Business Context and Reporting Period
This unaudited Form 10-Q covers the three months ended March 31, 2017. The filing identifies the registrant as New Jersey Mining Company, not Idaho Strategic Resources, Inc.; investors should verify the issuer identity and any subsequent name change. The company operates gold mining and milling assets, including the Golden Chest Mine and the New Jersey Mill Joint Venture.
Golden Chest entered production in the fourth quarter of 2016, and the New Jersey Mill processed Golden Chest ore during the quarter. The company reported 108,893,704 common shares outstanding as of May 1, 2017.
Key Financial Metrics
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Total revenue | $689,318 | $43,965 |
| Operating loss | $(84,860) | $(168,265) |
| Net loss | $(274,178) | $(190,503) |
| Net loss attributable to the company | $(263,145) | $(190,480) |
| Net loss margin | Approximately 39.8% | Approximately 433.3% |
| Cash used in operating activities | $(97,379) | $(69,828) |
| Cash used in investing activities | $(28,980) | $(304,369) |
| Cash provided by financing activities | $598,831 | $323,504 |
| Cash and cash equivalents at period end | $627,305 | $11,582 |
Gold sales were $689,318 in Q1 2017; the filing shows no separate milling income for the quarter. Approximately 6,100 tonnes of ore were processed at an average head grade of 4.85 grams per tonne and average recovery of 84.7%, with 571 ounces sold.
Total assets were $9.39 million at March 31, 2017, compared with $8.86 million at December 31, 2016. Current assets were $1.06 million and current liabilities were $2.68 million, resulting in a current-liability excess of $1.62 million. Total liabilities were $3.34 million, versus $3.71 million at year-end 2016.
Debt and debt-like obligations included $964,400 of related-party notes and accrued interest, $675,445 of notes payable before discount, and forward gold contracts carried at a fair value liability of $1.36 million. The company also recorded a $143,214 loss from the change in fair value of forward gold contracts.
Material Changes Versus the Prior Comparable Period
- Revenue increased to $689,318 from $43,965 as Golden Chest production and milling commenced; however, the company remained unprofitable.
- Net loss increased to $274,178 from $190,503, primarily because of production-related costs and the new forward-gold-contract fair-value charge.
- Production costs increased to $527,766 from $51,850, while depreciation and amortization increased to $27,280 from $2,098.
- Exploration expense decreased to $18,652 from $41,423 as the company focused on production ramp-up.
- Operating cash use increased to $97,379 from $69,828. Financing provided $598,831, including approximately $1.04 million of net proceeds from common-stock and warrant sales, partially offset by debt repayments and forward-contract payments.
- Cash increased by $472,472 during the quarter, to $627,305 from $154,833 at December 31, 2016.
- The company issued 11.7 million shares in first-quarter private placements at $0.10 per share and had 13.59 million warrants outstanding at March 31, 2017, creating potential dilution.
Guidance, Outlook, Risks, and Unusual Items
Management planned to expand the Golden Chest open pit and add underground production during the second or third quarter of 2017. Management stated that first-quarter production and planned production for the remainder of the year were expected to improve cash flow. No formal production, revenue, earnings, or cost guidance was provided.
The company disclosed substantial doubt indicators, including a $1.62 million excess of current liabilities over current assets, a $12.55 million accumulated deficit, continuing operating losses, and significant near-term debt obligations. Related-party debt holders indicated willingness to defer $1.05 million of current debt and forward-gold payments. Management also considered restructuring a $500,000 mineral-property payment due within the next twelve months and concluded that planned production, equity financing, and potential debt restructuring supported its going-concern assessment.
Forward gold contracts require delivery of gold or, at the counterparties’ option, cash based on applicable gold prices. At March 31, 2017, 632 ounces were scheduled for delivery during the remainder of 2017 and 526.5 ounces during 2018. The contracts are with parties connected to company officers, creating related-party and commodity-price exposure.
Principal risks include limited operating history, continuing losses, dependence on successful mine ramp-up, fluctuations in gold prices and recoveries, access to additional capital, debt refinancing, mine development and safety, permitting and reclamation obligations, equipment and supply availability, joint-venture relationships, management conflicts of interest, and potential dilution from outstanding warrants and options.
The filing states that disclosure controls were effective as of March 31, 2017, with no material change in internal control over financial reporting. No legal proceedings or reportable mine-safety events were disclosed.
Important Facts for Investors to Verify
- Confirm whether this filing belongs to Idaho Strategic Resources, Inc. or New Jersey Mining Company and reconcile the issuer name with the requested company.
- Verify the sustainability of Golden Chest production, including grades, recoveries, ounces sold, operating costs, and the timing of underground production.
- Reconcile negative operating cash flow of $97,379 with management’s statement that first-quarter production generated positive cash flow.
- Review the maturity, restructuring status, and related-party nature of debt and forward gold obligations.
- Assess the company’s ability to fund operations given the $1.62 million working-capital deficit and continuing net losses.
- Evaluate dilution from 13.59 million warrants, 7.5 million options, and the 11.7 million shares issued during the quarter.
- Monitor gold prices and the fair-value exposure associated with the forward gold contracts.