Business Context and Reporting Period
New Jersey Mining Company, the registrant identified in the filing, reported as a development-stage mining company for the quarter and nine months ended September 30, 2012. The company conducts gold exploration in northern Idaho, operates the New Jersey mineral processing plant, and provides drilling, engineering, processing, and management services through joint ventures. The filing metadata identifies Idaho Strategic Resources, Inc.; investors should verify the registrant-name relationship.
The company consolidated its 67%-owned New Jersey Mill Joint Venture and accounted for its 50% interest in Golden Chest LLC under the equity method beginning January 1, 2012. There were 45,305,862 common shares outstanding as of November 1, 2012.
Financial Performance and Position
| Metric | Three months ended September 30, 2012 | Three months ended September 30, 2011 | Nine months ended September 30, 2012 | Nine months ended September 30, 2011 |
|---|---|---|---|---|
| Revenue | $22,194 | $502,142 | $902,032 | $1,010,765 |
| Operating income (loss) | $(93,193) | $120,778 | $147,766 | $112,650 |
| Net income (loss) attributable to the company | $(130,195) | $116,675 | $(595,842) | $115,960 |
| Net income (loss) per share | Nil | Nil | $(0.01) | Nil |
| Net cash provided by operating activities | Not separately reported | Not separately reported | $284,780 | $91,188 |
Third-quarter revenue declined 95.6% year over year, primarily because Golden Chest drilling and contracting activity was absent. Nine-month revenue declined 10.8%. The third-quarter operating margin was approximately negative 419.9%, compared with approximately 24.1% in the prior-year quarter; the nine-month operating margin was approximately 16.4%, compared with 11.1% in the prior-year period.
- Cash and cash equivalents were $65,512 at September 30, 2012, down from $612,989 at December 31, 2011 and $437,564 at September 30, 2011.
- Total assets were $6.48 million, including $5.06 million of net property, plant, and equipment.
- Total liabilities were $675,817, including $252,310 of current liabilities and $423,507 of non-current liabilities. The filing presents total debt-related obligations, including notes payable, related-party obligations, and capital leases, but does not provide a single consolidated debt total.
- Current assets of $198,895 were below current liabilities of $252,310, implying a current ratio of approximately 0.79.
- Cash flow from investing activities was $(1.82) million, including $1.09 million of property, plant, and equipment purchases and a $730,000 contribution to Golden Chest LLC.
- Cash flow from financing activities was $983,777, largely reflecting $989,031 of contributions from the noncontrolling interest in the Mill Joint Venture.
Material Changes Versus the Prior Comparable Period
- Revenue and profitability deteriorated sharply in the third quarter as Golden Chest exploration and contracting activity ceased, producing a $130,195 attributable loss versus $116,675 of attributable income in the third quarter of 2011.
- The company began recognizing its proportional share of Golden Chest LLC losses under the equity method. Its share of the loss was $755,439 for the first nine months of 2012, including $40,647 in the third quarter.
- The company funded $730,000 of Golden Chest LLC during the first nine months, while exploration at the project was quiescent during the third quarter because of the partners’ financial conditions.
- The New Jersey mill processed approximately 9,000 tonnes of United Silver Corp. ore during the third quarter, but marketing and mining problems caused the mill to be idled late in the quarter. The company stated that the mill would likely remain idle through the remainder of 2012.
- Property, plant, and equipment increased from $3.97 million at December 31, 2011 to $5.06 million at September 30, 2012, primarily because of increased investment in the Mill Joint Venture.
- Noncontrolling interest in the Mill Joint Venture increased from $2.21 million to $3.19 million, reflecting partner contributions.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- No gold production was planned for 2012. Golden Chest activities were limited to exploration intended to increase resources and reserves before a production decision.
- Additional financing would be necessary in 2012–2013 if Marathon Gold did not exercise its option to increase its Golden Chest ownership to 60% by paying $3.5 million by November 2012.
- Future exploration spending depends substantially on contributions from joint-venture partners. The company stated that cash management would require adjusting exploration expenditures to available operating cash and financing.
- The company identified risks including metal-price volatility, uncertain cash flows, exploration and mining risks, competition, litigation, environmental matters, government regulation, and the possibility that actual results will differ materially from forward-looking statements.
- Related-party transactions included a $223,807 property-purchase note from a company controlled by the chief executive officer, bearing 12% interest and payable over 48 monthly payments. The remaining amount due at September 30, 2012 was $223,199.
- The company is pursuing litigation concerning whether the East Fork Eagle Creek Road near Murray, Idaho, is a public right-of-way across federal land. The filing states that a decision on partial summary judgment was pending.
- The company reported no material changes to internal control over financial reporting, no senior securities defaults, and no reportable mine-safety citations, fatalities, or related legal actions during the quarter.
Investor Verification Priorities
- Verify the relationship between Idaho Strategic Resources, Inc. and the New Jersey Mining Company registrant name used throughout this 2012 filing.
- Confirm whether Marathon Gold exercised its Golden Chest ownership option and whether the anticipated $3.5 million funding was received after the reporting date.
- Assess the company’s liquidity following the decline to $65,512 of cash and the sub-1.0 current ratio.
- Verify the status and restart prospects of the New Jersey mill and the financial condition of United Silver Corp.
- Review Golden Chest LLC’s underlying operating results, funding requirements, and the basis for the $755,439 equity-method loss.
- Reconcile debt maturities, related-party obligations, capital leases, and any financing completed after September 30, 2012.