Business Context and Reporting Period
This unaudited Form 10-Q was filed by New Jersey Mining Company, not Idaho Strategic Resources, Inc., for the quarter and nine months ended September 30, 2020. The company is a gold producer operating the Golden Chest Mine and New Jersey Mill, with additional mineral properties and joint-venture interests in Idaho and Montana. The company reported 136,331,642 common shares outstanding at September 30, 2020 and 136,998,309 shares outstanding at November 1, 2020.
Financial Results and Key Metrics
| Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 |
|---|---|---|---|---|
| Revenue | $1.56 million | $1.85 million | $4.28 million | $4.54 million |
| Gross profit (loss) | $(107,237) | $447,185 | $24,033 | $584,649 |
| Operating income (loss) | $(342,132) | $191,852 | $(686,418) | $(340,741) |
| Net income (loss) | $(7,327) | $165,242 | $(382,028) | $(357,240) |
| Net income (loss) attributable to company | $10,707 | $187,328 | $(315,774) | $(277,844) |
| Operating cash flow | Not separately provided | Not separately provided | $121,737 | $140,755 |
Q3 gross margin was approximately negative 6.9%, compared with approximately 24.1% in Q3 2019. Nine-month gross margin was approximately 0.6%, compared with approximately 12.9% in the prior-year period. Cash costs per ounce were $1,855.58 for the quarter and $1,372.68 for the nine-month period, compared with $927.37 and $983.97, respectively, in 2019. All-in sustaining costs were $2,368.21 per ounce for the quarter and $1,628.91 for the nine-month period, compared with $1,071.05 and $1,146.66.
Gold production was 847 ounces in Q3 and 2,816 ounces for the first nine months, compared with 1,398 and 3,586 ounces in the comparable 2019 periods. The company processed 11,440 dry metric tonnes during Q3 at a 2.18 grams-per-tonne flotation feed grade and 84.3% gold recovery, and reported 836 ounces of gold sales.
Liquidity, Capital Resources, and Debt
- Cash and cash equivalents increased to $3.15 million at September 30, 2020 from $217,796 at December 31, 2019.
- Net cash provided by operating activities was $121,737; investing activities used $1.15 million; and financing activities provided $3.96 million during the first nine months.
- Total liabilities were $3.21 million, including $1.06 million of notes payable, $1.04 million of convertible debt and convertible debt owed to a related party, $170,539 of asset retirement obligations, and $152,000 of Small Business Administration loans.
- The company raised $2.91 million from common-stock and warrant transactions, issued $1.085 million of convertible debt, received $149,900 under a Small Business Act loan, and made principal payments on notes payable and related-party notes.
- Management stated that existing cash, operating cash flow, planned equity sales, and potential debt borrowings or restructurings were expected to fund planned operations and contractual obligations for the next 12 months.
Material Changes Versus the Prior Comparable Period
- Revenue declined 16.0% in Q3 and 5.8% for the nine months, primarily because of lower grades and the transition to a new open-pit area while underground operations emphasized development and expansion.
- Gross profit deteriorated to a loss in Q3 and declined substantially for the nine months as direct production costs increased relative to revenue.
- Operating results benefited from $360,054 of Small Business Administration grant income in Q3 and $370,054 for the nine months; no comparable grant income was recorded in 2019. The PPP loan was subsequently forgiven for qualifying expenses.
- Cash increased primarily through equity offerings, warrant exercises, convertible debt, and government financing, rather than through operating cash generation.
- Property and mineral assets increased, including the purchase of the Alder Gulch property and additional equipment. The company also added the Roberts Rare Earth Element project in the third quarter.
- Shares outstanding increased from 123,812,144 at December 31, 2019 to 136,331,642 at September 30, 2020, creating dilution risk for existing holders.
Guidance, Outlook, Risks, and Unusual Items
Management described Q3 as a transitional period and reported increased underground activity, a second underground mining crew, a night shift, ramp deepening, additional equipment, and higher backfilling rates. Management stated that underground production had increased after the development work and expected continued exploration and step-out drilling.
- COVID-19 created uncertainty regarding production schedules, operating costs, deferred production, revenues, and overall market conditions.
- The company relies on gold prices, grades, recoveries, production volumes, and the ability to raise capital or restructure debt. Q3 operating costs exceeded realized revenue before grant and other income.
- Concentrate sales are primarily made to a single broker, H&H Metal. At September 30, 2020, 1,415 ounces of sold but unsettled gold remained exposed to future price changes.
- The company recorded $32,098 of inventory adjustment to net realizable value and $9,537 of equipment write-off expense during the nine months.
- The McKinley property sale remained under negotiation; the filing does not provide a clear expected closing date or proceeds beyond the previously received $50,000 non-refundable down payment.
- Subsequent to quarter-end, holders exercised 666,667 warrants for net proceeds of $133,333. The PPP loan forgiveness was confirmed in November 2020.
- No legal proceedings, material changes in internal control, or reportable mine-safety events were disclosed.
Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is for New Jersey Mining Company, while the request metadata identifies Idaho Strategic Resources, Inc.
- Assess whether the company can achieve sustainable positive operating cash flow without recurring equity, debt, or government financing.
- Review the reconciliation and assumptions supporting cash costs and all-in sustaining costs, which increased materially year over year.
- Evaluate the maturity, collateral, conversion terms, and related-party nature of outstanding debt and the potential dilution from 6.64 million outstanding warrants, 4.61 million options, and convertible instruments.
- Monitor production, grades, recoveries, underground development, and the planned ball-mill cleanout for evidence that operating performance is improving.
- Review exposure to COVID-19, gold-price movements, concentrate settlement adjustments, single-customer concentration, environmental reclamation obligations, and future capital requirements.