# Idaho Strategic Resources, Inc. (IDR) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Idaho Strategic Resources, Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1030192/000165495424003564/njmc_10k.htm
Accession: 0001654954-24-003564
Filing date: 2024-03-25
Report date: 2023-12-31
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/fy2022/ (FY 2022)
Next year: /company/IDR/mda/fy2024/ (FY 2024)

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, 2023, metals that had been sold but not final settled included 5,176 ounces of gold of which 3,320 ounces were sold at a predetermined price with the remaining 1,856 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, 2023, 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 $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. 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.

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[["41"],["Table of Contents"]]
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Golden Chest Highlights for 2023 include:

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[["","\u00b7","Produced a total of 8,247 ounces of gold contained in concentrates and dor\u00e9."],["","\u00b7","Commenced mining of the high-grade H-Vein at the Golden Chest mine."],["","\u00b7","Mined 37,780 tonnes of ore from underground at the Golden Chest Mine at an average grade of 6.36 gpt gold and completed 135 meters of development to the MAR and 100 meters of associated sumps, muck-bays, and raises. Additionally, 435 meters of stope access ramps were completed during the year."],["","\u00b7","Mined 2,350 tonnes of ore from the Jumbo pit at an average grade of 12.40 gpt gold."],["","\u00b7","Processed 40,130 dry metric tonnes at the Company\u2019s New Jersey Mill with an average gold head grade of 6.71 gpt and gold recovery of 92%."],["","\u00b7","Completed approximately 3,740 meters of core drilling at the Golden Chest to convert H-Vein Mineral Resources to Mineral Reserves."],["","\u00b7","A highlight of the core drilling was GC-22-233 which intercepted 18.7 gpt gold over 2.24 meters in the H-Vein."],["","\u00b7","Completed mining in the open pit and transitioned fulltime to underground production."]]
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REE Exploration Highlights for 2023 include:

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[["","\u00b7","Trenched up to 5% total REE\u2019s at Lemhi Pass - including magnet REE concentrations in excess of 70%."],["","\u00b7","Sampled 28.2% and 34.1% TREO at the Company\u2019s Mineral Hill REE project."],["","\u00b7","Added to the Company\u2019s Mineral Hill REE landholdings and expanded the strike length of known REE mineralization over 0.5 miles."],["","\u00b7","Provided numerous REE samples to collaborative partners from various national laboratories, universities, and government agencies."]]
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Corporate Highlights for 2023 include:

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[["","\u00b7","Achieved the first full year of profitability from production in Company history and recorded its fifth consecutive quarter of profitability."],["","\u00b7","Announced the addition of Carolyn Turner to the Company\u2019s Board of Directors."]]
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Results of Operations

Our financial performance for the years ended December 31, 2023, and 2022 is summarized below:

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[["","\u00b7","Revenue from concentrate sales increased 42.6% to $13,656,733 for the year ending December 31, 2023, compared to $9,580,189 for the comparable period in 2022. The increase was due to 2,001 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 that a majority of ore processed during the year came from underground in the H-vein, whereas in 2022, ore was sourced from a combination of open pit and underground. We anticipate ore from the H-vein to be the primary source of ore for 2024."],["","\u00b7","Gross profit for the year ended December 31, 2023 was $3,965,036 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 16.2% in 2022 to 29.0% in 2023. This increase is attributable to the higher head grade including H-Vein ore processed at the Company\u2019s New Jersey Mill, as well as higher gold prices recognized on concentrate sales."],["","\u00b7","Net income for the year ended December 31, 2023 was $1,073,449 compared to a net loss for the year ended December 31, 2022 of $2,631,092. The change from net loss to net profit was primarily due to the increased gross profit during the year."],["","\u00b7","The consolidated net profit (loss) included non-cash charges of $1,470,563 ($1,633,492 in 2022) as follows: depreciation and amortization of $1,466,703 ($984,083 in 2022), accretion of asset retirement obligation of $15,952 ($12,691 in 2022), stock based compensation, none in 2023, ($547,275 in 2022), stock issued for services, none in 2023, ($32,326 in 2022), gain on disposal of equipment of $13,026 (loss of $68,641 in 2022), equity income on investment in Buckskin Gold and Silver, Inc. $4,517 ($1,524 in 2022), gain on forgiveness of Small Business Administration (\u201cSBA\u201d) loan, none in 2023, ($10,000 in 2022)."],["","\u00b7","Net income (loss) attributable to Idaho Strategic Resources, Inc. was $1,157,746 and ($2,535,429) in the years ended December 31, 2023, and 2022, respectively."],["","\u00b7","Gold sales receivable increased to $1,038,867 from $909,997 at December 31, 2023 compared to 2022 as a result of increased gold sales."],["","\u00b7","The Company saw a decrease in exploration expenses for 2023 largely due to less drilling being done on the Company\u2019s gold properties in 2023, as well as capitalizing a portion of the 2023 drilling that was incorporated into the Mineral Reserve. We anticipate an increase in drilling activity in 2024 over 2023, which may result in an increased exploration expense."],["","\u00b7","General and administrative costs decreased significantly in 2023 compared to 2022 due to no stock option awards taking place in 2023."],["","\u00b7","Professional services costs increased in 2023 due to acquisition activity early in the year. This was a one-time expense and is not expected to continue in 2024."],["","\u00b7","All in sustaining costs for gold production decreased from $1,689.24 in 2022, to $1,279.38 in 2023 as a result of increased efficiencies and improved scheduling and mine sequencing at the Golden Chest, as well as higher grade ore being processed from the H-vein."]]
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[["42"],["Table of Contents"]]
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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 produced and all in sustaining costs per ounce produced for the Company’s gold production for the years ended December 31, 2023, and 2022. The cost per ounce calculations are based on ounces produced. Upon sale, the Company typically receives payment at an average rate of 88% 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,"],["","","2023","","","2022"],["Cost of sales and other direct production costs and depreciation, depletion, and amortization","","$","9,691,697","","","$","8,026,268"],["Depreciation, depletion, and amortization","","","(1,466,703",")","","","(984,083",")"],["Change in concentrate inventory","","","(258,368",")","","","(404,591",")"],["Cash Cost","","$","7,966,626","","","$","6,637,594"],["Exploration","","","1,523,221","","","","2,110,137"],["Less REE exploration costs","","","(613,883",")","","","(536,460",")"],["Sustaining capital","","","1,048,824","","","","1,517,984"],["General and administrative","","","630,126","","","","1,229,603"],["Less stock-based compensation and other non-cash items","","","(3,860",")","","","(649,409",")"],["AISC","","$","10,551,054","","","$","10,309,449"],["Divided by ounces produced","","","8,247","","","","6,103"],["Cash cost per ounce","","$","966.00","","","$","1,087.60"],["AISC per ounce","","$","1,279.38","","","$","1,689.24"]]
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Financial Condition and Liquidity

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[["","","For the Years Ended December 31,"],["Net cash provided (used) by:","","2023","","","2022"],["Operating activities","","$","2,104,009","","","$","(1,817,090",")"],["Investing activities","","","(2,102,235",")","","","(2,368,225",")"],["Financing activities","","","647,194","","","","3,846,828"],["Net change in cash and cash equivalents","","","648,968","","","","(338,487",")"],["Cash and cash equivalents, beginning of period","","","1,638,031","","","","1,976,518"],["Cash and cash equivalents, end of period","","$","2,286,999","","","$","1,638,031"]]
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The Company has accumulated deficit of approximately $17.2 million at December 31, 2023 and incurred a consolidated net profit in 2023 of $1,073,449. The Company’s working capital at December 31, 2023 is $2,717,976. The Company is currently producing from underground at the Golden Chest. During 2023, production generated positive cash flow from operations of $2,104,009 compared to a negative cash flow from operations of $1,817,090 in 2022. 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.