2019 Form 10-K Summary
Issuer and period: The filing identifies the company as New Jersey Mining Company, not Idaho Strategic Resources, Inc. It covers the fiscal year ended December 31, 2019, with comparative information for 2018. The company is a small reporting company and gold producer operating primarily in Idaho and Montana. Its principal assets are the 100%-owned Golden Chest Mine, a 65%-owned New Jersey Mill joint venture, and a 50% carried-to-production interest in the Butte Highlands project.
Key Financial and Operating Metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Gold sales revenue | $6.12 million | $3.63 million |
| Gross profit (loss) | $738,548 | $(726,881) |
| Net income (loss) | $(726,507) | $752,279 |
| Net income (loss) attributable to NJMC | $(609,605) | $830,014 |
| Cash flow from operating activities | $206,407 | $(1.42 million) |
| Cash and cash equivalents at year-end | $217,796 | $248,766 |
| Total assets | $10.85 million | $10.64 million |
| Total liabilities | $2.20 million | $1.49 million |
| Total notes payable | $1.21 million | $641,863 |
- Net revenue increased 69% year over year, primarily from higher tonnage and more consistent underground production.
- Gross margin improved to approximately 12.1% of revenue from a negative gross margin in 2018.
- Cash cost was $940.49 per ounce, compared with $1,185.59 in 2018. All-in sustaining cost was $1,075.36 per ounce, compared with $1,579.46.
- The company processed a record 52,170 dry metric tonnes at the New Jersey Mill and reported 5,060 ounces of gold contained in concentrates.
- The filing reports an average mill head grade of 3.26 gpt gold in the property discussion and 3.46 gpt in the MD&A highlights; investors should reconcile this discrepancy.
- Open-pit production totaled 41,385 tonnes at 2.86 gpt gold. Underground production was approximately 10,800 tonnes at 5.79 gpt gold.
- Year-end working capital was approximately $(38,439), based on current assets of $910,109 and current liabilities of $948,548.
- Debt maturities require principal payments of $303,987 in 2020, $325,165 in 2021, $321,231 in 2022, $200,607 in 2023, and $54,534 in 2024.
Material Changes Versus 2018
- Revenue, production, gross profit, operating cash flow, and unit-cost performance improved substantially as Golden Chest production became more consistent.
- The company nevertheless reported a consolidated net loss in 2019, compared with net income in 2018. The 2018 result benefited from a nonrecurring $2.95 million gain on the sale of the Toboggan and Little Baldy properties to Hecla.
- 2019 included a $333,333 loss on abandonment of the Crown Point property and $190,019 of stock-based compensation.
- Depreciation and amortization increased to $580,005 from $367,939, reflecting the larger operating asset base.
- Total notes payable increased to $1.21 million, primarily due to equipment financing, while cash declined modestly by $30,970 during the year.
- The company issued no shares for cash in 2019; it issued 398,575 shares in a cashless exercise of 1.2 million warrants.
Outlook, Risks, and Unusual Items
- Management expects production trends to improve over the following 18 months and believes ongoing operating cash flow, existing cash, and potential financings can meet obligations for the next 12 months.
- Engineering studies indicated that expansion of the existing Golden Chest pit and development of the satellite Klondike Pit could be feasible at prevailing gold prices. A permit application was submitted in January 2020, with receipt anticipated by mid-2020; the filing does not confirm that the permit was obtained.
- The company planned to add a mining crew, extend the underground ramp, continue exploration drilling, evaluate heap leaching of lower-grade stockpiled material, and advance exploration near Golden Chest and other properties.
- The Golden Chest had no mineral reserves recognized under SEC definitions, and the filing also reports no SEC-defined reserves for Butte Highlands and the other exploration properties.
- Management disclosed a history of losses, accumulated deficit, dependence on additional capital or financing, and substantial exposure to gold and silver prices, operating costs, permitting, equipment availability, labor, mine safety, and environmental obligations.
- Mining activities are subject to extensive federal, state, and local regulation. Public-land exploration may experience permitting delays of one to two years.
- The New Jersey Mine and Golden Chest properties are within the expanded Bunker Hill Superfund Site. The company had not received notice of liability, but potential reclamation or cleanup obligations could be material.
- The company had two significant and substantial mine-safety citations in 2019, with no mining-related fatalities or disclosed legal actions.
- Gold sales are concentrated: 96% of 2019 gold sales were flotation-concentrate sales to related party H&H Metals, which also owed the company $305,924 at year-end.
- At December 31, 2019, 1,544 ounces of sold concentrate remained subject to final settlement and future metal-price adjustments.
- In February 2020, the company acquired approximately 368 acres near Golden Chest for $751,000, funded with convertible promissory notes bearing 8% interest and convertible at $0.18 per share.
Important Facts for Investors to Verify
- Confirm the issuer identity and whether this filing corresponds to Idaho Strategic Resources, Inc.; the supplied filing is for New Jersey Mining Company, ticker NJMC.
- Reconcile the reported 2019 mill head grade of 3.26 gpt versus 3.46 gpt in different sections of the filing.
- Assess liquidity relative to approximately $1.21 million of debt, near-zero working capital, planned capital expenditures, and dependence on future financing.
- Review whether Golden Chest production can remain profitable after royalties, treatment and refining charges, sustaining capital, reclamation costs, and changes in gold prices.
- Evaluate the lack of SEC-defined mineral reserves and distinguish historical resources, exploration targets, and management estimates from economically demonstrated reserves.
- Review related-party sales, receivables, debt, management relationships, and the concentration of sales through H&H Metals.
- Monitor permitting for the proposed Golden Chest pit expansion and the development status of Butte Highlands, which remains subject to partner control and further approvals.
- Review environmental, reclamation, Superfund-site, mine-safety, and asset-retirement obligations, including the reported $163,369 asset-retirement obligation and $103,320 reclamation bond.