Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Plan of Operation
Idaho Strategic is a gold producer and critical minerals/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-Th 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 (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. The Company’s expansion into REE’s 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 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 leverage 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
The SEC has requested that all registrants address their most critical accounting policies. The SEC has indicated that a “critical accounting policy” is one which is both important to the representation of the registrant’s financial condition and results and requires management’s most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain. We base our estimates on experience and on various other assumptions our management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results will differ and may differ materially from these estimates under different assumptions or conditions. Additionally, changes in accounting estimates could occur in the future from period to period. Our management has discussed the development and selection of our most critical financial estimates with the Audit and Finance Committee of our Board of Directors. The following paragraphs identify our most critical accounting policies:
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 any one concentrate lot will occur. 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 December 31, 2024, metals that had been sold but not final settled included 6,466 ounces of gold of which 1,283 ounces were sold at a predetermined price with the remaining 5,183 ounces exposed to future price changes until prices are locked in based on the month of settlement. The Company has received provisional payments on the sale of these ounces with the remaining amount due reflected in gold sales receivable.
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The asset retirement obligation and asset on the balance sheet is based on an estimate of the future cost to recover and remediate Company properties as required by permits upon cessation of operations and may differ when operations actually cease. At December 31, 2024, the Company made an estimate that the cost of the machine and man hours probable to be needed to put its properties in the condition required by permits once operations cease would be $104,000 for the Golden Chest Mine property and $224,000 for the New Jersey Mine and Mill. For purposes of the estimate, the Company evaluated the expected life in years and costs that, initially, are comparable to rates that would be presently incurred. The Company is adding to the liability each year, and amortizing the asset over the estimated life, which decreases net income in total each year. Periodic reviews are made of the remaining life of the mine and other operations, and the estimated remediation costs upon closure, and account balances are adjusted accordingly. At this time, the Company thinks that an adjustment in its asset recovery obligation is not required, and an adjustment in future periods would not have a material impact in the year of adjustment but would change the amount of the annual accretion and amortization costs charged to expenses by an undetermined amount.
Golden Chest Highlights for 2024 include:
·
Produced a total of 11,915 ounces of gold contained in concentrates and doré.
·
Mining was focused on the high-grade H-Vein at the Golden Chest mine.
·
Mined 41,140 tonnes of ore from the H-Vein underground at the Golden Chest Mine at an average grade of 9.67 gpt gold and completed 215 meters of development on the MAR and 129 meters of drifting for an H-Vein exploration project. Additionally, over 600 meters of stope access ramps were completed during the year.
·
Processed 41,140 dry metric tonnes at the Company’s New Jersey Mill with an average gold head grade of 9.67 gpt and gold recovery of 92.8%.
·
Completed 10,148 meters of core drilling at the Golden Chest to convert Paymaster Resources to Mineral Reserves and also completed exploration drilling primarily in the northern part of the property in the Klondike area which includes the Red Star zone.
·
A highlight of the core drilling was hole GC24-265 which intercepted 50.9 gpt gold over 4.5 meters in the newly discovered Red Star zone.
REE Exploration Highlights for 2024 include:
·
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 January 2024.
·
Attended the Adamas Rare Earth Mines, Magnets and Motors Conference in Toronto, Canada.
·
Attended the International Rare Earth Elements Conference in Washington DC.
·
Continued discussions with various laboratories, universities, and partners to advance the understanding of Idaho’s rare earth mineralogy and broader mineral endowment.
Results of Operations
Idaho Strategic’s financial performance for the years ended December 31, 2024, and 2023 is summarized below:
·
Revenue from concentrate sales increased 88.7% to $25,765,373 for the year ending December 31, 2024, compared to $13,656,733 for the comparable period in 2023. The increase was due to 3,595 more ounces of gold sold during the year, as well as higher gold prices recognized on concentrate sales. Ore from the H-vein is anticipated to be the primary source of ore for 2025 as it was in 2024.
·
Gross profit for the year ended December 31, 2024 was $12,950,493 compared to a gross profit of $3,965,036 in 2023. This resulted in an increase in gross profit as a percentage of sales from 29.0% in 2023 to 50.3% in 2024. This increase is attributable to the higher head grade including H-Vein ore processed at the Company’s New Jersey Mill, as well as higher gold prices recognized on concentrate sales.
·
Net income for the year ended December 31, 2024 was $8,753,377 compared to net income for the year ended December 31, 2023 of $1,073,449. The increase was primarily due to increased production and higher gold prices.
·
The consolidated net profit included non-cash charges of $1,971,666 ($1,470,563 in 2023) as follows: depreciation and amortization of $1,953,388 ($1,466,703 in 2023), accretion of asset retirement obligation of $18,761 ($15,952 in 2023), loss on disposal of equipment of $1,431 (gain of $13,026 in 2023), equity income on investment in Buckskin Gold and Silver, Inc. $2,667 ($4,517 in 2023), write down of reclamation bond $300 (none in 2023).
·
Net income attributable to Idaho Strategic Resources, Inc. was $8,836,685 and $1,157,746 in the years ended December 31, 2024, and 2023, respectively.
·
Gold sales receivable increased to $1,578,694 from $1,038,867 at December 31, 2024 compared to 2023.
·
The Company saw an increase in exploration expenses of $1,397,314 for 2024 due to the expanded drilling program at the Golden Chest mine for development and exploration purposes.
·
Professional services costs decreased in 2024. Professional services in 2023 included a one-time expense.
·
Cash cost and all in sustaining costs for gold production remained relatively constant for 2023 and 2024.
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Cash Costs and All-In Sustaining Costs 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 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 produced and all in sustaining costs per ounce produced for the Company’s gold production for the years ended December 31, 2024, and 2023. The cost per ounce calculations are based on ounces produced. Upon sale, the Company typically receives payment at an average rate of 90% of ounces produced after smelting and refining charges are deducted.
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 the expenditures incurred to discover, develop, and sustain gold production. During 2024, the Company changed the way sustaining capital is calculated to better reflect actual costs required to sustain mining operations. Prior periods have been restated in the table below to reflect this change.
December 31,
2024
2023
Cost of sales and other direct production costs and depreciation, depletion, and amortization
$ 12,814,880
$ 9,691,697
Depreciation, depletion, and amortization
(1,953,388 )
(1,466,703 )
Change in concentrate inventory
(23,243 )
(258,368 )
Cash Cost
$ 10,838,249
$ 7,966,626
Exploration
2,920,535
1,523,221
Less REE exploration costs
(274,129 )
(613,883 )
Sustaining capital
3,385,893
2,458,737
General and administrative
763,040
630,126
Less stock-based compensation and other non-cash items
(18,278 )
(3,860 )
AISC
$ 17,615,310
$ 11,960,967
Divided by ounces produced
11,915
8,247
Cash cost per ounce
$ 909.63
$ 966.00
AISC per ounce
$ 1,478.41
$ 1,450.34
Financial Condition and Liquidity
For the Years Ended December 31,
Net cash provided (used) by:
2024
2023
Operating activities
$ 10,838,806
$ 2,104,009
Investing activities
(20,760,809 )
(2,102,235 )
Financing activities
8,741,905
647,194
Net change in cash and cash equivalents
(1,180,098 )
648,968
Cash and cash equivalents, beginning of period
2,286,999
1,638,031
Cash and cash equivalents, end of period
$ 1,106,901
$ 2,286,999
The Company has an accumulated deficit of approximately $8 million at December 31, 2024 and earned a consolidated net profit in 2024 of $8,753,377. The Company’s working capital at December 31, 2024 is $9,462,524. The Company is currently producing from underground at the Golden Chest. During 2024, production generated positive cash flow from operations of $10,838,806 compared to a positive cash flow from operations of $2,104,009 in 2023. Planned production for the next 18 months indicates a positive cash flow from operations will continue as underground mining of the H-Vein remains the primary source of ore feed for the mill. In prior years, the Company has been successful in raising required funds for ongoing operations from sale of its common stock or borrowing. Management believes it can meet its contractual obligations with continuing cash flows from operations, existing cash, and potential financings for the next 18 months.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for smaller reporting companies.