Idaho Strategic Resources, Inc. (formerly New Jersey Mining Company) — Q2 2021 Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2021; filed August 16, 2021. The filing identifies the registrant as New Jersey Mining Company. The company is a small reporting company and gold producer focused on the Golden Chest Mine, New Jersey Mill, and exploration properties in Idaho and Montana.
Financial Performance and Position
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Revenue | $2.18 million | $1.32 million | $3.77 million | $2.73 million |
| Gross profit | $362,249 | $33,359 | $290,845 | $131,269 |
| Gross margin | 16.6% | 2.5% | 7.7% | 4.8% |
| Operating income (loss) | $(80,689) | $(194,751) | $(1.71) million | $(344,286) |
| Net income (loss) | $(140,768) | $(212,512) | $(1.80) million | $(374,701) |
| Net loss attributable to NJMC | $(109,188) | $(180,213) | $(1.76) million | $(326,481) |
Second-quarter revenue increased approximately 65% year over year, while first-half revenue increased approximately 38%. Management attributed the improvement primarily to higher average gold grades. The six-month loss increased substantially because of exploration and core-drilling activity and $614,431 of stock-based compensation recognized primarily from February option grants.
- Production: The mill processed 10,623 dry metric tonnes at a 4.08 gpt flotation feed grade and 90.2% gold recovery. Gold production was 1,373 ounces in the quarter and 2,429 ounces for the six months.
- Cash costs: $1,190.49 per ounce in the quarter and $1,320.19 per ounce year to date, compared with $1,221.03 and $1,149.02, respectively, in 2020.
- AISC: $1,603.01 per ounce in the quarter and $1,825.69 year to date, compared with $1,387.29 and $1,294.13, respectively, in 2020. Higher exploration and sustaining capital spending drove the increase.
- Cash flow: Operating cash flow was $(762,582) for the six months, investing cash flow was $(2.33) million, and financing cash flow was $1.55 million. Cash declined from $2.54 million at December 31, 2020 to $994,681 at June 30, 2021.
- Capital investment: The company spent $2.06 million on mineral properties, including $1.70 million to acquire approximately 508 acres adjacent to the Alder Gulch property, and $249,328 on property, plant and equipment.
- Liquidity: Current assets were $1.81 million versus current liabilities of $1.47 million. Total liabilities were $5.25 million, compared with $3.40 million at year-end 2020. Total debt and debt-like obligations included approximately $1.93 million of notes payable, $2.05 million of convertible debt, $136,050 owed to a related party, and approximately $166,000 of SBA loans.
- Equity and dilution: Common shares outstanding increased to 142.4 million at June 30, 2021 from 137.6 million at December 31, 2020. The quarter included 4.08 million shares issued to convert $735,000 of convertible debt and additional shares issued through warrant, option, and service transactions.
Material Changes and Unusual Items
- February and May 2021 convertible debt issuances provided $1.75 million, bearing 8% interest and convertible at $0.35 per share; the debt is due in 2024.
- Seven holders converted $735,000 of earlier convertible debt into 4.08 million shares during the second quarter. The remaining $100,000 note was converted into 555,556 shares in July 2021.
- The company granted 4.15 million immediately vested options in February 2021 at a $0.40 exercise price, resulting in approximately $604,571 of stock-based compensation.
- Property, plant and equipment increased to $8.24 million from $7.23 million, while mineral properties increased to $5.51 million from $3.46 million.
- Exploration expense was $925,877 for the first six months, versus $88,916 in the prior-year period. The company completed contractor drilling in the first quarter and expanded company-operated drilling in the second quarter.
- The company reported no legal proceedings, mine-safety matters requiring disclosure, or material changes in internal control. Management concluded that disclosure controls were effective as of June 30, 2021.
Outlook, Risks, and Management Commentary
Management expects to generate positive cash flow, reduce debt, expand production and grow its asset base. No formal revenue, production, or earnings guidance was provided. Management stated that planned production, existing cash, equity sales, and potential debt borrowings or restructurings are expected to fund operations and contractual obligations for the next 12 months.
- Operational risks include mine production variability, crusher downtime, weather-related disruptions, operating costs, and the ability to maintain production from both open-pit and underground operations.
- Gold concentrate sales are primarily made to a single broker, H&H Metal. At June 30, 2021, 1,833 ounces had been sold but not finally settled, exposing reported revenue and receivables to future gold-price adjustments.
- COVID-19-related operating restrictions and market effects remained uncertain and could defer production, reduce revenue, or increase costs.
- The company continued exploration of the Alder Gulch, Golden Chest, and rare earth element properties. Exploration results, including reported high-grade intercepts and surface samples, are preliminary and do not establish economic reserves.
- The filing states that interim results are not necessarily indicative of full-year results. It also presents a material cash-burn profile, with negative operating cash flow and substantial capital and exploration spending.
Important Facts for Investors to Verify
- Confirm the registrant’s corporate name and whether the Idaho Strategic Resources name change occurred after this filing, which is filed under New Jersey Mining Company.
- Reconcile the six-month gross profit in management’s discussion, stated as $290,359, with the consolidated statement of operations, which reports $290,845.
- Assess whether production growth and higher grades can offset the increase in year-to-date cash costs and AISC.
- Review near-term debt maturities, collateralized equipment notes, convertible-debt conversion terms, and potential equity dilution from 5.53 million options and 5.70 million warrants outstanding.
- Evaluate liquidity in light of $994,681 of cash, $762,582 of operating cash use, planned capital expenditures, exploration spending, and management’s reliance on future financing or restructuring.
- Verify final settlement pricing for the 1,833 ounces of unsettled gold and the company’s exposure to gold prices, recovery rates, grade variability, and concentration of customers.