Business Context and Reporting Period
The filing is a Form 10-Q for the quarter ended September 30, 2018. The registrant identified in the filing is New Jersey Mining Company, although the request metadata identifies Idaho Strategic Resources, Inc. The company is a gold producer focused on the Golden Chest Mine in Idaho, the New Jersey Mill, and mineral properties in Idaho and Montana. The Golden Chest Mine was producing from open-pit and underground operations.
The unaudited financial statements cover the three and nine months ended September 30, 2018, with comparisons to the corresponding 2017 periods.
Financial Results and Key Metrics
| Metric | Q3 2018 | Q3 2017 | 9M 2018 | 9M 2017 |
|---|---|---|---|---|
| Revenue | $1.03 million | $1.27 million | $2.62 million | $3.22 million |
| Gross profit (loss) | $(0.19) million | $0.41 million | $(0.80) million | $1.00 million |
| Operating income (loss) | $(0.57) million | $0.22 million | $1.21 million | $0.34 million |
| Net income (loss) | $(0.59) million | $0.13 million | $1.13 million | $0.04 million |
| Net income (loss) attributable to the company | $(0.57) million | $0.14 million | $1.18 million | $0.08 million |
| Gold sales | 847 ounces | Not clearly provided | Not clearly provided | Not clearly provided |
Calculated gross margin was approximately negative 18.9% in Q3 2018 and negative 30.6% for the first nine months, compared with approximately 32.5% and 31.1%, respectively, in the comparable 2017 periods. Q3 production included approximately 8,390 dry metric tonnes processed at a 2.40 grams-per-tonne head grade and 88.0% gold recovery.
- Cash and cash equivalents were $705,736 at September 30, 2018, compared with $124,617 at December 31, 2017.
- Current assets were $1.15 million and current liabilities were $946,339, implying a current ratio of approximately 1.2x.
- Total assets were $11.53 million and total liabilities were $2.14 million at September 30, 2018.
- Total stockholders’ equity was $9.39 million, including $3.09 million of non-controlling interest.
- Net cash used in operating activities was $968,972 for the first nine months, compared with $231,785 of operating cash flow in 2017.
- Investing activities provided $2.27 million, primarily due to $3.0 million of proceeds from a mineral-property sale.
- Financing activities used $714,951, including principal repayments on notes payable and related-party notes.
- Notes payable totaled $706,207, including $273,744 due within one year. Related-party notes totaled $258,754, including $61,109 due within one year.
- The company had no forward-gold-contract liability at September 30, 2018, compared with $920,579 at December 31, 2017.
Material Changes Versus the Prior Comparable Period
- Q3 revenue declined approximately 18.4% year over year, while nine-month revenue declined approximately 18.5%, primarily because of lower-grade mineralized material as the open pit advanced between the Golden Chest and Skookum shoots.
- Q3 gross profit declined to a loss as production costs and depreciation exceeded revenue. Nine-month gross profit also became negative.
- Nine-month net income increased substantially because of a $2.95 million gain on the sale of mineral property to Hecla Mining Company. Excluding that unusual gain, the filing’s results indicate materially weaker operating performance.
- Operating cash flow deteriorated from positive $231,785 to negative $968,972, despite the reported nine-month net income.
- Cash increased by $581,119, supported primarily by the $3.0 million mineral-property sale and $1.11 million of equity financing, partly offset by debt repayments and capital expenditures.
- The company issued 8,858,577 units in 2018 for net proceeds of $1.11 million and had 122,610,282 common shares outstanding at November 1, 2018, compared with 112,310,372 shares at December 31, 2017.
- The final payment under the 2016 forward-gold contracts was made in September 2018. The company also converted one related-party forward-gold contract into a conventional 6% note payable.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management stated that underground production from higher-grade stopes was expected to ramp up in the fourth quarter of 2018. The company added a second underground mining crew, completed placement of cemented rock fill in the 851 stope, and began work on attack ramps to the 857 and 848 stopes. Management also planned continued exploration and drilling in the Golden Chest and Murray Gold Belt areas.
Management said planned production for the following 18 months was expected to improve cash-flow trends and that existing cash and expected operating cash flow were sufficient to conduct planned operations and meet contractual obligations for the next 12 months. This is management’s assessment rather than formal financial guidance.
- Near-term performance depends on gold prices, grades, recovery rates, production volumes, operating costs, and the successful ramp-up of underground mining.
- Gold-concentrate revenue is subject to final settlement adjustments for metal prices, weights, assays, and treatment charges. Approximately 1,026 ounces of gold contained in concentrates remained exposed to future price changes at September 30, 2018.
- The company recorded an asset-retirement obligation of $141,359, reflecting estimated reclamation and closure costs.
- Mineral-property purchase obligations included future cash payments and 1,333,333 shares due September 30, 2019, plus other contractual obligations.
- The nine-month results include significant non-cash items, including $249,551 of depreciation and amortization, $34,580 of stock-based compensation, $15,983 of forward-contract fair-value expense, and the $2.95 million mineral-property-sale gain.
- The filing reports no material legal proceedings, no senior securities defaults, and no mine-safety events requiring disclosure. Management concluded that disclosure controls were effective and reported no material change in internal control over financial reporting.
Investor Verification Items
- Verify that the filing entity, New Jersey Mining Company, corresponds to the requested company name, Idaho Strategic Resources, Inc.
- Reconcile production ounces, mill throughput, grades, recoveries, concentrate inventory, and revenue to assess whether the planned underground ramp-up improved subsequent results.
- Separate recurring operating performance from the $2.95 million one-time mineral-property-sale gain.
- Review operating cash consumption and the timing of approximately $706,207 of notes payable, $258,754 of related-party notes, and mineral-property purchase obligations.
- Assess liquidity under lower gold prices, lower grades, delayed production, or higher mining and milling costs.
- Review dilution from the 2018 equity issuance and the 13,725,123 outstanding warrants and 7,054,500 outstanding stock options.