Disclosure: I am long NJMC with a cost basis of $.052
I have never invested in a mining company, nor have I ever been interested in investing in a mining company. It's hard to understand, you are generally at the whim of commodity prices, and usually the stars truly have to align in order for you to be successful with the position. Given the degree of complexity and difficult in understanding mining companies and their operations, a lot of investors just choose to look the other way. This means that with a ton of due diligence you can uncover some pretty compelling investment opportunities in the space. I believe New Jersey Mining (NJMC) is one of those compelling opportunities.
Several very successful microcap investors got me interested in this company, and after doing some independent due diligence I decided to open a position. The investment thesis really is about the CEO, John Swallow. I tried very hard to uncover something I didn't like about him, but I couldn't. He previously led two mining companies, Sterling Mining and Timberline Resources, from $.05 to $13.00 and from $.50 to $5.00, respectively. John joins the companies, takes little to no salary, buys his own common stock in the open market, and makes great decisions that lead to significant returns for both the company and shareholders. John joined the company after purchasing the shares from the original company founders for $.04. Thereafter, the company successfully completed a private placement at $.05 of which John was a significant participant. Since that time, John has been an active purchaser of shares of the company on the open market, and he has also extended credit to the operating capital of the company. Perhaps most importantly, John owns a private drilling company called Timberline Drilling, which is one of the largest underground drilling companies in the entire USA. Overall, he is the type of CEO you want to be invested in.
When John Swallow left Timberline in 2009, here was the relevant part of the press release:
Timberline’s Board of Directors has been notified by John Swallow of his intention to step down as Executive Chairman and a Director of the company effective September 15, 2009. Mr. Swallow has been an integral part of the development of Timberline’s business model and will continue to provide input to company management on a consulting basis.
Mr. Swallow commented, “It has always been my intention to help build the company to a certain critical mass and step aside when the timing was right. Over the last four years, our team has evaluated and drill-tested a number of projects, acquired and advanced the Butte Highlands Gold Project to a position where we are carried to production in a joint venture, and acquired and grown two core drilling companies that are now, despite challenging economic conditions and industry dynamics, cash flow positive and expect over $15 million in revenue for fiscal 2009. I expect Butte Highlands to be permitted and handed off to the mine development guys shortly, and I remain excited about the pipeline of potential new projects and cash flow opportunities being evaluated by management. I have every confidence in Randy’s and Paul’s abilities and fully expect that they will continue our trend of making discoveries, advancing projects to production, and taking advantage of opportunities that generate cash flow. As a major shareholder and consultant, I will continue to be involved as I have a vested interest in the continued success of the company.”
Let me try to explain New Jersey Mining's business operations in layman's terms as mining is very difficult to understand and comprehend. Simply stated, up until recently the company owned part of the a mine called "The Golden Chest Mine". Several weeks ago, the company announced that it purchased the remaining ownership for the mine, now owning 100% of it. The interesting part of this purchase is that mine's previous owners invested roughly $10 million into the mine, so all this work has now been inherited by NJMC. It's a working mine with significant recent improvements that NJMC has been taking advantage of with small-scale production.
In early November, Swallow released a Corporate Update to Shareholders that is a fantastic read. I am copying it below:
Dear Fellow Shareholders,
We are firm believers that a great company can be built during difficult times. And while we have no control over the price of gold or the timing of the marketplace turn-around, we believe that having a newly developed mine, a recently operating mill, and district scale exploration potential provide a nice level of optionality for our shareholders.
As part of our base building and focus on cash flow, we intend to exercise our recently acquired Option within the next few weeks, securing ownership of the Golden Chest Mine and greater control of our own destiny, embracing the opportunities and the challenges that come with it.
Juniper and Small Mine Development did a great job of developing the mine, leaving a high-quality platform for us to build upon, including a tremendous amount of data and knowledge and an area of potential ore already blocked out.
The road ahead... We are evaluating three possible paths. With the addition of the Golden Chest Mine to our New Jersey Mill asset base, we could obviously go into “care and maintenance” mode until market conditions improve. Or we could bring in a partner and joint venture the advancement of the mine. However, our preferred path is to evaluate the possibility of going into small-scale production ourselves, and that process is currently underway.
It is a challenging time for everyone in our industry. However, our focus on cash flow from the mill and on building an asset base with minimal dilution has actually provided us with opportunity. Regardless of our path forward, as fellow shareholders, we will continue to creatively leverage our strengths and build value – at the Golden Chest and elsewhere. As always, we thank you for your support.
New Jersey Mining Company
A few noteworthy facts about the financials of the company. They most recently reported over $603k in revenues with $112k in net income for Q3 2015!! Yes, the company is profitable! You won't find many of these in the junior mining space, especially with gold prices where they are current around $1065/ounce. Swallow keeps overhead and fixed cost extremely low while able to generate revenues. It really is quite fascinating.
My investment thesis with NJMC really is pretty simply. It's about investing in a CEO (who consistently buys stock on the open market while taking little to no salary!) with a proven track record who has currently made this little junior mining company profitable with only very small scale operations. As they scale their operations and also identify new exploration projects that they can mine at their own mine, the potential is significant. And now the company owns 100% of the Golden Chest Mine.
This investment will take patience, but I have no problem waiting for the stars to fully align.
Disclosure: I am long NJMC with a cost basis of $.052