Business Context and Reporting Period
New Jersey Mining Company, identified in the request metadata as Idaho Strategic Resources, Inc., filed this unaudited Form 10-Q for the quarter ended June 30, 2017. The company operated the Golden Chest gold mine and New Jersey Mill Joint Venture, with production primarily from the Golden Chest open pit. The filing states that underground production was expected to begin in the second half of 2017. The company had 108,893,704 common shares outstanding as of August 1, 2017.
Financial Performance and Condition
| Metric | Three Months Ended June 30, 2017 | Six Months Ended June 30, 2017 | Comparable 2016 Period |
|---|---|---|---|
| Revenue | $1,262,690 | $1,952,008 | $48,312 / $92,277 |
| Operating income (loss) | $216,613 | $119,708 | $(85,935) / $(254,200) |
| Net income (loss) attributable to the company | $200,672 | $(62,473) | $(97,554) / $(288,034) |
| Net margin | 15.9% | (3.2%) | Not meaningful due to losses |
| Net cash from operating activities | Not provided | $10,623 | $(65,023) |
Second-quarter revenue increased substantially as Golden Chest production ramped up. The company processed approximately 7,425 tonnes of open-pit ore during the quarter at an average head grade of 5.29 grams per tonne and average recovery of 87.7%, selling 1,319 ounces of gold. Six-month revenue was $1.95 million, compared with $92,277 in the prior-year period.
Six-month operating expenses were $1.83 million, including $1.30 million of production costs, $99,334 of pre-development expenses, and $59,991 of depreciation and amortization. The six-month results included a $141,596 change in the fair value of forward gold contracts, which reduced reported earnings.
Cash and cash equivalents increased to $320,075 at June 30, 2017 from $154,833 at December 31, 2016. Working capital was negative: current assets were $869,909 versus current liabilities of $1,470,553. Total assets were $9.27 million and total liabilities were $2.99 million at quarter-end.
Debt and debt-like obligations included $539,422 of notes payable, $937,473 of related-party notes and accrued interest, and $1,194,109 of forward gold contract liabilities. Notes payable included $375,000 of mineral-property obligations payable in quarterly installments through May 2018. The company also had a $91,088 asset retirement obligation.
Material Changes Versus the Prior Comparable Period
- Revenue increased from $48,312 to $1,262,690 for the quarter and from $92,277 to $1,952,008 for the six months, reflecting Golden Chest mining and milling activity.
- Second-quarter attributable earnings improved to $200,672 from a $97,554 loss; the six-month attributable loss narrowed to $62,473 from $288,034.
- Operating cash flow improved to $10,623 from an outflow of $65,023, although cash generation remained limited.
- Financing activities provided $272,339 during the first half of 2017, including $1.041 million of common stock and warrant proceeds, partially offset by debt and forward-contract payments.
- Total liabilities declined by approximately $726,491 from December 31, 2016, while total equity increased to $6.29 million from $5.15 million.
- Shares outstanding increased to 108.9 million from 97.2 million at year-end 2016, primarily from private placements and other equity transactions.
- The company completed private placements during the first quarter, issuing 11.7 million shares for approximately $850,000 of net proceeds according to the filing’s Part II disclosure; the filing elsewhere describes total first-quarter private-placement proceeds of approximately $1.14 million to $1.4 million, so the precise aggregate amount should be reconciled.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management expected to expand the Golden Chest open pit and begin underground production in the third quarter or second half of 2017. Management stated that planned production, existing cash, equity financing, and potential debt restructuring were expected to fund operations and contractual obligations for the next 12 months.
The filing includes a going-concern discussion. The company has a history of operating losses and negative operating cash flow and remains dependent on production growth, profitable operations, and access to equity capital. Management was considering restructuring the mineral-property note, including $375,000 payable within the following 12 months.
Forward gold contracts required remaining deliveries of 459.5 ounces to Ophir and 563.5 ounces to GVC at June 30, 2017, subject in part to cash settlement alternatives. These contracts had a total fair-value liability of $1.19 million and create exposure to gold prices and production performance.
The company sold all of its gold production during the period to H&H Metal, creating customer concentration. Other stated risks include volatile gold prices, mining and processing risks, permitting and regulatory requirements, reclamation costs, mineral-estimate uncertainty, equipment and supply constraints, dependence on financing and key personnel, joint-venture risks, and potential conflicts of interest involving related parties.
The company reported no material legal proceedings, no material changes in internal control over financial reporting, and no reportable mine-safety events during the quarter. Subsequent to June 30, 2017, two notes payable to company president John Swallow were amended to extend balloon payments to February 2019.
Important Facts for Investors to Verify
- Reconcile the issuer identity: the supplied filing names New Jersey Mining Company, while the request identifies Idaho Strategic Resources, Inc.
- Verify whether the planned underground production began on schedule and whether production, grades, recoveries, and gold sales met expectations.
- Assess liquidity against $1.47 million of current liabilities, forward-gold obligations, and the $375,000 mineral-property payment due within 12 months.
- Reconcile the differing descriptions of first-quarter private-placement proceeds and share issuances.
- Monitor the company’s ability to generate consistently positive operating cash flow without continued equity financing.
- Evaluate exposure to gold-price movements, forward-contract delivery obligations, customer concentration, and related-party debt.
- Confirm the status of the proposed debt restructuring and the timing and cost of reclamation and underground development.