UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB /A
(Mark One)
x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period __________________ to __________________
Commission file number 000-28837
NEW JERSEY MINING COMPANY
(Name of small business issuer in its charter)
| Idaho | 82-0490295 |
| (State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.) |
| organization) | |
| 89 Appleberg Road, Kellogg, Idaho | 83837 |
| (Address of principal executive offices) | (Zip code) |
Issuer’s telephone number, including area code: (208) 783-1032
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, No par value per share
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 ¨
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. ¨
The registrant’s revenues for its most recent fiscal year were $ nil.
The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the average of the bid and ask prices on March 10, 2005, as reported by the Over the Counter Bulletin Board was $9,972,400.
At March 10, 2005, the registrant had 21,679,070 outstanding shares of no par value common stock.
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TABLE OF CONTENTS
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GLOSSARY
Ag- Silver.
Au- Gold.
Alluvial- Adjectivally used to identify minerals deposited over time by moving water.
Argillites- Metamorphic rock containing clay minerals.
Arsenopyrite- An iron-arsenic sulfide. Common constituent of gold mineralization.
Bedrock- Solid rock underlying overburden.
CIL- A standard gold recovery process involving the leaching with cyanide in agitated tanks with activated carbon. CIL means "carbon-in-leach."
Crosscut- A nominally horizontal tunnel, generally driven at right angles to the strike of a vein.
Deposit- A mineral deposit is a mineralized body which has been intersected by sufficient closely-spaced drill holes or underground sampling to support sufficient tonnage and average grade(s)of metal(s)to warrant further exploration or development activities.
Development Stage- As defined by the SEC- includes all issuers engaged in the preparation of an established commercially mineable deposit (reserves) for its extraction which are not in the production stage.
Drift- A horizontal mine opening driven on the vein. Driving is a term used to describe the excavation of a tunnel.
Exploration Stage- As defined by the SEC- includes all issuers engaged in the search for mineral deposits (reserves) which are not in either the development or production stage.
Fault- A fracture in the earth's crust accompanied by a displacement of one side of the fracture with respect to the other and in a direction parallel to the fracture.
Flotation- A physiochemical process for the separation of finely divided solids from one another. Separation of these (dissimilar) discrete solids from each other is affected by the selective attachment of the particle surface to gas bubble.
Galena- A lead sulfide mineral. The most important lead mineral in the Coeur d'Alene Mining District.
Grade- A term used to assign the concentration of metals per unit weight of ore. An example - ounces of gold per ton of ore (opt). One troy ounce per short ton is 34.28 parts per million or 34.28 grams per metric tonne.
Mineralization- The presence of minerals in a specific area or geologic formation.
Ore- A mineral or aggregate of minerals which can be mined and treated at a profit. A large quantity of ore which is surrounded by non-ore ore sub-ore material is called an orebody.
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Production Stage- As defined by the SEC - includes all issuers engaged in the exploitation of a mineral deposit (reserve).
Pyrite- An iron sulfide. A common mineral associated with gold mineralization.
Quartz- Crystalline silica (SiO2). An important rock-forming and gangue material in gold veins.
Quartzites- Metamorphic rock containing quartz.
Raise- An opening driven upward generally on the vein.
Reserves- That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Reserves are subcategorized as either proven (measured) reserves, for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings, or drill holes, and grade and/or quality are computed from the results of detailed sampling, and (b) the sites for inspection, sampling, and measurement are spaced so closely and geologic character is so well defined that size, shape, depth, and mineral content are well-established; or probable(indicated) reserves, for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, yet the sites for inspection, sampling and measurement are farther apart.
Stope – An underground void created by the mining of ore.
Tetrahedrite- Sulfosalt mineral containing copper, antimony and silver.
Vein- A zone or body of mineralized rock lying within boundaries separating it from neighboring wallrock. A mineralized zone having a more or less regular development in length, width and depth to give it a tabular form and commonly inclined at a considerable angle to the horizontal.
Wallrock- Barren rock surrounding a vein.
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PART I
ITEM 1.
DESCRIPTION OF THE BUSINESS
BUSINESS DEVELOPMENT
With the exception of historical matters, the matters discussed in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties that could cause actual results to differ materially from projections or estimates contained herein. Such forward-looking statements include statements regarding planned levels of exploration and other expenditures, anticipated mine lives, timing of production and schedules for development and permitting. Factors that could cause actual results to differ materially include, among others, metals price volatility and permitting delays. Most of these factors are beyond the Company’s ability to predict or control. The Company disclaims any obligation to update any forward-looking statement made herein. Readers are cautioned not to put undue reliance on forward-looking statements.
Form and Year of Organization
New Jersey Mining Company (“the Company”) is a corporation organized under the laws of the State of Idaho on July 18, 1996. The Company was dormant until December 31,1996, when all of the assets and liabilities of the New Jersey Joint Venture (a partnership) were transferred to the Company in exchange for 10,000,000 shares of common stock. The New Jersey Joint Venture, a partnership, was formed in 1994 to develop the New Jersey mine. The partnership consisted of Mine Systems Design, Inc. [75%], Plainview Mining Company [13%], Silver Trend Mining Company [10%], Mark C. Brackebusch [1%], and Mascot Silver-Lead Mines, Inc. [1%].
Any Bankruptcy, Receivership or Similar Proceedings
There have been no bankruptcy, receivership or similar proceedings.
Any Material Reclassification, Merger, Consolidation, or Purchase or Sale of a Significant Amount of Assets Not in the Ordinary Course of Business.
There have been no material reclassifications or purchases or sales of a significant amount of assets not in the ordinary course of business for the past three years. However, on October 22, 2002, the Company completed a merger with Gold Run Gulch Mining Company (GRG). The Company exchanged 1,916,250 common shares for all the outstanding shares of GRG. The exchange ratio was 0.875 of a share of New Jersey Mining Co. for one share of (GRG). The shares issued to GRG were restricted by SEC Rule 144. GRG's primary asset was the New Jersey mine property which included 62 acres of patented mining claims, mineral rights to 108 acres of fee land, and approximately 130 acres of unpatented mining claims.
BUSINESS OF THE COMPANY
General Description of the Business
The Company is involved in exploring for and developing gold, silver and base metal ore resources in the Pacific Northwest of the USA. The Company has a portfolio of mineral properties: the New Jersey mine, the Silver Strand mine, the Golden Chest mine, the CAMP project, the Lost Eagle project, the
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Wisconsin-Teddy project, the Roughwater project and the Silver Button project. The New Jersey mine, the Golden Chest mine and the Silver Strand mine are the Company's development stage properties while the other properties are exploration stage properties.
Effect of Existing or Probable Governmental Regulations on the Business
All operating plans have been made in consideration of existing governmental regulations. Regulations that would most affect operations are related to water quality. A plan of operation is usually required before exploration or mining activities can be conducted on public land that is administered by the Bureau of Land Management or US Forest Service. The New Jersey mine, the Silver Strand mine and the Golden Chest properties are part of the expanded Bunker Hill Superfund Site. Current plans for expanded cleanup do not include our mines. There is no known evidence that previous operations at the New Jersey mine prior to 1910 caused any ground water or stream pollution or discharged any tailings into the South Fork of the Coeur d'Alene River; however, such evidence could be uncovered. The nature of the risk would probably be to clean up or cover old mine tailings that may have washed downstream from upstream mining operations. No mineral processing operations were ever conducted at the Silver Strand mine and water sampling data has not indicated any pollution. There are no mineral processing tailings deposits at the Golden Chest mine, however, at least two old adits have small water discharges. The Company could conceivably be required to conduct cleanup operations at its own expense, however the EPA’s Record of Decision for the Bunker Hill Mining and Metallurgical Complex Operating Unit 3 does not include any cleanup activities at the Company’s mines. New Jersey Mining Company has not received any notifications that it could be liable for any environmental cleanup.
Costs and Effects of Compliance with Environmental Laws (Federal, State and Local)
No major Federal permits [except EPA storm water permit which is a blanket state-wide permit] are required for the New Jersey mine because most operations are on private land and there are no process discharges to streams. Any exploration program conducted by the Company on unpatented mining claims, usually administered by the U.S. Bureau of Land Management (BLM), requires a Plan of Operation to be submitted. An approved plan of operations for a mining operation at the Silver Strand will most likely require water quality monitoring, a reclamation plan, and possibly, the treatment of the mine water. A reclamation bond will be required before operations can begin at the Silver Strand. The amount of the reclamation bond is estimated to be about $60,000. Water quality monitoring at the Silver Strand is expected to cost about $2,000 per year.
The Company is also subject to the rules of the U.S. Department of Labor, Mine Safety and Health Administration (MSHA) for the New Jersey mine and Golden Chest mine operations. When a mine is operating, MSHA performs a series of inspections to verify compliance with mine safety laws.
The New Jersey mine has two important State of Idaho permits. The first is an Idaho Cyanidation Permit and the second is a reclamation plan for surface mining operations. No permit is required for the current flotation process as there is no discharge of water to surface waters and the tailings impoundments are less than 30 feet high from toe to crest. An Idaho cyanidation permit was granted October 10, 1995 [No. CN-000027] The cyanidation process, CIL, has not been implemented at the New Jersey mine as of this date. The deposition of tailings using paste technology is a unique part of the permit. Tailings will be dewatered to a paste consistency using a high density thickener. Cyanide will be destroyed in the paste using bleach, and the tailings will be deposited on a sloped stack. Fred W. Brackebusch has received a U.S. patent (5,636,942) on this new tailings technology. Reclamation of the tailings stack will be done concurrently with mining. The Cyanidation permit requires quarterly surface and groundwater monitoring prior to startup of the CIL plant and monthly sampling once operations
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commence. The current water monitoring program costs the Company about $2,000 on an annual basis. The estimated annual cost for sampling, if CIL operations begin is about $25,000.
A surface mining reclamation plan for the New Jersey mine was approved by the Idaho State Department of Lands in 1993. The plan calls for grading of steep fill slopes and planting of vegetation on the area disturbed by the open pit mine. An annual reclamation fee of $130 is paid to the Idaho Department of Lands for surface disturbance associated with the New Jersey mine open pit. The Company has estimated its costs to reclaim the New Jersey mine site to be $12,500.
The Company submitted a Plan of Operation to the US Forest Service (USFS) in April 2003 for a seasonal, underground mining operation at the Silver Strand mine. USFS conducted an Environmental Assessment (EA) of the plan and requested public comments on the EA in September 2004. Public comments were submitted by two environmental groups and the Company provided additional information and clarification to address the public comments. A final decision document with a Finding of No Significant Impact (FONSI) is expected to be issued by the USFS shortly. A 45 day appeal period follows the issuance of the FONSI. An appeal of the FONSI decision could delay operations at the Silver Strand for an unknown period of time.
When the Company plans an exploration drilling program on Federal Land, it must submit a Plan of Operations to either the BLM or US Forest Service. Compilation of the plan can take several days of professional time and a reclamation bond is usually required to start drilling once the plan is approved. Bond costs vary directly with surface disturbance area, but a small, single set-up drilling program usually requires a bond amount of about $2,000. On completion of the reclamation and approval by the managing agency, the bond amount is returned to the Company.
The Company complies with local building codes and ordinances as required by law.
Number of Total Employees and Number of Full Time Employees
The Company's total number of employees is five including President Fred Brackebusch, Vice President Grant Brackebusch and Secretary Tina Brackebusch. Fred W. Brackebusch and Tina C. Brackebusch work part-time for the Company. Exploration and development work is currently performed by independent contractors hired by the Company.
REPORTS TO SECURITY HOLDERS
The Company is not required to deliver an annual report to shareholders, however, it plans to deliver an annual report to shareholders in 2005. The annual report will contain audited financial statements. The Company may also rely on the Internet in the future to deliver annual reports to shareholders.
The Company filed a Form 10-SB with the Securities and Exchange Commission on January 11, 2000. The filing became effective on January 27, 2000. The Company has filed the required annual 10-KSB reports, quarterly 10-QSB reports, and occasional 8-K reports since that time.
The public may read a copy of any materials the Company files with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
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The Company maintains a website where recent press releases and other information can be found. A link to the Company’s filings with the SEC is provided on the Company’s website - www.newjerseymining.com.
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ITEM 2.
DESCRIPTION OF PROPERTIES
Figure 1 - Project Location Map
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NEW JERSEY MINE
Location
The New Jersey mine is located in the Gold Run Gulch area, comprising about 15 square miles in the Coeur d'Alene Mining District. Located 2 miles east of Kellogg, Idaho, the New Jersey property area includes the gold bearing Coleman vein system, a base metal Sullivan-type prospect known as the Enterprise and another gold prospect called the Scotch Thistle. The mine is adjacent to U.S. Interstate 90 and is easily accessed by local roads throughout the entire year. Three phase electrical power is supplied to the New Jersey mill by Avista Utilities. The area is underlain by argillites and quartzites of the Prichard formation [member of Belt Supergroup], which commonly hosts gold mineralization.
Mineral Property
The Company owns 62 acres of patented mining claims, mineral rights to 108 acres of fee land, and approximately 130 acres of unpatented mining claims. The unpatented claims are on federal land administered by the U.S. Bureau of Land Management. The Coleman pit is located on the patented mining claims.
Mineral Leases
A mineral lease from William Zanetti in the New Jersey mill area contains about 60 acres. Alliance Title and Escrow Corporation of Wallace, Idaho has issued a Commitment for Title Insurance for the fee simple property leased from William Zanetti. The lease provides for the Company's exploration, development and mining of minerals on fee land through October 2008 and thereafter as long as mining operations are deemed continuous. The lessor may terminate the lease upon the Company's failure to perform under the terms of the lease. The lease provides for royalties of 5% of net sales of ores or concentrates less transportation also know as a Net Smelter Return. Additional royalties of 1% to 5% are due if the gold price exceeds $632 per ounce as of December 31, 2004. This additional royalty gold price is indexed to the Consumer Price Index with the December 1988 CPI as the base. Also, annual advance royalties totaling $500 per year are required under the lease. The advance royalties are accumulated and will be credited against the royalty obligations.
A second mineral lease, known as the Grenfel lease, was acquired from Mine Systems Design, Inc. (MSD) in 2001 in exchange for 1,000,000 shares of the Company's Common Stock. The lease covers the mineral rights to 68 acres located north of the New Jersey mine area. The lease has a fifteen year term and thereafter so long as mining operations are deemed continuous. The lessors may terminate the leases upon the Company's failure to perform under the terms of the lease. A 3% Net Smelter Return (NSR) royalty will be paid to the lessors if production is achieved. However, the NSR shall not exceed 10% of the net proceeds, except the NSR shall not be less than 1%. No advance royalties are required by this lease.
History
There are at least 14 gold prospects in or near the New Jersey mine area. Most of the prospecting activity was completed before the turn of the century, and almost no work has been done for at least 50
10
years. Just after the turn of the century, at the New Jersey mine, more than 2,500 feet of development workings including drifts, crosscuts, shafts, and raises, were driven by the New Jersey Mining and Milling Company (an unrelated company) to develop the Coleman vein and the northwest branch of the Coleman vein. A 10 stamp gravity mill was built and operated for a short period. The amount of money spent from 1899 to 1910 appears to have been $500,000 to $1,000,000 in 1996 dollars. The operation was discontinued because of the difficulty in recovering fine gold without cyanidation technology, because of the lower price of gold relative to mining costs, and because of inadequate drilling and mining technology. For example, the Coleman vein, a hard quartz vein, was so difficult to drill using hand steel that drifts along the vein were not driven to any great lengths. A considerable portion of the gold is in free grains, so there is a strong nugget effect.
Present Condition and Work Completed on the Property
A 100 tonne per day flotation mill has been built and commissioned on the New Jersey mine property. A crushing plant was built and commissioned in 1996. The grinding circuit was built in 1996, and the flotation circuit was built in early 2004 and commissioned in September 2004. It consists of five rougher cells and three cleaner cells all of which were purchased new in 2004. Flotation concentrate is dewatered by a pressure filter and dumped into a bin. A ball mill is used to grind the crushed ore and is the limiting factor for throughput. Currently, hourly throughput is limited to about 4.7 tonnes per hour. Production data indicates that metallurgical recovery of gold to concentrate is about 93%.
During 2001, the Company drilled two holes to explore a geophysical anomaly detected in the autumn of 2000. One hole intercepted a broad zone of arsenopyrite mineralization, named the Grenfel zone, which contained two separate zones of anomalous gold content ( 0.70 grams per tonne gold over two separate 10 meter intervals) In 2002, 1,317 meters of diamond drilling was completed amongst 11 holes at the New Jersey mine. The drilling confirmed the continuity of the Coleman vein system as nine of the holes intercepted the vein system. Reserves were not increased as the drilling was too widely spaced. The best intercept was in DDH02-02 which assayed 2.76 gpt gold over 12.5 meters including 2.5 meters of 6.80 gpt gold. Drilling was conducted at the Scotch Thistle prospect, Enterprise prospect and northern Coleman vein in 2003. Silver, lead and zinc mineralization was discovered at the Enterprise and a new zone of gold mineralization was found at the Scotch Thistle. In 2004, two drillholes were drilled at the Enterprise where base metal mineralization (lead, zinc & silver) was intercepted. Also in 2004, a single hole was drilled at the Scotch Thistle prospect and intercepted a gold zone that assayed 2.56 gpt over 6.6 meters extending the zone discovered a year earlier.
Exploration Plans
The Company has plans to do more exploratory core drilling at the Enterprise and Scotch Thistle prospects. New road construction will be required for the Enterprise drilling. An exploration crosscut is planned for the 2400 Level on the Coleman vein. All of these planned programs are dependent on the Company’s ability to raise capital and will not be completed until sufficient funds are raised.
Geology and Reserves
The description of the geology of the New Jersey mine and the calculation of mineral resources have been completed by the Company. The description of the geology of the area can be verified from third party published reports by the U.S. Geological Survey and unpublished reports by Oscar Hershey, former Coeur d'Alene District geologist. The Company is solely responsible for the reserve calculations.
Geology
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The Prichard formation, which is 25,000 feet in thickness, underlies the New Jersey mine area which is adjacent to and north of the major Osburn fault. The Osburn fault is in the center of a Proterozoic rifting basin. The Prichard formation is divided into nine rock units of alternating argillites and quartzites, and the units exposed in the New Jersey mine area appear to belong to the lower members. A broad domal structure with a series of tighter folds near the Osburn fault typifies the structure of the area. South of the Osburn fault, the Wallace formation is exposed on the north flank of the Big Creek anticline. A fault was discovered by the 2001 drilling program. The fault appears to be a fairly large east-west striking structure that may separate the Coleman veins from the Grenfel zone. However, more information is required to confirm that hypothesis.
Gold mineralization is associated with sulfide-bearing quartz veins which cut the bedding in Prichard argillite and quartzite. Associated sulfides are pyrite, arsenopyrite, chalcopyrite, low-silver tetrahedrite, galena, and sphalerite. Most commonly in the Coleman vein of the New Jersey mine visible gold is associated with the tetrahedrite. Gold prospects are concentrated in the New Jersey mine area possibly because of the presence of lower Prichard stratigraphic members, an anticlinal structure, and/or the existence of a gold source. Gold is associated with arsenic, copper, and antimony. Igneous dikes are relatively rare. Some wallrock alteration has been observed. The Coleman vein shows a characteristic brecciation The cumulative strike length of the veins on the property based on exposures in drifts, outcrops and float is about 460 meters.
Reserves
The reserves at the New Jersey mine as of this date are those contained within the open pit on the Coleman vein. Open pit reserves are from the planned pit which extends from the south portal north to the terminus of the Coleman Vein. The vertical extent of the pit is from the surface outcrop down to the Keyhole Tunnel level. Grade estimation for the blocks in the pit reserve is based upon calculated head grades from 5,000 short tons of gravity-mill production. Other sample sources include channel samples from the outcrop and also from the Keyhole Tunnel.
Open Pit Reserve (Proven & Probable)| Ore Blocks | Metric Tonnes |
Gold Grade (grams per tonne) |
Ounces (gold) |
| Coleman (17+00 to 21+00) | 56,250 | 4.56 | 8,306 |
| Coleman Split (21+00 to 23+00 | 21,320 | 3.53 | 2,420 |
| North Vein (21+00) | 2,990 | 8.57 | 825 |
| Total | 80,560 | 4.45 | 11,551 |
The open pit reserve tonnages are diluted. That is, the expected dilution from open pit mining is accounted for in the grade and tonnage of the reserve blocks. The ounces stated in the above table are contained ounces.
The cutoff grade used was
3.5 grams/tonne gold. The cutoff grade is based on historical costs of a 100
tonne/day open pit operation with a CIL/gravity mineral processing plant recovering
95% of the gold. Gold prices used were those on December 31,2004 or $14.09/gram
($438.10/troy ounce).
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SILVER STRAND MINE
Location
The Silver Strand mine is located in Kootenai County, Idaho about 12 miles east-northeast of Coeur d'Alene, Idaho. The property consists of 15 unpatented lode claims. It is situated on Lone Cabin Creek, a tributary of Burnt Cabin Creek and of the Little North Fork Coeur d'Alene River. Primary access is from Coeur d'Alene via paved and dirt roads from Fernan Lake to Lone Cabin Creek.
Mineral Property
The Company's Silver Strand mine consists of fifteen unpatented lode claims on federal land administered by the U.S. Forest Service. The claims were acquired from Trend Mining Company pursuant to a purchase agreement dated July 14, 2000. Mine Systems Design, Inc. assumed Trend’s royalty on the Silver Strand claims in July 2001. The royalty is a 1.5% Net Smelter Return (NSR) capped at $50,000 after which the NSR decreases to 0.5% .
History
The Silver Strand deposit was discovered during nearby logging activity during the 1960's and mined during the 1970's and 1980's for siliceous smelter flux. Production was 13,752 tons grading 0.093 ounces per ton gold, 9.6 ounces per ton silver and 87.1% silica. The mining operation was shut down when the ASARCO Tacoma smelter closed in the early 1980's. Previous owner/operators include Silver Strand Mining Company, Silver Trend Mining Company and Trend Mining Company. Mine Systems Design, Inc. (MSD) had an exploration agreement with Silver Trend Mining Company that was terminated in 1997. During the term of that lease, MSD made an agreement with U.S. Bureau of Mines, Spokane Research Center to conduct a mining research product at the Silver Strand mine. The USBM monitored water quality and flows from the mine, maintained the underground openings and conducted some diamond drilling.
Present Condition and Work Completed on the Property
The Silver Strand mine is an underground mine that was mined during the 1970's and early 1980's. No mining has taken place at the property since that time. Since mining was suspended only limited exploration has taken place at the Silver Strand including geochemical sampling and diamond drilling. In 1997, Silver Trend Mining Company completed a four hole surface diamond drilling program which totaled 795 meters. The mine is accessed by three horizontal openings called levels: the No. 2 Level, the No. 225 Level and the No. 3 Level which is the lowest level and is located at the creek bottom adjacent to forest road No. 411. All three levels are accessible from the surface via a network of dirt roads. The USBM installed a large culvert at the portal of the No. 3 Level in order to stabilize that entrance. No surface infrastructure presently exists at the Silver Strand. There is no energy available at the site. Any electrical energy requirements would have to be satisfied with an on-site generator.
During 2002, an exploration drilling program was completed at the Silver Strand. Also, rehabilitation of the 225 Level portal was started but not completed in 2002. The drilling was successful in extending the limits of the ore shoot below the No. 3 Level. In April 2003, the Company submitted a Plan of Operations (POO) to the USFS for a seasonal underground mining operation with a planned production rate of 1,000 tonnes per month. A geophysical exploration program was completed at the Silver Strand in 2004. Several anomalies were discovered and the largest merits exploration drilling.
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USFS conducted an Environmental Assessment (EA) of the plan and requested public comments on the EA in September 2004. Public comments were submitted by two environmental groups and the Company provided additional information and clarification to address the public comments. A final decision document with a Finding of No Significant Impact (FONSI) is expected to be issued by the USFS shortly. A 45 day appeal period follows the issuance of the FONSI. An appeal of the FONSI decision could delay operations at the Silver Strand for an unknown period of time.
The startup of mining at the Silver Strand is dependent on the timely receipt of a permit from the USFS, economic gold and silver prices, and sufficient funding.
Geology and Reserves
Company geologists have completed the description of the geology of the Silver Strand mine. Reserve calculations were completed by the Company’s geologists and engineers. Verification of the area’s geology can be found from third party published reports by Alfred L. Anderson of the Idaho Bureau of Mines and Geology (Pamphlet 53).
Geology
The upper part of the Revett Formation outcrops at the mine. The upper Revett member contains alternating sequences of quartzite and siltite-argillite. Beds dip shallowly to moderately northerly (30 to 50 degrees). Alfred L. Anderson of the Idaho Bureau of Mines and Geology mapped the geology and discussed the mineral resources of Kootenai County in 1940 (Pamphlet 53). Anderson combined the Burke and Revett formations and estimated the combined thickness to be from 1,000 to 3000 feet. There are no major intrusive rocks near the Silver Strand mine. A major diabase dike has intruded the Silver Strand mineralized zone. The Burnt Cabin fault is the major geologic structure near the Silver Strand mine.
The Silver Strand orebody consists of a nearly-vertical, silicified (quartz) replacement zone which cuts the flat to moderately dipping Revett beds. The zone is not a fissure-filling vein. The boundaries and shape of the silicified zone were determined to some extent by the 1997 diamond drilling program. The sulfide ore mined to date appears to be enclosed within the quartz zone. The ore is black and very fine-grained. Sulfide minerals are not easy to identify because of the fine-grained texture. Occasional euhedral crystals of pyrite can be observed, and tetrahedrite is visible in the higher grade ore. Minerals observed by microscopic study during metallurgical tests include: pyrite, tetrahedrite, tennatite, sphalerite, arsenopyrite and stibnite.
Reserves
Ore grades and dimensions of the reserve blocks are based on chip sampling of the vein underground and diamond drilling. Reserves were calculated using a gold equivalent cutoff grade of 5 grams per tonne gold, a minimum mining width of 1.5 meters, and the standard practices of the Coeur d’Alene Mining District. The cutoff grade is based on historical and estimated costs of a 1,000 tonne/month underground mining operation, hauling ore to the Company’s mineral processing plant about 40 miles distant, and processing with a flotation mineral processing plant recovering 75-80% of the silver and gold. Silver and gold prices used were those on December 31,2004 or $0.218/gram ($6.79/troy ounce) and $14.09/gram ($438.10/troy ounce), respectively.
| Classification | Metric Tonnes |
Gold Grade | Silver Grade | ||
| Grams Per Tonne |
Ounces Per Ton |
Grams Per Tonne |
Ounces Per Ton | ||
| Proven & Probable |
6,903 | 5.43 | 0.158 | 361 | 10.5 |
The reserve tonnages are diluted. That is, the expected dilution from underground mining is accounted for in the grade and tonnage of the reserve blocks.
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GOLDEN CHEST
Location
The Golden Chest project is located in Reeder Gulch about 1.2 miles east of Murray, Idaho along Forest Highway 9. The property consists of two mining leases and unpatented claims covering approximately 500 acres. The site is accessible by unimproved dirt roads and no surface infrastructure is present at the site. Electrical power supplied by Avista Utilities has been installed by the Company to the portal site in Reader Gulch.
Mineral Lease
On September 5, 2003, the Company signed an exploration agreement with an option to lease with Paymaster Resources Incorporated on the Golden Chest mine covering about 270 acres. In February 2004, Paymaster assigned its interest to Metaline Contact Mines of Murray, Idaho. On January 3, 2005, the Company signed a mining lease on the Golden Chest with Metaline Contact Mines (MTLI) and J.W. Beasley Interests, LLC (JWBI). The Company completed a pre-feasiblity study on the open pit resource drilled by Newmont Mining and issued 50,000 shares of its restricted common stock to both MTLI and JWBI to exercise the mining lease. The term of the lease is fifteen years and as long thereafter as Leased Substances are mined, processed or marketed from the Leased Premises. A Net Smelter Royalty (NSR) of 3% is payable to the Lessors. An additional NSR up to a maximum 3% is payable based on a sliding scale of increasing gold prices adjusted by the Consumer Price Index (CPI) using June 2003 as the base. See table below. A copy of the mining lease was filed as an exhibit in the Company’s 10-KSB for the year ending December 31, 2003.
Sliding Scale for Additional NSR Royalty
| Price of Gold, $ / Troy Ounce (using December 2004 CPI-U) |
Additional NSR Royalty |
| < $415 | None |
| $415 to $467 | 1.0% |
| $467 to $519 | 1.5% |
| $519 to $570 | 2.0% |
| > $570 | 3.0% |
Finally, the Company will issue 50,000 shares of restricted common stock for each increment of 10,000 troy ounces of gold production.
On January 3, 2005, the Company signed a mining lease with Prichard Creek Resource Partners , LLC that covers about 41 acres of unpatented lode claims. Upon exercising the lease the Company issued 30,000 shares of restricted common stock to Prichard Creek Resource Partners. The term of the lease is fifteen years and as long thereafter as Leased Substances are mined, processed or marketed from the Leased Premises. A Net Smelter Royalty (NSR) of 3% is payable to the Lessors. An additional NSR is based on the same sliding scale presented in the table above is also payable to Prichard Creek Resource Partners. Finally, if commercial production is commenced from these claims a one-time payment of 30,000 shares of the Company’s common stock is payable to Prichard Creek Resource Partners.
The Company also holds a total of 195 acres at the Golden Chest property through unpatented claims wholly owned by the Company. The portion of these claims within Sections 4 and 5 of Township 49N, Range 5E, BM are subject to a 1% Net Profits Royalty payable to MTLI and JWBI.
15
History
The Golden Chest was the largest lode producer in the Murray district, producing 65,000 ounces of gold from narrow high grade veins primarily in the late 1800’s. Newmont Exploration Limited (NEL) spent over $500,000 on an exploration program at the Golden Chest in the late 1980s, which consisted of soil and rock sampling; surface and underground mapping; and 11,133 feet of drilling. Newmont’s work identified a potential open pit with an inferred geologic resource, not reserves, of 230,000 ounces of gold. Newmont dropped the property in 1990, apparently because it did not meet their criterion of a 1 million ounce open-pit resource. New Jersey Mining Company signed an exploration agreement with an option to lease the property in June 2003.
Present Condition and Work Completed on the Property
During 2004, the Company completed an exploration ramp 152 meters long that intercepted the Katie-Dora vein. Then the vein was drifted on for 40 meters to the northeast before intercepting an old stope. Chip sampling of the vein was completed for each round or about every 2.5 to 3.0 meters. No drifting was completed in a southerly direction on the Katie-Dora vein. Material from drifting on the vein was stockpiled at the Golden Chest and subsequently processed at the New Jersey mill in Kellogg. Bulk flotation of sulfides was used to produce a gold-bearing pyrite concentrate. Approximately 1,280 wet tonnes were processed at the mill. Processing was completed for this development material on March 9, 2005, and the sale of the concentrate is pending.
Also during the past year, a deep core drilling program comprised of 4 holes and 1,142 meters was completed at the Golden Chest. The deepest hole, DDH04-06 intercepted 17.5 meters that assayed 4.83 gpt gold including a higher grade section of 5.8 meters that assayed 10.13 gpt gold. This intercept is thought to be significant because it may indicate increasing gold grade for the Idaho vein at depth.
The Company completed studies in 2004 on the potentially open pitable resource drilled by Newmont. Handbook and scaled costs were used in conjunction with current gold prices and gold prices substantially higher than current prices or three-year average prices. It was concluded that the resource would not be feasible as a stand-alone project and does not meet several requirements of reserves. Therefore, exploration at the Golden Chest will be directed toward developing resources on the Idaho vein for a larger scale underground mine.
In preparation for a small underground mining operation on the Katie-Dora vein, the Company built a shop/dry facility at the portal, improved 600 meters of haul-road and installed single phase power to the portal. A phase converter has also been installed at the portal. Electrical power is supplied by Avista Utilities.
The Company has the necessary permits to operate the planned underground mine.
Development & Exploration Plans
The Company plans to begin a 50 tonne per day mining operation on the Katie-Dora vein exposed by the ramp. Ore will be shipped to the New Jersey mill in Kellogg for processing. A core drilling program is also planned for the Golden Chest to drill offset holes from DDH04-6 in order to determine the extents of the gold mineralization. The core drilling program will be dependent on the Company’s ability to raise sufficient funds.
Geology and Reserves
Company geologists have completed the description of the geology of the Golden Chest mine. Reserve calculations were completed by the Company’s geologist and engineer. Verification of the area’s
16
geology can be found from third party published reports by Philip J. Shenon (Idaho Bureau of Mines Pamphlet No. 47) and unpublished reports by Newmont Mining Corporation.
Geology
Gold mineralization occurs in veins associated with a thrust fault that has exploited the top of a quartzite unit on the east limb of a north-trending synclinal fold. The mineralization occurs in two types of quartz veins which are generally conformable to bedding of the Prichard formation of Proterozoic age. Thin banded veins, occurring in argillite, contain visible gold, pyrite, arsenopyrite, galena, and sphalerite. Thicker, massive veins occur in quartzite and contain pyrite, sphalerite, galena, chalcopyrite, scheelite and rare visible gold. Gold mineralization is of Mesozoic age and related to granitic intrusive rocks.
Reserves
Ore grades and dimensions of the reserve are based on chip sampling of the Katie-Dora vein underground and surface core drilling. Reserves were calculated by the Company’s geologist and engineer using a cutoff grade of 5 grams per tonne gold, a minimum mining width of 2 meters, and the standard practices of the Coeur d’Alene Mining District.
The cutoff grade is based on historical and estimated costs of a 500 tonne/month underground mining operation, hauling ore to the Company’s mineral processing plant about 40 miles distant, and processing with a flotation mineral processing plant recovering 90% of the gold. Gold prices used were those on December 31,2004 or $14.09/gram ($438.10/troy ounce).
| Classification | Metric Tonnes | Gold Grade (grams per tonne) |
Ounces of Gold |
| Proven & Probable | 8,170 | 13.0 | 3,415 |
The reserve tonnages are diluted. That is, the expected dilution from underground mining is accounted for in the grade and tonnage of the reserve blocks.
CAMP PROJECT
Location
The CAMP project is an underground exploration project without known ore reserves. It is located south of the City of Osburn, Idaho, in the approximate center of the silver belt of the Coeur d'Alene Mining District. The CAMP is accessed by the Mineral Point mine road otherwise known as the McFarren Gulch road. The CAMP project covers approximately 380 acres. The Company controls 17.75% of the land in the CAMP. Merger Mines and Coeur d'Alene Mines Corp. (CDE:NYSE) control the remainder. Coeur d'Alene Mines Corp. is the operator of the property. The CAMP area extends from the surface to 900 feet below sea level. Electrical power is available at the site.
Mineral Lease
As part of a July 26, 1978 lease agreement with Coeur d'Alene Mines Corp. (Coeur), the Company will receive a 7.1% Net Profits Interest (NPI),if the property is put into production. However, according to the agreement, Coeur can retain 93.925% of the net profits until Coeur is reimbursed in total for its advance payments and expenditures. The term of the lease is 61 years. The Agreement also calls for Coeur to spend $50,000 annually on exploration. However, a December 18, 1992 Amendment to the Agreement allowed Coeur to fulfill the exploration work requirement until 2006 by applying past work in the amount of $1,436,243 towards the exploration work requirement.
History
17
Originally the CAMP project was leased to ASARCO during the period from 1969 through 1972. ASARCO developed an exploration drift on the 1400 level of the Coeur d'Alene mine (aka Mineral Point mine), before terminating the drift 1000 feet short of its planned length. The drift extended 1,000 feet into the CAMP project area before terminating. A series of diamond drill holes were planned along the 1400 level drift, but ASARCO terminated the lease agreement before any drilling could take place.
In 1978, Coeur signed a new lease agreement with Merger Mines and Plainview Mining Co. Plainview Mining Co. was acquired by the Company in February 1998. Coeur began an exploration program soon thereafter consisting of geochemical soil sampling, trenching, an exploration tunnel and diamond drilling (surface & underground). The exploration program continued through 1982. Coeur spent a total of $1,436,243 on the project.
Geology
The CAMP area lies astride the Silver Belt of the Coeur d'Alene Mining District. The north limb of the Big Creek anticline trends through the CAMP area. Most of the silver orebodies in the Silver Belt are located in the north limb of the Big Creek anticline. Prospective fault structures that trend through the CAMP property include the Polaris fault, Silver Summit vein-fault, Chester fault, and other structures. Favorable rock types are located in the footwall of the Polaris fault including the St. Regis and Revett formation.
The property has not received any more exploration activity since 1982 and, to the best of our knowledge, Coeur d’Alene Mines has no plans for exploration.
LOST EAGLE PROSPECT
Summary
The Lost Eagle is an exploration project without known ore reserves. It is located in the West Fork of Eagle Creek near Murray, Idaho. The outcrop of the Lost Eagle vein is located on the hillside above a USFS road. Access to the outcrop is by foot only. Electrical power is not available at the site. The Company's five lode claims cover 103 acres and are on public land administered by the U.S. Forest Service. The project is a gold and silver exploration project. The Lost Eagle vein is a quartz vein carrying sulfides that outcrops in the Revett formation. The sulfide minerals found in the vein are galena, pyrite, hessite and petzite. Hessite is a silver telluride mineral and petzite is a gold-silver telluride mineral. The presence of tellurides is thought to be significant as tellurides are usually associated with high-grade gold deposits near alkaline-igneous bodies. However, no known igneous bodies are mapped in the area. Historical workings included two short adits, about 5 meters long, located along the strike of a quartz vein system. An upper adit established by the old-timers exposes the vein where it is mineralized. Work completed by the Company includes re-opening of the adit, channel sampling the vein, geochemical soil sampling, and a geophysical survey.
In 2003, the Company completed two diamond drillholes each about 185 meters in length. Both holes intercepted abundant alteration including carbonate enrichment, potassic alteration, and a halo of specular hematite and pyrite with occasional galena. Gold and silver values were only weakly anomalous. Anomalous levels of molybdenum were also discovered by the 2003 drilling. No exploration work was completed on the property in 2004. Exploration plans call for additional diamond drilling but the holes will be collared closer to the outcrop by using a helicopter to place the drill.
18
WISCONSIN-TEDDY PROSPECT
Summary
The Wisconsin-Teddy is an exploration project without known ore reserves. The project area lies north of the New Jersey mine and is accessed by a local frontage road. Electrical power is available adjacent to the site. The Company's claims cover 83 acres. The claims are unpatented and are on public land administered by the U.S. Bureau of Land Management. The project is a base metal exploration project in the Prichard formation. Several tunnels with an aggregate length of 2,000 feet were driven on the property prior to 1930. This development was related to two veins systems - a copper-gold vein and a zinc-lead-silver vein. Work completed by the Company included the opening of the Teddy underground workings, sampling on the surface and underground, and geologic mapping. Two exploration holes were drilled in the summer of 2003 and anomalous base metal mineralization was found. No exploration work was completed in 2004 and there are no plans for additional exploration work in 2005.
SILVER BUTTON PROSPECT
The Silver Button is an exploration project without known ore reserves and covers an area of 20 acres and is located in the Clark Fork mining district of northern Idaho. Clark Fork is about 60 miles north of Kellogg, Idaho. The property was staked by the Company in 2004 and is located in the Lightning Creek drainage. Float collected from over a 100 m length of a vein subcrop on a talus slope contained silver minerals as identified by microscopic analyses and by chemical analyses. Access to the site is via foot trail and no electrical power is available at the site. Only preliminary field sampling and claim staking have taken place at the prospect. A Plan of Operations for a helicopter-mobilized core-drilling program has been submitted to the US Forest Service (USFS). Exploration drilling will be dependent on the Company’s ability to raise sufficient funds and the timely receipt of a permit from the USFS.
ROUGHWATER PROSPECT
Roughwater is an exploration project without known ore reserves. The Roughwater prospect is comprised of nine unpatented claims in the Clark Fork mining district about 60 miles north of Kellogg. The property is located near Bear Creek in the Lightning Creek drainage and a series of closed logging roads access the property. No electrical power is available at the site. To date, the work completed on the property includes sampling of surface outcrops and preliminary metallurgical testwork. The property is a copper-gold showing with minor platinum group metal content. The host rock is a quartz diorite sill which has intruded the Prichard formation. No work was completed on the property in 2004 and no work is planned for 2005.
ITEM 3.
LEGAL PROCEEDINGS
The Company is not currently involved in any legal proceedings and is not aware of any pending or potential legal actions.
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ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth quarter of 2004.
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20
PART II.
ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's stock trades on the NASD's OTCBB under the symbol "NJMC". The Company began trading on the OTCBB on January 28, 1998 following its merger with Plainview Mining Company, Inc.
The following table sets forth, for the respective periods indicated, the prices for the Company's Common Stock in the over-the-counter market according to the NASD's OTC Bulletin Board. These prices represent inter-dealer quotations, without adjustments for retail markups, markdowns or commissions and may not necessarily represent actual transactions. All prices in the following table have been rounded to the nearest whole cent.
| Year Ending December 31, 2004 | High Bid | Low Bid |
| First Quarter | $0.75 | $0.57 |
| Second Quarter | $0.75 | $0.51 |
| Third Quarter | $0.73 | $0.65 |
| Fourth Quarter | $0.75 | $0.49 |
| Year Ending December 31, 2003 | High Bid | Low Bid |
| First Quarter | $0.65 | $0.29 |
| Second Quarter | $0.48 | $0.27 |
| Third Quarter | $0.56 | $0.27 |
| Fourth Quarter | $0.90 | $0.44 |
Shareholders
As of March 10, 2005 there were approximately 957 shareholders of record of the Company's Common Stock. As of March 10, 2005 the Company had issued and outstanding 21,679,070 shares of Common Stock, and the Company had 1,514,775 warrants outstanding for a fully diluted total of 23,193,845.
Dividend Policy
The Company has not declared or paid cash dividends or made distributions in the past and the Company does not anticipate that it will pay cash dividends or make distributions in the foreseeable future. The Company currently intends to retain and reinvest future earnings, if any, to finance its operations.
Transfer Agent
The transfer agent for the Company's Common Stock is Columbia Stock Transfer Company, P.O. Box 2196, Coeur d'Alene, Idaho 83816-2196.
Recent Sales of Unregistered Securities
On February 28, 2005 the Company completed a non-brokered (i.e. no commissions were paid to an underwriter) of 259,900 units for a price of $0.55 per unit. Each unit consists of one share of common
21
stock plus one-half of a warrant. Each full warrant is exercisable into one share of common stock at a price of $0.85. The warrant expires on April 1, 2006. The offering was made in reliance on exemptions from registration provided by Section 4(2) and Rule 506 of Regulation D of the Securities Act of 1933, as amended.
For the year ending December 31 2004, the Company issued 228,860 shares of restricted common stock for management and director’s fees, equipment, services, and an exploration lease payment. A value of $145,299 ($0.63 per share) was assigned to these fees, equipment and services. See the statement of shareholder’s equity for a detailed list. These issuances were made in reliance on exemptions from registration provided by Section 4(2) of the Securities Act of 1933, as amended.
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22
ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Plan of Operation:
The Company is executing its plan to continue exploration for gold, silver and base metal deposits in the greater Coeur d’Alene Mining District of northern Idaho. The Company has three mines which are ready to commence production, the Golden Chest and the New Jersey, which have produced some ore, and the Silver Strand which is still in the environmental permitting phase. Exploration programs at all three mines are being conducted as well as in other out-lying areas.
An exploration ramp at the Golden Chest mine was completed in 2004 and enough proven and probable reserves, grading 13 grams/tonne gold, were developed to justify a 500 tonne/month operation. Infrastructure is being completed at the mine preparatory to driving a raise and I-drifts. It is planned to mine and process about 2,500 tonnes during 2005 producing about 1,000 ounces of gold.
The Coleman open pit at the New Jersey mine is developed and scheduled to produce about 3,500 tonnes in 2005 containing about 350 ounces of gold.
Operating permits for a seasonal mining operation at the Silver Strand mine have still not been received from the U.S. Forest Service, although a favorable decision seems imminent. The permitting process has now been ongoing for over 22 months, which is longer than had been expected. All pre-production work must await receipt of the operating permits. Planned pre-production work for 2004 was cancelled because of the permitting delay, and permits may not be received in time to commence pre-production work in the spring of 2005.
The Company has upgraded its mineral processing plant, the New Jersey mill, to add the flotation process which was needed to produce marketable concentrates for smelters. The new processing circuit has been commissioned with ores from the New Jersey and Golden Chest mines. An amount of marketable sulfide concentrate has been produced and the first shipment of approximately 23 tonnes was shipped in March 2005. Included in the upgrade were eight new flotation cells, pumps, a filter press, a concentrate bin, and various fabricated structures
Exploration drilling is planned in 2005 contingent on availability of funding. The highest priority drilling is at the Golden Chest where a deep intercept on the Idaho vein was drilled in 2004. The Company’s geologists think the potential of the Idaho vein is high for development of resources suitable for larger scale underground mining.
A surface geophysical/geochemical program at the Silver Strand mine was completed in the fourth quarter of 2004 to test for extension of the mineralized zone both eastward and westward on strike. The program was successful in locating several anomalies, and a follow-up program to include drilling is
23
being designed. Reconnaissance geochemical sampling was also completed in an area surrounding the Silver Strand mine, and at least two gold anomalies were discovered. Follow-up reconnaissance work will be conducted in 2005.
The Company has sufficient funding to commence production both at the Golden Chest mine and the New Jersey mine, but additional funding will be necessary for exploration projects in 2005. Plans are being made to secure additional funding needed.
Production is planned to commence in March 2005 and continue throughout the 2005 year. Cash flow generated by production will be used for exploration and management purposes so net income is not anticipated in 2005.
The Company currently has five employees and uses consultants or contractors for project tasks. Up to 4 additional employees may be hired in 2005.
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24
ITEM 7.
FINANCIAL STATEMENTS
| DECORIA, MAICHEL & TEAGUE A PROFESSIONAL SERVICES FIRM |
Report of Independent Registered Public Accounting Firm
Board of Directors
New Jersey Mining Company
We have audited the accompanying balance sheet of New Jersey Mining Company (A Development Stage Company) (“the Company”) as of December 31, 2004 and 2003, and the related statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, and for the period from inception on July 18, 1996 to December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the cumulative totals of the Company for the period from inception on July 18, 1996 to December 31, 2002, which totals reflect a deficit of $161,247 accumulated during the development stage. Those totals were audited by another auditor whose report dated March 24, 2003, except for Note 2 as which date was March 5, 2004, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the financial position of New Jersey Mining Company as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended, and for the period from inception on July 18, 1996 to December 31, 2004 (other than cumulative totals for the period from inception on July 18, 1996 to December 31, 2002, on which we express no opinion), in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 2 to the financial statements, the Company changed its method of accounting for exploration costs in 2003.
DeCoria, Maichel & Teague P.S.
/s/ Decoria, Maichel & Teague P.S.
Spokane, Washington
February 23, 2005
25
NEW JERSEY MINING COMPANY
(A Development Stage Company)
TABLE OF CONTENTS
26
New Jersey Mining Company
(A Development Stage Company)
Balance Sheets
December 31, 2004 and 2003
| 2004 | 2003 | |||||
| ASSETS | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 151,764 | $ | 346,268 | ||
| Other current assets | 2,346 | - | ||||
| Total current assets | 154,110 | 346,268 | ||||
| Building and equipment | 657,886 | 271,676 | ||||
| Mineral properties and deferred development costs | 787,274 | 787,274 | ||||
| Other assets | - | 2,346 | ||||
| Total assets | $ | 1,599,270 | $ | 1,407,564 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 8,111 | $ | 11,610 | ||
| Accrued payroll and payroll-related expenses | 5,715 | - | ||||
| Accounts payable to related party | - | 2,000 | ||||
| Obligation under capital lease, current | 12,687 | - | ||||
| Total current liabilities | 26,513 | 13,610 | ||||
| Obligation under capital lease, noncurrent | 57,388 | - | ||||
| Accrued reclamation costs | 12,500 | 12,500 | ||||
| Payable to officers, in common stock | - | 11,519 | ||||
| Total liabilities | 96,401 | 37,629 | ||||
| Commitments and contingencies (Note 10) | ||||||
| Stockholders’ equity: | ||||||
| Preferred stock; no par value, 1,000,000 shares | ||||||
| authorized; no shares issued and outstanding | ||||||
| Common stock; no par value, 50,000,000 | ||||||
| shares authorized; 2004-21,520,800 and 2003- | ||||||
| 18,669,890 shares issued and outstanding | 2,965,945 | 1,910,456 | ||||
| Deficit accumulated during the development stage | (1,463,076 | ) | (540,521 | ) | ||
| Total stockholders’ equity | 1,502,869 | 1,369,935 | ||||
| Total liabilities and stockholders’ equity | $ | 1,599,270 | $ | 1,407,564 | ||
The accompanying notes are an integral part of these financial
statements.
27
New Jersey Mining Company
(A Development Stage Company)
Statements of Operations
| From Inception | |||||||||
| (July 18, 1996) | |||||||||
| Years Ended | Through | ||||||||
| December 31, | December 31, 2004 | ||||||||
| 2004 | 2003 | (Unaudited) | |||||||
| Operating expenses: | |||||||||
| Expenses paid or to be paid with common stock: | |||||||||
| Management fees | $ | 41,754 | $ | 148,645 | $ | 190,399 | |||
| Directors fees | 49,000 | 7,200 | 58,450 | ||||||
| Services | 14,550 | 7,262 | 34,440 | ||||||
| Exploration | 12,000 | 8,000 | 20,000 | ||||||
| Exploration expense | 505,006 | 102,841 | 618,390 | ||||||
| General and administrative expenses | 302,908 | 74,138 | 482,264 | ||||||
| Total operating expenses | 925,218 | 348,086 | 1,403,943 | ||||||
| Other (income) expense: | |||||||||
| Royalty and other income | (2,663 | ) | (2,762 | ) | (61,817 | ) | |||
| Write-off of goodwill | - | 30,950 | 30,950 | ||||||
| Write-off of investment | - | 3,000 | 90,000 | ||||||
| Total other (income) expense | (2,663 | ) | 31,188 | 59,133 | |||||
| Net loss | $ | 922,555 | $ | 379,274 | $ | 1,463,076 | |||
| Net loss per common share-basic | $ | 0.05 | $ | 0.02 | $ | 0.11 | |||
| Weighted average common | |||||||||
| shares outstanding-basic | 20,206,685 | 7,196,258 | 13,690,917 | ||||||
The accompanying notes are an integral part of these financial
statements.
28
New Jersey Mining Company
(A Development Stage Company)
Statement of Changes in Stockholders'
Equity
From Inception (July 18, 1996) Through December 31, 200 2
(Unaudited) and for the Years Ended December 31, 2004 and 2003
| Deficit | ||||||||||||||
| Accumulated | Total | |||||||||||||
| Common Stock | During the | Treasury | Stockholders' | |||||||||||
| Shares | Amount | Development Stage | Stock | Equity | ||||||||||
| Issuance of common stock for: | ||||||||||||||
| Assets and liabilities of New Jersey Joint Venture | 10,000,000 | $ | 207,968 | $ | 207,968 | |||||||||
| Acquisition of Plainview Mining Company | 1,487,748 | 148,000 | 148,000 | |||||||||||
| Cash from sales | 228,816 | 110,115 | 110,115 | |||||||||||
| Services | 14,000 | - | - | |||||||||||
| Net loss | $ | (44,174 | ) | (44,174 | ) | |||||||||
| Balance, December 31, 1997 | 11,730,564 | 466,083 | (44,174 | ) | 421,909 | |||||||||
| Issuance of common stock for: | ||||||||||||||
| Acquisition of Plainview Mining Company | 1,512,252 | 152,000 | 152,000 | |||||||||||
| Cash from sales | 117,218 | 29,753 | 29,753 | |||||||||||
| Services | 18,000 | - | - | |||||||||||
| Treasury stock acquired with Plainview acquisition | $ | (136,300 | ) | (136,300 | ) | |||||||||
| Net loss | (30,705 | ) | (30,705 | ) | ||||||||||
| Balance, December 31, 1998 | 13,378,034 | 647,836 | (74,879 | ) | (136,300 | ) | 436,657 | |||||||
| Issuance of common stock for services | 79,300 | - | ||||||||||||
| Net loss | (23,738 | ) | (23,738 | ) | ||||||||||
| Balance, December 31, 1999 | 13,457,334 | 647,836 | (98,617 | ) | (136,300 | ) | 412,919 | |||||||
| Issuance of common stock for: | ||||||||||||||
| Silver Strand property | 50,000 | 68,750 | 68,750 | |||||||||||
| Services | 62,100 | 4,313 | 4,313 | |||||||||||
| Net loss | (20,492 | ) | (20,492 | ) | ||||||||||
| Balance at December 31, 2000 | 13,569,434 | 720,899 | (119,109 | ) | (136,300 | ) | 465,490 | |||||||
| Issuance of common stock for: | ||||||||||||||
| Grenfel lease | 1,000,000 | 100,000 | 100,000 | |||||||||||
| Lost Eagle property | 50,000 | 5,000 | 5,000 | |||||||||||
| Roughwater property | 255,000 | 25,500 | 25,500 | |||||||||||
| Services | 68,400 | 6,840 | 6,840 | |||||||||||
| Net loss | $ | (6,448 | ) | (6,448 | ) | |||||||||
| Balance, December 31, 2001 | 14,942,834 | 858,239 | (125,557 | ) | (136,300 | ) | 596,382 | |||||||
The accompanying notes are an integral
part of these financial statements.
29
New Jersey Mining Company
(A Development Stage Company)
Statement of Changes in Stockholders' Equity, continued:
From Inception (July 18, 1996) Through December 31, 200 2
(Unaudited) and for the Years Ended December 31, 2004 and 2003
| Deficit | ||||||||||||||
| Accumulated | Total | |||||||||||||
| Common Stock | During the | Treasury | Stockholders' | |||||||||||
| Shares | Amount | Development Stage | Stock | Equity | ||||||||||
| Issuance of common stock for: | ||||||||||||||
| Cash from sales | 1,700,000 | 255,000 | 255,000 | |||||||||||
| Services | 9,835 | 1,475 | 1,475 | |||||||||||
| Directors fees | 15,000 | 2,250 | 2,250 | |||||||||||
| Acquisition of Gold Run Gulch Mining Company | 1,916,250 | 273,954 | 273,954 | |||||||||||
| Net loss, as previously reported | (51,307 | ) | (51,307 | ) | ||||||||||
| Balance, December 31, 2002, as previously reported | 18,583,919 | 1,390,918 | (176,864 | ) | (136,300 | ) | 1,077,754 | |||||||
| Change in accounting for exploration costs | (9,883 | ) | (9,883 | ) | ||||||||||
| Correction of error in accounting for stock issuance costs | (25,500 | ) | 25,500 | |||||||||||
| Balance, December 31, 2002, restated | 18,583,919 | 1,365,418 | (161,247 | ) | (136,300 | ) | 1,067,871 | |||||||
| Issuance of common stock for: | ||||||||||||||
| Cash from exercise of stock purchase warrants | 810,000 | 200,750 | 200,750 | |||||||||||
| Cash from sales, net of issuance costs | 795,000 | 318,000 | 318,000 | |||||||||||
| Management fees | 363,200 | 137,126 | 137,126 | |||||||||||
| Directors fees | 18,000 | 7,200 | 7,200 | |||||||||||
| Equipment | 5,000 | 3,000 | 3,000 | |||||||||||
| Services | 21,915 | 7,262 | 7,262 | |||||||||||
| Exploration lease | 20,000 | 8,000 | 8,000 | |||||||||||
| Treasury stock cancelled | (1,947,144 | ) | (136,300 | ) | 136,300 | |||||||||
| Net loss | (379,274 | ) | (379,274 | ) | ||||||||||
| Balance, December 31, 2003 | 18,669,890 | 1,910,456 | (540,521 | ) | 0 | 1,369,935 | ||||||||
| Issuance of common stock for: | ||||||||||||||
| Cash from exercise of stock purchase warrants | 1,437,500 | 398,750 | 398,750 | |||||||||||
| Cash from sales | 1,184,550 | 511,440 | 511,440 | |||||||||||
| Management and directors’ fees | 153,460 | 102,273 | 102,273 | |||||||||||
| Equipment | 28,650 | 16,476 | 16,476 | |||||||||||
| Services | 26,750 | 14,550 | 14,550 | |||||||||||
| Exploration lease | 20,000 | 12,000 | 12,000 | |||||||||||
| Net loss | (922,555 | ) | (922,555 | ) | ||||||||||
| Balance, December 31, 2004 | 21,520,800 | $ | 2,965,945 | $ | (1,463,076 | ) | $ | - | $ | 1,502,869 | ||||
The accompanying notes are an integral
part of these financial statements.
30
New Jersey Mining Company
(A Development Stage Company)
Statements of Cash Flows
| From Inception | |||||||||
| (July 18, 1996) | |||||||||
| Years Ended | Through | ||||||||
| December 31, | December 31, 2004 | ||||||||
| 2004 | 2003 | (Unaudited) | |||||||
| Cash flows from operating activities: | |||||||||
| Net loss | $ | (922,555 | ) | $ | (379,274 | ) | $ | (1,463,076 | ) |
| Adjustments to reconcile net loss to net cash | |||||||||
| used by operating activities: | |||||||||
| Write-off of goodwill | - | 30,950 | 30,950 | ||||||
| Write-off of investment | - | 3,000 | 90,000 | ||||||
| Stock issued or to be issued for: | |||||||||
| Management fees | 41,754 | 148,645 | 190,399 | ||||||
| Directors fees | 49,000 | 7,200 | 58,450 | ||||||
| Services | 14,550 | 7,262 | 34,441 | ||||||
| Exploration | 12,000 | 8,000 | 20,000 | ||||||
| Change in: | |||||||||
| Other assets | (44 | ) | (624 | ) | |||||
| Accounts payable | (3,499 | ) | 3,683 | 5,141 | |||||
| Accrued payroll and related payroll expense | 5,715 | 5,715 | |||||||
| Accounts payable to related party | (2,000 | ) | 2,000 | ||||||
| Accrued reclamation costs | - | 12,500 | 12,500 | ||||||
| Net cash used by operating activities | (805,035 | ) | (156,078 | ) | (1,016,104 | ) | |||
| Cash flows from investing activities: | |||||||||
| Purchases of buildings and equipment | (294,734 | ) | (16,839 | ) | (368,868 | ) | |||
| Purchases of mineral properties | - | (5,904 | ) | ||||||
| Cash of acquired companies | 38,269 | ||||||||
| Deferral of development costs | - | (40,001 | ) | (225,535 | ) | ||||
| Net cash used by investing activities | (294,734 | ) | (56,840 | ) | ( 562,038 | ) | |||
| Cash flows from financing activities: | |||||||||
| Exercise of stock purchase warrants | 398,750 | 200,750 | 599,500 | ||||||
| Sales of common stock, net of issuance costs | 511,440 | 318,000 | 1,198,807 | ||||||
| Principal payments on capital lease | (4,935 | ) | (48,401 | ) | |||||
| Payments on note payable to bank | (20,000 | ) | |||||||
| Net cash provided by financing activities | 905,265 | 518,750 | 1,729,906 | ||||||
| Net change in cash | (194,504 | ) | 305,832 | 151,764 | |||||
| Cash, beginning of period | 346,268 | 40,436 | 0 | ||||||
| Cash, end of period | $ | 151,764 | $ | 346,268 | $ | 151,764 | |||
| Interest paid in cash | $ | 3,042 | $ | 3,042 | |||||
| Non-cash investing and financing activities: | |||||||||
| Common stock issued for: | |||||||||
| Equipment | $ | 16,476 | $ | 3,000 | $ | 19,476 | |||
| Mineral properties | $ | 199,300 | |||||||
| Acquisitions of companies, excluding cash | $ | 743,653 | |||||||
| Capital lease obligation for equipment acquired | $ | 75,000 | $ | 93,275 | |||||
The accompanying notes are an integral part of these financial
statements.
31
New Jersey Mining Company
(A Development Stage Company)
Notes to Financial Statements
| 1. | Description of Business |
| New Jersey Mining Company (“the Company”)
was incorporated as an Idaho corporation on July 18, 1996. The Company's
primary business is exploring for and developing gold, silver and base
metal mining resources in Idaho. |
|
| On December 31, 1996, the Company acquired all of
the assets and liabilities of a partnership known as New Jersey Joint
Venture (“NJJV”), including the New Jersey gold mine and mill
located near Kellogg, Idaho, in exchange for 10,000,000 shares of common
stock. NJJV was owned by various other individuals and mining companies
including Mine Systems Design, Inc. ("MSD"), an Idaho corporation owned
by Fred Brackebusch and his son, Grant Brackebusch, officers and directors
of the Company. The assets and liabilities of NJJV, as transferred, consisted
of: |
|
| Assets acquired: | ||
| Cash | $ | 16,565 |
| Building and equipment | 176,267 | |
| Other assets | 63,306 | |
| 256,138 | ||
| Liabilities assumed: | ||
| Accounts payable | 2,969 | |
| Note payable to bank | 20,000 | |
| Capitalized lease obligation | 25,201 | |
| 48,170 | ||
| Net assets acquired as of December 31, 1996 | $ | 207,968 |
| 2. | Summary of Accounting Policies |
| Development Stage Enterprise |
|
| The Company's financial statements are prepared
using the accrual method of accounting and according to the provisions
of Statement of Financial Accounting Standards No. 7, “Accounting
for Development Stage Enterprises,” as it devotes substantially
all of its efforts to acquiring and developing mining interests that will
eventually provide sufficient net profits to sustain the Company’s
existence. Until such interests are engaged in commercial production,
the Company will continue to prepare its financial statements and related
disclosures in accordance with entities in the development stage. |
|
32
New Jersey Mining Company
(A Development Stage Company)
Notes to Financial Statements
| 2. | Summary of Significant Accounting Policies, continued
|
| Use of Estimates |
|
| The preparation of the financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. |
|
| Income Taxes |
|
| Income taxes are accounted for under the liability
method. Under this method deferred income tax liabilities or assets at
the end of each period are determined using the tax rate expected to be
in effect when the taxes are expected to be paid or recovered. A valuation
allowance is recorded to reduce the deferred tax assets if there is uncertainty
regarding their realization. |
|
| Fair Values of Financial Instruments |
|
| The carrying amounts of financial instruments including
cash and cash equivalents, and accounts payable approximated their fair
values as of December 31, 2004 and 2003. |
|
| Net Loss Per Share |
|
| Net loss per share is computed by dividing net loss
by the weighted average number of common shares outstanding during the
year. Diluted net loss per share reflects the potential dilution that
could occur from common shares issuable through stock options, warrants,
and other convertible securities. At December 31, 2004 and 2003, there
were 1,528,975 and 1,747,500, respectively, shares available for issuance
upon exercise of warrants. The effect of potential issuances of shares
under these warrants would be anti-dilutive, and therefore basic and diluted
losses per share are the same. |
|
| Cash Equivalents |
|
| The Company considers cash in banks and other deposits
with a maturity of three months or less, that can be liquidated without
prior notice or penalty, to be cash and cash equivalents. |
|
33
New Jersey Mining Company
(A Development Stage Company)
Notes to Financial Statements
| 2. | Summary of Significant Accounting Policies, Continued:
|
| Investments |
|
| Marketable equity securities are categorized as
available-for-sale and carried at quoted market value. Investments in
securities of privately held entities are quoted at their estimated fair
value. Realized gains and losses on the sale of securities are recognized
on a specific identification basis. Unrealized gains and losses are included
as a component of accumulated other comprehensive income or loss, net
of related deferred income taxes, if applicable, unless a permanent impairment
in value has occurred, which is then charged to operations. During 2003,
the Company wrote-off its investment of $3,000 in a marketable equity
security that had become permanently impaired. |
|
| Building and Equipment |
|
| Building and equipment are stated at the lower of
cost or estimated net realizable value. Depreciation and amortization
is based on the estimated useful lives of the assets and is computed using
straight-line and unit-of-production methods. When assets are retired
or sold, the costs and related allowances for depreciation and amortization
are eliminated from the accounts and any resulting gain or loss is reflected
in operations. |
|
| Mineral Properties |
|
| Significant payments related to the acquisition
of mineral properties, mineral rights, and mineral leases are capitalized.
If a commercially mineable ore body is discovered, such costs are amortized
when production begins using the units-of-production method based on proven
and probable reserves. If no commercially mineable ore body is discovered
or such rights are otherwise determined to have no value, such costs are
expensed in the period in which it is determined the property has no future
economic value. |
|
34
New Jersey Mining Company
(A Development Stage Company)
Notes to Financial Statements
| 2. | Summary of Significant Accounting Policies, Continued:
|
| Mine Exploration and Development Costs |
|
| During the fourth quarter of 2003, the Company changed
its accounting policy, retroactive to January 1, 2002, with respect to
its accounting for exploration costs. The Company now records exploration
costs as operating expenses in the period that they occur, and only capitalizes
exploration costs on areas of interest that have proven reserves and are
in development or production. The Company's previous policy was to capitalize
all such expenditures as deferred development costs of the properties
being explored. The change was made in order for the Company’s accounting
practices to be consistent with prevailing mining industry accounting
trends and securities regulations. |
|
| Mine development costs are capitalized after proven
and probable reserves have been identified and classified as deferred
development costs until production ensues. Amortization is calculated
using the units-of-production method over the expected life of the operation
based on the estimated recoverable mineral ounces. |
|
| Property Evaluations |
|
| Annually, or more frequently as circumstances require,
the Company evaluates the carrying amounts of its mineral properties,
including deferred development costs, to assess whether such amounts are
recoverable. Estimated undiscounted future net cash flows from each mineral
property are calculated using estimated future production, sales prices,
operating capital and costs, and reclamations costs that will be in effect
when the properties are in production. An impairment loss is recognized
when the estimated future cash flows (undiscounted and without interest)
expected to result from the use of an asset are less than the carrying
amount of the asset. |
|
| The Company’s estimates of future cash flows
are subject to risks and uncertainties. It is reasonably possible that
changes in estimates could occur which may affect the expected recoverability
of the Company’s investment in mineral properties. |
|
| Goodwill |
|
| Acquisitions of entities are accounted for using
the purchase method whereby acquired assets and liabilities are recorded
at fair value as of the date of acquisition. The excess of the purchase
price over such fair value is recorded as goodwill. Pursuant to SFAS No.
142 “Goodwill and Other Intangible Assets,” goodwill is assigned
to assets acquired and is not amortized. Goodwill is subject to determination
of fair value at least annually and at such times as events or circumstances
indicate that an impairment has occurred. |
|
35
New Jersey Mining Company
(A Development Stage Company)
Notes to Financial Statements
| 2. | Summary of Significant Accounting Policies, Continued:
|
| Reclamation and Remediation |
|
| The Company’s mineral properties have been
and are subject to standards for mine reclamation that have been established
by various governmental agencies. On January 1, 2003, the Company adopted
SFAS No. 143 “Accounting for Asset Retirement Obligations,”
which requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred. SFAS No.
143 requires the Company to record a liability for the present value of
estimated environmental remediation costs and the related asset created
with it. The liability will be accreted and the asset will be depreciated
over the life of the related assets. Adjustments for changes resulting
from the passage of time and changes to either the timing or amount of
the original present value estimate underlying the obligation will be
made. If there is a current impairment of an asset’s carrying value
and a decision is made to permanently close the property, changes to the
liability will be recognized currently and charged to provision for closed
operations and environmental matters. The adoption of these provisions
had minimal effect on the Company’s financial statements. |
|
| Prior to adoption of SFAS 143, we accrued costs
associated with environmental remediation obligations when it was probable
that such costs would be incurred and they were reasonably estimable.
Accruals for estimated losses from environmental remediation obligations
have historically been recognized no later than completion of the remedial
feasibility study for such facility and are charged to provision for closed
operations and environmental matters. Costs of future expenditures for
environmental remediation were not discounted to their present value unless
subject to a contractually obligated fixed payment schedule. Such costs
were based on management’s estimate of amounts expected to be incurred
when the remediation work is performed within current laws and regulations.
Recoveries of environmental remediation costs from other parties were
recorded as assets when their receipt is deemed probable. |
|
| It is reasonably possible that, due to uncertainties
associated with defining the nature and extent of environmental contamination
and the application of laws and regulations by regulatory authorities
and changes in reclamation or remediation technology, the ultimate cost
of reclamation and remediation could change in the future. The Company
periodically reviews accrued liabilities for such reclamation and remediation
costs as evidence becomes available indicating that its liabilities have
potentially changed. |
|
36
New Jersey Mining Company
(A Development Stage Company)
Notes to Financial Statements
| 2. | Summary of Significant Accounting Policies, Continued
|
| Common Stock Issued Other than for Cash |
|
| All transactions in which goods or services are
received for the issuance of shares of the Company’s common stock
are accounted for based on the fair value of the consideration received
or the fair value of the common stock issued, whichever is more reliably
measurable. |
|
| Reclassifications |
|
| Certain comparative balances for 2003 have been
reclassified to conform to the 2004 presentation. The reclassifications
have no effect on net loss or accumulated deficit as previously reported.
|
|
| New Accounting Pronouncements |
|
| In November 2002, the FASB issued FASB Interpretation
No. 45, Guarantor’s Accounting for Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, an interpretation
of FASB Statements No. 5, 57 and 107 and rescission of FASB Interpretation
No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others (“FIN
45”). The adoption of FIN 45 in 2003 did not have a material effect
on the Company’s financial statements. |
|
| In January 2003, the FASB issued FASB Interpretation
No. 46 (FIN 46) “Consolidation of Variable Interest Entities.”
In December 2003, the FASB issued a revision to this interpretation (FIN
46(r)). FIN 46(r) clarifies the application of Accounting Research Bulletin
(ARB) No. 51, “Consolidated Financial Statements.” FIN 46
clarifies the application of ARB No. 51 to certain entities in which equity
investors do not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. We adopted FIN 46 in 2003 for those provisions then in effect,
which did not have a material effect on our consolidated financial statements.
The Company adopted FIN 46(r) in 2004, which did not have a material effect
on the financial statements. |
|
37
New Jersey Mining Company
(A Development Stage Company)
Notes to Financial Statements
| 2. | Summary of Significant Accounting Policies, Continued
|
| New Accounting Pronouncements, continued
|
|
| In November 2004, the FASB issued SFAS No. 151,
“Inventory Costs, an Amendment of ARB No. 43, Chapter 4.”
SFAS 151 amends ARB 43, Chapter 4, to clarify that abnormal amounts of
idle facility expense, freight, handling costs and wasted materials (spoilage)
be recognized as current period charges. It also requires that allocation
of fixed production overheads to the costs of conversion be based on the
normal capacity of the production facilities. SFAS 151 is effective for
inventory costs incurred during fiscal years beginning after June 15,
2005. The adoption of SFAS 151 did not have a material effect on the Company’s
financial statements. |
|
| In December 2004, the FASB issued SFAS No. 153,
“Exchanges of Nonmonetary Assets, an Amendment of APB Opinion No.
29.” The guidance in APB Opinion No. 29, “Accounting for Nonmonetary
Transactions,” is based on the principle that exchanges of nonmonetary
assets should be measured based on the fair value of the assets exchanged.
The guidance in APB Opinion No. 29, however, included certain exceptions
to that principle. SFAS No. 153 amends APB Opinion No. 29 to eliminate
the exception for nonmonetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS No. 153 is effective for
nonmonetary asset exchanges in fiscal periods beginning after June 15,
2005. The adoption of SFAS No. 153 is not expected to have a material
effect on the Company’s financial statements. |
|
| In December 2004, the FASB issued SFAS No. 123(R),
“Share-Based Payment.” This Statement is a revision to SFAS
No. 123, “Accounting for Stock-Based Compensation,” and supersedes
APB Opinion No. 25, “Accounting for Stock Issued to Employees.”
SFAS No. 123(R) requires the measurement of the cost of employee services
received in exchange for an award of equity instruments based on the grant-date
fair value of the award. The cost will be recognized over the period during
which an employee is required to provide service in exchange for the award.
No compensation cost is recognized for equity instruments for which employees
do not render service. When adopted, the Company will be required to recognize
compensation cost as expense for the portion of outstanding unvested awards,
based on the grant-date fair value of those awards calculated using an
option pricing model. Statement 123(R) is effective for small business
issuers at the beginning of the first interim or annual period beginning
after December 15, 2005. The Company is currently evaluating the effect
this new pronouncement will have on the financial statements. |
|
38
New Jersey Mining Company
(A Development Stage Company)
Notes to Financial Statements
| 2. | Summary of Significant Accounting Policies, Continued
|
| New Accounting Pronouncements, continued
|
|
| In April 2004, the Financial Accounting Standards
Board (“FASB”) ratified Emerging Issues Task Force (“EITF”)
Issue No. 04-2, which amends Statement of Financial Accounting Standards
(“SFAS”) No. 141 “Business Combinations” to the
extent all mineral rights are to be considered tangible assets for accounting
purposes. There has been diversity in practice related to the application
of SFAS No. 141 to certain mineral rights held by mining entities that
are not within the scope of SFAS No. 19 “Financial Accounting and
Reporting by Oil and Gas Producing Companies.” The SEC staff’s
position previously was entities outside the scope of SFAS No. 19 should
account for mineral rights as intangible assets in accordance with SFAS
No. 142 “Goodwill and Other Intangible Assets.” The application
of this EITF is not expected to have a material effect on the Company’s
financial statements. |
|
| 3. | Acquisitions and Mergers |
| Plainview Mining Company |
|
| In October 1997, the Company made an exchange offer
for the outstanding common shares of Plainview Mining Company, Inc. (“Plainview”).
The offer allowed Plainview’s stockholders to exchange each one
of their shares of Plainview stock for two shares of the Company’s
stock. At the time of the exchange Plainview was a minority shareholder
of the Company holding 1,947,144 shares of the Company's common stock.
Fred Brackebusch, president and a director of the Company, was also a
director of Plainview at the time of the acquisition. In addition, the
president of Plainview at the time of the acquisition, Charles F. Asher,
is currently a director of the Company. |
|
| As a result of the exchange offer, a merger with
Plainview was consummated through the exchange of 1,500,000 shares of
Plainview (100%), for 3,000,000 shares of the Company’s stock. The
Company accounted for the business combination using the purchase method
prescribed in Accounting Principles Board Opinion No. 16, “Business
Combinations,” whereby assets acquired and liabilities assumed are
recorded at fair value at the date of acquisition. Allocation of the purchase
price was based on an estimate of the fair value of the assets acquired
at the purchase date. The estimated fair value of the Company’s
shares issued in the exchange was determined to be $0.10 per share,
or $300,000. |
|
39
New Jersey Mining Company
(A Development Stage Company)
Notes to Financial Statements
| 3. | Acquisitions and Mergers |
| The purchase price was allocated as follows: |
|
| Cash | $ | 12,750 | |||
| Mineral property-CAMP | 30,000 | ||||
| Investment in ConSil Corporation | 90,000 | ||||
| Investment in New Jersey Mining Company | |||||
| (1,947,144 shares at $0.07 per share) | 136,300 | ||||
| Goodwill | 30,950 | ||||
| Total purchase price | $ | 300,000 |
The shares of the Company’s stock owned by Plainview were recorded as treasury stock (see Note 8). During the third quarter of 2003, the Company's management determined that goodwill recorded as part of the Plainview merger was impaired in accordance with the tests of goodwill impairment set forth in SFAS 142, "Goodwill and Other Intangible Assets." As a result, all of the goodwill acquired in the Plainview merger was written off. Gold Run Gulch Mining Company During 2002, the Company acquired all of the outstanding shares of the Gold Run Gulch Mining Company (“Gold Run”). The acquisition allowed Gold Run’s stockholders to exchange each one of their shares of Gold Run stock for 0.875 shares of the Company’s stock. A total of 1,916,250 of the Company’s shares were issued in exchange for 100% of the outstanding shares of Gold Run. The Company accounted for the business combination using the purchase method prescribed in SFAS 141, “Business Combinations,” which became effective for business combinations initiated after June 30, 2001. Similar to APB 16, this statement requires, among other things, that assets acquired and liabilities assumed be recorded at their fair value at the date of acquisition. The shares issued were valued at $273,954 based upon an estimate of fair value of the assets received. The purchase price was allocated as follows: |
| Cash | $ | 8,954 | |||
| Mineral Property–Coleman | 265,000 | ||||
| Total purchase price | $ | 273,954 |
40
New Jersey Mining Company
(A Development Stage Company)
Notes to Financial Statements
| 4. | Building and Equipment |
| Building and equipment at December 31, 2004 and 2003 is comprised of the following: | |
| 2004 | 2003 | |||||||
| Mill building | $ | 51,223 | $ | 35,910 | ||||
| Milling equipment | 547,718 | 222,011 | ||||||
| Mine building and equipment | 58,945 | 13,755 | ||||||
| Total | $ | 657,886 | $ | 271,676 |
| No depreciation has been taken on the building and
equipment as they have not yet been placed in service. |
|
| At December 31, 2004, included in milling equipment
is $75,000 which represents an asset under capital lease. No amortization
has been recorded as it relates to this asset because it had not yet been
placed in service as of December 31, 2004. Future minimum lease payments
for the related obligation under capital lease are $19,120 annually
through 2008 and $9,560 in 2009. |
|
| 5. | Mineral Properties and Deferred Development Costs
|
| Mineral properties and deferred development costs
are as follows: |
|
| December 31, 2004 and 2003 | |||||||||
| Deferred | |||||||||
| Properties | Costs | Total | |||||||
| New Jersey Mine | |||||||||
| Grenfel | $ | 100,000 | $ | 7,324 | $ | 107,324 | |||
| Coleman | 265,000 | 221,446 | 486,446 | ||||||
| Silver Strand | 74,704 | 58,300 | 133,004 | ||||||
| CAMP | 30,000 | 30,000 | |||||||
| Roughwater | 25,500 | 25,500 | |||||||
| Lost Eagle | 5,000 | 5,000 | |||||||
| Total | $ | 500,204 | $ | 287,070 | $ | 787,274 | |||
Since the Company's mineral properties are not yet
in production, no amortization or depreciation has been recognized. |
41
New Jersey Mining Company
(A Development Stage Company)
Notes to Financial Statements
| 5. | Mineral Properties and Deferred Development Costs,
Continued: |
| Grenfel The Company's Grenfel property is
a leasehold interest covering the mineral rights of 68 acres located at
the New Jersey Mine. The lease was acquired from Mine Systems Design ("MSD")
in 2001 in exchange for 1,000,000 shares of the Company’s common
stock (see Note 1). The 1,000,000 shares issued were valued at $0.10
per share, which approximated the market price for the restricted common
stock on the date of the lease. MSD is also a major shareholder of the
Company and is owned by Fred Brackebusch and Grant Brackebusch, officers
and directors of the Company. The lease has a fifteen year term, and includes
a 3% Net Smelter Return ("NSR") royalty that will be paid to MSD on any
production achieved from the property. Deferred development costs at December
31, 2004 and 2003 consist primarily of drilling and tunnel development
expenditures. |
|
| Coleman The Coleman property is located at
the New Jersey Mine and consists of 62 acres of patented mining claims,
mineral rights to 108 acres of fee land, and approximately 130 acres of
unpatented mining claims. The Coleman property was acquired in October
2002 with the acquisition of Gold Run Gulch Mining Company (see Note 4).
Deferred development costs at December 31, 2004 and 2003 consist primarily
of drilling and tunnel development expenditures. |
|
| Silver Strand The Silver Strand mine consists
of 15 unpatented claims and was acquired from Trend Mining Company (“Trend”)
in 2000. The property was purchased in exchange for 50,000 shares of the
Company’s common stock and a 1.5% NSR royalty initially capped at
$50,000 and then decreasing to 0.5%. In July of 2001, MSD assumed
Trend’s position in the agreement, and retained the NSR royalty
interest. The Company valued the property at $74,704 which represented
the estimated market value of the property at the date of acquisition.
Deferred development costs at December 31, 2004 and 2003 consist primarily
of drilling and permitting expenditures. |
|
| CAMP The CAMP property was acquired as part
of the Company’s acquisition of Plainview in 1997 (see Note 4).
The CAMP property covers approximately 380 acres and is an underground
exploration project. The Company holds a 17.75% interest in the CAMP property;
the remaining ownership is held by various other mining companies, including
Coeur d’Alene Mines Corporation, which acts as the operator. The
Company receives a $100 monthly advance royalty payment and will receive
a 7.1% net profits interest if the property is put into production. |
|
42
New Jersey Mining Company
(A Development Stage Company)
Notes to Financial Statements
| 5. | Mineral Properties and Deferred Development Costs,
Continued: |
| Roughwater The Roughwater property is an
exploration project consisting of 180 acres in nine unpatented lode claims.
In 2001, the Company purchased the property through the issuance of 255,000
shares of its common stock to Roughwater Mining Company. The shares were
valued at $0.10 per share, for a total acquisition cost of $25,500.
At the time of the acquisition, Fred Brackebusch, the Company's president
and a director, was the president of Roughwater Mining Company and MSD
was its majority stockholder. |
|
| Lost Eagle Lost Eagle is a gold and silver
exploration project consisting of five claims covering 100 acres of federal
land administered by the U.S. Forest Service. In 2001, the Company issued
50,000 shares of stock to an individual to acquire the property. The shares
were valued at $0.10 for a total acquisition cost of $5,000. |
|
| Wisconsin Teddy The Wisconsin Teddy is an
exploration project that lies north of the New Jersey Mine and covers
83 acres of unpatented claims on federal land administered by the U.S.
Bureau of Land Management. The project has no carrying value. |
|
| Zanetti Mining Lease The Company has been
assigned a mining lease with William Zanetti. The lease provides for the
Company's exploration, development and mining of minerals on fee land
through October 2008 and thereafter, as long as mining operations are
deemed continuous. The lease provides for production royalties of 5% of
net sales of ores or concentrates. Additional production royalties of
1% to 5% are due if gold exceeds a certain price per troy ounce as adjusted
annually by the Consumer Price Index. At December 31, 2004, the gold price
that would cause additional production royalties to be payable was $632
per troy ounce. Also, advance royalties of $500 are required annually
under the lease. These advance royalties are charged to expense as incurred,
but are still accumulated and will be credited against production royalty
obligations if and when production ensues. The lessors may terminate the
lease upon the Company's failure to perform under the terms of the lease;
the Company has the right to terminate the lease at any time. |
|
43
New Jersey Mining Company
(A Development Stage Company)
Notes to Financial Statements
| 5. | Mineral Properties and Deferred Development Costs,
Continued: |
| Golden Chest Exploration Leases |
|
| On September 5, 2003, the Company entered into an
exploration agreement and lease option with Paymaster Resources, Inc.
(“Paymaster”) to explore the Golden Chest property. The exploration
agreement with option to lease was subsequently assigned to Metaline Contact
Mines (“Metaline”) in February 2004. The term of the exploration
agreement was 2½ years, commencing June 13, 2003. Pursuant to the
terms of the agreement, the Company conducted an economic study of the
Golden Chest open pit resource. As consideration for the agreement, the
Company issued Paymaster or Metaline 10,000 shares of its common stock
during every six- month period of the exploration agreement. Under this
exploration agreement, 20,000 shares were issued in both 2004 and 2003.
During 2004 and 2003, the Company recorded $12,000 and $8,000,
respectively of exploration expense in connection with these issuances
based upon its estimate of the fair value of the shares of common stock
issued. |
|
| On November 7, 2003, the Company signed an exploration
agreement and lease option with Prichard Creek Resource Partners LLC (“Prichard”)
to explore Prichard’s property, which is adjacent to the Golden
Chest. The term of the exploration agreement is 2½ years commencing
June 13, 2003. |
|
| Subsequent to year end, on January 3, 2005, the
Company exercised the Option to Lease the Golden Chest mine in accordance
with the exploration agreements with Metaline and Prichard, thus terminating
the exploration agreements. The terms of both lease agreements are 15
years. The Company issued 130,000 shares of restricted common stock upon
the signing of these leases. Each lease requires the Company to pay either
Metaline or Prichard, depending on which claims the production came from,
a royalty of 3% of net smelter returns. Both leases also have an additional
net smelter royalty of up to another 3% tied to a sliding scale gold price
indexed to the June 2003 Consumer Price Index (CPI). Using the December
2004 CPI, the gold trigger prices for additional net smelter royalties
were as follows: less than $415 = no additional royalty, $415
to $467 = 1.0%, $467 to $519 = 1.5%, $519 to $570
= 2.0%, and greater than $570 = 3.0%. Thus, the maximum net smelter
royalty that can be paid is 6%. |
|
| In addition to the royalty, the Company is obligated
to pay 50,000 shares of its common stock to Metaline after each successive
increment of 10,000 troy ounces of gold sold from the property and a one-time
payment of 30,000 shares to Prichard upon commencement of commercial production.
|
|
44
New Jersey Mining Company
(A Development Stage Company)
Notes to Financial Statements
| 6. | Income Taxes |
| The Company did not record an income tax provision
for the years ended December 31, 2004 or 2003, as it had no taxable income.
At December 31, 2004 and 2003, the Company had net operating loss carry
forwards available for income tax purposes of approximately $1,500,000
and $525,000, respectively, which will expire through 2024, and associated
deferred tax assets of approximately $615,000 and $218,500, respectively.
The deferred tax assets have been fully reserved for as management believes
it is more likely than not that the deferred tax assets will not be utilized.
|
|
| 7. | Common Stock |
| At December 31, 2002 and during all prior periods,
the Company had one class of no par value common stock with 20,000,000
shares authorized. Effective September 25, 2003, the Company amended its
articles of incorporation to increase the number of authorized shares
to 50,000,000. In addition, the Company has authorized 1,000,000 shares
of no par preferred stock, none of which had been issued at December 31,
2004 and 2003. |
|
| Private Placements |
|
| In May 2002, the Company completed a brokered private
placement pursuant to Rule 506 of Regulation D of the Securities Act of
1933, as amended (“Rule 506”). A total of 1,700,000 units
at a price of $0.15 per unit were sold, yielding net proceeds of $229,500.
Each unit consisted of one share of restricted common stock plus a common
stock purchase warrant exercisable at $0.25 per share until May 1,
2004. |
|
| In November 2003, the Company began offering for
sale units consisting of shares of its common stock and common stock purchase
warrants, in a non-brokered private placement, and only to certain investors
pursuant to Rule 506. The offering was for the sale of 2,000,000 units
at $0.40 per unit. Each unit consisted of one share of the Company's
restricted common stock and a one-half stock purchase warrant whereby
each one whole warrant may purchase one share of the Company's restricted
common stock at $0.70 per share until April 1, 2005. Through December
31, 2004, 795,000 units had been sold generating net proceeds of $318,000.
On February 19, 2004, the Company completed this placement, resulting
in the sale of an additional 932,500 units that generated additional proceeds
of approximately $372,000. |
|
45
New Jersey Mining Company
(A Development Stage Company)
Notes to Financial Statements
| 7. | Common Stock, continued |
| Exercise of Warrants |
|
| During 2004 and 2003, common stock purchase warrants
were exercised by warrant holders that had purchased units of common stock
and common stock purchase warrants during the Company's 2002 private placement
offering. During 2004 and 2003, the Company issued 1,437,500 and 810,000
shares, respectively, of its restricted common stock at prices ranging
from $0.25 to $.70 per share, generating net proceeds of $398,750
and $200,750, respectively, pursuant to the exercise of these warrants.
|
|
| Stock Purchase Warrants Outstanding |
|
| Transactions in common stock purchase warrants are
as follows: |
|
| Number of | Exercise | ||||
| Warrants | Prices | ||||
| Balance, December 31, 2002 | 1,700,000 | 0.25 | |||
| Issued in connection with warrants exercised(1) | 460,000 | 0.25 | |||
| Issued in connection with private placement | 397,500 | 0.70 | |||
| Exercised | (810,000 | ) | 0.25 | ||
| Balance, December 31, 2003 | 1,747,500 | 0.25-0.70 | |||
| Issued in connection with warrants exercised(1) | 547,500 | 0.70 | |||
| Issued in connection with private placement | 731,475 | 0.60-0.85 | |||
| Exercised | (1,437,500 | ) | 0.25-0.70 | ||
| Cancelled | (83,750 | ) | 0.60-0.70 | ||
| Balance, December 31, 2004 | 1,505,225 | (2) | 0.60-0.85 |
| (1) | During 2004 and 2003 the Company issued 547,500
and 460,000 stock purchase warrants, respectively, to investors as an
inducement to exercise warrants previously granted. The Company recorded
no value for the warrants issued as their fair value was not determinable
at the date of issue. |
|
| (2) | These warrants expire as follows: |
|
| Shares | Price | Expiration Date | ||
| 781,875 | $0.70 | October 1, 2005 | ||
| 50,000 | 0.60 | November 2, 2005 | ||
| 125,850 | 0.85 | April 1, 2006 | ||
| 547,500 | 0.70 | September 1, 2006 | ||
| 1,505,225 |
46
New Jersey Mining Company
(A Development Stage Company)
Notes to Financial Statements
| 7. | Common Stock, continued |
| Common Stock Issued for Equipment |
|
| During 2004 and 2003, the Company issued 28,650
and 5,000 shares of its restricted common stock to vendors for equipment
purchased. The Company recorded $16,476 and $3,000, respectively,
based upon the value of the equipment purchased and shares issued. |
|
| Common Stock Issued for Services |
|
| During 2004 and 2003, the Company issued 26,750
and 21,915 shares of its restricted common stock for services rendered
the Company. The Company recorded $14,550 and $7,262, respectively,
based upon the value of the services rendered and the shares issued. |
|
| Cancellation of Treasury Stock |
|
| Effective December 31, 2003, the Company's board
of directors resolved to cancel 1,947,144 shares of treasury stock the
Company had acquired during its merger with Plainview Mining Company (see
Note 4). As a result, the treasury shares were added to the Company's
authorized common stock for issue at December 31, 2003. |
|
| 8. | Related Party Transactions |
| Fred Brackebusch is president, treasurer, and a
director of the Company. Grant Brackebusch, Fred Brackebusch's son, is
the vice-president and a director of the Company. Grant Brackebusch's
wife, Tina Brackebusch, is the Company's corporate secretary. Fred Brackebusch
and Grant Brackebusch own 89.6% and 10.4%, respectively of Mine Systems
Design, Inc. ("MSD"), a firm that has various related party transactions
with the Company. |
|
| In addition to the related party transactions described
in notes 1, 4 and 6, the Company had the following transactions with related
parties: |
|
| • | During the year ended December 31, 2004
and 2003, the Company issued 75,700 and 179,133 shares, respectively,
of its restricted common stock valued at $48,617 and $67,501,
respectively, to Fred Brackebusch, and 7,760 and 184,067 shares, respectively,
of its restricted common stock valued at $4,656 and $69,625, respectively,
to Grant Brackebusch for management services. Of the shares issued in
2004, 19,191 shares valued at $11,519 were earned during the year
ended 2003 and were accrued at December 31, 2003. |
|
| • | During 2004, the Company issued 10,000
shares of its restricted common stock to Tina Brackebusch for services
with a value of $7,000. |
47
New Jersey Mining Company
(A Development Stage Company)
Notes to Financial Statements
| 8. | Related Party Transactions, continued: |
| • | During the years ended December 31, 2004
and 2003, the Company issued 70,000 and 18,000 shares, respectively, of
its restricted common stock to members of the Board of Directors for their
services as directors. These stock awards were recorded as directors'
fees of $49,000 and $7,200, respectively, based upon the estimated
value of the shares issued and services rendered. |
|
| • | At December 31, 2003, the Company accrued
non current liabilities due to Fred and Grant Brackebusch of $6,863
and $4,656, respectively, for management services rendered, which
were paid in shares of the Company's stock during 2004. |
|
| • | During the year ended December 31, 2004,
the Company paid MSD $2,000 for equipment and $4,000 for rental
of office equipment. The Company also issued MSD 9,200 shares of its restricted
common stock valued at $5,520 for a vehicle. |
|
| • | During the year ended December 31, 2003,
the Company paid MSD $20,000 for engineering services. At December
31, 2003, the Company had an account payable due MSD of $2,000. |
| 9. | Environmental Matters |
| At December 31, 2004 and 2003, the Company has accrued
$12,500 relating to a reclamation liability at the New Jersey Mine
site based on management's estimate of the disturbed area existing at
the property and the related costs to reclaim the area. It is likely that
in the near-term the Company will become responsible for additional reclamation
liabilities as it continues in the development of its properties and eventually
begins commercial production. |
|
| The Company owns or leases several mineral properties
located in the Coeur d’Alene River Basin. In recent years, certain
other companies involved in mining activities on property interests upland
of the Coeur d' Alene River Basin have been identified as potentially
responsible parties under the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980 (CERCLA), and have entered into consent decrees
with the Environmental Protection Agency and the state of Idaho, concerning
environmental remediation obligations and damages to or loss of natural
resources in the Coeur d' Alene River Basin. The Company has not received
any notification of a pending action or proceeding against the Company
relating to environmental claims or assessments as the amounts, if any,
are not estimable. It is possible, however, that the Company’s obligation
could change in the near or longer term, and the resultant liability or
claim for damages could have a material adverse effect on the Company. |
|
48
ITEM 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On December 10, 2003, the Company filed an 8-K report concerning a Change in Certifying Accountant. An amended 8-K/A concerning the same topic was filed on February 2, 2004. The text of the amended 8-K/A follows:
Effective December 10, 2003, the Board of Directors of New Jersey Mining Company recommended and directed:
(a) The dismissal of Nathan Wendt, CPA ("Wendt") as the Company's independent accountant and the engagement of DeCoria, Maichel & Teague P.S. ("DM&T") as the Company's independent accountants to audit the Company's financial statements for the year ending December 31, 2003.
The report of Wendt on the Company's financial statements for the past two years did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to audit scope or accounting principles. Wendt did modify its report as to the uncertainty of the Company's ability to continue as a going concern.
In connection with the audits of the Company's financial statements for each of the two years ended December 31, 2002 and 2001, and in the subsequent interim periods, there were no disagreements between the Company and Wendt on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedures that, if not resolved to the satisfaction of Wendt, would have caused Wendt to make reference to the subject matter of the disagreement(s) in its report. During the two years ended December 31, 2002 and 2001, and through December 10, 2003, there have been no reportable events (as defined in Securities and Exchange Commission Regulation SK Item 304(a)(1)(iv)).
(b) The Company provided a copy of the disclosure contained in this Current Report on Form 8-K to Wendt and requested it to furnish it a letter addressed to the Securities and Exchange Commission stating whether it agrees with the disclosures made therein.
49
ITEM 8A.
CONTROLS AND PROCEDURES
An evaluation was performed by the Company's president and principal accounting officer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the president and principal accounting officer concluded that disclosure controls and procedures were effective as of December 31, 2004, in ensuring that all material information required to be filed in this annual report has been made known to them in a timely fashion.
There has been no change in our internal control over financial reporting during the year ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s our internal control over financial reporting.
[The balance of this page has been intentionally left blank.]
50
PART III
ITEM 9.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
| Name & Address | Age | Position | Date First Elected |
| Fred W. Brackebusch P.O. Box 1019 Kellogg, Idaho 83837 |
60 | President, Director & Treasurer | 7/18/1996 |
| Grant A. Brackebusch P.O. Box 131 Silverton, ID 83867 |
35 | Vice President & Director | 7/18/1996 |
| Charles F. Asher P.O. Box Pinehurst, ID 83850 |
81 | Director | 1/1/1997 |
| Ivan R. Linscott 7150 Burke Road Wallace, ID 83873 |
62 | Director | 9/21/2004 |
| William C. Rust (1) P.O. Box 648 Wallace, ID 83873 |
58 | Director | 9/21/2004 |
| M. Kathleen Sims (1) 2745 Seltice Way Coeur d’Alene, ID 83814 |
60 | Director | 9/25/2003 |
| Tina C. Brackebusch P.O. Box 131 Silverton, ID 83867 |
35 | Secretary | 1/1/1997 |
Directors are elected by shareholders at each annual shareholders meeting to hold office until the next annual meeting of shareholders or until their respective successors are elected and qualified.
Fred W. Brackebusch, P.E. is the President and a Director of the Company. He has a B.S. and an M.S. in Geological Engineering both from the University of Idaho. He is a consulting engineer with extensive experience in mine development, mine backfill, mine management, permitting, process control and mine feasibility studies. He has over 25 years of experience in the Coeur d'Alene Mining District principally with Hecla Mining Co. He has been the principal owner of Mine Systems Design, Inc., a mining consulting business, since 1987. Mr. Brackebusch is also on the Board of Directors of Mascot Silver-Lead Mines, Inc.
Grant A. Brackebusch, P.E. is the Vice President and a Director of the Company. He holds a B.S. in Mining Engineering from the University of Idaho. He worked for Newmont Gold Co. in open pit mine planning and pit supervision for 3 years. Since that time he has worked with Mine Systems Design performing various engineering and geotechnical tasks. He supervises the daily operations of New Jersey Mining Co. which include mine operations, mill operations, management of contractors, construction, engineering, and is also responsible for the Company’s SEC reporting, environmental monitoring and permitting.
51
Charles Asher is a Director of the Company. He is also a Director of Mascot Silver-Lead Mines Inc. He was formerly President of Plainview Mining Co., Silver Trend Mining Co., and Mascot Silver-Lead Mines, Inc. Mr. Asher has extensive experience as an underground mine operator in the Coeur d'Alene Mining District.
Ivan R. Linscott, PhD is a physicist at Stanford University. He is a Senior Research Associate for radioscience spacecraft instrument development and is Co-Investigator and Science Team Member for the New Horizons Mission to encounter the planet Pluto. Dr. Linscott has a strong interest in doing research on exploration techniques in the Coeur d’Alene Mining District.
William C. Rust is a metallurgical engineer with extensive experience in the Silver Valley. He worked for Asarco as Chief Metallurgist. Later he worked for CoCa mines at Grouse Creek in Central Idaho and for McCulley, Frick and Gilman, an environmental consulting firm. His last assignment was with Getchell Gold Inc. in Nevada where he was Mill Manager and Senior Metallurgist for a 3,200 ton/day gold plant. Mr. Rust is a member of the Audit Committee.
M. Kathleen Sims is a Director of the Company. She is a successful businesswoman who is majority owner of a car dealership. She is a former State Senator in the Idaho Legislature. She is a former member of the State of Idaho Human Rights Commission and is active in the Idaho Republican Party. She has extensive experience in starting a business with all the necessary experience in financing, business plans and management. Ms. Sims is a member of the Audit Committee.
Tina C. Brackebusch is Secretary of the Company. She has served as Office Manager for the Company. She holds a B.S. in Secondary Education from the University of Idaho.
Family Relationships
Fred W. Brackebusch is the father of Grant A. Brackebusch. Tina C. Brackebusch is the wife of Grant A. Brackebusch.
Legal Proceedings
No Director or Officer has been involved in any legal action involving the Company for the past five years.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of forms 3 and 4 and amendments thereto furnished to the Registrant pursuant to Section 240.16a -3 during the most recent fiscal year, and Form 5 and amendments thereto furnished to the Registrant with respect to the most recent fiscal year, no person who at any time during the fiscal year was a director, officer, or beneficial owner or more than ten percent of any class of equity securities of the Registrant registered pursuant to Section 12 of the Exchange Act, or any other person subject to Section 16 of the Exchange Act with respect to the Registrant because of the requirements of Section 30 of the Investment Company Act or Section 17 of the Public Utility Holding Company Act (A reporting person) failed to file on a timely basis, as disclosed in the above Forms, reports required by Section 16(a) of the Exchange Act during the most recent fiscal year or prior fiscal years, except Fred W. Brackebusch (one report, 1 transaction), Grant A. Brackebusch (one report, 1 transaction), William C. Rust (one report, 1 transaction), and Ivan R. Linscott (one report, 1 transaction).
52
Code Of Ethics
The Company adopted a Code of Ethics at a Board of Directors meeting on December 9, 2003, that applies to the Company's executive officers. It can be found at the Company’s website www.newjerseymining.com
Board Committee
At a Board of Directors meeting on September 21, 2004, the Directors approved an audit committee comprised of William C. Rust and M. Kathleen Sims. Each member of the audit committee is deemed to be an independent director as that term is defined in Rule 4200(a)(14) of the NASD’s listing standards. M. Kathleen Sims is the Audit Committee Financial Expert as defined by Section 407 of the Sarbanes-Oxley Act. The Board adopted an audit committee pre-approval policy. The audit committee is required to pre-approve the audit and non-audit services performed by the independent auditor in order to assure that the provision of such services do not impair the auditor’s independence.
ITEM 10.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
| Name & Principal Position |
Year | Salary ($) |
Bonus ($) |
Other Annual Comp. ($) |
Restricted Stock Awards ($) |
Securities Underlying Options (#) |
LTIP Payouts ($) |
All Other Compensation ($) |
| Fred Brackebusch President |
2002 | 0 | 0 | 0 | 450 | 0 | 0 | 0 |
| 2003 | 0 | 0 | 0 | 75,564 | 0 | 0 | 0 | |
| 2004 | 36,000 | 0 | 0 | 41,754 | 0 | 0 | 0 | |
| Grant Brackebusch Vice President |
2002 | 0 | 0 | 0 | 450 | 0 | 0 | 0 |
| 2003 | 0 | 0 | 0 | 75,481 | 0 | 0 | 0 | |
| 2004 | 72,000 | 0 | 0 | 7,000 | 0 | 0 | 0 | |
| Charles. F. Asher Director |
2002 | 0 | 0 | 0 | 450 | 0 | 0 | 0 |
| 2003 | 0 | 0 | 0 | 1,200 | 0 | 0 | 0 | |
| 2004 | 0 | 0 | 0 | 7,000 | 0 | 0 | 0 | |
| Ivan R. Linscott Director |
2002 | N/A | N/A | N/A | N/A | N/A | N/A | N/A |
| 2003 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | |
| 2004 | 0 | 0 | 0 | 7,000 | 0 | 0 | 0 | |
| William C. Rust Director |
2002 | N/A | N/A | N/A | N/A | N/A | N/A | N/A |
| 2003 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | |
| 2004 | 0 | 0 | 0 | 7,000 | 0 | 0 | 0 | |
| M. Kathleen Sims Director |
2002 | N/A | N/A | N/A | N/A | N/A | N/A | N/A |
| 2003 | 0 | 0 | 0 | 1,200 | 0 | 0 | 0 | |
| 2004 | 0 | 0 | 0 | 7,000 | 0 | 0 | 0 | |
| Tina C. Brackebusch Secretary |
2002 | 0 | 0 | 0 | 450 | 0 | 0 | 0 |
| 2003 | 0 | 0 | 0 | 1,200 | 0 | 0 | 0 | |
| 2004 | 2,070 | 0 | 0 | 7,000 | 0 | 0 | 0 |
53
At a Board of Directors meeting on December 9, 2003, the Directors approved a compensation plan for the Board of Directors and Management. For the Directors and the Secretary it was approved to increase the annual compensation to 10,000 common shares of restricted stock, commencing in 2004. Also, as a result of the need for full time management the following salaries were approved for 2004 by the Directors: Fred W. Brackebusch, $3,000 per month for management, Grant A. Brackebusch, $6,000 per month for management and Tina C. Brackebusch, $12 per hour for secretarial work.
Officers and Directors were paid for their services with 3,000 shares of restricted common stock per year for the years 2002 and 2003 and 10,000 shares of restricted common stock in 2004. A value of $0.15 per share was ascribed to the shares in 2002, $0.40 per share in 2003, and $0.70 per share in 2004.
ITEM 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information on the ownership of the Company's voting securities by Officers, Directors and major shareholders as those who own beneficially more than five percent of the Company's common stock through the most current date - March 10, 2004.
Security Ownership of Certain Beneficial Owners and Management| Title of Class | Name and Address Of Beneficial Owner |
Amount and Nature of Beneficial Owner |
Percent of Class (1) |
| Common | Fred W. Brackebusch P.O. Box 1019 Kellogg, Idaho 83837 |
7,899,315 indirect (a) 292,800 direct |
37.79% |
| Common | Grant A. Brackebusch P.O. Box 131 Silverton, ID 83837 |
916,885 indirect (b) 249,136 direct |
5.38% |
| Common | Terry & Marguerite Tyson County Road U Lipscomb, TX 79056 |
1,380,000 direct 883,000 indirect |
10.44% |
| Common | Charles F. Asher P.O. Box 444 Pinehurst, ID 83850 |
74,000 | 0.34% |
| Common | Ivan R. Linscott 7150 Burke Road Wallace, ID 83873 |
10,000 | 0.05% |
| Common | William C. Rust P.O. Box 648 Wallace, ID 83873 |
10,000 | 0.05% |
| Common | M. Kathleen Sims 2745 Seltice Way Coeur d’Alene, ID 83814 |
13,000 | 0.06% |
| Common | Tina C. Brackebusch P.O. Box 131 Silverton, ID 83867 |
28,000 | 0.13% |
| Common | All Directors and Officers as a group (7 individuals) |
9,493,136 | 43.79% |
54
(1)Based upon 21,679,070 outstanding shares of common stock at March 10, 2004.
(a) Fred Brackebusch owns 89.6% of Mine Systems Design, Inc.(MSD) which is a Subchapter S corporation that owns 8,816,200 common shares of the Company. Neither MSD nor Fred Brackebusch have the right to acquire any securities pursuant to options, warrants, conversion privileges or other rights.
(b) Grant Brackebusch owns 10.4% of Mine Systems Design, Inc.(MSD) which is a Subchapter S corporation that owns 8,816,200 common shares of the Company. Neither MSD nor Grant Brackebusch have the right to acquire any securities pursuant to options, warrants, conversion privileges or other rights.
None of the directors or officers have the right to acquire any securities pursuant to options, warrants, conversion privileges or other rights.
ITEM 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the years ended December 31, 2004 and 2003, the Company issued 70,000 and 18,000 shares, respectively, of its restricted common stock to members of the Board of Directors for their services as directors. These stock awards were recorded as directors' fees of $49,000 and $7,200, respectively, based upon the estimated value of the shares issued and services rendered.
During the year ended December 31, 2004 and 2003, the Company issued 75,700 and 179,133 shares, respectively, of its restricted common stock valued at $48,617 and $67,501, respectively, to Fred Brackebusch, and 7,760 and 184,067 shares, respectively, of its restricted common stock valued at $4,656 and $69,625, respectively, to Grant Brackebusch for management services. Of the shares issued in 2004, 19,191 shares valued at $11,519 were earned during the year ended 2003 and were accrued at December 31, 2003.
Additionally during 2004, the Company issued 10,000 shares of its restricted common stock to Tina Brackebusch for services, with a value of $7,000.
At December 31, 2003, the Company accrued noncurrent liabilities due to Fred and Grant Brackebusch of $6,863 and $4,656, respectively, for management services rendered, which were paid in shares of the Company's stock during the first quarter of 2004.
During 2004, the Company issued 9,200 shares of its common stock to MSD for a pickup valued at $5,520. The Company also paid MSD $2,000 for equipment and $4,000 for rent in 2004. During 2003, the Company paid MSD $20,000 for engineering services. At December 31, 2003, the Company had an account payable due MSD of $2,000.
ITEM 13.
EXHIBITS AND REPORTS ON FORM 8-K
| (3)(i) | Articles of Incorporation - Filed as an exhibit to the registrant's registration statement on Form 10-SB (Commission File No. 000-28837) and incorporated by reference herein. |
55
| (3)(ii) | Bylaws - Filed as an exhibit to the registrant's registration statement on Form 10-SB (Commission File No. 000-28837) and incorporated by reference herein. |
| (10)(1) | Lease Agreement with William Zanetti - Filed as an exhibit to the registrant's registration statement on Form 10-SB (Commission File No. 000-28837) and incorporated by reference herein. |
| (10)(2) | Articles of Merger For Plainview Mining Company Inc. and New Jersey Mining Co. - Filed as an exhibit to the registrant's registration statement on Form 10-SB (Commission File No. 000-28837) and incorporated by reference herein. |
| (10)(3) | Lease Agreement with Mine Systems Design, Inc. - Filed as an exhibit to the registrant's annual report on Form 10-KSB for the year ended December 31, 2001 and incorporated by reference herein. |
| (10)(4) | Articles of Merger for Gold Run Gulch Mining Company and New Jersey Mining Co. Filed as an exhibit to the registrant's annual report on Form 10-KSB for the year ended December 31, 2002 and incorporated by reference herein. |
| (10)(5) | Exploration Agreement and Option to Lease between Paymaster Resources, Inc. and New Jersey Mining Company with the approval of J.W. Beasley Interests LLC. 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. |
| (10)(6) | Exploration Agreement and Option to Lease between Prichard Creek Resource Partners LLC and New Jersey Mining Company. 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. |
| (14) | Code of Ethics. 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. |
| (16) | Letter on Change in Certifying Accountant. Filed as an 8-K report on December 10, 2003 and later filed as an 8-K/A on February 2, 2004, and incorporated by reference herein. |
| (31) | Rule 13a-14(a)/15d-14(a) Certifications |
| (31)(i) | Certification of Fred W. Brackebusch |
| (32) | Section 1350 Certifications |
| (32)(i) | Certification of Fred W. Brackebusch |
| (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. |
Reports on Form 8-K
On October 6, 2005, the Company filed a Form 8-K report that referenced a press release announcing the retirement of Director Ronald Eggart and the appointment of two new Directors to the Board of Directors – William C. Rust and Ivan R. Linscott.
On December 17, 2004, the Company filed a Form 8-K report that referenced a press release announcing that the Company’s Board of Directors had approved exercising a mining lease at the Golden Chest mine.
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Board of Directors has adopted an audit committee pre-approval policy. The audit committee is required to pre-approve the audit and non-audit services performed by the independent auditor in order to assure that the provision of such services do not impair the auditor’s independence.
Audit Fees
The aggregate fees billed for professional services rendered by the Company’s principal accountant for the audit of the Company’s annual financial statements for the fiscal years ended December 31, 2004 and 2003 and the review for the financial statements included in the Company’s quarterly reports on Form 10-QSB during those fiscal years were $20,000 and $17,648 respectively.
Audit Related Fees
The Company incurred no fees during the last two fiscal years for assurance and related services by the Company’s principal accountant that were reasonably related to the performance of the audit or review of the Company’s financial statements, and not reported under “Audit Fees” above.
Tax Fees
The Company incurred no fees during the last two fiscal years for professional services rendered by the Company’s principal accountant for tax compliance, tax advice and tax planning.
All Other Fees
The Company incurred other no fees during the last two fiscal years for products and services rendered by the Company’s principal accountant.
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SIGNATURES
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
New Jersey Mining Company
| Date: June 3, 2005 | By: /s/ FRED W. BRACKEBUSCH | |
| Fred W. Brackebusch, President, Treasurer & Director | ||
| Date: June 3, 2005 | By /s/ GRANT A. BRACKEBUSCH | |
| Grant A. Brackebusch, Vice President & Director | ||
| Date: June 3, 2005 | By: /s/ CHARLES F. ASHER | |
| Charles F. Asher, Director | ||
| Date: June 3, 2005 | By: /s/ IVAN R. LINSCOTT | |
| Ivan R. Linscott, Director | ||
| Date: June 3, 2005 | By: /s/ WILLIAM C. RUST | |
| William C. Rust, Director | ||
| Date: June 3, 2005 | By: /s/ M. KATHLEEN SIMS | |
| M. Kathleen Sims, Director |
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