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, 2019
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, 2019, 123,812,144 shares of the registrant’s common stock were outstanding.
1
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 2019
TABLE OF CONTENNTS
PART I-FINANCIAL INFORMATION3
Item 1: CONSOLIDATED FINANCIAL STATEMENTS3
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS14
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK15
Item 4: CONTROLS AND PROCEDURES15
PART II - OTHER INFORMATION15
Item 1. LEGAL PROCEEDINGS15
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.15
Item 3. DEFAULTS UPON SENIOR SECURITIES16
Item 4. MINE SAFETY DISCLOSURES16
Item 5. OTHER INFORMATION16
Item 6. EXHIBITS17
SIGNATURES18
2
PART I-FINANCIAL INFORMATION
Item 1: CONSOLIDATED FINANCIAL STATEMENTS
New Jersey Mining Company
Consolidated Balance Sheets (Unaudited)
June 30, 2019 and December 31, 2018
ASSETS
June 30,
2019
December 31,
2018
Current assets:
Cash and cash equivalents
$
261,922
248,766
Gold sales receivable
202,898
74,673
Inventories
214,163
183,069
Joint venture receivable
2,424
2,051
Note receivable
-
150,000
Other current assets
111,842
103,223
Total current assets
793,249
761,782
Property, plant and equipment, net of accumulated depreciation
6,963,444
6,567,350
Mineral properties, net of accumulated amortization
2,753,144
2,759,339
Investment in joint venture
435,000
Reclamation bond
103,320
Deposit on equipment
11,958
Total assets
11,048,157
10,638,749
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities
664,087
401,501
Accrued payroll and related payroll expenses
70,558
58,359
Notes payable related parties, current portion
33,895
47,591
Notes payable, current portion
272,182
217,679
Total current liabilities
1,040,722
725,130
Asset retirement obligation
158,763
154,292
Notes payable related parties, long term
222,035
189,236
Notes payable, long term
788,960
424,184
Total long term liabilities
1,169,758
767,712
Total liabilities
2,210,480
1,492,842
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, 2019-123,812,144 shares and December 31, 2018-123,413,569 shares issued and outstanding
17,682,999
17,492,980
Accumulated deficit
(11,885,477)
(11,420,305)
Total New Jersey Mining Company stockholders’ equity
5,797,522
6,072,675
Non-controlling interest
3,040,155
3,073,232
Total stockholders' equity
8,837,677
9,145,907
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, 2019 and 2018
June 30, 2019
June 30, 2018
Three Months
Six Months
Revenue:
Gold sales
1,547,654
2,692,328
489,555
1,590,946
Total revenue
Costs of Sales:
Cost of sales and other direct production costs
1,328,213
2,284,006
1,026,459
2,052,178
Depreciation and amortization
141,906
270,858
76,504
145,564
Total costs of sales
1,470,119
2,554,864
1,102,963
2,197,742
Gross profit (loss)
77,535
137,464
(613,408)
(606,796)
Other operating expenses (income):
Pre-development expense
65,567
Exploration
54,302
127,185
109,038
208,270
Gain on sale of mineral property
(2,947,862)
Management
37,714
75,529
47,178
68,980
Professional services
25,404
81,411
35,057
101,633
General and administrative
271,050
320,345
134,615
185,697
Total other operating expenses (income)
388,470
670,037
(2,621,974)
(2,383,282)
Operating income (loss)
(310,935)
(532,573)
2,008,566
1,776,486
Other (income) expense:
Timber revenue
(10,571)
Interest income
(17,587)
(32,539)
(396)
(1,992))
Interest expense
16,583
33,019
22,116
47,460
Change in fair value of forward gold contracts
(2,131)
7,887
Total other (income) expense
(11,575)
(10,091)
19,589
53,355
Net income (loss)
(299,360)
(522,482)
1,988,977
1,723,131
Net loss attributable to non-controlling interest
(39,592)
(57,310)
(17,009)
(29,616)
Net income (loss) attributable to New Jersey Mining Company
(259,768)
(465,172)
2,005,986
1,752,747
Net income (loss) per common share-basic and diluted
Nil
0.02
0.01
Weighted average common shares outstanding-basic
123,588,767
123,501,652
121,699,503
117,382,967
Weighted average common shares outstanding-diluted
123,924,436
119,430,274
4
Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
For the Six Month Periods Ended June 30, 2019 and 2018
Common Stock
Accumulated
Non-Controlling
Stockholders’
Shares
Amount
Deficit Attributable to New Jersey Mining Company
Interest
Equity
Balance, January 1, 2018
112,310,372
15,985,512
(12,250,319)
3,112,294
6,847,487
Contribution from non-controlling interest in Mill JV
5,400
Issuance of common stock for cash net of offering costs
5,012,423
607,571
Issuance of common stock for property
1,333,333
233,333
Stock based compensation relating to options
16,634
(253,239)
(12,607)
(265,846)
Balance, March 31, 2018
118,656,128
16,843,050
(12,503,558)
3,105,087
7,444,579
8,057
3,846,154
500,000
Issuance of common stock for warrant conversion
8,000
1,200
10,505
Balance June 30, 2018
122,510,282
17,354,755
(10,497,572)
3,096,135
9,953,318
Balance, January 1, 2019
123,413,569
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
190,019
Balance June 30, 2019
123,812,144
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
4,471
7,007
Stock based compensation
27,140
Change in operating assets and liabilities:
(128,225)
271,331
(31,094)
82,744
(373)
573
(8,619)
(814)
262,586
(4,096)
12,199
19,886
Interest payable to related parties
(10,772)
Net cash provided (used) by operating activities
49,340
(678,281)
Cash flows from investing activities:
Issuance of note receivable
(250,000)
Payment received on note receivable
Proceeds from sale of mineral property
3,000,000
Purchases of property, plant and equipment
(51,995)
(242,603)
Purchase of mineral property
(257,619)
(10,330)
Net cash provided (used) by investing activities
98,005
2,239,448
Cash flows from financing activities:
Sales of common stock and warrants, net of issuance costs
1,107,571
Proceeds from exercise of stock options
Payments on forward gold contracts
(126,287)
Gold purchased for payments on forward gold contracts
(172,113)
Principal payments on notes payable
(127,525)
(193,320)
Principal payments on notes payable, related parties
(30,897)
(1,014,770)
Contributions from non-controlling interest
24,233
13,456
Net cash provided (used) by financing activities
(134,189)
(384,263)
Net change in cash and cash equivalents
13,156
1,176,904
Cash and cash equivalents, beginning of period
124,617
Cash and cash equivalents, end of period
1,301,521
Non-cash investing and financing activities:
Deposit on equipment applied to purchase of equipment
30,000
Note payable for equipment purchase
546,804
456,964
Forward gold contract exchanged for note payable, related party
492,783
Mineral property acquired with payable and shares of common stock
826,587
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, 2019 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2019.
For further information refer to the financial statements and footnotes thereto in the Company’s audited financial statements for the year ended December 31, 2018 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 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.
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, 2019 and December 31, 2018, the Company determined they had no assets or liabilities that required measurement at fair value on a recurring basis.
7
1.The Company and Significant Accounting Policies, Continued
Reclassifications
Certain prior period amounts have been reclassified to conform to the 2019 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 February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02 Leases (Topic 842). The update modified the classification criteria and requires lessees to recognize the assets and liabilities on the balance sheet for most leases. The update was effective for fiscal years beginning after December 15, 2018, with early adoption permitted. Adoption of this update as of January 1, 2019 did not have a material impact on the Company’s consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07 Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The update involves simplification of several aspects of accounting for nonemployee share-based payment transactions by expanding the scope of Topic 718 to include nonemployee awards. The update was effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. Adoption of this update as of January 1, 2019 did not have a material impact on the Company’s consolidated financial statements.
Accounting Standards Updates to Become Effective in Future Periods
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 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. Management is evaluating the impact of this update on the Company’s fair value measurement disclosures.
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 increase production by 40% as more ore became available from the open pit and underground which is expected to improve cash flows from operations. In the past, the Company has been successful in raising required capital from sale of common stock, forward gold contracts, and additional debt. As a result of its planned production, equity sales and ability to restructure debt, 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, 2019 and December 31, 2018, the Company’s inventories consisted of the following:
December 31, 2018
Gold concentrate
189,497
137,530
Materials and supplies
24,666
45,539
Total
At June 30, 2019, gold concentrate inventory is carried at allocated production costs as it is lower than estimated net realizable value based on current metal prices.
4. Sales of Products
Our products consist of both gold floatation concentrates which we sell to a 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.
8
4. Sales of Products, continued
Judgment is required in identifying the performance obligations for our concentrate sales. We have determined that the individual performance obligation is satisfied at a point in time when control of the concentrate is transferred to H&H Metal which is when H&H Metal pays us the first provisional payment on the concentrate based on contractual terms.
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. 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, 2019, metals contained in concentrates and exposed to future price changes totaled 1,507 ounces of gold.
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, 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, 2019 and 2018 were as follows:
Gold
1,688,454
2,901,575
576,713
1,783,134
Silver
3,562
7,120
4,011
7,985
Less: Smelter and refining charges
(124,362)
(216,367)
(91,169)
(200,173)
Sales by significant product type for the three and six month periods ended June 30, 2019 and 2018 were as follows:
Concentrate sales to H&H Metal
1,468,758
2,602,655
456,553
1,280,582
Dore sales to refinery
78,896
89,673
33,002
310,364
At June 30, 2019 and December 31, 2018, our gold sales receivable balance related to contracts with customers of $202,898 and $74,673, 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.
We do not incur significant costs to obtain contracts, nor costs to fulfill contracts which are not addressed by other standards. Therefore, we have not recognized an asset for such costs as of June 30, 2019 or December 31, 2018.
9
5.Related Party Transactions
At June 30, 2019 and December 31, 2018, the Company had the following note and interest payable to related parties:
Mine Systems Design (“MSD”), a company in which our Company’s Vice President owns 10.4%, 12% interest, monthly payments of $4,910 through March 2019
14,696
Ophir Holdings LLC, a company owned by three of the Company’s Officers, 6% interest, monthly payments of $3,777 with a balloon payment of $148,285 in February 2021
205,930
222,131
H&H Metals, a company who owns 4% of the Company’s outstanding common stock, 8% interest, balance due April 2021
255,930
236,827
Current portion
(33,895)
(47,591)
Long term portion
Related party interest expense for the six month periods ended June 30, 2019 and 2018 is as follows:
4,137
7,429
13,478
31,828
Future principal payments of related party notes payable at June 30, 2019 are as follows:
12 months ended June 30,
2020
2021
As of June 30, 2019, and December 31, 2018, accrued interest payable to related parties was $669 and zero, respectively.
During the three and six month periods ended June 30, 2019 and 2018 (up until May 2019), the Company paid $3,000 per month to the Company’s chairman of the board, Del Steiner for consulting purposes.
All sales of concentrate are to H&H Metals, who owns 4% of the Company’s outstanding common stock. See Note 4
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, 2019 and December 31, 2018, an account receivable existed with Crescent Silver, LLC, the other joint venture participant (“Crescent”), for $2,424 and $2,051, 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 ending June 30, 2019, all outstanding stock options (Note 12) and warrants (Note 11) were excluded from the computation of diluted loss per share because they were anti-dilutive due to net losses in those periods. For the three and six month periods ending June 30, 2018 basic and diluted earnings (loss) per share are calculated by dividing net income (loss) by the weighted average number of common shares outstanding–basic and diluted, respectively. The calculation of the weighted average number of common shares outstanding–diluted includes the following common stock equivalents:
Stock options
7,321,665
7,491,141
Stock purchase warrants
1,200,000
16,958,334
8,862,500
8. Property, Plant, and Equipment
Property, plant and equipment at June 30, 2019 and December 31, 2018 consisted of the following:
Mill
Land
225,289
Building
536,193
Equipment
4,192,940
4,954,422
Less accumulated depreciation
(653,911)
(557,502)
Total mill
4,300,511
4,396,920
Building and equipment
Buildings
124,677
2,292,665
1,631,908
2,417,342
1,756,585
(621,879)
(453,625)
Total building and equipment
1,795,463
1,302,960
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, 2019 and December 31, 2018 consisted of the following:
New Jersey
248,289
McKinley
250,000
Golden Chest
1,677,972
Crown Point
333,333
Butte Potosi
274,440
Less accumulated amortization
(30,890)
(24,695)
11
10. Notes Payable
At June 30, 2019 and December 31, 2018, notes payable are as follows:
Property with shop, 36 month note payable, 4.91% interest rate payable monthly, remaining principal of note due in one payment at end of term in June 2019, monthly payments of $459
29,205
31,319
Haul truck, 20 month note payable, 10.0% interest rate payable monthly through May 2019, monthly payments of 6,020
31,657
Compressor, 48 month note payable, 5.25% interest rate payable monthly through November 2021, monthly payments of $813
23,373
27,616
Jumbo drill and 1 yrd. LHD, 12 month note payable, 8% interest rate payable monthly through January 2019, monthly payments of $10,874
10,802
Atlas Copco loader, 60 month note payable, 10.5% interest rate payable monthly through June 2023, monthly payments of $3,550
138,547
152,125
Caterpillar excavator and skid steer, 48 month note payable, 6.8% interest rate payable monthly through June 2022, monthly payments of $2,392
77,715
89,199
2018 pick-up, 72 month note payable, 9% interest rate payable monthly through June 2024, monthly payments of $701
33,607
36,230
2008 pick-up, 60 month note payable, 9% interest rate payable monthly through June 2023, monthly payments of $562
22,496
24,798
Haul truck, 13 month note payable, 8.0% interest rate payable monthly through July 2019, monthly payments of 5,000
4,967
34,085
Caterpillar 938 loader, 60 month note payable, 6.8% interest rate payable monthly through August 2023, monthly payments of $3,751
162,917
179,552
MultiQuip DCA70 Generator, 48 month note payable, 7.25% interest rate payable through August 2022, monthly payments of $635
21,511
24,480
CaterpillarAD22 underground truck, 48 month note payable, 6.45% interest rate payable through June 2023, monthly payments of $12,979
Total notes payable
1,061,142
641,863
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, 2019 are as follows:
12 months ended
255,573
2022
270,012
2023
248,147
2024
15,228
11. Stockholders’ Equity
The Company offered private placements in the first half of 2018. Under the private placements, the Company sold 8,858,577 units for net proceeds of $1,107,571. 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 $0.22 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, 2017
9,295,834
0.10-0.20
Issued in connection with private placements
4,804,289
0.18-0.22
Balance December 31, 2018
14,100,123
0.10-0.22
Exercised
(1,200,000)
0.10
12,900,123
$0.18-0.22
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11. Stockholders’ Equity, continued
These warrants expire as follows:
Exercise Price
Expiration Date
2,137,500
$0.20
February 28, 2020
4,250,000
March 28, 2020
1,708,334
November 3, 2020
4,429,289
$0.22
March 30, 2020
375,000
$0.18
December 14, 2023
12. Stock Options
In June 2019 2,100,000 stock options were granted to non-officer employees. These options vested immediately and are exercisable at $0.14 for 3 years. Total stock based compensation recognized on these options was $190,019. The weighted average fair value of stock option awards granted and the key assumptions used in the Black-Scholes valuation model to calculate the fair value of the options are as follows: volatility of 98.6%, risk-free interest rate of 1.81%, and an expected term of three years.
No options were granted in 2018, however $27,140 in stock based compensation was recognized during the six month period ended 2018 for vesting of options granted prior to 2018.
Activity in the Company’s stock options is as follows:
Number of Options
7,662,500
0.10-0.18
Expired
(500,000)
Granted
(108,000)
0.15
7,054,500
(750,000)
2,100,000
0.14
8,404,500
Exercisable at June 30, 2019
At June 30, 2019, outstanding stock options have a weighted average remaining term of approximately 1.3 years and an intrinsic value of approximately $81,600.
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 six months ended June 30, 2019 and 2018 is as follows:
Six Months Ended
Balance at beginning of period
121,560
Accretion expense
Revision of estimated reclamation costs
10,771
Balance at end of period
139,338
The estimated retirement obligation costs were discounted using credit adjusted, risk-free interest rate of 6.0% from the time the obligation was incurred to the time management expects to pay the retirement obligations.
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.
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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.
Highlights during the second quarter of 2019 include:
For the quarter ending June 30, 2019 approximately 13,329 dry metric tonnes (dmt) were processed at the Company’s New Jersey mill at a head grade of 3.22 grams per tonne (gpt) with gold recovery of 86.81%. Gold sales for the quarter were 1,228 ounces.
Open pit mining progressed from the 1009 bench to the 1003 bench. The trend of lower stripping ratios in the open pit continued during the second quarter as the Skookum shoot was fully exposed in the pit. Open pit mine production averaged 1,150 tonnes per day (mineralized material and waste).
Underground mining focused on the completion of mining the 857 stope along with mining of the 848 stope. Backfilling of the 848 north stope was completed during the quarter and the addition of the Cat AD22 haultruck provided a substantial increase in the backfilling rate that reduced the time required to fill the stope by one-half.
The Company completed a column leaching test that indicated that heap leaching of lower grade oxide material at the Golden Chest could substantially enhance the economics of possible future mining of the property. An oxidized sample of quartzitic footwall material collected in the pit with a head grade of 1.19 gpt Au achieved 88% gold recovery in 11 days in the laboratory test.
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 2019 of $77,535 and $137,464 compared to a gross loss of $613,408 and $606,796 for the comparable periods in 2018. Gross profit increased as a result of improved grade from the open pit and increased production from the underground operations.
Revenue was $1,547,654 and $2,692,328 for the three and six month periods ending June 30, 2019 compared to $489,555 and $1,590,946 for the comparable periods of 2018. This was also a result of improved grade from the open pit and increased production from the underground operations.
A net loss attributable to New Jersey Mining Company shareholders of $259,768 and $465,172 in the three and six month periods ending June 30, 2019 compared to net income of $2,005,986 and 1,752,747 in the comparable periods of 2018. In the second quarter of 2018 the Company sold its Little Baldy/Toboggan properties to Hecla Mining Company for a net gain of $2,947,862 which is reflected in the net income for 2018.
The consolidated net loss for the first six months included non-cash charges as follows: depreciation and amortization of $270,858 ($145,564 in 2018), accretion of asset retirement obligation of $4,471 ($7,007 in 2018), stock based compensation of $190,019 ($27,140 in 2018), change in fair value of forward gold contracts, none in 2019 ($7,887 in 2018), and gain on sale of mineral property none in 2019 ($2,947,862 in 2018).
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Financial Condition and Liquidity
For the Six Months Ended June 30,
Net cash provided (used) by:
Operating activities
Investing activities
Financing activities
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 additional debt. As a result of its planned production, equity sales and ability to restructure debt, management believes cash flows from operations and existing cash are sufficient to conduct planned operations and meet contractual obligations for the next 12 months.
As a result of its planned production, equity sales and ability to restructure debt, management believes cash flows from operations and existing cash are sufficient to conduct planned operations and meet contractual obligations for the next 12 months.
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, 2019, 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, 2019, 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, 2019.
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 first half of 2018 the Company issued 8,858,577 shares of unregistered common stock at $0.13 per share for net proceeds of $1,107,571 net of commission and brokerage costs as a result of a private placement offering, additionally 8,000 shares were issued in exchange for stock options at $0.15 per share for net proceeds of $1,200. 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.
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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, 2019, 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
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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 and filed with the Securities and Exchange Commission on April 1, 2019.
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.
17
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, 2019
By: /s/ Grant Brackebusch
Grant Brackebusch,
its: Vice President and Chief Financial Officer
Date: August 14, 2019
18