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 June 30, 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 August 1, 2020, 125,571,403 shares of the registrant’s common stock were outstanding.
1
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 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 Risk18
ITEM 4: Controles and Procedures18
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 Information19
ITEM 6. Exhibits19
2
PART I - FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
New Jersey Mining Company
Consolidated Balance Sheets (Unaudited)
ASSETS
June 30,
2020
December 31,
2019
Current assets:
Cash and cash equivalents
$
396,158
217,796
Gold sales receivable
374,881
305,924
Inventories
274,840
225,146
Joint venture receivable
5,127
2,410
Other current assets
105,143
158,833
Total current assets
1,156,149
910,109
Property, plant and equipment, net of accumulated depreciation
6,754,500
7,015,734
Mineral properties, net of accumulated amortization
3,130,280
2,363,018
Investment in joint venture
435,000
Reclamation bond
103,320
Deposit on equipment
-
25,000
Total assets
11,579,249
10,852,181
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities
338,989
529,235
Accrued payroll and related payroll expenses
83,558
80,402
Notes payable related parties, current portion
35,985
34,924
Notes payable, current portion
263,125
303,987
Small Business Administration loans, current portion
187,996
Total current liabilities
909,653
948,548
Asset retirement obligation
168,114
163,369
Notes payable related parties, long term
136,050
181,750
Convertible debt
860,000
Convertible debt-related party
Notes payable, long term
654,373
901,537
Small Business Administration loans, long term
321,721
Total long-term liabilities
2,165,258
1,246,656
Total liabilities
3,074,911
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; June 30, 2020 - 125,293,625 and December 31, 2019 - 123,812,144 shares issued and outstanding
17,882,999
17,682,999
Accumulated deficit
(12,356,391)
(12,029,910)
Total New Jersey Mining Company stockholders’ equity
5,526,608
5,653,089
Non-controlling interest
2,977,730
3,003,888
Total stockholders' equity
8,504,338
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 and Six Month Periods Ended June 30, 2020 and 2019
June 30, 2020
June 30, 2019
Three
Months
Six
Revenue:
Gold sales
1,324,498
2,725,331
1,547,654
2,692,328
Total revenue
Costs of Sales:
Cost of sales and other direct production costs
1,157,356
2,324,745
1,328,213
2,284,006
Depreciation and amortization
133,783
269,317
141,906
270,858
Total costs of sales
1,291,139
2,594,062
1,470,119
2,554,864
Gross profit
33,359
131,269
77,535
137,464
Other operating expenses:
Pre-development expense
65,567
Exploration
47,237
88,916
54,302
127,185
Loss on write off of equipment
9,537
Management
36,094
73,424
37,714
75,529
Professional services
40,797
113,208
25,404
81,411
General and administrative
103,982
190,470
271,050
320,345
Total other operating expenses
228,110
475,555
388,470
670,037
Operating income (loss)
(194,751)
(344,286)
(310,935)
(532,573)
Other (income) expense:
Small Business Administration grant income
(10,000)
Timber revenue net of costs
(13,345)
(31,652)
(10,571)
Interest income
(11)
(1,589)
(17,587)
(32,539)
Interest expense
41,117
73,656
16,583
33,019
Total other (income) expense
17,761
30,415
(11,575)
(10,091)
Net income (loss)
(212,512)
(374,701)
(299,360)
(522,482)
Net income (loss) attributable to non-controlling interest
(32,299)
(48,220)
(39,592)
(57,310)
Net income (loss) attributable to New Jersey Mining Company
(180,213)
(326,481)
(259,768)
(465,172)
Net income (loss) per common share-basic and diluted
0
Weighted average common shares outstanding-basic
124,935,465
124,373,804
123,588,767
123,501,652
4
Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
Common Stock Shares
Common Stock Amount
Accumulated Deficit Attributable to New Jersey Mining Company
Non-Controlling Interest
Stockholders’ Equity
Balance, January 1, 2019
123,413,569
17,492,980
(11,420,305)
3,073,232
9,145,907
Contribution from non-controlling interest in Mill JV
2,357
(205,404)
(17,718)
(223,122)
Balance, March 31, 2019
(11,625,709)
3,057,871
8,925,142
21,876
Issuance of common stock for cashless warrant exercise
398,575
Stock based compensation relating to options
190,019
Balance June 30, 2019
123,812,144
(11,885,477)
3,040,155
8,837,677
Balance January 1, 2020
2,659
(146,268)
(15,921)
(162,189)
Balance, March 31, 2020
(12,176,178)
2,990,626
8,497,447
19,403
Issuance of common stock and warrants for cash
1,481,481
200,000
Balance June 30, 2020
125,293,625
2,997,730
5
Consolidated Statements of Cash Flows (Unaudited)
For the Six Month Periods Ended June 30, 2020 and 2019
Cash flows from operating activities:
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Accretion of asset retirement obligation
4,745
4,471
Stock based compensation
Change in operating assets and liabilities:
(68,957)
(128,225)
(49,694)
(31,094)
(2,717)
(373)
53,690
(8,619)
(190,246)
262,586
3,156
12,199
Net cash provided (used) by operating activities
(345,870)
49,340
Cash flows from investing activities:
Payment received on note receivable
150,000
Purchases of property, plant and equipment
(12,689)
(51,995)
Purchase of mineral property
(747,193)
Net cash provided (used) by investing activities
(759,882)
98,005
Cash flows from financing activities:
Proceeds from sale of common stock and warrants net of issuance cost
Principal payments on notes payable
(288,026)
(127,525)
Principal payments on notes payable, related parties
(44,639)
(30,897)
Issuance of convertible debt
885,000
Proceeds from Small Business Administration loans
509,717
Contributions from non-controlling interest
22,062
24,233
Net cash provided (used) by financing activities
1,284,114
(134,189)
Net change in cash and cash equivalents
178,362
13,156
Cash and cash equivalents, beginning of period
248,766
Cash and cash equivalents, end of period
261,922
Non-cash investing and financing activities:
Deposit on property applied to purchase of mineral property
Note payable for equipment purchase
546,804
Note from related party for equipment purchase
50,000
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 and six month periods ended June 30, 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 June 30, 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 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 June 30, 2020 and December 31, 2019, the Company’s inventories consisted of the following:
December 31, 2019
Gold concentrate
228,981
197,862
Materials and supplies
45,859
27,284
Total
At June 30, 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 existing metal prices at each period end.
8
4. Sales of Products
Our products consist of both gold flotation 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 flotation 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 June 30, 2020, metals that had been sold but not final settled thus exposed to future price changes totaled 1,572 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 and six month periods ended June 30, 2020 and 2019 were as follows:
Three Months
Six Months
Gold
1,461,249
2,980,560
1,688,454
2,901,575
Silver
2,905
5,946
3,562
7,120
Less: Smelter and refining charges
(139,656)
(261,175)
(124,362)
(216,367)
Sales by significant product type for the three and six month periods ended June 30, 2020 and 2019 were as follows:
Concentrate sales to H&H Metal
1,267,355
2,668,188
1,468,758
2,602,655
Dore sales to refinery
57,143
78,896
89,673
At June 30, 2020 and December 31, 2019, our gold sales receivable balance related to contracts with customers of $374,881 and $305,924, respectively, consist only of amounts due from H&H Metal. There is no allowance for doubtful accounts.
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.
9
5.Related Party Transactions
At June 30, 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
172,035
189,236
H&H Metals, shareholder and concentrate broker, 8% interest, balance due April 2021
27,438
216,674
Current portion
(35,985)
(34,924)
Long term portion
As of June 30, 2020 and December 31, 2019, there was no accrued interest payable to related parties. Related party interest expense for the three and six months ended June 30, 2020 and 2019 is as follows.
2,870
6,051
4,137
7,429
During the six month period ended June 30, 2019, the Company made three $3,000 payments for a total of $9,000 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 and six month periods ended June 30, 2020, interest expense on her note was $499 and $734, respectively. See Note 16.
The Company leases office space from certain related parties on a month to month basis. Payments under these short-term lease arrangements are included in general and administrative expenses on the Consolidated Statement of Operations and are as follows:
6,210
12,420
6,122
12,244
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 June 30, 2020 and December 31, 2019, an account receivable existed with Crescent Silver, LLC, the other joint venture participant (“Crescent”), for $5,127 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 and six month periods ended June 30, 2020 and 2019, potentially dilutive shares including outstanding stock options (Note 13), warrants (Note 12), and convertible debt (Note 16) were excluded from the computation of diluted loss per share because they were anti-dilutive due to net losses in those periods. Total potentially dilutive shares were 12,353,242 and 2,130,623, for June 30, 2020 and 2019, respectively.
8. Property, Plant, and Equipment
Property, plant and equipment at June 30, 2020 and December 31, 2019 consisted of the following:
December
31, 2019
Mill
Land
225,289
Building
536,193
Equipment
4,192,940
4,954,422
Less accumulated depreciation
(835,858)
(759,617)
Total mill
4,118,564
4,194,805
Building and equipment
Buildings
144,865
143,725
2,630,273
2,628,261
2,775,138
2,771,986
(1,006,672)
(818,527)
Total building and equipment
1,768,466
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 June 30, 2020 and December 31, 2019 consisted of the following:
Golden Chest
Mineral Property
1,524,002
Infrastructure
175,062
153,970
Total Golden Chest
1,699,064
1,677,972
New Jersey
248,289
McKinley
Butte Potosi
274,440
Alder Gulch
751,101
Less accumulated amortization
(42,614)
(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 June 30 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 June 30, 2020 and December 31, 2019, notes payable are as follows:
Property with shop, 48 month note payable, 6.49% interest rate payable monthly through August 2023, monthly payments of $707
27,624
Compressor, 48 month note payable, 5.25% interest rate payable monthly through November 2021, monthly payments of $813
14,548
19,018
Atlas Copco loader, 60 month note payable, 10.5% interest rate payable monthly through June 2023, monthly payments of $3,550
109,158
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
65,835
2018 pick-up, 72 month note payable, 9.0% interest rate payable monthly through June 2024, monthly payments of $701
30,863
2008 pick-up, 60 month note payable, 9.0% interest rate payable monthly through June 2023, monthly payments of $562
20,088
Caterpillar 938 loader, 60 month note payable, 6.8% interest rate payable monthly through August 2023, monthly payments of $3,751
127,907
145,709
MultiQuip DCA70 Generator, 48 month note payable, 7.25% interest rate payable through August 2022, monthly payments of $635
18,433
CaterpillarAD22 underground truck, 48 month note payable, 6.45% interest rate payable through June 2023, monthly payments of $12,979
422,997
485,896
Paus 2 yrd. LHD, 60 month note payable, 4.78% interest rate payable through September 2024, monthly payments of $5,181
242,888
267,820
Total notes payable
917,498
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 June 30, 2020 are as follows:
12 months ended June 30,
2021
2022
276,689
2023
290,111
2024
67,075
2025
20,498
11. Small Business Administration Loans and Grant
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 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.
On May 19, 2020 the Company received a loan of $149,900 pursuant to the Small Business Act Section 7(b). The loan which was in the form of a Note dated May 16, 2020 matures May 16, 2050 and bears interest at a rate of 3.75% per annum. Payments of $731 are due monthly and will begin twelve months from the date of the Note.
At June 30, 2020, total accrued interest on the two loans is $1,471 which is included in the current portion of the consolidated balance on the consolidated balance sheet.
Under the terms of both loans, 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, but there is no guarantee that the loan will be forgiven.
Amendments to the CARES Act have modified repayment terms with payments beginning in August 2021. Management believes that it is unlikely that the balance of $187,996 shown as current on the consolidated balance sheet will be paid before June 30, 2021 but have chosen to present as current to reflect the provisions of the related Notes.
12
During the three months ended June 30, 2020, the Company received $10,000 under Division A, Title I, Section 1110 of the CARES Act. The Company is not required to pay this amount back and thus recognized $10,000 as government grant income during the period.
12. Stockholders’ Equity
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. In the second quarter of 2019, 1,200,000 warrants were exercised in exchange for 398,575 shares of the Company’s common stock in a cashless warrant exercise.
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
Issued
740,741
0.18
Expired
(10,816,789)
0.20-0.22
2,824,075
$0.18-0.20
These warrants expire as follows:
Shares
Exercise Price
Expiration Date
1,708,334
$0.20
November 3, 2020
375,000
$0.18
December 14, 2023
April 21, 2022
13. Stock Options
No options were granted in the first six months 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
(650,000)
0.15
4,612,500
Exercisable at June 30, 2020
At June 30, 2020, outstanding stock options have a weighted average remaining term of approximately 1.32 years and an intrinsic value of approximately $494,025.
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14. 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 six months ended June 30, 2020 and 2019 is as follows:
Six Months Ended
Balance at beginning of period
154,292
Accretion expense
Balance at end of period
158,763
15. 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.
16. 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 and six month periods ended June 30, 2020, interest expense on her note was $499 and $734, respectively.
17.Subsequent Events
On July 7, 2020, the Company added the Robert Rare Earth Element (“Roberts REE Project”) in Lemhi County, Idaho to its portfolio of projects. The Roberts REE Project is comprised of 12 unpatented mining claims covering an area of approximately 89 hectares (219 acres). This Project is located within the Mineral Hill Mining district, approximately 48 kilometers (30 miles) northwest of the town of Salmon, Idaho.
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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 including the 368 acres of patented claims in Alder Gulch purchased in the first quarter of 2020.
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 second quarter of 2020 include:
·For the quarter ending June 30, 2020 a total of 9,700 dry metric tonnes (dmt) were processed at the Company’s New Jersey mill at a head grade of 2.96 grams gold per tonne (gpt) with gold recovery of 85.5%. Gold sales for the quarter were 844 ounces.
·Open pit mining progressed from the 976 bench to the 964 bench. Open pit mine production averaged 1,490 tonnes per day (mineralized material and waste). Mining was focused on the completion of the Idaho pit and preparation tasks such as land clearing and topsoil stockpiling were commenced for a new layback of the Idaho pit and start of the Klondike pit. Effort was expended for the maintenance and improvement of sediment control structures (BMPs) around the mine site. Significant engineering time was also spent working with state regulators on the permitting of the new surface mining areas. NJMC personnel also began the construction of a new shop building at the mine.
·Underground mining focused on the 845 and 836 levels with significant effort spent backfilling the 836 North stope. Development of the new 877 Stope access ramp was started as well as preparations for deepening the main access ramp. Approximately 2,900 tonnes of ore were mined and 1,200 cubic meters of cement backfill were placed. Both the 845 North and 836 North stopes were extended over 40 meters from previous stopes indicating the extension of gold mineralization to the north.
·On May 27, 2020 the Company announced it had expanded its land holdings to include the Diamond Creek Rare Earth Element (REE) deposit in Lemhi County, Idaho. The Diamond Creek REE Project covers approximately 421 hectares (1,040 acres) and is comprised of 52 unpatented mining claims. It is located in the Eureka Mining district, approximately 13 kilometers (8 miles) north-northwest of the town Salmon, Idaho. The REE bearing veins of the Diamond Creek area are on the short list of the well-recognized and studied occurrences in the United States. In 1979, M.H. Staatz, of the U.S. Geological Survey (USGS) estimated an overall probable resource at Diamond Creek of approximately 70,800 metric tonnes of total rare-earth oxides, using an average grade of 1.22 percent. Reported sample assays show REE oxide contents ranging from 0.59 to 5.51 percent. Additionally, three samples cut across one of the larger veins were assayed for gold, and contained 0.5, 2.4 and 11.9 grams per tonne.
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Results of Operations
Our financial performance during the quarter is summarized below:
·The Company had a gross profit for the three and six month periods ending June 30, 2020 of $33,359 and $131,269 respectively compared to a gross profit of $77,535 and $137,464 for the comparable periods in 2019. Gross profit decreased as a result of a decrease in underground production resulting from backfill operations and a transition to a new open pit on the surface.
·Cash costs and all in sustaining costs per ounce increased for the periods ending June 30, 2020 compared to 2019. Cash cost per ounce increased to $1,221 and $1,149 in the three and six month periods ending June 30, 2020 compared to $1,037 and $965 in 2019. The all in sustaining costs increased to $1,387 and $1,294 for the periods ending June 30, 2020 compared to $1,154 and $1,124 in 2019 per ounce for the same periods ending June 30. The increase in per ounce costs in 2020 was the result of a decrease in underground production resulting from backfill operations and a transition to a new open pit on the surface.
·Revenue was $1,324,498 and $2,725,331 for the three and six month periods ending June 30, 2020 compared to $1,547,654 and $2,692,328 for the comparable periods of 2019. The second quarter 2020 decrease was a result of a decrease in production resulting from backfill operations in the underground operations and a transition to a new open pit on the surface.
·An operating loss of $194,751 and $344,286 for the three month and six periods ending June 30, 2020 compared to operating losses of $310,935 and $532,573 in the comparable periods of 2019.
·Exploration costs decreased in the first six months of 2020 compared to 2019 as focus in 2020 has been on production at the Golden Chest however in the second quarter exploration costs for Rare Earth metals has increased.
·Professional services expenses increased in 2020 compared to 2019. Contributing to these increases were legal fees relating to the Company’s delisting in Canada, other legal fees for document preparation, and Covid-19 related work.
·Timber revenue increased in 2020 from sale of timber at the Company’s Alder Gulch property.
·Interest expense increased in 2020 compared to 2019 due to greater outstanding debt in 2020 compared to the same period in 2019, in particular new convertible debt of $885,000 and the new Caterpillar haul truck.
·The consolidated net loss for the six months ended June 30, 2020 and 2019 included non-cash charges as follows: depreciation and amortization of $269,317 ($270,858 in 2019), write off of equipment of $9,537 (none in 2019), accretion of asset retirement obligation of $4,745 ($4,471 in 2019), and stock based compensation of $0 in 2020 ($190,019 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 June 30, 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.
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Cost of sales and other direct production costs and depreciation and amortization
(133,783)
(269,317)
(141,906)
(270,858)
Change in concentrate inventory
(55,986)
(10,587)
Cash Cost
1,101,370
2,275,051
1,317,626
2,252,912
Sustaining capital
1,140
12,690
15,786
51,994
Less stock based compensation and other non cash items
(2,390)
(4,745)
(192,271)
(194,490)
All in sustaining costs
1,251,339
2,562,382
1,466,493
2,623,513
Divided by ounces produced
902
1,980
1,271
2,334
Cash cost per ounce
1,221.03
1,149.02
1,036.68
965.26
All in sustaining cost (AISC) per ounce
1,387.29
1,294.13
1,153.81
1,124.04
Financial Condition and Liquidity
For the Six Months Ended June 30,
Net cash provided (used) by:
Operating activities
Investing activities
Financing activities
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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 June 30, 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 June 30, 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 June 30, 2020.
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.
During the second quarter of 2020, the Company issued 1,481,481 shares of unregistered common stock at $0.135 per share for net proceeds of $200,000 net of commission and brokerage costs as a result of a private placement offering. In the second quarter of 2019 1,200,000 warrants were exercised in exchange for 398,576 shares of the Company’s common stock in a cashless warrant exercise.
The Company relied on the transaction exemption afforded by Section 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D Rule 506(b). The common shares are restricted securities which may not be publicly sold unless registered for resale with the Securities and Exchange Commission or exempt from the registration requirements of the Securities Act of 1933, as amended.
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 June 30, 2020, the Company had one citation 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.
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ITEM 5. OTHER INFORMATION
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.
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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 August 14, 2020
By: /s/ Grant Brackebusch
Grant Brackebusch,
its: Vice President and Chief Financial Officer
Date: August 14, 2020
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