Idaho Strategic Resources, Inc. (formerly New Jersey Mining Company) — FY2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015. The filing identifies the registrant as New Jersey Mining Company; the company subsequently became Idaho Strategic Resources, Inc. The business focuses on gold, silver and base-metal exploration, mine development, mineral processing and royalties in the western United States.
Business context and operating developments
- The New Jersey Mill processed Golden Chest ore from December 2014 through September 2015. Gold Hill/Juniper terminated its Golden Chest lease in September 2015 after mining approximately 40,840 metric tonnes and producing approximately 8,000 ounces of gold.
- In December 2015, the company acquired the remaining 52.22% interest in Golden Chest LLC for $180,000 plus a 2% net smelter royalty, becoming the 100% owner. The acquisition included assumption of a property note.
- The New Jersey Mill has nominal capacity of approximately 360 tonnes per day. Crescent Silver, the mill joint-venture partner, produced no ore during 2015.
- The company’s principal properties include Golden Chest, the New Jersey Mine and Mill, McKinley, Eastern Star and Toboggan. The filing states that none had SEC-recognized mineral reserves at December 31, 2015.
Financial results and key metrics
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Total revenue | $1,891,173 | $92,538 | +$1,798,635 |
| Milling revenue | $1,886,970 | $92,165 | Substantial increase |
| Operating loss | $(444,072) | $(1,463,057) | Loss narrowed |
| Net loss | $(282,088) | $(1,436,129) | Loss narrowed by $1,154,041 |
| Net loss attributable to NJMC | $(245,774) | $(1,433,634) | Loss narrowed |
| Net cash used in operations | $(117,305) | $(1,204,681) | Use of cash declined |
| Cash and cash equivalents | $62,275 | $336,524 | Down $274,249 |
| Total assets | $7,824,599 | $6,814,179 | Up $1,010,420 |
| Total liabilities | $2,008,052 | $860,329 | Up $1,147,723 |
- Milling revenue less milling expense produced approximately $623,039 of mill-level contribution before corporate, exploration, depreciation and other costs. This is a calculated figure, not a separately reported segment profit.
- Calculated total operating margin was approximately (23.5%) in 2015 versus approximately (1,581.0%) in 2014, reflecting the sharp increase in revenue.
- Calculated net margin was approximately (14.9%) in 2015 versus approximately (1,551.7%) in 2014.
- Exploration expense declined to $200,587 from $435,601. Capital expenditures were $133,260, and the company invested approximately $191,374 in additional mill facilities according to management’s discussion.
Liquidity, debt and capital structure
- Current assets were $204,697 against current liabilities of $649,329, implying negative working capital of approximately $444,632.
- Debt consisted of approximately $1,349,019 of notes payable before discount, including $572,806 due within one year and $776,213 due thereafter. Related-party notes included $545,208 remaining under a 5% note from President John Swallow and $141,033 owed to Mine Systems Design.
- Cash flows from operations, investing and financing were $(117,305), $(316,718) and $159,774, respectively. The company ended the year with only $62,275 in cash.
- No common stock was issued for cash in 2015. The company issued 1.5 million stock options during the year and had 10.2 million warrants and 5.75 million options outstanding at year-end.
- The audit report and management disclosures include a going-concern qualification. Management stated that the company does not have sufficient cash to fund normal operations and debt obligations for the next 12 months without increased milling or mining revenue, liability deferrals and/or additional financing.
Material changes versus 2014
- Revenue increased primarily because the New Jersey Mill processed Golden Chest ore for approximately nine months.
- The net loss narrowed materially, although the company remained loss-making and cash flow from operations remained negative.
- Cash declined by approximately 81.5%, from $336,524 to $62,275.
- Mineral properties increased to $1,907,089 from $557,458, primarily due to the Golden Chest acquisition. Total notes payable increased substantially in connection with the Golden Chest property, equipment financing and related-party funding.
- The company recorded a $164,696 gain from remeasurement of its previously held Golden Chest interest, a $125,000 gain from forfeiture of the remaining milling advance, and a $95,598 impairment of mineral properties.
- The company recorded $148,344 of stock-based compensation in 2015. No equity capital was raised during the year, compared with $1.485 million of net proceeds from stock and warrant issuances in 2014.
Outlook, management commentary and risks
- Management planned to restart underground mining at Golden Chest and resume milling in the second or third quarter of 2016, subject to obtaining required startup funding and favorable operating conditions.
- Subsequent to year-end, the company agreed to acquire a 50% interest in the Butte Highlands Joint Venture for $225,000 in cash and 3 million restricted shares valued at $210,000. The transaction was funded using a related-party promissory note.
- Management’s strategy is to generate cash from milling fees, royalties and potential mine operations while using joint ventures and partnerships to reduce capital requirements.
- Key risks include limited operating history, continuing losses, insufficient liquidity, dependence on financing and future mill feed, volatile gold and silver prices, mining and processing risks, permitting delays, environmental and reclamation liabilities, equipment failures, reliance on key personnel and the absence of SEC-recognized mineral reserves.
- A note receivable of $58,386 from Premium Exploration was outstanding; Premium Exploration had filed for bankruptcy, although the company remained a creditor and had not recorded a reserve for uncollectibility.
- Crescent Silver filed litigation seeking damages exceeding $75,000 in connection with the mill joint venture. The case was dismissed on jurisdictional grounds, but the filing states that Crescent Silver was not barred from refiling in state court.
Important facts for investors to verify
- Whether Golden Chest mining and New Jersey Mill operations actually resumed as planned in 2016 and generated sustainable positive cash flow.
- The company’s ability to fund near-term debt maturities, working capital, reclamation obligations and required restart costs with only $62,275 of year-end cash.
- The terms, security and repayment schedule of the Golden Chest property note and related-party financing.
- Whether the Golden Chest project has established economically recoverable reserves; the 2015 filing reports no SEC-recognized reserves.
- The status and potential financial exposure of the Crescent Silver dispute and the Premium Exploration bankruptcy claim.
- Subsequent ownership, financing and operating results related to the Butte Highlands Joint Venture acquisition.