Business Context and Reporting Period
The filing is an unaudited Form 10-Q for New Jersey Mining Company, despite the request metadata identifying Idaho Strategic Resources, Inc. It covers the three and six months ended June 30, 2019, and was filed August 14, 2019. The company is a gold producer focused on the Golden Chest Mine in Idaho, the New Jersey Mill, and exploration and development properties in Idaho and Montana. The company reported 123,812,144 common shares outstanding at August 1, 2019.
During the second quarter, approximately 13,329 dry metric tonnes were processed at an average head grade of 3.22 grams per tonne and 86.81% gold recovery. Quarterly gold sales were approximately 1,228 ounces. Production included both open-pit and underground mining at Golden Chest.
Key Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Revenue | $1.548 million | $2.692 million |
| Gross profit | $77,535 | $137,464 |
| Operating income (loss) | $(310,935) | $(532,573) |
| Net income (loss) | $(299,360) | $(522,482) |
| Net income (loss) attributable to company shareholders | $(259,768) | $(465,172) |
| Net income (loss) per share | Nil | Nil |
Revenue increased substantially from the prior-year periods, while gross margin improved to approximately 5.0% for the quarter and 5.1% for the six-month period. The filing does not provide a separately identified adjusted EBITDA measure.
At June 30, 2019, cash and cash equivalents were $261,922, compared with $248,766 at December 31, 2018. Total current assets were $793,249 and current liabilities were $1.041 million, implying a current ratio of approximately 0.76. Gold sales receivable was $202,898 and inventories were $214,163.
For the first six months, operating activities generated $49,340 of cash, investing activities generated $98,005, and financing activities used $134,189. Cash increased by $13,156 during the period, ending at $261,922.
Total notes payable were $1.061 million, including $272,182 due within one year and $788,960 due thereafter. Related-party notes payable totaled $255,930, including $33,895 current and $222,035 long term. Total liabilities were $2.210 million, compared with $1.493 million at December 31, 2018.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue rose to $1.548 million from $489,555, and six-month revenue rose to $2.692 million from $1.591 million.
- The company moved from a gross loss of $613,408 in the second quarter of 2018 to a gross profit of $77,535 in the second quarter of 2019. Management attributed the improvement to higher open-pit grades and increased underground production.
- The six-month gross result improved from a $606,796 loss to a $137,464 profit.
- The company reported a six-month attributable loss of $465,172, compared with attributable income of $1.753 million in 2018. The prior-year result included a $2.948 million gain on the sale of the Little Baldy/Toboggan mineral properties to Hecla Mining Company.
- Six-month operating cash flow improved from an outflow of $678,281 to an inflow of $49,340, but ending cash was substantially below the prior-year balance of $1.302 million because 2018 included $3.0 million of proceeds from a mineral-property sale.
- Property, plant and equipment increased to $6.963 million from $6.567 million, primarily reflecting equipment additions, including a Caterpillar AD22 underground truck financed with a $546,804 note.
- Common shares outstanding increased from 123,413,569 at year-end 2018 to 123,812,144 at June 30, 2019. The increase primarily reflected a cashless exercise of 1.2 million warrants for approximately 398,575 shares.
- In June 2019, the company granted 2.1 million immediately vested employee stock options exercisable at $0.14 for three years and recorded $190,019 of stock-based compensation.
Outlook, Risks, Contingencies, and Unusual Items
Management stated that production increased by approximately 40% in early March 2019 as additional open-pit and underground ore became available. Management expects the planned production profile, equity sales, and ability to restructure debt to provide sufficient cash flow and liquidity for planned operations and contractual obligations during the next 12 months.
The company is dependent on gold production and metal prices. Concentrate sales are subject to provisional pricing and future settlement adjustments; approximately 1,507 ounces of contained gold in concentrates remained exposed to future price changes at June 30, 2019. Concentrate sales were made to H&H Metal, which also owned approximately 4% of the company’s common stock and had related-party debt outstanding.
Liquidity is constrained by low cash relative to current liabilities and scheduled debt payments. Notes payable require principal payments of $272,182 in the 12 months following June 30, 2019, with additional payments of $255,573 in 2021, $270,012 in 2022, $248,147 in 2023, and $15,228 in 2024.
Other risks include mining and processing execution, grade and recovery variability, commodity-price volatility, reclamation obligations, and the need for continued production, financing, or debt restructuring. The asset retirement obligation was $158,763 at June 30, 2019. The company reported no legal proceedings, material mine-safety citations, mining-related fatalities, or defaults on senior securities.
A column-leaching test indicated that lower-grade oxide material at Golden Chest could potentially support future heap-leach economics; a 1.19 grams-per-tonne oxide sample achieved 88% gold recovery in an 11-day laboratory test. This is an exploratory result and not a production or economic feasibility conclusion.
Disclosure controls were reported effective as of June 30, 2019, with no material change in internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Confirm the correct issuer: the supplied filing identifies New Jersey Mining Company, while the request metadata identifies Idaho Strategic Resources, Inc.
- Verify whether production increases and improved grades can be sustained and translated into consistently positive operating cash flow.
- Review the company’s ability to fund the $272,182 of debt principal due within 12 months and later scheduled maturities.
- Assess sensitivity to gold prices, concentrate settlement adjustments, treatment and refining charges, and the 1,507 ounces of gold exposed to future pricing.
- Review related-party arrangements involving H&H Metal, Ophir Holdings, company officers, and concentrate sales.
- Evaluate dilution risk from 12.9 million outstanding warrants and 8.4 million outstanding stock options at June 30, 2019.
- Distinguish the reported 2019 operating performance from the unusually large 2018 mineral-property sale gain.
- Confirm that the heap-leach test result is not being treated as a reserve estimate, feasibility study, or guarantee of future development economics.