Business Context and Reporting Period
New Jersey Mining Company, the registrant named in the filing, reported unaudited results for the quarter and six months ended June 30, 2016. The company operates the New Jersey Mill, develops the Golden Chest Mine in Idaho, and holds a 50% interest in the Butte Highlands Joint Venture. The filing identifies the company as a smaller reporting company.
Management’s primary objective was to resume Golden Chest production, including permitting, site work, mine planning, equipment procurement, and funding activities. The company received an open-pit mining permit for Golden Chest during the quarter.
Financial Performance and Position
| Metric | Three months ended June 30, 2016 | Six months ended June 30, 2016 | Comparable 2015 period |
|---|---|---|---|
| Total revenue | $48,312 | $92,277 | $872,250; $1,263,370 |
| Operating income (loss) | $(85,935) | $(254,200) | $142,432; $(126,879) |
| Net income (loss) | $(83,921) | $(274,425) | $141,486; $(138,042) |
| Net income (loss) attributable to the company | $(97,554) | $(288,034) | $165,673; $(103,175) |
| Net loss per share | Nil | Nil | Nil |
- Six-month revenue consisted of $77,663 of gold sales and $14,614 of milling income. The filing’s MD&A states three-month revenue of $43,312, while the financial statements report $48,312; the filing does not explain the discrepancy.
- Six-month operating expenses were $346,477, including $95,187 of milling costs, $80,057 of exploration, $56,151 of management expense, and $56,842 of general and administrative expense.
- Net cash used in operating activities was $65,023. Investing cash use was $346,923, including $225,000 for the Butte Highlands investment, $79,651 for mineral property, and $42,272 for property, plant and equipment.
- Financing activities provided $360,706, including $475,000 of related-party borrowings and $31,865 drawn under a line of credit, partially offset by debt principal payments.
- Cash declined to $11,035 at June 30, 2016 from $62,275 at December 31, 2015.
- Current assets were $148,557 versus current liabilities of $909,703, implying negative working capital of approximately $761,146.
- Total assets were $8.32 million and total liabilities were $2.52 million at June 30, 2016. Debt included $1.10 million of net notes payable and $1.18 million of related-party notes and accrued interest, plus the $31,865 line-of-credit balance.
- Common shares outstanding increased to 94,760,148 from 91,760,148 at year-end 2015, primarily from the 3 million shares issued for the Butte Highlands acquisition.
Material Changes Versus the Prior Comparable Period
- Revenue fell sharply because the Skookum lease ended in September 2015 and minimal milling occurred in 2016. Six-month revenue decreased approximately 93% from 2015.
- The company reported a $274,425 six-month net loss versus a $138,042 loss in 2015; the prior-year quarter had net income of $141,486.
- Management, professional services, and general and administrative expenses declined with reduced activity and limited cash availability. Management also deferred wages from May through July 2016.
- Interest expense increased because less interest was capitalized in 2016, while $24,908 of amortization of debt discount was recognized in the first six months.
- Accounts payable increased to $176,312 from $58,267, reflecting spending ahead of planned Golden Chest production.
- Related-party debt and accrued interest increased to $1.18 million from $686,241, including $475,000 of new notes from the president and a major shareholder.
- The company acquired a 50% interest in Butte Highlands for total consideration of $435,000, consisting of $225,000 cash and 3 million restricted shares valued at $210,000.
Guidance, Outlook, Risks, and Unusual Items
- Management planned to resume Golden Chest production in the third quarter of 2016 and operate both the mine and mill. The filing does not provide formal production, revenue, or earnings guidance.
- The company disclosed substantial doubt about its ability to continue as a going concern because of minimal revenue, recurring losses, negative working capital, limited cash, and debt obligations. Management stated that continued operations depend on increased mining and milling revenue, payment deferrals, and/or additional financing.
- After quarter-end, the company entered into two future gold purchase agreements for aggregate net proceeds of $1.24 million. The agreements require delivery of 1,304 ounces of gold over two years, beginning December 1, 2016, as production is generated from Golden Chest and the New Jersey Mill.
- The company remains exposed to gold-price volatility, exploration and development uncertainty, permitting and reclamation requirements, operating hazards, equipment and supply constraints, financing availability, joint-venture risks, and dependence on key management.
- The filing states that disclosure controls were effective as of June 30, 2016 and that no material changes occurred in internal control over financial reporting.
- No legal proceedings, reportable mine-safety events, or defaults on senior securities were disclosed.
Important Facts for Investors to Verify
- Reconcile the $43,312 versus $48,312 three-month revenue figures presented in MD&A and the financial statements.
- Assess the company’s ability to fund near-term obligations given $11,035 of cash, approximately $761,146 of negative working capital, and significant current debt.
- Verify the terms, gold-price economics, delivery obligations, and security arrangements of the two post-quarter-end future gold purchase agreements.
- Evaluate whether Golden Chest production actually resumed as planned in the third quarter of 2016 and whether production generated sufficient cash flow.
- Review related-party financing, including interest rates, maturities, balloon payments, and potential conflicts of interest.
- Consider dilution from 10.2 million outstanding warrants and 5.75 million outstanding options, although the filing states they were anti-dilutive for earnings-per-share purposes.