Business Context and Reporting Period
This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2014, for New Jersey Mining Company, the registrant identified in the filing. The request identifies Idaho Strategic Resources, Inc.; the filing text does not explain that name difference. The company is a mining and milling business focused on gold exploration, development, contract milling, joint ventures, and operation of the New Jersey Mill.
At September 30, 2014, the company consolidated the New Jersey Mill Joint Venture, in which it held a 66% interest, and GF&H Company, in which it held a 66⅔% interest. It held a 48% interest in Golden Chest LLC, accounted for using the cost method.
Financial Metrics
| Metric | Three months ended September 30, 2014 | Three months ended September 30, 2013 | Nine months ended September 30, 2014 | Nine months ended September 30, 2013 |
|---|---|---|---|---|
| Total revenue | $6,229 | $14,645 | $6,368 | $56,976 |
| Operating loss | $(383,541) | $(422,595) | $(954,198) | $(427,236) |
| Net loss | $(371,632) | $(408,925) | $(934,632) | $(533,023) |
| Net loss attributable to the company | $(371,632) | $(408,716) | $(934,632) | $(527,307) |
| Comprehensive loss | $(368,981) | $(431,170) | $(927,145) | $(543,612) |
| Basic and diluted loss per share | Nil | $0.01 | $0.01 | $0.01 |
Revenue consisted primarily of $229 of joint venture management fee income and $6,000 of contract milling and maintenance income in the quarter. The filing reports no gold sales in 2014; 2013 revenue included $10,602 of third-quarter gold sales and $21,049 for the nine-month period.
Third-quarter operating expenses were $389,770, including $146,516 of exploration expense, $147,666 of general and administrative expense, and $57,039 of milling costs. Nine-month operating expenses were $960,566, including $307,052 of exploration, $476,355 of general and administrative expense, and $108,576 of milling costs. Profit margins were not meaningful because the company generated an operating loss and minimal revenue.
Net cash used in operating activities for the nine months was $724,405, compared with $93,561 used in the prior-year period. Investing activities used $549,887, including $550,048 for property, plant and equipment and $100,000 for the GF&H acquisition. Financing activities provided $1,364,432, including $1,485,000 from common stock and warrant issuances.
Cash and cash equivalents were $726,267 at September 30, 2014, compared with $636,127 at December 31, 2013. Current assets were $889,740 and current liabilities were $222,361, implying reported working capital of approximately $667,379. Total assets were $6,883,686 and total liabilities were $535,165.
Reported debt-related obligations included $194,508 of current and non-current notes payable, $194,508 of related-party notes payable, and a $26,367 current capital-lease obligation at year-end presentation; the balance-sheet formatting does not clearly present a current/non-current split for every debt category. The related-party note carried 12% interest, with $189,549 remaining due at September 30, 2014.
Stockholders’ equity was $6,348,521, including $3,249,607 of non-controlling interest. Common shares outstanding increased to 91,760,148 from 73,760,148 at December 31, 2013. The company also had 21,200,000 outstanding warrants and 2,250,000 options, which were anti-dilutive for earnings-per-share purposes.
Material Changes Versus Prior Comparable Period
- Third-quarter revenue declined 57.5% year over year, while nine-month revenue declined 88.8%, principally because remaining gold inventory had been liquidated in 2013 and joint venture management activity declined.
- Third-quarter net loss improved to $371,632 from $408,925, primarily because the prior-year quarter included a $324,142 mineral-property write-down. The nine-month net loss worsened to $934,632 from $533,023 because the 2014 period included higher exploration and general and administrative costs and the prior-year period benefited from the absence of comparable recurring activity.
- Exploration expense increased to $146,516 in the quarter and $307,052 year to date, reflecting resumed activity at the McKinley and Eastern Star properties and other exploration areas.
- Property, plant and equipment increased to $5,453,513 from $4,908,724 at December 31, 2013, largely due to mill upgrades, land purchases, and related expansion activity.
- The company raised $1,080,000 net in the third quarter through the issuance of 12,000,000 shares at $0.10 per share, together with warrants. Including the first-quarter financing, nine-month stock and warrant proceeds totaled $1,485,000 net.
- Total liabilities declined to $535,165 from $566,201 at December 31, 2013, while accounts payable increased to $141,271 from $40,208 because of increased exploration and mill activity.
Guidance, Outlook, Risks, and Unusual Items
Management expected Juniper Resources to begin supplying mill feed from the Golden Chest Skookum project for processing at the New Jersey Mill in early December 2014. The mill was being prepared to process approximately 9,000 metric tonnes per month for 18 to 24 months. The filing does not provide a formal revenue, production, earnings, or cash-flow forecast.
During the quarter, the company completed the purchase of a controlling interest in GF&H for $100,000. GF&H owned land near the Golden Chest property and had no liabilities; the acquisition contributed $1,731 of expenses and no revenue after acquisition.
Mill improvements included completion of a gravity circuit, installation of video monitoring, planned automation, and expansion of the adjacent tailings facility. Management stated that paste-tailings technology could reduce water usage by up to 50 million gallons annually at full operation.
Key risks identified by management include volatile metal prices, uncertain operating cash flow, exploration and mining risks, the timing and success of development activities, environmental and regulatory matters, litigation, competition, financing availability, and the possibility that expected acquisition or joint-venture benefits will not materialize. Exploration spending depends on joint-venture contributions, fundraising, and mill cash flow.
The company reported no material legal proceedings, no senior securities, and no reportable mine-safety citations, fatalities, or related legal actions during the quarter. Management concluded that disclosure controls were effective and that no material change occurred in internal control over financial reporting.
Important Facts for Investors to Verify
- Verify the registrant identity and whether the filing relates to Idaho Strategic Resources, Inc. or New Jersey Mining Company.
- Verify whether Golden Chest development and mill-feed commencement occurred as anticipated after September 30, 2014.
- Assess the company’s ability to fund approximately $724,405 of year-to-date operating cash burn while maintaining exploration and mill-upgrade programs.
- Review the terms, maturity dates, and interest rates of related-party notes, other notes payable, and remaining capital-lease obligations.
- Evaluate dilution from 21,200,000 warrants and 2,250,000 options, in addition to the 18,000,000 shares issued during 2014.
- Confirm the economic terms and future obligations associated with Juniper’s Golden Chest lease, including the 2% net smelter royalty and anticipated processing arrangements.
- Review whether the reported minimal revenue and continuing losses are consistent with the company’s expected transition toward contract milling and Golden Chest-related processing.