Idaho Strategic Resources, Inc. 10-Q

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF O PERATIONS Plan of Operation 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 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, 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 We have, besides our estimates of the amount of depreciation on our assets, two critical accounting estimates. The ounces of gold contained in our process and concentrate inventory is based on assays taken at the time the ore is processed and the ounces of gold contained in shipped concentrate which is based upon assays taken prior to shipment however subject to final assays at the refinery, these shipments are also subject to the fluctuation in gold prices between our shipment date and estimated and actual final settlement date. Also, the reclamation bond obligation 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. 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 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 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, 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 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. An expected present value technique is used to estimate the fair value of the liability. This includes inflating the estimated costs in today’s dollars using a reasonable inflation rate up to the date of expected retirement and discounting the inflated costs using a credit-adjusted risk-free rate. Upon initial recognition of the liability, the carrying amount of the related long-lived asset is increased by the same amount. The liability is accreted over time through periodic charges to earnings. In addition, the asset retirement cost is amortized over the life of the related asset. We are adding to the liability each year, and amortizing the asset over the estimated life, which decreases our net income in total each year. Changes resulting from revisions to the timing or amount of the original estimate of undiscounted cash flows are recognized as either an increase or a decrease in the carrying amount of the liability for an asset retirement obligation and the related asset retirement cost capitalized as part of the carrying amount of the related long-lived asset. Upward revisions of the amount of undiscounted estimated cash flows are discounted using the current credit-adjusted risk-free rate. Downward revisions in the amount of undiscounted estimated cash flows are discounted using the credit-adjusted risk-free rate that existed when the original liability was recognized. 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 able to be reasonably estimated. 13 Table of Contents 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 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 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 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 starting in the second quarter of 2024 which will increase all-in sustaining costs for the remainder of the year. 14 Table of Contents 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). 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, 2024, and 2023. Cash cost per ounce is an important operating measure that we utilize to measure operating performance. AISC per ounce is an important measure that we utilize to assess net cash flow after costs for pre-development, exploration, reclamation, and sustaining capital. 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. March 31, 2024 2023 Cost of sales and other direct production costs and depreciation, depletion, and amortization $ 3,060,701 $ 2,475,997 Depreciation, depletion, and amortization (501,788 ) (328,037 ) Change in inventory 79,845 72,669 Cash Cost $ 2,638,758 $ 2,220,629 Exploration 267,848 273,442 Less REE exploration costs (87,145 ) (211,598 ) Sustaining capital 445,656 120,749 General and administrative 160,663 263,298 Less stock-based compensation and other non-cash items (7,570 ) (9,669 ) AISC $ 3,418,210 $ 2,656,851 Divided by ounces produced 3,116 1,725 Cash cost per ounce $ 846.92 $ 1,287.32 AISC per ounce $ 1,097.09 $ 1,540.20 Financial Condition and Liquidity For the Three-Months Ended March 31, Net cash provided (used) by: 2024 2023 Operating activities $ 2,579,853 $ 160,762 Investing activities (1,004,815 ) (416,121 ) Financing activities 1,433,420 631,132 Net change in cash and cash equivalents 3,008,458 375,773 Cash and cash equivalents, beginning of period 2,286,999 1,638,031 Cash and cash equivalents, end of period $ 5,295,457 $ 2,013,804 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 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. 15 Table of Contents ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required for small reporting companies.