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 The Company has, besides its estimates of the amount of depreciation on its assets, two critical accounting estimates. The ounces of gold contained in 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 shipment date and estimated and actual final settlement date. Also, the reclamation bond obligation on the Company’s balance sheet is based on an estimate of the future cost to recover and remediate its properties as required by permits upon cessation of operations and may differ when operations are actually ceased. The Company’s 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, the Company 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 the Company’s 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, the Company uses 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, 2025, metals that had been sold but not finally settled included 6,768 ounces of which 1,543 ounces were sold at a predetermined price with the remaining 5,225 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. 15 Table of Contents The asset retirement obligation and asset on the Company’s balance sheet is based on an estimate of the future cost to recover and remediate its properties as required by permits upon cessation of operations and may differ when operations are actually ceased. At March 31, 2025 the Company reviewed its December 31, 2024 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 are ceased. The March 31, 2025 estimated costs 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 it 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. 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. 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. Highlights during the first quarter of 2025 include: REE Exploration · During the quarter the Company announced its REE exploration plans for the 2025 field season. Golden Chest/Operations · At the Golden Chest, ore mined from underground stopes totaled approximately 11,400 tonnes with all of the tonnage coming from H-Vein stopes. · A total of 176 meters of exploration drifting were completed during the first quarter. Once that was complete, the development crews moved to the Main Access Ramp (“MAR”) and completed 77 meters of ramping and started a ventilation/escapeway raise. A total of 3,430 cubic meters of backfilling was also completed during the quarter. · For the quarter ended March 31, 2025, a total of 11,337 dry metric tonnes (“dmt”) were processed at the Company’s New Jersey Mill with a flotation feed head grade of 8.67 gpt gold and gold recovery of 91.7%. · Significant progress was made at the New Jersey Mill in the construction of the new tailings filtration circuit which was 80% complete at the end of the first quarter. Commissioning of the tailings filtration circuit will take place in the second quarter. · An exploration program consisting of primarily surface core drilling was continued during the first quarter. A total of 4,230 meters of drilling was completed on various targets including the Paymaster, the Jumbo, and the H-vein.. Underground drilling was restarted near the end of quarter with drilling focused on exploring the Klondike area and targeting the newly found Red Star zone and northerly projections of the H-vein. Results of Operations Idaho Strategic’s financial performance during the quarter is summarized below: · Revenue increased 23.4% to $7,278,536 from $5,898,938 for the three-month periods ended March 31, 2025 and 2024 respectively. The increase in revenue was due to the increased average gold price realized on ounces sold which was $1,968.28 in the first quarter of 2024 and $2,848.74 in the first quarter of 2025. · Gross profit as a percentage of sales increased slightly from 48.1% in the first quarter of 2024 to 50.8% in the first quarter of 2025. · Exploration expense increased significantly in the first quarter of 2025 when compared to the same period in the prior year due to core drilling that ran through the entire first quarter this year versus none in the first quarter last year. This quarterly exploration expense is expected to continue, and may increase, throughout the remainder of 2025 as the Company continues to invest in the future of the Golden Chest and advance other exploration properties. · Operating income for the three-month period ended March 31, 2025 was $1,401,254 which is a decrease of $740,719 from operating income of $2,141,973 in the first quarter of 2024. The decrease is due to the increase in exploration expense when compared to the three-month period ended March 31, 2024. · Other income increased $176,756 from income of $13,841 in the first quarter of 2024, to income of $190,597 in the same period in 2025. The increase was from increased interest income and gains on US treasuries from the company’s short term investment account which was not in place yet in the first quarter of 2024. · Net income for the three-month period ended March 31, 2025 was $1,591,851 compared to $2,155,814 in 2024. The decrease in net income is due to the large increase in exploration expense, as well as the stock-based compensation expense of $495,146 in this period and none in the same period in 2024. 16 Table of Contents · The consolidated net income for the three-month periods ended March 31, 2025 and 2024 included non-cash charges as follows: depreciation and amortization of $549,621 ($501,788 in 2024), loss on sale of equipment of $239,898 ($4,409 in 2024), accretion of asset retirement obligation of $4,887 ($4,575 in 2024), loss on investment in equity securities of $0 ($453 in 2024), equity income on investment in Buckskin of $1,346 ($1,867 in 2024), and stock-based compensation expense of $495,146 (none in 2024). · Cash cost per ounce for the three-month period ended March 31, 2025 remained flat compared to the same period in 2024 as the Company continues to stay diligent in keeping production costs low. · All in sustaining cost per ounce increased during the three-month period ended March 31, 2025 compared to the same period in 2024 due to an increase in exploration costs from underground and surface drilling at the Golden Chest Mine. Adjusted all in sustaining costs without exploration expenses were $993.74 and $1,115.11 per ounce for the three-month periods ended March, 31 2025 and 2024, respectively. 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, 2025, and 2024. Cash cost per ounce is an important operating measure that is utilized to measure operating performance. AISC per ounce is an important measure that is utilized 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. 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. March 31, 2025 2024 Cost of sales and other direct production costs and depreciation, depletion, and amortization $ 3,580,450 $ 3,060,701 Less depreciation, depletion, amortization and stock-based compensation (854,755 ) (501,788 ) Change in inventory (271,670 ) 79,845 Cash Cost $ 2,454,025 $ 2,638,758 Exploration 1,371,433 267,848 Less REE exploration costs (103,672 ) (87,145 ) Sustaining capital 624,244 682,827 General and administrative 237,018 160,663 Less stock-based compensation and other non-cash items (433,451 ) (7,570 ) AISC $ 4,149,597 $ 3,655,381 Divided by ounces produced 2,900 3,116 Cash cost per ounce $ 846.22 $ 846.84 AISC per ounce $ 1,430.90 $ 1,173.10 Financial Condition and Liquidity For the Three-Months Ended March 31, Net cash provided (used) by: 2025 2024 Operating activities $ 2,409,589 $ 2,579,853 Investing activities (1,993,128 ) (1,004,815 ) Financing activities (217,238 ) 1,433,420 Net change in cash and cash equivalents 199,223 3,008,458 Cash and cash equivalents, beginning of period 1,106,901 2,286,999 Cash and cash equivalents, end of period $ 1,306,124 $ 5,295,457 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. 17 Table of Contents ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required for small reporting companies.