Business Context and Reporting Period
The filing is New Jersey Mining Company’s unaudited Form 10-Q for the quarter and six months ended June 30, 2011. The company describes itself as a development-stage mining company focused primarily on gold exploration in northern Idaho, with silver and base metals as secondary targets. The filing consolidates the company and its majority-owned New Jersey Mill Joint Venture.
The company’s 2011 strategy emphasized exploration and joint ventures rather than near-term mining and milling production. The filing identifies core drilling, engineering services, joint venture management, and development of the New Jersey mineral processing plant as key activities.
Financial Results and Key Metrics
| Metric | Three months ended June 30, 2011 | Six months ended June 30, 2011 | Comparable 2010 period |
|---|---|---|---|
| Revenue and other development-stage income | $278,053 | $508,623 | $18,152 for the three months; $18,152 for the six months |
| Net income (loss), consolidated | $501 income | $444,290 loss | $272,906 loss for the three months; six-month value not clearly stated in the MD&A comparison table |
| Net income (loss) attributable to the company | $1,210 income | $444,290 loss | $714 income for the three months; six-month value not clearly stated in the provided text |
| Net cash provided by operating activities | Not separately presented | $214,390 | $455,126 used in the six-month period |
Second-quarter revenue increased substantially because of drilling, exploration, joint venture management, and engineering services. The consolidated second-quarter net margin was approximately 0.2%, based on reported income of $501 divided by revenue of $278,053. The six-month loss represented approximately 87% of revenue.
- Cash and cash equivalents were $552,434 at June 30, 2011, compared with $357,317 at December 31, 2010.
- Total current assets were $736,758 and current liabilities were $501,337, implying a current ratio of approximately 1.5 to 1.
- Total assets increased to $5.63 million from $3.29 million, primarily reflecting property, plant and equipment, equipment deposits, and the New Jersey Mill Joint Venture investment.
- Total liabilities increased to $895,049 from $222,359. Notes payable totaled $473,670, including $111,079 current and $362,591 non-current. Current capital-lease obligations were $7,898.
- Stockholders’ equity was $4.73 million, including $1.67 million of noncontrolling interest from United Mine Services’ investment in the New Jersey Mill Joint Venture.
- Net cash used in investing activities was $1.65 million, primarily due to $1.24 million of property, plant, and equipment purchases and a $419,458 equipment deposit.
- Net cash provided by financing activities was $1.63 million, including the $1.67 million contribution from the noncontrolling joint venture interest. The company also issued 22,800 shares for $5,000 during the second quarter.
- Basic and diluted earnings per share were reported as nil for the second quarter and $0.01 loss for the six-month period. Weighted-average shares were 45.0 million for the quarter and 42.4 million for the six months.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue rose to $278,053 from $18,152, driven primarily by increased Golden Chest drilling and related services.
- The company reported a small second-quarter consolidated profit compared with a $272,906 loss in the second quarter of 2010.
- Operating cash flow improved to $214,390 provided in the first six months of 2011 from $455,126 used in the comparable 2010 period.
- Direct production costs declined as the company redirected activity toward exploration, while drilling and exploration contract expenses increased because of higher Golden Chest drilling activity.
- Management expenses declined because certain costs were absorbed by joint ventures, and exploration expenses declined because employees were redirected to Golden Chest and drilling activities.
- Capital spending and debt increased materially as the company acquired drilling and other equipment and funded development activities.
- There was no gold production in the second quarter of 2011, compared with 26 ounces in the second quarter of 2010.
Outlook, Commentary, Risks, and Unusual Items
Marathon Gold USA contributed $4.0 million in scheduled cash funding to the Golden Chest venture, including $1.0 million at the December 2010 closing and additional contributions through June 30, 2011. Additional contributions of $1.0 million were scheduled for September 30, 2011 and November 30, 2011. Marathon also had an option to contribute an additional $3.5 million by November 30, 2012 to increase its ownership to 60%.
The company completed 2,053 meters of Golden Chest drilling during the second quarter, representing 20% of planned 2011 drilling, and purchased additional drilling equipment. No gold production was expected in 2011 because the mill was shut down for construction and Golden Chest activities were focused on exploration.
The New Jersey mineral processing plant was being expanded from 4 tonnes per hour to 15 tonnes per hour. Expansion costs were estimated at approximately $2.5 million and were expected to be funded by United Mine Services. Approximately 70% of the expansion funding had been received as of the filing. The plant was not expected to be recommissioned until late 2011.
The Silver Strand mine was considered ready for small-scale production, but the company planned to seek a buyer or joint venture partner. Newmont’s Toboggan joint venture ended after Newmont failed to complete its earn-in, and the company was seeking a new partner. The company was also seeking a partner for the Niagara-Copper Camp projects.
- Key risks include volatile metal prices, exploration and mining uncertainties, environmental and regulatory matters, litigation, uncertain cash flow, financing needs, and dependence on joint venture contributions.
- The company stated that no additional financing activities were necessary in 2011 unless exploration plans were expanded; this expectation depends on operating cash flow and partner funding.
- The company remains in the development stage because revenue from planned operations was not sufficient to cover all corporate costs.
- Related-party activity was significant: $127,033 was owed by Marathon Gold and Golden Chest LLC, and the company recorded drilling, management-fee, and engineering-service income from related parties.
- New equipment acquired during 2011 was financed partly with notes payable. The Hagby drill-rig note was personally guaranteed by the company’s president and vice president.
- The company is a plaintiff in litigation concerning whether the East Fork Eagle Creek Road near Murray, Idaho, is a public right-of-way across federal land.
- Management concluded that disclosure controls were effective and reported no material changes in internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Verify the status, funding, ownership percentages, and remaining obligations under the Golden Chest and New Jersey Mill joint ventures.
- Confirm whether scheduled Marathon Gold and United Mine Services contributions were received after June 30, 2011.
- Assess the company’s ability to fund exploration, debt repayments, equipment purchases, and mill expansion without additional equity or debt financing.
- Review the economics, timing, and completion status of the New Jersey processing plant expansion and any resulting production commitments.
- Evaluate related-party receivables, service income, payable balances, and the terms of equipment notes and personal guarantees.
- Monitor the East Fork Eagle Creek Road litigation and any environmental, reclamation, permitting, or mining-related contingencies.
- Confirm the apparent filing-name discrepancy: the submitted filing identifies the registrant as New Jersey Mining Company, while the request metadata identifies Idaho Strategic Resources, Inc.