Business Context and Reporting Period
New Jersey Mining Company, now identified in the request as Idaho Strategic Resources, Inc., filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2011. The company remained classified as a development-stage mining company focused primarily on gold exploration in northern Idaho, with secondary silver and base-metal interests. Its strategy emphasized exploration and joint ventures rather than near-term mining and milling production.
The company consolidated its 74%-owned New Jersey Mill Joint Venture and accounted for its 63%-owned Golden Chest LLC investment under the cost method because it concluded that it lacked significant influence.
Financial Highlights
| Metric | Q3 2011 | Q3 2010 | 9M 2011 | 9M 2010 |
|---|---|---|---|---|
| Revenue and other development-stage income | $502,142 | $136,013 | $1,010,765 | $154,165 |
| Net income (loss) | $115,972 | $(76,207) | $113,852 | $(520,498) |
| Net income (loss) attributable to the company | $116,675 | $(76,207) | $115,960 | $(520,498) |
| Net income (loss) per share, basic and diluted | Nil | Nil | Nil | $(0.01) |
| Cash flow from operating activities | Not separately provided for the quarter | Not separately provided for the quarter | $91,188 | $(586,032) |
| Cash flow from investing activities | Not separately provided for the quarter | Not separately provided for the quarter | $(1,875,450) | $10,410 |
| Cash flow from financing activities | Not separately provided for the quarter | Not separately provided for the quarter | $1,864,509 | $563,374 |
| Cash and cash equivalents | September 30, 2011: $437,564 | December 31, 2010: $357,317 |
Q3 revenue increased approximately 269% year over year, while nine-month revenue increased approximately 556%. The increase was primarily attributable to drilling and exploration contract income, management fees, and engineering services. No gold production occurred during the quarter.
Approximate net margins were 23.2% for Q3 2011 and 11.3% for the first nine months of 2011, compared with negative margins in the comparable 2010 periods. These margins reflect service and joint-venture income rather than recurring mine production.
Balance Sheet and Liquidity
- Total assets were $5.815 million at September 30, 2011, compared with $3.289 million at December 31, 2010.
- Current assets were $722,575 versus current liabilities of $316,815, implying a current ratio of approximately 2.3 to 1.
- Cash was $437,564, equal to approximately 1.4 times current liabilities.
- Property, plant, and equipment increased to $3.123 million from $1.323 million, primarily because of investment in the New Jersey Mill Joint Venture.
- Total liabilities increased to $684,476 from $222,359. Notes payable totaled $436,298, including $100,626 classified as current; capital lease obligations totaled $4,335 current and $1,403 non-current.
- Stockholders’ equity was $5.130 million, including $1.950 million of noncontrolling interest associated with the New Jersey Mill Joint Venture.
Material Changes Versus the Prior Comparable Period
- Revenue rose substantially because Golden Chest drilling activity increased and the company earned related drilling, management, and engineering fees.
- The company moved from a Q3 2010 net loss of $76,207 to Q3 2011 net income of $115,972.
- Nine-month operating cash flow improved from an outflow of $586,032 to an inflow of $91,188.
- Investing cash use increased sharply, primarily from $1.465 million of property, plant, and equipment purchases and a $422,995 equipment deposit.
- Financing cash inflows increased primarily because United Mine Services contributed $1.950 million for its noncontrolling interest in the New Jersey Mill Joint Venture.
- Drilling and exploration contract expense increased to $474,673 for the first nine months, reflecting higher Golden Chest drilling activity.
- Depreciation and amortization increased to $64,360 for the first nine months, partly because a new core drilling machine entered service in June 2011.
- Common-stock financing was limited: 22,800 shares were issued in Q2 2011 for $5,000, and no shares were issued in Q3.
Outlook, Management Commentary, Risks, and Unusual Items
- Management expected no gold production during 2011 because the mill was shut down for construction and Golden Chest activity was focused on exploration.
- The New Jersey processing plant was being expanded from 4 tonnes per hour to 15 tonnes per hour, with estimated costs of approximately $2.5 million to be funded by United Mine Services. Completion was expected around year-end 2011.
- Marathon Gold USA had contributed $3.0 million to Golden Chest LLC by September 30, 2011 and was scheduled to contribute an additional $1.0 million by November 30, 2011 to reach a 50% ownership interest. The filing states that Marathon could contribute an additional $3.5 million to increase its interest to 60%.
- Golden Chest drilling totaled 4,240 meters during Q3, described as 42% of planned 2011 drilling.
- The Silver Strand mine was described as ready for small-scale production, but the company planned to seek a buyer or joint-venture partner rather than produce there in 2011.
- Newmont’s Toboggan joint venture terminated after Newmont did not complete its earn-in; the company was seeking a new partner.
- After quarter-end, the company entered into an option agreement with Desert Copper USA Corp. covering the Niagara and Copper Camp properties. Consideration included $250,000, 3.5 million shares of Desert Copper’s parent, annual payments of $20,000, and assumption of property costs.
- Shareholders approved an increase in authorized common shares from 50 million to 200 million on October 28, 2011.
- The company disclosed risks relating to metal-price volatility, uncertain cash flows, exploration and operating risks, environmental and regulatory matters, litigation, financing dependence, and the ability of joint-venture partners to make required contributions.
- The company was involved in litigation concerning a claimed public right-of-way over the East Fork of Eagle Creek Road in Idaho.
- A Mine Safety and Health Administration citation related to missing berms on a mine access road resulted in a $946 fine and was corrected shortly after issuance.
Most Important Facts for Investors to Verify
- Whether the company’s reported service and joint-venture income can continue without commercial gold production.
- Completion, funding, ownership effects, and operating economics of the New Jersey Mill expansion.
- Whether Marathon Gold USA made the scheduled November 2011 contribution and how Golden Chest ownership changed.
- Cash requirements, equipment purchases, note maturities, and the company’s ability to fund exploration and development.
- The status and valuation of joint-venture receivables totaling $191,240, including related-party receivables of approximately $172,268 from MUSA and Golden Chest LLC.
- Resolution and potential financial impact of the Eagle Creek Road litigation and any future mine-safety or environmental obligations.
- Terms and subsequent performance of the Desert Copper option agreement and its effect on the Niagara and Copper Camp properties.