Business Context and Reporting Period
Idaho Strategic Resources, Inc. is identified in the filing as New Jersey Mining Company, issuer of OTCQB-traded common stock under ticker NJMC. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2020, with operations centered on the Golden Chest gold mine, New Jersey Mill joint venture, and exploration properties in Idaho and Montana. The company reported 125.3 million common shares outstanding at June 30, 2020 and 125.6 million at August 1, 2020.
Financial and Operating Metrics
| Metric | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 |
|---|---|---|
| Gold revenue | $1.324 million | $2.725 million |
| Gross profit | $33,359 | $131,269 |
| Gross margin | 2.5% | 4.8% |
| Operating loss | $(194,751) | $(344,286) |
| Net loss attributable to the company | $(180,213) | $(326,481) |
| Net loss margin attributable to the company | (13.6%) | (12.0%) |
| Cash cost per ounce | $1,221 | $1,149 |
| AISC per ounce | $1,387 | $1,294 |
| Gold ounces produced | 902 | 1,980 |
Six-month operating cash flow was $(345,870), compared with $49,340 in the prior-year period. Investing cash flow was $(759,882), primarily reflecting $747,193 spent on mineral property. Financing cash flow was $1.284 million, including $885,000 of convertible debt, $509,717 of Small Business Administration loans, and $200,000 from an equity offering. Cash increased to $396,158 from $217,796 at December 31, 2019.
At June 30, 2020, total assets were $11.579 million and total liabilities were $3.075 million. Current assets were $1.156 million versus current liabilities of $910,000. Debt and debt-like obligations included $917,498 of equipment and other notes payable, $885,000 of convertible debt, $172,035 of related-party notes, and $509,717 of SBA loans. The company stated that cash flows from operations, existing cash, planned equity sales, and potential debt financing or restructuring should fund operations and contractual obligations for the next 12 months.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue decreased 14.4% from $1.548 million to $1.324 million, while six-month revenue increased 1.2% from $2.692 million to $2.725 million.
- Second-quarter gross profit declined from $77,535 to $33,359; six-month gross profit declined from $137,464 to $131,269.
- Second-quarter and six-month operating losses improved from $310,935 and $532,573 to $194,751 and $344,286, respectively, largely reflecting lower general and administrative costs and lower exploration expense.
- The six-month net loss attributable to the company improved from $465,172 to $326,481. The prior-year period included $190,019 of stock-based compensation, compared with none in 2020.
- Cash costs and AISC increased materially, driven by reduced underground production during backfill work and the transition to a new open pit.
- Debt increased substantially, including $885,000 of convertible notes issued in February 2020 and $509,717 of SBA loans received during the second quarter.
- The company issued 1,481,481 shares and warrants in an April private placement for net proceeds of $200,000.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management did not provide formal production or financial guidance. Second-quarter production included 9,700 dry metric tonnes processed at a 2.96 grams-per-tonne head grade and 85.5% gold recovery, with 844 ounces of gold sold. Open-pit and underground operations continued, while the company advanced the Idaho and Klondike pit areas, underground development, backfilling, permitting, and construction of a new mine shop.
COVID-19 resulted in modified work practices, production procedures, schedules, maintenance activities, and discretionary spending. Management warned that further restrictions could defer production and revenue or increase costs, and that the ultimate impact remained uncertain.
The company received a $358,346 PPP loan, a $149,900 SBA Section 7(b) loan, and a $10,000 nonrepayable government grant. Loan forgiveness was not assured. The company classified $187,996 of SBA-related amounts as current, although management believed payment before June 30, 2021 was unlikely.
The company purchased the 368-acre Alder Gulch property for $747,193 using proceeds from convertible notes bearing 8% interest and convertible at $0.18 per share. At June 30, 2020, 1,572 ounces of gold sold through concentrate contracts had not reached final settlement and remained exposed to future metal-price adjustments. A nonrefundable $50,000 deposit related to a potential McKinley property sale remained under continuing negotiations. Subsequent to quarter-end, the company added the 219-acre Roberts Rare Earth Element Project in Idaho.
The filing reports one significant-and-substantial mine-safety citation during the quarter, with no related legal actions or fatalities. No legal proceedings were reported. Management concluded that disclosure controls were effective and that there was no material change in internal control over financial reporting.
Important Facts for Investors to Verify
- Confirm the corporate name and ticker relationship between the filing registrant, New Jersey Mining Company, and Idaho Strategic Resources, Inc.
- Verify the company’s ability to generate positive operating cash flow given six-month operating cash outflow of $345,870 and elevated per-ounce costs.
- Review the maturity, collateral, conversion terms, and potential dilution from the $885,000 convertible debt and outstanding warrants and options.
- Assess whether the PPP and SBA loans qualify for forgiveness and the resulting effect on liquidity and liabilities.
- Monitor Golden Chest production, open-pit transition, underground backfilling, permitting, recovery rates, and cash costs.
- Evaluate exposure to gold prices, concentrate settlement adjustments, reliance on a single concentrate broker, and the absence of a clear formal production outlook.
- Review the reported mine-safety citation and any subsequent regulatory developments.