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Item 2. Management’s Discussion and Analysis

2024-05-06 compared with 2023-11-06 · 51 added, 66 removed, 49 unchanged (70% of the section changed)

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Plan of Operation

Idaho Strategic Resources, Inc is a gold producer and critical minerals/rare earth elements exploration company focused on a diversified asset base and cash flows from operations.

Its portfolio of mineral properties are located in the historic producing silver and gold districts of the Coeur d’Alene Mining region of north Idaho and the Elk City region of north-central Idaho, as well as the historic Rare Earth Elements-Thorium Belt located near the city of Salmon in central Idaho.

Idaho Strategic is a gold producer and critical minerals/rare earth element (“REE”) exploration company focused on a diversified asset base and cash flows from operations.

Its portfolio of mineral properties are located in the historic producing silver and gold districts of the Coeur d’Alene Mining region of north Idaho and the Elk City region of north-central Idaho, as well as the historic REE-Thorium Belt located near the city of Salmon in central Idaho.

The Company’s plan of operation is to generate positive cash flow, increase its gold production and asset base over time while being mindful of corporate overhead.

The Company’s management is focused on utilizing its in-house technical and operating skills to build a portfolio of producing mines and milling operations with a focus on gold production and exploration for rare earth elements (“REEs”).

The Company’s gold properties include:

the Golden Chest Mine (currently in production), and the New Jersey Mill (majority ownership interest), as well as the Eastern Star exploration property and other less advanced properties.

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 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.

To date, Idaho Strategic has conducted numerous exploration programs on its rare earth elements landholdings which include drilling, trenching, sampling, and mapping of certain areas within the Company’s 18,030-acre landholdings.

Idaho Strategic has been able to leverage its track record of operations and experience in mining, milling, and exploring at the Golden Chest Mine to develop relationships with different state government agencies, universities, national labs, and other government and non-government entities to advance its rare earth elements exploration activities on multiple fronts.

Idaho Strategic plans to continue to look for additional partnerships to find mutually beneficial solutions to advance the U.S.' domestic rare earth elements supply chain.

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, the New Jersey Mill, and furthering its exploration efforts near the Golden Chest, as well as at its REE properties.

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

Following observation of industry dynamics and in early response to events impacting long-term domestic critical mineral supply and demand trends, the Company’s strategic expansion into REE’s also aids in diversifying its holdings.

The Company believes the anticipated demand for these elements in the electrification of motorized vehicles, defense spending, and a renewed focus on the United States’ domestic critical minerals supply chain security may benefit domestic holders of such assets.

The Company also believes it has a first-mover advantage with its addition of recognized REE land holdings in Idaho.

To date, Idaho Strategic has conducted numerous exploration programs on its REE properties which include drilling, trenching, sampling, and mapping of certain areas within the Company’s 19,090-acre landholdings.

Idaho Strategic has been able to demonstrate and utilize its track record of operations and experience in mining, milling, and exploring at the Golden Chest to develop relationships with different state government agencies, universities, national labs, and other government and non-government entities to advance its REE exploration activities on multiple fronts.

Idaho Strategic plans to continue to look for additional partnerships to find mutually beneficial solutions to advance the U.S.' domestic REE supply chain.

Critical Accounting Estimates

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Our concentrate sales sometimes involve variable consideration, as they can be subject to changes in metals prices between the time of shipment and their final settlement.

However, we are able to reasonably estimate the transaction price for the concentrate sales at the time of shipment using forward prices for the estimated month of settlement, and previously recorded sales and accounts receivable are adjusted to estimated settlement metals prices until final settlement for financial reporting purposes.

However, we can reasonably estimate the transaction price for the concentrate sales at the time of shipment using forward prices for the estimated month of settlement, and previously recorded sales and accounts receivable are adjusted to estimated settlement metals prices until final settlement for financial reporting purposes.

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

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

It is unlikely a significant reversal of revenue for the concentrate receivable 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 September 30, 2023, metals that had been sold but not finally settled included 6,512 ounces of which 4,182 ounces were sold at a predetermined price with the remaining 2,330 exposed to future price changes.

At March 31, 2024, metals that had been sold but not finally settled included 5,737 ounces of which 4,421 ounces were sold at a predetermined price with the remaining 1,316 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 September 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 September 30, 2023 estimated costs would be $103,320 for the Golden Chest property and $203,600 for the New Jersey Mine and Mill.

At March 31, 2024 we reviewed our December 31, 2023 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, 2024 estimated costs would be $104,000 for the Golden Chest property and $224,000 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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The Company reviews, on an annual basis, unless otherwise deemed necessary, the asset retirement obligations.

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 third quarter of 2023 include:

Rare Earth Elements

In addition to announcing greater than 23% total rare earth elements (TREE) at the Company’s Mineral Hill Project during the third quarter, IDR geologists have thus far traced that mineralization for over 0.5 miles of strike length, utilizing the Company’s X-Ray Fluorescence (XRF) machine to confirm the continuity and possibly build upon this already impressive REE grade and composition.

Detailed geological mapping of the high-grade REE seam at the Roberts prospect in preparation for drill permitting is ongoing and mapping during the third quarter has led to additional carbonatite discoveries identified throughout the Company’s broader Mineral Hill project.

Additional assay results from samples taken throughout the third quarter are still pending at the lab and expect to be announced during the fourth quarter.

Simultaneous with the work at Mineral Hill, during the third quarter IDR began the first trenching program at its expansive Lemhi Pass Project with the goal of better understanding its structural geology and undertaking the sampling of prospective and known areas of REE mineralization.

The Lemhi Pass Project is made up of numerous prospects spread across 10 square miles and this season IDR commenced trenching on three of its many prospects within the Company’s greater Lemhi Pass landholdings:

Sparky, In-Trust, and Independence.

Assay results are still pending on various samples collected from vastly different geological settings and REE mineralization.

At Diamond Creek, the Company advanced its USFS permit for a core drilling program in the Simer and Frank Burch prospects targeted for the summer of 2024.

Additional summer geological mapping and sampling for REE’s in these areas returned results of up to 5% TREE, which enhanced drilling targets and planning.

During the third quarter, IDR geologists were excited to share highlights from the Company’s 2022 Diamond Creek drilling campaign with geologists of the Tobacco Root Geological Society at their 48 th Annual Field Conference hosted in Salmon, ID.

Two areas of Idaho Strategic Resource’s projects, Diamond Creek and Mineral Hill, were given full day field trips and the ensuing discussions were productive and informational for both IDR and the attendees at the Tobacco Root Field Conference.

Separately, the Company accrues costs associated with environmental remediation obligations when it is probable that such costs will be incurred and able to be reasonably estimated.

Highlights during the first quarter of 2024 include:

REE Exploration

Idaho Strategic’s CEO and President, John Swallow, was invited by members from the U.S.

Department of Energy to speak at the Future Needs for Responsible Mining of Critical Minerals workshop in Denver, CO on January 25 th 2024.

Golden Chest/Operations

At the Golden Chest, ore mined from underground stopes totaled approximately 9,500 tonnes with about 90% of that coming from the H-Vein stopes and the remainder from an Idaho Vein stope.

A total of 1,170 cubic meters of cemented rockfill (CRF) and 1,420 cubic meters of uncemented rockfill (gob) were placed during the quarter.

The Main Access Ramp (“MAR”) and associated drifts were advanced by 73 meters during the quarter.

The Company completed exploration drifting on the Jumbo vein during the third quarter with a total of 89 meters.

The Company suspended drifting on the Jumbo during the quarter to reallocate crews to H-vein development.

No high-grade shoots were found by the drifting, but more drifting and longhole drilling is required to fully explore this area.

For the quarter ended September 30, 2023, a total of 10,430 dry metric tonnes (“dmt”) were processed at the Company’s New Jersey mill with a flotation feed head grade of 6.41 gpt gold and gold recovery of 92.1%.

At the Golden Chest, ore mined from underground stopes totaled approximately 10,300 tonnes with all of the tonnage coming from H-Vein stopes.

The 778 H-Vein stope mined during the quarter was a significant contributor to gold production as diluted vein samples taken during mining showed an average grade of 13.9 grams per tonne (gpt) gold for a total of 3,620 tonnes mined.

A total of 3,050 cubic meters of cemented rockfill (“CRF”) were placed during the quarter which is a quarterly record.

The Main Access Ramp (“MAR”) and associated drifts and raises were advanced by 100 meters during the quarter.

For the quarter ended March 31, 2024, a total of 10,300 dry metric tonnes (“dmt”) were processed at the Company’s New Jersey mill with a flotation feed head grade of 10.31 gpt gold and gold recovery of 93.0%.

Results of Operations

Our financial performance during the quarter is summarized below:

Revenue increased 89.15% from $1,745,278 in 2022 to $3,301,221 in 2023 for the three-month period ended September 30, 2023, and increased 60.69% from $6,148,187 to $9,879,332 for the nine-month period ended September 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.

Revenue increased 76.5% to $5,898,938 from $3,341,596 for the three-month periods ended March 31, 2024 and 2023, respectively.

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

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 negative 13.1% in the third quarter of 2022 to positive 33.5% in the second quarter of 2023.

For the nine months ended September 30, 2022 gross profit as a percentage of sales was 1.4% compared to 28% 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 nine-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 September 30, 2023, was $413,461 which is an increase of $2,301,505 from an operating loss of $1,888,044 in the third quarter of 2022.

For the nine-month period ended September 30, 2023, operating income of $716,471 was an increase of $3,877,402 over the same period in 2022 which had an operating loss of $3,160,931.

Other (income) expense increased $11,902 from an expense of $21,380 in the nine-month period ended September 30, 2022, to an expense of $9,478 in the same period in 2023.

Other (income) expense increased $101,331 from an expense of $73,811 in the nine months ended September 30, 2022, to income of $27,520 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.

Net income increased $2,313,407 from a net loss of $1,909,424 for the three-month period ended September 30, 2022 to net income of $403,983 for the three-month period ended September 30, 2023.

Net income increased $3,978,733 from a net loss of $3,234,742 in the nine months ended September 30, 2022, to net income of $743,991 in the same period in 2023.

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

depreciation and amortization of $1,034,521 ($717,939 in 2022), income on disposal of equipment of $224 (loss of $68,641 in 2022), accretion of asset retirement obligation of $11,874 ($11,342 in 2022), stock based compensation of $0 ($547,275 in 2022), issuance of common stock for services of $0 ($32,326 in 2022), gain on forgiveness of SBA loan of $0 in 2023 ($10,000 in 2022), loss on investment in equity securities $4,423 ($0 in 2022), and equity income on investment in Buckskin of $2,965 ($1,213 in 2022).

Gross profit as a percentage of sales increased from 25.9% in the first quarter of 2023 to 48.1% in the first quarter of 2024.

This increase is due to the increased gold grade and higher average gold price recognized on ounces sold.

Operating income for the three-month period ended March 31, 2024, was $2,141,973 which is an increase of $2,128,950 from an operating income of $13,023 in the first quarter of 2023.

The increase is due to the increased revenue from gold production, while maintaining a stable cost structure.

Other (income) expense decreased from income of $31,163 in the first quarter of 2023, to income of $13,841 in the first quarter of 2024.

The decrease was mostly due to lower timber revenue in this reporting period compared to last, as well as an increase in interest expense between the two periods.

Net income for the three-month period ended March 31, 2024 was $2,155,814 compared to $44,186 for the three-months ended March 31, 2023.

Taking out losses from non-controlling interests, Idaho Strategic’s net income was $2,171,109 and $60,599 for the first quarters of 2024 and 2023, respectively.

This is a 35-fold increase year over year.

The consolidated net income for the three-month period ended March 31, 2024 and 2023 included non-cash charges as follows:

depreciation and amortization of $501,788 ($328,037 in 2023), loss on disposal of equipment of $4,409 ($6,120 in 2023), accretion of asset retirement obligation of $4,575 ($3,899 in 2023), and equity income on investment in Buckskin of $1,867 ($350 in 2023) and a loss on investment in equity securities of $453, ($0 in 2023).

Cash cost and all-in sustaining cost per ounce decreased in 2024 compared to 2023 due to a higher ore grade 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 last quarter 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 and nine-month periods ended September 30, 2023, and 2022.

A core drilling exploration program is planned for the Golden Chest for starting in the second quarter of 2024 which will increase all-in sustaining costs for the remainder of the year.

Cash Costs and All In Sustaining Costs (“AISC”) Reconciliation to Generally Accepted Accounting Principles (“GAAP”)

Reconciliation of cost of sales and other direct production costs and depreciation, depletion, and amortization (GAAP) to cash cost per ounce and AISC per ounce (non-GAAP).

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.

September 30, 2023

September 30, 2022

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

Depreciation and amortization

Change in concentrate inventory

Less rare earth exploration costs

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

Depreciation, depletion, and amortization

Change in inventory

Less REE exploration costs

Sustaining capital

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Less stock-based compensation and other non-cash items

All in sustaining costs

Divided by ounces produced

Cash cost per ounce

All in sustaining cost (AISC) per ounce

AISC per ounce

Financial Condition and Liquidity

For the Nine Months Ended September 30,

For the Three-Months Ended

Net cash provided (used) by:

Operating activities

$ (2,007,155 )

Investing activities

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Cash and cash equivalents, end of period

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

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

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

As a result of its planned production, equity sales and potential debt borrowings or restructurings, management believes cash flows from operations and existing cash are sufficient to conduct planned operations and meet contractual obligations for the next 12 months.

As a result of its profitable production, equity sales and potential debt borrowings or restructurings, management believes cash flows from operations and existing cash are sufficient to conduct planned operations and meet contractual obligations for the next 12 months.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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