Business Context and Reporting Period
This Form 10-K covers New Jersey Mining Company (the filing issuer identified in the source; the request metadata names Idaho Strategic Resources, Inc.) for the fiscal year ended December 31, 2016. The company explores, develops and operates gold, silver and base-metal assets in Idaho and Montana. Its principal operating assets are the Golden Chest Mine and the New Jersey Mill, a 360-tonne-per-day flotation facility. The Golden Chest open pit resumed production in the fourth quarter of 2016, and the company owns 100% of the project. The company also owns a 50% carried interest in the Butte Highlands project and holds several early-stage exploration properties.
Financial Performance and Key Metrics
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $544,751 | $1,891,173 |
| Gold sales | $523,637 | Not separately provided |
| Milling revenue | $21,114 | $1,886,970 |
| Production expense | $544,721 | $1,263,931 |
| Operating loss | $(1,029,665) | $(444,072) |
| Net loss | $(1,361,008) | $(282,088) |
| Net loss attributable to NJMC | $(1,376,716) | $(245,774) |
| Net margin | Approximately (250%) | Approximately (15%) |
| Cash flow from operations | $(672,941) | $(117,305) |
| Cash flow from investing | $(448,946) | $(316,718) |
| Cash flow from financing | $1,214,445 | $159,774 |
| Year-end cash | $154,833 | $62,275 |
During the fourth quarter, approximately 6,000 tonnes of Golden Chest ore were processed at an average head grade of 3.8 grams per tonne and average recovery of 82%. Approximately 4,500 tonnes were mined from lower open-pit benches, grading approximately 4.5 to 5.0 grams per tonne. A first 20-tonne wet-metric-tonne concentrate shipment was produced in the quarter and shipped in January 2017.
At December 31, 2016, total assets were $8.86 million, total liabilities were $3.71 million and total stockholders’ equity was $5.15 million. Current assets were $529,750 versus current liabilities of $2.32 million. Debt and related obligations included $935,615 of notes payable, $1.08 million of related-party debt and $1.39 million of forward gold contract liabilities. The filing states that current debt exceeded current assets by $1,787,197.
Material Changes Versus the Prior Comparable Period
- Revenue declined 71% from 2015 because 2015 primarily reflected a longer run of third-party Golden Chest milling, while 2016 reflected only the late-year restart of company-operated mining and milling.
- Net loss increased to $1.36 million from $282,088, driven by lower revenue, startup costs, higher interest expense, and a $296,098 change in the fair value of forward gold contracts.
- Operating cash usage increased to $672,941 from $117,305, while financing cash inflows increased to $1.21 million, primarily from forward gold contracts, related-party borrowings and equity activity.
- The company acquired a 50% interest in Butte Highlands for $435,000, consisting of $225,000 cash and 3 million shares valued at $210,000.
- The company acquired the remaining one-third interest in GF&H and thereby consolidated ownership of the related land package near Golden Chest.
- Exploration spending increased to $284,657 from $200,587, focused primarily on Golden Chest.
- Shares outstanding increased to 97.2 million at year-end from 91.8 million, excluding subsequent 2017 issuances.
Outlook, Risks, Contingencies and Unusual Items
- Management planned to resume underground mining at Golden Chest in early 2017 and expected approximately 8,000 ounces of gold production during the following year, including ramp-up. This is a forward-looking estimate, not a reported reserve-based forecast.
- The Golden Chest starter pit was estimated at 13,000 tonnes grading 4.99 grams per tonne, or approximately 2,100 recoverable ounces, but the company stated that Golden Chest has no SEC-recognized mineral reserves.
- Management identified substantial doubt regarding the company’s ability to continue as a going concern because of recurring losses, an accumulated deficit of $12.29 million and a current-liability shortfall. Management nevertheless concluded that planned production, financing and debt restructuring supported continued operations for the next twelve months.
- Subsequent to year-end, the company completed approximately $1.14 million of first-quarter 2017 equity sales, including a $100,000 debt-for-equity exchange. It also reported additional March 2017 financing of $850,000, including another $100,000 related-party debt exchange.
- Forward gold contracts raised $1.24 million of cash during 2016. At year-end, the company was obligated to deliver approximately 763 ounces of gold in 2017 and 527 ounces in 2018 under the disclosed contracts, subject to contractual cash-settlement provisions.
- Golden Chest seller financing required remaining payments of $625,000 over the following year and $125,000 in 2018; the sellers held a first mortgage on the mine as security.
- The company faces mining, processing, permitting, environmental, reclamation, metal-price, equipment, labor, financing and reserve-estimation risks. A $58,000 reclamation bond was posted for Golden Chest, and the asset retirement obligation was $72,218.
- A lawsuit by Crescent Silver relating to the New Jersey Mill joint venture was dismissed for lack of jurisdiction in 2015. The plaintiff did not amend the complaint, but the filing states that refiling in state court remained possible.
- The company has no SEC-recognized mineral reserves at Golden Chest, New Jersey Mine, Toboggan, McKinley or Eastern Star. Exploration results and production estimates should therefore not be treated as proven economic reserves.
Important Facts for Investors to Verify
- Confirm the issuer’s current corporate name and whether the filing should be attributed to New Jersey Mining Company or Idaho Strategic Resources, Inc.
- Verify 2017 and subsequent production, recoveries, realized gold prices and whether the projected 8,000-ounce production target was achieved.
- Assess liquidity after the reported 2017 financings, including the maturity schedule for related-party debt, mine purchase obligations and forward gold deliveries.
- Review the economic terms, settlement mechanics and current fair value of the forward gold contracts.
- Determine whether Golden Chest or Butte Highlands has since obtained SEC-compliant mineral reserves or updated technical studies.
- Evaluate the company’s ability to generate positive operating cash flow after production, royalties, debt service, reclamation and sustaining capital costs.
- Review the status of the Crescent Silver litigation and any material environmental or permitting developments.