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 three 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. Additionally, 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. Finally, the amortization of development costs at the Golden Chest Mine is based on an estimate of reserves and measured and indicated resources calculated annually by the Company’s mine engineers. 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 June 30, 2025, metals that had been sold but not finally settled included 9,244 ounces of which 2,258 ounces were sold at a predetermined price with the remaining 6,986 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. 13 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 June 30, 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 June 30, 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. Amortization of development costs is calculated using the units-of-production method over the expected life as per the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 360-10-35-4. This includes the cost to define proven and probable reserves and measured and indicated resources accessible via the Main Access Ramp (“MAR”). Measured resources are 90-100% interpolated, and indicated resources 75-80% interpolated, using a 2 grams per tonne gold cut-off grade at the diluted minimum mining width. Conservative estimation parameters (three samples within 25 meters for measured, two within 50 meters for indicated) and economic factors ensure viability. Inferred resources are excluded to reduce uncertainty, and therefore, the volumes are risk-adjusted. Assumptions are regularly evaluated, with material deviations disclosed to ensure a systematic and rational cost allocation. More information on the Company’s reserves and resources can be found in the Technical Report Summary For the Golden Chest Mine which was included as Exhibit 96.1 to the Company’s Form 10-K filed with the Securities and Exchange Commission on March 31, 2025. Highlights during the second quarter of 2025 include: REE Exploration · During the quarter the Company executed a long-term lease agreement for the mineral claims comprising approximately 1,500 acres of various in-holdings within the Company’s Mineral Hill and Lemhi Pass REE projects. Key prospects covered by the mineral claims leased by the Company include Cardinal (Mineral Hill), Lucky Horseshoe (Lemhi Pass, Idaho), Silver Queen (Lemhi Pass, Idaho), Last Chance (Lemhi Pass, Montana), Trapper (Lemhi Pass, Montana), and other prospects. · The Company announced the signing of a Memorandum of Understanding with Clean Core Thorium Energy, Inc. (“CCTE”) to evaluate the feasibility of thorium mining, processing, and fuel fabrication the facilitate a “Made in America” thorium-based nuclear fuel supply chain utilizing thorium from the Company’s Lemhi Pass project and CCTE’s ANEEL fuel- an advanced nuclear fuel comprised of thorium and high assay low-enriched uranium for use in existing nuclear reactors. Golden Chest/Operations · At the Golden Chest, ore mined from underground stopes totaled approximately 10,240 tonnes with all of the tonnage coming from H-Vein stopes. · During the quarter, a total of 92 meters of development was completed in the MAR while most of the development effort was spent driving attack ramps to the 754 and 742 stopes. A total of 3,460 cubic meters of backfilling was completed during the quarter and operational improvements made by the miners significantly reduced the time to fill a stope from 20 shifts to 10 shifts. Four boreholes designed to deliver paste backfill from the surface to various areas within the mine were completed during the quarter as work continued on the paste backfill plant. · For the quarter ended June 30, 2025, a total of 10,240 dry metric tonnes (“dmt”) were processed at the Company’s New Jersey Mill with a flotation feed head grade of 9.97 gpt gold and gold recovery of 92.6%. · The construction of the tailings filtration circuit at the New Jersey Mill was completed and commissioning of the circuit was also completed. The haulage of tailings back to the Golden Chest mine commenced in the second quarter as well. · An exploration program consisting of surface and underground core drilling was continued during the second quarter at the Golden Chest and a surface core drilling program commenced in the Murray Gold Belt. A total of 2,176 meters of drilling was completed at the Golden Chest targeting the Paymaster, the Red Star, and the H-vein. A total of 1,687 meters of drilling was completed in the Murray Gold Belt targeting two prospects, the Buckskin and the King Mine. · The Company completed its first core drilling program at the Eastern Star project near Elk City, Idaho. A total of 1,956 meters were drilled in April and May targeting three areas, the Carter, the Bema Zone, and the Alberta. Quartz veining was intercepted in many of the holes with assays pending from the laboratory, and some core remaining to be logged. Results of Operations Idaho Strategic’s financial performance during the quarter is summarized below: · Revenue increased 54.7% for the three-month period ended June 30, 2025 when compared to the same period in the prior year. For the six-month period ended June 30, 2025, revenue increased 39.3% when compared to the same period in the prior year. The increase in revenue for both the three and six-month periods was due to the increased average gold price realized on ounces sold which was $3,223.38 for the three-month period and $3,049.19 for the six-month period ended June 30,2025. For the three and six-month periods ended June 30, 2024 it was $2,043.84 and $2,102.89, respectively. · Gross profit as a percentage of sales increased slightly from 50.2% in the three-month period ended June 30, 2024 to 57.8% in the three-month period ended June 30, 2025. When comparing the six-month periods ended June 30, 2025 and 2024 gross profit as a percentage of sales increased from 49.2% to 54.8%. · Exploration expense increased $1,624,705 and $2,728,290 when comparing the three and six-month periods ended June 30, 2025 and 2024, respectively. The increase is due to increased core drilling activity this year compared to last. 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. 14 Table of Contents · Operating income for the three-month period ended June 30, 2025 was $2,516,874 which is an increase of 20.1% from the same period in 2024. Operating income for the six-month period ended June 30, 2025 was $3,918,128 which is a decrease of 7.5%. The small increase in the three-month period and decrease in the six-month period is due to the planned increase in exploration expense this year compared to last. · Other income increased $183,772 and $360,528 for the three and six-month periods ended June 30, 2025, respectively, when compared to the same periods in the prior year. The increase was from increased interest income and gains on US treasuries from the company’s short term investment account which was opened mid Q2 2024. · Net income for the three-month period ended June 30, 2025 was $2,739,972 which is a 28.3% increase compared to the same period in 2024. Net income for the six-month period ended June 30, 2025 was $4,331,823 which is a 1.0% increase compared to the same period in 2024. The small increase in net income is due to the large increase in exploration expense, as well as the stock-based compensation expense of $495,146 and $990,292 in the three and six-month periods ended June 30, 2025 and none in the same periods in 2024. · The consolidated net income for the six-month periods ended June 30, 2025 and 2024 included non-cash charges as follows: depreciation and amortization of $1,091,359 ($957,718 in 2024), loss on sale of equipment of $308,840 ($7,431 in 2024), accretion of asset retirement obligation of $9,855 ($9,226 in 2024), loss on investment in equity securities of $0 ($453 in 2024), equity income on investment in Buckskin of $1,187 ($278 in 2024), and stock-based compensation expense of $990,292 (none in 2024). · Cash cost per ounce for the three and six-month periods ended June 30, 2025 increased $160.01 and $82.75 per ounce, respectively, compared to the same periods in 2024. · All in sustaining cost per ounce increased during the three and six-month periods ended June 30, 2025 compared to the same periods in 2024 due to an increase in exploration costs from underground and surface drilling at the Golden Chest Mine as well as increased exploration costs across many of the Company’s projects. Adjusted all in sustaining costs without exploration expenses were $1,313.31 and $1,156.50 per ounce for the three and six-month periods ended June 30, 2025, respectively and $1,197.99 and $1,155.08 for the three and six-month periods ended June 30, 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 AISC per ounce for the Company’s gold production in the three and six-month periods ended June 30, 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. Idaho Strategic calculates sustaining capital by including depreciation and amortization as an estimate of property, plant, and equipment wear and tear necessary to maintain production capacity, plus Golden Chest capitalized development costs, net of current period amortization, to reflect expenses for sustaining mine access and gold production. June 30, 2025 June 30, 2024 Three Months Six Months Three Months Six Months Cost of sales and other direct production costs and depreciation and amortization $ 4,000,953 $ 7,581,403 $ 3,051,957 $ 6,112,658 Less depreciation, depletion, amortization and stock-based compensation (846,872 ) (1,701,627 ) (455,930 ) (957,718 ) Change in concentrate inventory 50,601 (221,069 ) 30,224 110,069 Cash Cost $ 3,204,682 $ 5,658,707 $ 2,626,251 $ 5,265,009 Exploration 2,244,761 3,616,194 620,056 887,904 Less REE exploration costs (236,790 ) (340,462 ) (70,381 ) (157,526 ) Sustaining capital 788,722 1,412,966 681,321 1,364,148 General and administrative 223,735 460,753 179,456 340,119 Less stock-based compensation and other non-cash items (264,081 ) (697,532 ) (9,262 ) (16,832 ) AISC $ 5,961,029 $ 10,110,626 $ 4,027,441 $ 7,682,822 Divided by ounces produced 3,010 5,910 2,903 6,019 Cash cost per ounce $ 1,064.68 $ 957.48 $ 904.67 $ 874.73 AISC per ounce $ 1,980.41 $ 1,710.77 $ 1,387.34 $ 1,276.43 Financial Condition and Liquidity For the Six-Months Ended June 30, Net cash provided (used) by: 2025 2024 Operating activities $ 5,952,549 $ 5,209,442 Investing activities (10,312,403 ) (8,199,280 ) Financing activities 5,697,429 2,517,619 Net change in cash and cash equivalents 1,337,575 (472,219 ) Cash and cash equivalents, beginning of period 1,106,901 2,286,999 Cash and cash equivalents, end of period $ 2,444,476 $ 1,814,780 15 Table of Contents 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. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required for small reporting companies.