest to increase resources and reserves before making a production decision.
- The New Jersey mill was expected to operate through the remainder of 2012, processing development ore from United Silver Corp.’s Crescent mine. The company owned 67% of the Mill Joint Venture at June 30, 2012, versus 71% at December 31, 2011; United Silver completed its 33% buy-in with a $3.04 million contribution.
- Additional financing might be necessary if Marathon Gold did not exercise its option to increase its Golden Chest ownership to 60% by paying $3.5 million.
- Management identified risks including metal-price volatility, exploration and operating risks, uncertain cash flow, financing needs, environmental and regulatory matters, litigation, competition, and possible differences between forward-looking expectations and actual results.
- The company was awaiting a decision in litigation concerning whether the East Fork of Eagle Creek Road near Murray, Idaho, is a public right-of-way. A local contractor received two significant-and-substantial mine-safety citations at the New Jersey mill; the company reported no such citations directly.
- Disclosure controls were assessed as effective, and management reported no material changes in internal control over financial reporting during the quarter.
Investor verification points
- Verify the registrant-name discrepancy between the requested company name, Idaho Strategic Resources, Inc., and the filing’s stated registrant, New Jersey Mining Company.
- Assess whether the $152,415 cash balance and negative working capital were sufficient for planned exploration, mill operations, debt service, and Golden Chest funding.
- Review Golden Chest LLC’s financial condition, continuing cash calls, the $714,793 equity-method loss, and Marathon Gold’s $3.5 million ownership option.
- Confirm the sustainability and collectability of drilling, engineering, management-fee, and mill-processing revenue, much of which arose from related-party or joint-venture relationships.
- Evaluate the mill’s operating performance following commissioning, including expected ore volumes, processing fees, costs, and United Silver Corp.’s ability to supply ore.
- Review outstanding notes, capital leases, related-party balances, commitments, environmental obligations, and the Eagle Creek Road litigation.