# Idaho Strategic Resources, Inc. (IDR) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Idaho Strategic Resources, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1030192/000165495423003968/njmc_10k.htm
Accession: 0001654954-23-003968
Filing date: 2023-03-31
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/IDR/
All MD&A years: /company/IDR/mda/
Previous year: /company/IDR/mda/fy2021/ (FY 2021)
Next year: /company/IDR/mda/fy2023/ (FY 2023)

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Plan of Operation

Idaho Strategic Resources, Inc. is a gold producer focused on diversifying and building its asset base and cash flows through a portfolio of mineral properties located in historic producing gold districts in Idaho and Montana.

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 and exploration for Rare Earth elements (REE).

The Company’s properties include: the Golden Chest Mine (currently in production), and the New Jersey Mill (majority ownership interest). Recently, the Company added three rare earth element properties in Idaho to its portfolio of exploration properties in an effort to diversify its holdings towards the anticipated demand for these elements in the electrification of motorized vehicles.

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 as a result of the need to make estimates about the effect of matters that are inherently uncertain. We base our estimates on past 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 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. 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, 2022, metals that had been sold but not final settled included 5,361 ounces of gold of which 2,500 ounces were sold at a predetermined price with the remaining 2,861 ounces 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 December 31, 2022, we made an 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 would be $103,906 for the Golden Chest property and $203,600 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. 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. We make periodic reviews of the remaining life of the mine and other operations, and the estimated remediation costs upon closure, and adjust our account balances accordingly. At this time, we think that an adjustment in our 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 our expenses by an undetermined amount.

Highlights for 2022 include:

[[GREPCENT_TABLE]]
[["","\u00b7","Up listed onto the New York Stock Exchange American, rang the opening bell of the NYSE from underground at the Golden Chest Mine-a first in recorded history."],["","\u00b7","Increased rare earth elements land position in central Idaho; all three properties combined makeup approximately 18,030 acres."],["","\u00b7","Completed initial drill program at Diamond Creek which returned 11.3 meters of 1.3% total rare earth oxide (TREO) and 10.1 meters of 0.7% niobium."],["","\u00b7","Completed a 32-meter trench at Diamond Creek which returned 32 continuous meters of REE mineralization at the surface averaging 1.28% TREO and included 12 meters of greater than 0.5% niobium."],["","\u00b7","Surface sampling program at Lemhi Pass returned 7 samples with TREO grades ranging from 0.67% to 4.26% with neodymium alone accounting for more than half of the TREO of each sample."]]
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[["40"],["Table of contents"]]
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[["","\u00b7","Provided REE mineralized material to the University of Idaho as part of IDR\u2019s involvement in the IGEM Program to develop environmentally friendly extraction technology for rare earth elements."],["","\u00b7","For the year ending December 31, 2022, the Company processed 42,260 dry metric tonnes (dmt) at the Company\u2019s New Jersey Mill with an average gold head grade of 4.33 grams per tonne gold (gpt) with gold recovery of 89.8%."],["","\u00b7","IDR produced a total of 6,103 ounces of gold contained in concentrates and dore\u2019."],["","\u00b7","Mined 8,400 tonnes of ore from the open pit at an average grade of 4.55 gpt gold with an average stripping ratio of 9.5 and an average daily mining rate of 922 tonnes per day (tpd)."],["","\u00b7","Mined 25,000 tonnes of ore from the underground mine at an average grade of 5.35 gpt gold and completed 175 meters of development related to the Main Access Ramp (MAR) to access new stopes. A new ventilation raise was completed by IDR miners as well."],["","\u00b7","Completed 6,353 meters of core drilling at the Klondike, Paymaster, Skookum, Argus, Evans, Ida, and Badger areas. Highlights of the 2022 drilling included drillhole GC 22-212 which intersected 8.77 gpt gold over 9.2 meters in the Klondike area, and GC 22-223 which intersected 16.6 gpt gold over 1.23 meters in the Paymaster area."],["","\u00b7","A highlight of drilling at the Argus prospect was the discovery of a broad, low-grade zone where AG 22-2 assayed 0.56 gpt gold over 24 meters. The Argus is located about 2.8 kilometers northwest of the active mining area at Golden Chest."]]
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Results of Operations

Our financial performance for the years ended December 31, 2022, and 2021 is summarized below:

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[["","\u00b7","Revenue from gold concentrate sales was $9,580,189 for the year ending December 31, 2022, compared to $7,630,416 for the comparable period in 2021. The increase was due to 1,179 more ounces of gold sold during the year, as well as higher gold prices recognized on concentrate sales. Another contributing factor to the increase was the higher ratio of underground to open pit ore processed during the year. We are anticipating this higher underground ore ratio to continue for the foreseeable future."],["","\u00b7","Compared to the fourth quarter of 2021, revenue was up 94.5% from $1,764,708 to $3,432,002 in the fourth quarter of 2022."],["","\u00b7","Gross profit for the year ended December 31, 2021 was $487,877 compared to a gross profit of $1,553,921 in 2022. This resulted in an increase in gross profit as a percentage of sales from 6.4% in 2021 to 16.2% in 2022. This increase is attributable to the higher head grade processed at the Company\u2019s New Jersey Mill, as well as higher gold prices recognized on concentrate sales."],["","\u00b7","Gross profit for the 4th quarter 2022 increased by $1,550,060 from a gross loss of $80,978 in Q4 2021 to a gross profit of $1,469,082."],["","\u00b7","Net loss for the year ended December 31, 2022 was $2,631,092 compared to a net loss of $3,260,361 for the same period in 2021. The decrease in net loss was primarily due to the increased gross profit during the year."],["","\u00b7","Idaho Strategic realized a net profit for the 4th quarter 2022 of $603,650 compared to a net loss of $1,219,518 for the 4th quarter 2021. Part of the increase was due to $473,144 less stock-based compensation in Q4 2022 versus Q4 2021."],["","\u00b7","The consolidated net loss included non-cash charges of $1,633,492 ($1,977,841 in 2021) as follows: depreciation and amortization of $984,083 ($814,422 in 2021), accretion of asset retirement obligation of $12,691 ($9,953 in 2021), stock based compensation of $547,275 ($1,087,575 in 2021), stock issued for services of $32,326 ($69,673 in 2021), loss on write off of equipment $68,641 (none in 2021), equity income on investment in Buckskin $1,524 ($3,782 in 2021), gain on forgiveness of SBA loan of $10,000 (none in 2021)."],["","\u00b7","Net loss attributable to Idaho Strategic Resources, Inc. was $2,535,429 and $3,160,169 in the years ended December 31, 2022, and 2021, respectively."],["","\u00b7","Gold sales receivable increased to $909,997 from $408,187 at December 31, 2022 compared to 2021 as a result of shipping delays related to the global shipping situation and higher estimated future gold prices expected on unsettled ounces at year end. The backlog of shipping has been largely rectified going into the first quarter of 2023."],["","\u00b7","The Company saw an increase in exploration expenses for 2022 largely due to the drilling of its Diamond Creek property for REE\u2019s as well as increased drilling near the Golden Chest with the Company owned drilling rig."],["","\u00b7","All in sustaining cost (AISC) decreased from $1,818.22 in 2021, to $1,777.14 in 2022 from producing 1,276 more ounces of gold in 2022 along with increased efficiencies seen at the Golden Chest mine from new equipment put into service during the year."]]
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[["41"],["Table of contents"]]
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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 produced and all in sustaining costs per ounce produced for the Company’s gold production for the years ended December 31, 2022, and 2021. The cost per ounce calculations are based on ounces produced. Upon sale, the Company typically receives payment at an average rate of 87% 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.

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2022","","","2021"],["Cost of sales and other direct production costs and depreciation, depletion, and amortization","","$","8,026,268","","","$","7,142,539"],["Depreciation, depletion, and amortization","","","(984,083",")","","","(814,422",")"],["Change in concentrate inventory","","","(404,591",")","","","188,815"],["Cash Cost","","$","6,637,594","","","$","6,516,932"],["Exploration","","","2,110,137","","","","1,417,605"],["Sustaining capital","","","1,517,984","","","","676,340"],["General and administrative","","","1,229,603","","","","1,319,145"],["Less stock-based compensation and other non-cash items","","","(649,409",")","","","(1,153,466",")"],["All in sustaining costs","","$","10,845,909","","","$","8,776,556"],["Divided by ounces produced","","","6,103","","","","4,827"],["Cash cost per ounce","","$","1,087.60","","","$","1,350.10"],["All in sustaining cost (AISC) per ounce","","$","1,777.14","","","$","1,818.22"]]
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Financial Condition and Liquidity

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[["","","For the Years Ended December 31,"],["Net cash provided (used) by:","","2022","","","2021"],["Operating activities","","$","(1,817,090",")","","$","(1,351,027",")"],["Investing activities","","","(2,368,225",")","","","(3,090,946",")"],["Financing activities","","","3,846,828","","","","3,878,546"],["Net change in cash and cash equivalents","","","(338,487",")","","","(563,427",")"],["Cash and cash equivalents, beginning of period","","","1,976,518","","","","2,539,945"],["Cash and cash equivalents, end of period","","$","1,638,031","","","$","1,976,518"]]
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The Company has accumulated deficit of approximately $18.4 million at December 31, 2022 and incurred a consolidated net loss in 2022 of $2,631,092. The Company’s working capital at December 31, 2022 is $1,729,983. The Company is currently producing from the open-pit and underground at the Golden Chest. During 2022, production generated negative cash flow from operations of $1,817,090 compared to a negative cash flow used in operations of $1,351,027 in 2021. Planned production for the next 18 months indicates a positive cash flow from operations will be renewed as underground mining overtakes the open pit as the primary source of mineralized material. 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 has the ability to meet its contractual obligations with continuing cash flows from operations, existing cash, and potential financings for the next 18 months.