UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File No. 000-28837
NEW JERSEY MINING COMPANY
(Exact name of Registrant as specified in its charter)
Idaho
82-0490295
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
201 N. Third Street, Coeur d’Alene, ID 83814
(Address of principal executive offices)
Registrant’s telephone number: (208) 625-9001
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, no par value
NJMC
OTCQB
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer ¨
Accelerated Filer ¨
Non-Accelerated Filer x
Small Reporting Company x
Emerging Growth Company ¨
Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes ¨ No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
At May 1, 2020, 125,293,625 shares of the registrant’s common stock were outstanding.
1
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 2020
TABLE OF CONTENTS
PART I-FINANCIAL INFORMATION3
Item 1: Consolidated Financial Statements3
Item 2: Management's Discussion AND Analysis of Financial Condition and Results of Operations15
Item 3: Quantitative and Qualitative Disclosures About Market Rish17
Item 4: Controls and Procedures17
PART II - OTHER INFORMATION18
Item 1. Legal Proceedings18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.18
Item 3. Defaults upon Senior Securities18
Item 4. Mine Safety Disclosures18
Item 5. Other Information18
Item 6. Exhibits19
2
PART I-FINANCIAL INFORMATION
Item 1: CONSOLIDATED FINANCIAL STATEMENTS
New Jersey Mining Company
Consolidated Balance Sheets (Unaudited)
March 31,
2020
December 31,
2019
ASSETS
Current assets:
Cash and cash equivalents
$
299,928
217,796
Gold sales receivable
276,491
305,924
Inventories
218,854
225,146
Joint venture receivable
2,659
2,410
Other current assets
118,283
158,833
Total current assets
916,215
910,109
Property, plant and equipment, net of accumulated depreciation
6,884,697
7,015,734
Mineral properties, net of accumulated amortization
3,111,635
2,363,018
Investment in joint venture
435,000
Reclamation bond
103,320
Deposit on equipment
-
25,000
Total assets
11,450,867
10,852,181
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities
490,768
529,235
Accrued payroll and related payroll expenses
81,790
80,402
Notes payable related parties, current portion
35,451
34,924
Notes payable, current portion
309,139
303,987
Total current liabilities
917,148
948,548
Asset retirement obligation
165,724
163,369
Notes payable related parties, long term
163,259
181,750
Convertible debt
860,000
Convertible debt-related party
Notes payable, long term
822,289
901,537
Total long term liabilities
2,036,272
1,246,656
Total liabilities
2,953,420
2,195,204
Commitments (Note 10)
Stockholders’ equity:
Preferred stock, no par value, 1,000,000 shares authorized; no shares issued
or outstanding
Common stock, no par value, 200,000,000 shares authorized; March 31, 2020-123,812,144 and December 31, 2019-123,812,144 shares issued and outstanding
17,682,999
Accumulated deficit
(12,176,178)
(12,029,910)
Total New Jersey Mining Company stockholders’ equity
5,506,821
5,653,089
Non-controlling interest
2,990,626
3,003,888
Total stockholders' equity
8,497,447
8,656,977
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
3
Consolidated Statements of Operations (Unaudited)
For the Three Month Periods Ended March 31, 2020 and 2019
Revenue:
Gold sales
1,400,834
1,144,675
Total revenue
Costs of Sales:
Cost of sales and other direct production costs
1,167,390
955,793
Depreciation and amortization
135,533
128,951
Total costs of sales
1,302,923
1,084,744
Gross profit
97,911
59,931
Other operating expenses:
Pre-development expense
65,567
Exploration
41,678
72,882
Loss on write off of equipment
9,537
Management
37,329
37,815
Professional services
72,411
56,007
General and administrative
86,488
49,296
Total other operating expenses
247,443
281,567
Operating income (loss)
(149,532)
(221,636)
Other (income) expense:
Timber revenue
(18,305)
Interest income
(1,577)
(14,952)
Interest expense
32,539
16,438
Total other (income) expense
12,657
1,486
Net income (loss)
(162,189)
(223,122)
Net income (loss) attributable to non-controlling interest
(15,921)
(17,718)
Net income (loss) attributable to New Jersey Mining Company
(146,268)
(205,404)
Net income (loss) per common share-basic and diluted
Nil
Weighted average common shares outstanding-basic
123,812,144
123,413,569
4
Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
Common Stock
Accumulated
Shares
Amount
Deficit Attributable to New Jersey Mining Company
Non-Controlling
Interest
Stockholders’
Equity
Balance, January 1, 2019
17,492,980
(11,420,305)
3,073,232
9,145,907
Contribution from non-controlling interest in Mill JV
2,357
Balance, March 31, 2019
(11,625,709)
3,057,871
8,925,142
Balance January 1, 2020
Balance, March 31, 2020
5
Consolidated Statements of Cash Flows (Unaudited)
Cash flows from operating activities:
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Accretion of asset retirement obligation
2,355
2,218
Change in operating assets and liabilities:
29,433
(90,728)
6,292
(20,507)
(249)
(306)
40,550
(43,694)
(38,467)
133,415
1,388
14,652
Net cash provided (used) by operating activities
24,183
(99,121)
Cash flows from investing activities:
Purchases of property, plant and equipment
(11,549)
(36,208)
Purchase of mineral property
(726,101)
Net cash provided (used) by investing activities
(737,650)
Cash flows from financing activities:
Principal payments on notes payable
(74,096)
(70,333)
Principal payments on notes payable, related parties
(17,964)
(22,736)
Issuance of convertible debt
885,000
Contributions from non-controlling interest
Net cash provided (used) by financing activities
795,599
(90,712)
Net change in cash and cash equivalents
82,132
(226,041)
Cash and cash equivalents, beginning of period
248,766
Cash and cash equivalents, end of period
22,725
Non-cash investing and financing activities:
Deposit on property applied to purchase of mineral property
6
Notes to Consolidated Financial Statements (Unaudited)
1. The Company and Significant Accounting Policies
These unaudited interim consolidated financial statements have been prepared by the management of New Jersey Mining Company (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of the Company’s management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the interim consolidated financial statements have been included.
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company's financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions, which could have a material effect on the reported amounts of the Company's financial position and results of operations. Operating results for the three month period ended March 31, 2020 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2020.
For further information refer to the financial statements and footnotes thereto in the Company’s audited financial statements for the year ended December 31, 2019 as filed with the Securities and Exchange Commission.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its majority-owned subsidiary, the New Jersey Mill Joint Venture (“NJMJV”). Intercompany accounts and transactions are eliminated. The portion of entities owned by other investors is presented as non-controlling interests on the consolidated balance sheets and statements of operations.
Revenue Recognition
Gold Revenue Recognition and Receivables-Sales of gold sold directly to customers are recorded as revenues and receivables upon completion of the performance obligations and transfer of control of the product to the customer. For concentrate sales, the performance obligation is met, the transaction price can be reasonably estimated, and revenue is recognized generally at the time of shipment at estimated forward prices for the anticipated month of settlement. Due to the time elapsed from shipment to the customer and the final settlement with the customer, prices at which sales of our concentrates will be settled are estimated. Previously recorded sales and accounts receivable are adjusted to estimated settlement metals prices until final settlement by the customer. For sales of dore’ and metals from doré, the performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of control of the agreed-upon metal quantities to the customer by the refiner.
Sales and accounts receivable for concentrate shipments are recorded net of charges by the customer for treatment, refining, smelting losses, and other charges negotiated with the customers. Charges are estimated upon shipment of concentrates based on contractual terms, and actual charges typically do not vary materially from estimates. Costs charged by customers include fixed costs per ton of concentrate and price escalators. Refining, selling and shipping costs related to sales of doré and metals from doré are recorded to cost of sales as incurred. See Note 4 for more information on our sales of products.
Other Revenue Recognition-Revenue from harvest of raw timber is recognized when the performance obligation under a contract and transfer of control of the timber have both been completed. Sales of timber found on the Company’s mineral properties are not a part of normal operations.
Inventories are stated at the lower of full cost of production or estimated net realizable value based on current metal prices. Costs consist of mining, transportation, and milling costs including applicable overhead, depreciation, depletion and amortization relating to the operations. Costs are allocated based on the stage at which the ore is in the production process. Supplies inventory is stated at the lower of cost or estimated net realizable value.
7
1. The Company and Significant Accounting Policies, Continued
Fair Value Measurements
When required to measure assets or liabilities at fair value, the Company uses a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used. The Company determines the level within the fair value hierarchy in which the fair value measurements in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Level 1 uses quoted prices in active markets for identical assets or liabilities, Level 2 uses significant other observable inputs, and Level 3 uses significant unobservable inputs. The amount of the total gains or losses for the period that are included in earnings are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date.
At March 31, 2020 and December 31, 2019, the Company determined they had no assets or liabilities that required measurement at fair value on a recurring basis.
Reclassifications
Certain prior period amounts have been reclassified to conform to the 2020 financial statement presentation. Reclassifications had no effect on net income (loss), stockholders’ equity, or cash flows as previously reported.
New Accounting Pronouncement
Accounting Standards Updates Adopted
In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The update removes, modifies and makes additions to the disclosure requirements on fair value measurements. The update was adopted as of January 1, 2020, and its adoption did not have a material impact on the Company’s consolidated financial statements.
Accounting Standards Updates to Become Effective in Future Periods
In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The update contains a number of provisions intended to simplify the accounting for income taxes. The update is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Management is evaluating the impact of this update on the Company’s consolidated financial statements.
2.Going Concern
The Company is currently producing from both the open-pit and underground at the Golden Chest Mine. In early March 2019, the Company increased production by 40% as more ore became available from the open pit and underground which has contributed to positive cash flows from operating activities for the remainder of 2019 and the first quarter of 2020. In the past, the Company has been successful in raising required capital from sale of common stock, forward gold contracts, and debt. As a result of its planned production, equity sales and potential debt borrowings or restructurings, management believes cash flows from operations and existing cash are sufficient to conduct planned operations and meet contractual obligations for the next 12 months.
3. Inventories
At March 31, 2020 and December 31, 2019, the Company’s inventories consisted of the following:
December 31, 2019
Gold concentrate
191,570
197,862
Materials and supplies
27,284
Total
At March 31, 2020, and December 31, 2019 gold concentrate inventory is carried at allocated production costs as they are lower than estimated net realizable value based on current metal prices.
8
4. Sales of Products
Our products consist of both gold floatation concentrates which we sell to a single broker (H&H Metal), and an unrefined gold-silver product known as doré which we sell to a precious metal refinery. Revenue is recognized upon the completion of the performance obligations and transfer of control of the product to the customer, and the transaction price can be determined or reasonably estimated.
For gold floatation concentrate sales, the performance obligation is met when the transaction price can be reasonably estimated and revenue is recognized generally at the time when risk is transferred to H&H Metal based on contractual terms. Based on contractual terms, we have determined the performance obligation is met and title is transferred to H&H Metal when the Company receives its first provisional payment on the concentrate because, at that time, 1) legal title is transferred to the customer, 2) the customer has accepted the concentrate lot and obtained the ability to realize all of the benefits from the product, 3) the concentrate content specifications are known, have been communicated to H&H Metal, and H&H Metal has the significant risks and rewards of ownership to it, 4) it is very unlikely a concentrate will be rejected by H&H Metal upon physical receipt, and 5) we have the right to payment for the concentrate. Concentrates lots that have been sold are held at our mill from 30 to 60 days, until H&H Metal provides shipping instructions.
Our concentrate sales sometimes involve variable consideration, as they can be subject to changes in metals prices between the time of shipment and their final settlement. However, we are able to reasonably estimate the transaction price for the concentrate sales at the time of shipment using forward prices for the estimated month of settlement, and previously recorded sales and accounts receivable are adjusted to estimated settlement metals prices until final settlement for financial reporting purposes. The embedded derivative contained in our concentrate sales is adjusted to fair value through earnings each period prior to final settlement. Also, it is unlikely a significant reversal of revenue for any one concentrate lot will occur. As such, we use the expected value method to price the concentrate until the final settlement date occurs, at which time the final transaction price is known. At March 31, 2020, metals that had been sold but not final settled thus exposed to future price changes totaled 1,645 ounces of gold. The Company has received provisional payments on the sale of these ounces with the remaining amount due reflected in gold sales receivable.
Sales and accounts receivable for concentrate shipments are recorded net of charges for treatment and other charges negotiated by us with H&H Metal, which represent components of the transaction price. Charges are estimated by us upon transfer of risk of the concentrates based on contractual terms, and actual charges typically do not vary materially from our estimates. Costs charged by the customer include fixed treatment, refining and costs per ton of concentrate and may include penalty charges for arsenic, lead and zinc content above a negotiated baseline as well as excessive moisture.
For sales of metals from doré and of metals from doré, the performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of control of the agreed-upon metal quantities to the customer.
Sales of products by metal for the three month periods ended March 31, 2020 and 2019 were as follows:
Gold
1,520,699
1,241,539
Silver
3,896
2,510
Less: Smelter and refining charges
(123,761)
(99,374)
Sales by significant product type for the three month periods ended March 31, 2020 and 2019 were as follows:
Concentrate sales to H&H Metal
1,133,898
Dore sales to refinery
10,777
At March 31, 2020 and December 31, 2019, our gold sales receivable balance related to contracts with customers of $276,491 and $305,924, respectively, consist only of amounts due from H&H Metal. There is no allowance for doubtful accounts.
9
We have determined our contracts do not include a significant financing component. For doré sales, payment is received at the time the performance obligation is satisfied. Consideration for concentrate sales is variable, and we receive payment for a significant portion of the estimated value of concentrate parcels at the time the performance obligation is satisfied.
5.Related Party Transactions
At March 31, 2020 and December 31, 2019, the Company had the following notes and interest payable to related parties:
Ophir Holdings LLC, a company owned by two officers and one former officer of the Company, 6% interest, monthly payments of $3,777 with a balloon payment of $110,835 in February 2022
180,700
189,236
H&H Metals, shareholder and concentrate broker, 8% interest, balance due April 2021
18,010
27,438
198,710
216,674
Current portion
(35,451)
(34,924)
Long term portion
At March 31, 2020, $35,451 of related party debt is payable within one year and the remaining $163,259 is payable in the following year ending March 31, 2022. Related party interest expense for the three months ended March 31, 2020 and 2019 was $3,181 and $3,589, respectively. As of March 31, 2020, and December 31, 2019, there was no accrued interest payable to related parties.
During the three month period ended March 31, 2019, the Company paid $3,000 per month to the Company’s chairman of the board, Del Steiner for consulting purposes. Mr. Steiner retired in July 2019.
All sales of concentrate and the Company’s gold sales receivable are with H&H Metals, owner of 4% of the Company’s outstanding common stock. See Note 4.
In February 2020 the Company’s corporate secretary, Monique Hayes, participated in the Company’s convertible debt offering for $25,000. During the three month period ended March 31, 2020, interest expense on her note was $236. See Note 15.
The Company leases office space from certain related parties on a month to month basis. Payments under these short-term lease arrangements totaled $6,210 and $6,122 for the three months ended March 31, 2020 and 2019, respectively, and are included in general and administrative expenses on the Consolidated Statement of Operations.
6. Joint Ventures
New Jersey Mill Joint Venture Agreement
The Company owns 65% of the New Jersey Mill Joint Venture and has significant influence in its operations. Thus the venture is included in the consolidated financial statements along with presentation of the non-controlling interest. At March 31, 2020 and December 31, 2019, an account receivable existed with Crescent Silver, LLC, the other joint venture participant (“Crescent”), for $2,659 and $2,410, respectively, for shared operating costs as defined in the JV agreement.
Butte Highlands JV, LLC (“BHJV”)
On January 29, 2016, the Company purchased a 50% interest in Butte Highlands JV, LLC (“BHJV”) from Timberline Resources Corporation for $225,000 in cash and 3,000,000 restricted shares of the Company’s common stock valued at $210,000 for a total consideration of $435,000. Highland Mining, LLC (“Highland”) is the other 50% owner and manager of the joint venture. Under the agreement, Highland will fund all future project exploration and mine development costs. The agreement stipulates that Highland is manager of BHJV and will manage BHJV until such time as all mine development costs, less $2 million are distributed to Highland out of the proceeds from future mine production. The Company has determined that because it does not currently have significant influence over the joint venture’s activities, it accounts for its investment on a cost basis. The Company purchased the interest in the BHJV to provide additional opportunities for exploration and development and expand the Company’s mineral property portfolio.
10
7.Earnings per Share
For the three month periods ended March 31, 2020 and 2019, potentially dilutive shares including outstanding stock options (Note 12) and warrants (Note 11) and convertible debt (Note 15) were excluded from the computation of diluted loss per share because they were anti-dilutive due to net losses in those periods.
8. Property, Plant, and Equipment
Property, plant and equipment at March 31, 2020 and December 31, 2019 consisted of the following:
Mill
Land
225,289
Building
536,193
Equipment
4,192,940
4,954,422
Less accumulated depreciation
(798,272)
(759,617)
Total mill
4,156,150
4,194,805
Building and equipment
Buildings
143,725
2,630,273
2,628,261
2,773,999
2,771,986
(912,921)
(818,527)
Total building and equipment
1,861,077
1,953,459
Bear Creek
266,934
BOW
230,449
Eastern Star
250,817
Gillig
79,137
Highwater
40,133
Total land
867,470
9.Mineral Properties
Mineral properties at March 31, 2020 and December 31, 2019 consisted of the following:
New Jersey
248,289
McKinley
200,000
Golden Chest
1,677,972
Butte Potosi
274,440
Alder Gulch
751,101
Less accumulated amortization
(40,167)
(37,683)
The Company received a non-refundable down payment of $50,000 toward the sale of the McKinley property in the third quarter of 2019. As of March 31 2020, negotiations with the interested parties involving this sale continue.
In December of 2019, the Company abandoned its Crown Point property and recognized a loss of $333,333.
In February 2020, the Company purchased property located in Alder Gulch in Shoshone County, Idaho which consists of 368 acres of real property, including patented mining claims with both surface and mineral rights.
11
10. Notes Payable
At March 31, 2020 and December 31, 2019, notes payable are as follows:
March 31, 2020
Property with shop, 48 month note payable, 6.49% interest rate payable monthly through August 2023, monthly payments of $707
25,941
27,624
Compressor, 48 month note payable, 5.25% interest rate payable monthly through November 2021, monthly payments of $813
16,797
19,018
Atlas Copco loader, 60 month note payable, 10.5% interest rate payable monthly through June 2023, monthly payments of $3,550
116,796
124,238
Caterpillar excavator and skid steer, 48 month note payable, 6.8% interest rate payable monthly through June 2022, monthly payments of $2,392
59,742
65,835
2018 pick-up, 72 month note payable, 9.0% interest rate payable monthly through June 2024, monthly payments of $701
29,444
30,863
2008 pick-up, 60 month note payable, 9.0% interest rate payable monthly through June 2023, monthly payments of $562
18,843
20,088
Caterpillar 938 loader, 60 month note payable, 6.8% interest rate payable monthly through August 2023, monthly payments of $3,751
136,884
145,709
MultiQuip DCA70 Generator, 48 month note payable, 7.25% interest rate payable through August 2022, monthly payments of $635
16,852
18,433
CaterpillarAD22 underground truck, 48 month note payable, 6.45% interest rate payable through June 2023, monthly payments of $12,979
454,700
485,896
Paus 2 yrd. LHD, 60 month note payable, 4.78% interest rate payable through September 2024, monthly payments of $5,181
255,429
267,820
Total notes payable
1,131,428
1,205,524
Due within one year
Due after one year
All notes are collateralized by the property or equipment purchased in connection with each note. Future principal payments of notes payable at March 31, 2020 are as follows:
12 months ended
2021
2022
328,248
2023
317,638
2024
138,896
2025
37,507
12
11. Stockholders’ Equity
The Company did not sell any shares of its common stock in the first quarters of 2020 or 2019.
Stock Purchase Warrants Outstanding
The activity in stock purchase warrants is as follows:
Number of
Warrants
Exercise Prices
Balance December 31, 2018
14,100,123
0.10-0.20
Exercised
(1,200,000)
0.10
Balance December 31, 2019
12,900,123
0.18-0.22
Expired
(6,566,789)
0.20-0.22
Balance March 31, 2020
6,333,334
$0.18-0.20
These warrants expire as follows:
Exercise Price
Expiration Date
4,250,000
$0.20
April 30, 2020
1,708,334
November 3, 2020
375,000
$0.18
December 14, 2023
12. Stock Options
No options were granted in the first quarters of 2020 or 2019.
Activity in the Company’s stock options is as follows:
Number of Options
7,054,500
0.10-0.18
Granted
2,100,000
0.14
(3,892,000)
0.10-0.15
5,262,500
(250,000)
0.15
5,012,500
Exercisable at March 31, 2020
At March 31, 2020, outstanding stock options have a weighted average remaining term of approximately 2.12 years and an intrinsic value of approximately $129,250.
13. Asset Retirement Obligation
The Company has established asset retirement obligations associated with the ultimate closing of its mineral properties where there has been or currently are operations. Activity for the three months ended March 31, 2020 and 2019 is as follows:
Three Months Ended
Balance at beginning of period
154,292
Accretion expense
Balance at end of period
156,510
13
14. Note Receivable
On June 6, 2018, the Company loaned $250,000 to West Materials, Inc. and William J. West (collectively “West”) which bore interest at 8% if the loan went into default and had a term of fifteen months. Five equal payments were due quarterly with the first two payments received in cash during 2018 and the remaining outstanding $150,000 received in 2019. The note receivable was collateralized by a mortgage on the Butte Gulch real property and a related net smelter royalty rights.
15. Convertible Debt
In February 2020 the Company issued convertible promissory notes with an aggregate principal value of $885,000 from which funds were utilized for the purchase of the Alder Gulch property (Note 9). The notes are collateralized by the Alder Gulch property as well as other unencumbered real property that the Company currently owns. The outstanding principal amount of the notes bears interest at an annual rate of 8.0% with interest payments due monthly and the principal due in February 2023. The principal amount of the notes is convertible at the option of the note holders into shares of the Company’s common stock at a price of $0.18 per share (4,916,667 shares) prior to the maturity date of the notes.
The Company’s corporate secretary, Monique Hayes, participated in the Company’s convertible debt offering for $25,000. During the three month period ended March 31, 2020, interest expense on her note was $236.
16.Subsequent Events
The Company closed a private placement in April 2020. Under the private placement, the Company sold 1,481,481 units at $0.135 per unit for net proceeds of $200,000. Each unit consisted of one share of the Company’s stock and one half of one stock purchase warrant with each whole warrant exercisable for one share of the Company’s stock at $0.18 for 24 months.
On April 10, 2020, the Company received a loan of $358,346 pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The loan, which was in the form of a Note dated April 10, 2020 issued by the Borrower, matures on April 9, 2022 and bears interest at a rate of 1% per annum, payable monthly commencing on October 9, 2020. The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. Qualifying expenses include payroll costs, costs used to continue group health care benefits, mortgage payments, rent, and utilities. The Company intends to use the entire loan amount for qualifying expenses.
14
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Plan of Operation
New Jersey Mining Company is a gold producer focused on diversifying and building its asset base and cash flows through a portfolio of mineral properties located in historic producing gold districts in Idaho and Montana.
The Company’s plan of operation is to generate positive cash flow, while reducing debt and growing its production and asset base over time while being mindful of corporate overhead. The Companies management is focused on utilizing its in-house skills to build a portfolio of producing mines and milling operations with a primary focus on gold and secondary focus on silver and base metals.
The Company’s properties include: the Golden Chest Mine (currently in production), the New Jersey Mill (majority ownership interest), and a 50% carried to production interest in the past producing Butte Highlands Mine located in Montana. In addition to its producing and near-term production projects, New Jersey Mining Company has additional exploration prospects, including the McKinley and Eastern Star located in Central Idaho, and additional holdings near the Golden Chest in the Murray Gold Belt.
COVID-19 Coronavirus Pandemic Response and Impact
Following the outbreak of the COVID-19 coronavirus global pandemic ("COVID-19") in early 2020, in March 2020 the U.S. Centers for Disease Control issued guidelines to mitigate the spread and health consequences of COVID-19. The Company implemented changes to its operations and business practices to follow the guidelines and minimize physical interaction, including using technology to allow employees to work from home when possible and altering production procedures and schedules, asset maintenance, and limiting discretionary spending. As long as they are required, the operational practices implemented could have an adverse impact on our operating results due to deferred production and revenues or additional costs. The negative impact of COVID-19 remains uncertain, including on overall business and market conditions. There is uncertainty related to the potential additional impacts COVID-19 could have on our operations and financial results for the year.
Highlights during the first quarter of 2020 include:
For the quarter ending March 31, 2020 approximately 9,978 dry metric tonnes (dmt) were processed at the Company’s New Jersey mill at a head grade of 3.37 grams gold per tonne (gpt) with gold recovery of 86.8%. Gold sales for the quarter were 1,094 ounces.
Open pit mining progressed from the 994 bench to the 993 bench. Open pit mine production averaged 1,280 tonnes per day (mineralized material and waste).
Underground mining focused on the 845 North and South stopes and the 836 North stope. The 836 North stope was extended 21 meters north of the previous stop mined by a lessor and showed good gold grades of 6.80 gpt over the extended strike length.
Completed the purchase of Alder Gulch property consisting of 368 acres of patented mining claims in the Murray gold Belt with excellent potential for future gold exploration due to its location in favorable geologic environment and because of its limited exploration history.
Results of Operations
Our financial performance during the quarter is summarized below:
The Company had a gross profit for the three month period ending March 31, 2020 of $97,911compared to a gross profit of $59,931 for the comparable period in 2019. Gross profit increased as a result of increased production from the underground operation, and higher gold prices.
Cash costs and all in sustaining costs per ounce remained relatively consistent for the periods ending March 31, 2020 and 2019. Cash cost per ounce increased to $1,073 in 2020 compared to $974 in 2019. The all in sustaining costs decreased to $1,198 in 2020 from $1,205 in 2019 per ounce for the three month periods ending March 31.
15
Revenue was $1,400,834 for the three month period ending March 31, 2020 compared to $1,144,675 for the comparable period of 2019. This was also a result of increased production from the underground operation, and higher gold prices.
An operating loss of $149,532 for the three month period ending March 31, 2020 compared to operating loss of $221,636 in the comparable period of 2019.
Exploration costs decreased in 2020 compared to 2019 as focus in 2020 has been on production at the Golden Chest.
Professional services and general and administrative expenses increased in 2020 compared to 2019. Contributing to these increases were legal fees relating to the Company’s delisting in Canada and attendance at a mining investors conference in the first quarter of 2020.
Timber revenue increased in 2020 from sale of timber at the Company’s Potosi property.
Interest expense increased in the first quarter of 2020 compared to the first quarter of 2019 due to greater outstanding debt in 2020 compared to the same period in 2019, in particular new convertible debt of $885,000.
The consolidated net loss for the first three months included non-cash charges as follows: depreciation and amortization of $135,533 ($128,951 in 2019), write off of equipment of $9,537 (none in 2019), and accretion of asset retirement obligation of $2,355 ($2,218 in 2019).
Cash Costs and All In Sustaining Costs Reconciliation to GAAP-Reconciliation of cost of sales and other direct production costs and depreciation, depletion and amortization (GAAP) to cash cost per ounce and all-in sustaining costs (AISC) per ounce (non-GAAP).
The table below presents reconciliations between the most comparable GAAP measure of cost of sales and other direct production costs and depreciation, depletion and amortization to the non-GAAP measures of cash cost per ounce and all in sustaining costs per ounce for the Company’s gold production in the three month periods ending March 31, 2020 and 2019.
Cash cost per ounce is an important operating measure that we utilize to measure operating performance. AISC per ounce is an important measure that we utilize to assess net cash flow after costs for pre-development, exploration, reclamation, and sustaining capital. Current GAAP measures used in the mining industry, such as cost of goods sold do not capture all of the expenditures incurred to discover, develop, and sustain gold production.
Cost of sales and other direct production costs and depreciation and amortization
(135,533)
(128,951)
Change in concentrate inventory
Cash Cost
1,173,682
935,286
Sustaining capital
11,549
36,208
Less stock based compensation and other non cash items
(2,355)
(2,218)
All in sustaining costs
1,311,042
1,157,021
Divided by ounces produced
1,094
960
Cash cost per ounce
1,072.83
974.26
All in sustaining cost (AISC) per ounce
1,198.39
1,205.23
16
Financial Condition and Liquidity
For the Three Months Ended March 31,
Net cash provided (used) by:
Operating activities
Investing activities
Financing activities
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for small reporting companies.
Item 4: CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
At March 31, 2020, our President who also serves as our Chief Accounting Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), which disclosure controls and procedures are designed to insure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized, and reported within required time periods specified by the Securities & Exchange Commission rules and forms.
Based upon that evaluation, it was concluded that our disclosure controls were effective as of March 31, 2020, to ensure timely reporting with the Securities and Exchange Commission. Specifically, the Company’s corporate governance and disclosure controls and procedures provided reasonable assurance that required reports were timely and accurately reported in our periodic reports filed with the Securities and Exchange Commission.
Changes in internal control over financial reporting
There was no material change in internal control over financial reporting in the quarter ended March 31, 2020.
17
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Neither the constituent instruments defining the rights of the Company’s securities filers nor the rights evidenced by the Company’s outstanding common stock have been modified, limited or qualified.
No shares of the company’s stock were issued in three month periods ending March 31, 2020 or 2019.
Item 3. DEFAULTS UPON SENIOR SECURITIES
The Company has no outstanding senior securities.
Item 4. MINE SAFETY DISCLOSURES
Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. During the quarter ended March 31, 2020, the Company had no citations for a violation of mandatory health or safety standards that could significantly and substantially (S&S citation) contribute to the cause and effect a mine safety or health hazard under section 104 of the Federal Mine Safety and Health Act of 1977. There were no legal actions, mining-related fatalities, or similar events in relation to the Company’s United States operations requiring disclosure pursuant to Section 1503(a) of the Dodd-Frank Act.
Item 5. OTHER INFORMATION
18
Item 6. EXHIBITS
3.0*
Articles of Incorporation of New Jersey Mining Company filed July 18, 1996
3.1*
Articles of Amendment filed September 29, 2003
3.2*
Articles of Amendment filed November 10, 2011
3.3*
Bylaws of New Jersey Mining Company
10.1*
Venture Agreement with United Mine Services, Inc. dated January 7, 2011.
10.2*
Idaho Champion Resources Lease with Cox dated September 4, 2013
10.3**
Rupp Mining Lease dated May 3, 2013
10.4**
Mining Lease with Hecla Silver Valley, Inc. Little Baldy prospect dated September 12, 2012
10.5***
Consent, Waiver and Assumption of Venture Agreement by Crescent dated February 14, 2014
10.6
Form of Forward Gold Purchase Agreement dated July 13, 2016 between the Registrant and Ophir Holdings LLC and incorporated by reference to the Company’s Form 8-K as filed with the Securities and Exchange Commission on July 18, 2016.
10.7
Form of Forward Gold Purchase Agreement dated July 29, 2016 between the Registrant and Investors and incorporated by reference to the Company’s Form 8-K as filed with the Securities and Exchange Commission on August 2, 2016.
10.8
Registrant’s Grant of Options to Directors and Officers dated December 30, 2016, incorporated by reference to the Company’s Form 8-K as filed with the Securities and Exchange Commission on January 4, 2017.
10.9
Form of Agreement to Purchase the “Four Square Property Group” of Patented and Un-Patented Mining Claims dated March 2, 2018, incorporated by reference to the Company’s Form 8-K as filed with the Securities and exchange Commission on March 7, 2018
10.10
Asset Purchase Agreement with Hecla Silver Valley, Inc. to Sell Patented and Un-Patented Mining Claims dated May 18th, 2018 and reported on the Company’s Form 8-K filed with the Securities and Exchange Commission on May 24, 2018.
14*
Code of Ethical Conduct.
21*
Subsidiaries of the Registrant
31.1****
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2****
32.1****
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2****
99(i)
Audit Committee Pre-Approval Policies-Filed as an exhibit to the registrant’s annual report on Form 10-KSB for the year ended December 31, 2003 and incorporated by reference herein.
101.INS****
XBRL Instance Document
101.SCH****
XBRL Taxonomy Extension Schema Document
101.CAL****
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF****
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB****
XBRL Taxonomy Extension Label Linkbase Document
101.PRE****
XBRL Taxonomy Extension Presentation Linkbase Document
* Filed with the Registrant’s Form 10 on June 4, 2014.
**Filed July 2, 2014
***Filed March 31, 2015.
****Filed herewith.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
By: /s/ John Swallow
John Swallow,
its: President and Chief Executive Officer
Date May 15, 2020
By: /s/ Grant Brackebusch
Grant Brackebusch,
its: Vice President and Chief Financial Officer
Date: May 15, 2020
20