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Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-05-15 · 39 added, 44 removed, 69 unchanged (55% of the section changed)

Management's Discussion AND Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF O PERATIONS

Plan of Operation

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The Company’s primary focus as it relates to its gold properties is to continue to grow production at the Golden Chest Mine and look to reinvest the cash flow into both the Golden Chest Mine, the New Jersey Mill, and furthering its exploration efforts near the Golden Chest - as well as at its rare earth elements properties.

In addition to its gold properties, Idaho Strategic has three rare earth elements exploration properties in Idaho known as Lemhi Pass, Diamond Creek, and Roberts.

In addition to its gold properties, Idaho Strategic has three rare earth elements exploration properties in Idaho known as Lemhi Pass, Diamond Creek, and Mineral Hill.

The Company’s expansion into rare earth elements came about in an effort to diversify its holdings towards the anticipated demand for these elements in the electrification of motorized vehicles and a renewed focus on the United States’ domestic critical minerals supply chain security.

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The embedded derivative contained in our concentrate sales is adjusted to fair value through earnings each period prior to final settlement.

It is unlikely a significant reversal of revenue for any one concentrate lot will occur.

It is unlikely a significant reversal of revenue for the concentrate receivable as a whole will occur upon final settlement of the lots.

As such, we use the expected value method to price the concentrate until the final settlement date occurs, at which time the final transaction price is known.

At March 31, 2023, metals that had been sold but not finally settled included 5,844 ounces of which 4,500 ounces were sold at a predetermined price with the remaining 1,344 exposed to future price changes.

At June 30, 2023, metals that had been sold but not finally settled included 5,223 ounces of which 4,276 ounces were sold at a predetermined price with the remaining 947 exposed to future price changes.

The Company has received provisional payments on the sale of these ounces with the remaining amount due reflected in gold sales receivable.

The asset retirement obligation and asset on our balance sheet is based on an estimate of the future cost to recover and remediate our properties as required by our permits upon cessation of our operations and may differ when we cease operations.

At March 31, 2023 we reviewed our December 31, 2022 estimate that the cost of the machine and man hours probable to be needed to put our properties in the condition required by our permits once we cease operations.

The March 31, 2023 estimated costs would be $103,320 for the Golden Chest property and $203,600 for the New Jersey Mine and Mill.

At June 30, 2023 we reviewed our December 31, 2022 estimate that the cost of the machine and man hours probable to be needed to put our properties in the condition required by our permits once we cease operations.

The June 30, 2023 estimated costs would be $103,320 for the Golden Chest property and $203,600 for the New Jersey Mine and Mill.

For purposes of the estimate, we evaluated the expected life in years and costs that, initially, are comparable to rates that we would incur at the present.

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Separately, the Company accrues costs associated with environmental remediation obligations when it is probable that such costs will be incurred and they are reasonably estimable.

Highlights during the first quarter of 2023 include:

Highlights during the second quarter of 2023 include:

Rare Earth Elements

The Company released the first drill results from its 2022 Diamond Creek rare earth elements (REEs) drill program – intercepted 11.3 meters of 1.3% total rare earth oxides (TREO) including intervals with 2.2% TREO and 1.0% niobium.

Also in January, Idaho Strategic announced select sample results from Lemhi Pass that returned REE grades greater than 4.2% TREO containing over 2.5% neodymium.

Other select samples announced within the same press release include:

2.35% TREO containing 1.21% neodymium, 1.62% TREO containing 0.88% neodymium, and 0.98% TREO containing 0.53% neodymium.

In February, Idaho Strategic announced the discovery of 32 meters of continuous rare earth elements and niobium mineralization at the surface at its Diamond Creek project.

The entire 32-meter interval averaged 1.28% total rare earth elements (TREE) with elevated values of 2% TREE at the 8-meter and 12-meter marks.

Strong niobium mineralization reflecting grades greater than 0.5% niobium was also encountered in eight of the samples.

Also in February, Idaho Strategic increased its central Idaho rare earth elements landholdings via claim staking to bring its total land position amongst its three distinct projects (Lemhi Pass, Diamond Creek, and Roberts) to approximately 18,030 acres, which the Company believes makes it the largest rare earth elements landholder in the United States.

Idaho Strategic announced the expansion (and consolidation) of the Company’s Roberts project with the addition of the Phyllis Gross and Lower Lee Buck claim groups;

and the subsequent rebranding of this landholding as the Mineral Hill REE project.

Subsequent to the end of the second quarter, Idaho Strategic announced the results of a sample taken during the second quarter from the Company’s Mineral Hill project.

The sample returned a grade of 23.5% total rare earth elements (TREE) and was taken from a seam of monazite enveloped between two distinct carbonatites, which each assayed 7.5% TREE respectively.

Golden Chest/Operations

At the Golden Chest, ore mined from underground stopes totaled approximately 8,500 tonnes from the 803 and 821 stopes.

At the Golden Chest, ore mined from underground stopes totaled approximately 8,700 tonnes with about 60% of that coming from the 797 and 812H-Vein stopes and the remainder from Idaho Vein stopes.

A total of 1,800 cubic meters of cemented rockfill were placed during the quarter.

The Main Access Ramp (MAR) was extended by 82 meters at depth during the quarter below the 790 elevation and a ventilation raise was started during the quarter.

During March the Company completed an exploration crosscut to explore the H-Vein which is located 60 meters west of the Idaho Vein.

As announced in a press release dated April 18, 2023 the crosscut intercepted a strongly mineralized vein that assayed 32.1 grams per tonne (gpt) gold over 0.43 meters on the northern rib and 54.1 gpt over 0.72 meters on the southern rib.

Both samples represent true thickness.

Drifting along the vein continued subsequent to the end of the first quarter.

Open pit mining was completed in the Jumbo Pit at the end of March.

A total of 4,000 tonnes of ore were mined from the pit with 2,350 tonnes mined in the first quarter.

The Jumbo Vein consists of a banded quartz vein that typically occurs 10-20 meters (m) in the hangingwall of the Idaho Fault.

The vein was typically exposed for 20 to 25 meters of strike on each bench and visible gold was often observed.

Composite samples of the truckloads mined in the quarter had an average of 17.3 gpt gold.

Plans are being made to further explore the Jumbo Vein.

For the quarter ended March 31, 2023, a total of 11,144 dry metric tonnes (dmt) were processed at the Company’s New Jersey mill with a flotation feed head grade of 5.63 gpt with gold recovery of 91.5%.

About 80% of the feed was from the underground stopes with the remainder coming from the Jumbo Vein open pit.

The Main Access Ramp (“MAR”) and associated drifts were advanced by 60 meters at depth during the quarter to the 785 meter elevation and a ventilation raise was also completed.

Near the end of the quarter, the Company started work on a portal at the bottom of the Jumbo Pit as part of an exploration project to drift on the Jumbo Vein to establish vein continuity and gold grade.

For the quarter ended June 30, 2023, a total of 11,708 dry metric tonnes (“dmt”) were processed at the Company’s New Jersey mill with a flotation feed head grade of 7.31 gpt gold and gold recovery of 92.6%.

The head grade increased 30% over the first quarter as a result of mining on the H-vein which accounted for about one-half of the ore tonnage during the quarter with the remainder from Idaho Vein stopes and a stockpile of Jumbo open pit ore.

Results of Operations

Our financial performance during the quarter is summarized below:

Revenue increased 63% from $2,044,417 for the three-month period ended March 31, 2022, to $3,341,596 for the same period in the current year.

Revenue increased 37.2% from $2,358,492 in 2022 to $3,236,515 in 2023 for the three-month period ended June 30, 2023, and increased 49.4% from $4,402,909 to $6,578,111 for the 6-month period ended June 30, 2023.

The increase in revenue is largely due to the increased gold production throughout the quarter as well as a higher average gold price recognized on ounces produced.

Gross profit as a percentage of sales increased from 15% in the first quarter of 2022 to 26% in the first quarter of 2023.

Exploration expense decreased, when compared to the first quarter of 2022, primarily due to a decrease in drilling by the company owned and operated drill rig.

Professional services for the three-month period ended March 31, 2023, increased significantly, compared to the same period in 2022, due to legal fees related to merger and acquisition activity.

Gold production is expected to remain at approximately this level for the remainder of the year as mining on the H-Vein continues.

Gross profit as a percentage of sales increased from 0.3% in the second quarter of 2022 to 24.5% in the second quarter of 2023.

For the six months ending June 30, 2022 gross profit as a percentage of sales was 7.1% compared to 25.2% in 2023

Exploration expense decreased in 2023, when compared to 2022, primarily due to a decrease in drilling by the company owned and operated drill rig, and a reduction in overall exploration activity.

Professional services remained relatively consistent with the exception of the six-month period where they increased significantly, compared to the same period in 2022.

This was due to legal fees related to merger and acquisition activity in the first quarter of 2023.

This was a one-time increase and is not expected to continue.

Operating income for the three-month period ended March 31, 2023, was $13,023 which is an increase of $439,189 from an operating loss of $426,166 in the first quarter of 2022.

Other (income) expense increased $78,066 from an expense of $46,903 in the first quarter of 2022, to income of $31,163 in the same period in 2023.

The increase was from timber sales during the first quarter of 2023, as well as increased interest income from the company’s interest-bearing money market account that was not in place during the first quarter of 2022.

Operating income for the three-month period ended June 30, 2023, was $289,987 which is an increase of $1,136,708 from an operating loss of $846,721 in the second quarter of 2022.

For the six-month period ending June 30, 2023, operating income of $303,010 was an increase of $1,575,897 over the same period in 2022 which had an operating loss of $1,272,887.

Other (income) expense increased $11,363 from an expense of $5,528 in the second quarter of 2022, to income of $5,835 in the same period in 2023.

Other (income) expense increased $89,429 from an expense of $52,431 in the six months ending June 30, 2022, to income of $36,998 in the same period in 2023.The increase was from timber sales during the first quarter of 2023, as well as increased interest income from the company’s interest-bearing money market account that was not in place during 2022.

Interest expense also decreased significantly due to many of the company’s notes being near the end of their term.

Net income increased $517,255 from a net loss of $473,069 to net income of $44,186 for the three-month period ended March 31, 2023.

The consolidated net income for the three-month period ending March 31, 2023 and net loss for the three-month period ended March 31, 2022 included non-cash charges as follows:

depreciation and amortization of $328,037 ($230,208 in 2022), loss on disposal of equipment of $6,120 (none in 2022), accretion of asset retirement obligation of $3,899 ($2,516 in 2022), issuance of common stock for services of $0 ($32,326 in 2022) and equity income on investment in Buckskin of $350 ($331 in 2022).

Cash cost and all-in sustaining cost per ounce increased during the first quarter of 2023 compared to the first quarter of 2022 due to a higher ratio of underground to open pit ore mined.

With the completion of the Jumbo Pit in the first quarter, we expect this increased cost per ounce to reflect future mining costs more accurately as all production will be from underground at the Golden Chest for the foreseeable future.

Net income increased $1,148,071 from a net loss of $852,249 for the three-month period ended June 30, 2022 to net income of $295,822 for the three-month period ending June 30, 2023.

Net income increased $1,665,326 from a net loss of $1,325,318 in the six months ending June 30, 2022, to net income of $340,008 in the same period in 2023.

The consolidated net income for the six-month period ending June 30, 2023 and net loss for the six-month period ended June 30, 2022 included non-cash charges as follows:

depreciation and amortization of $671,079 ($472,115 in 2022), income on disposal of equipment of $224 (loss of $3,901 in 2022), accretion of asset retirement obligation of $7,856 ($5,069 in 2022), issuance of common stock for services of $0 ($32,326 in 2022), gain on forgiveness of SBA loan of none in 2023 ($10,000 in 2022) and equity income on investment in Buckskin of $1,357 ($671 in 2022).

Cash cost and all-in sustaining cost per ounce decreased in 2023 compared to 2022 due to a higher ore grade and tonnes mined.

A core drilling exploration program is planned for the Golden Chest for the late third and early fourth quarter which may increase all-in sustaining costs in the second half of 2023.

Cash Costs and All-In Sustaining Costs Reconciliation to GAAP- Reconciliation of cost of sales and other direct production costs and depreciation, depletion and amortization (“GAAP”) to cash cost per ounce and all-in sustaining costs (“AISC”) per ounce (“non-GAAP”).

The table below presents reconciliations between the most comparable GAAP measure of cost of sales and other direct production costs and depreciation, depletion, and amortization to the non-GAAP measures of cash cost per ounce and all in sustaining costs per ounce for the Company’s gold production in the three-month periods ended March 31, 2023, and 2022.

Cash cost per ounce is an important operating measure that we utilize to measure operating performance.

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Current GAAP measures used in the mining industry, such as cost of goods sold do not capture all of the expenditures incurred to discover, develop, and sustain gold production.

June 30, 2023

June 30, 2022

Cost of sales and other direct production costs and depreciation and amortization

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Financial Condition and Liquidity

For the Three Months Ended March 31,

For the Six Months Ended June 30,

Net cash provided (used) by:

Operating activities

$ (1,694,476 )

Investing activities

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Cash and cash equivalents, end of period

The Company is currently producing from both the open-pit and underground at the Golden Chest Mine.

The Company is currently producing from the underground mine at the Golden Chest.

In the past, the Company has been successful in raising required capital from sale of common stock, forward gold contracts, and debt.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis