Business Context and Reporting Period
Idaho Strategic Resources, Inc. filed this unaudited Form 10-Q for the quarter and six-month period ended June 30, 2023. The company produces gold from the underground Golden Chest Mine, processes material at the New Jersey Mill, and explores for gold and rare earth elements in Idaho. The company owns 65% of the New Jersey Mill Joint Venture and consolidates it, with non-controlling interest presented separately.
As of August 1, 2023, 12,256,523 common shares were outstanding. The company is a non-accelerated filer and smaller reporting company.
Financial Performance and Position
| Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 |
|---|---|---|---|---|
| Revenue | $3.24 million | $2.36 million | $6.58 million | $4.40 million |
| Gross profit | $793,583 | $7,457 | $1.66 million | $313,599 |
| Gross margin | 24.5% | 0.3% | 25.2% | 7.1% |
| Operating income (loss) | $289,987 | $(846,721) | $303,010 | $(1.27 million) |
| Net income (loss) | $295,822 | $(852,249) | $340,008 | $(1.33 million) |
| Net income (loss) attributable to IDR | $327,793 | $(818,598) | $388,392 | $(1.27 million) |
| Basic earnings (loss) per share | $0.03 | $(0.07) | $0.03 | $(0.11) |
Revenue was generated from gold and silver sales net of smelter and refining charges. Gold sales were $3.40 million for the second quarter and $6.88 million for the first six months. At June 30, 2023, 5,223 ounces had been sold but not finally settled; 947 ounces remained exposed to future price changes.
For the second quarter, the company processed 11,708 dry metric tonnes at a 7.31 grams-per-tonne gold head grade and 92.6% recovery. Approximately 8,700 tonnes were mined from underground stopes. Reported gold production was 2,152 ounces for the quarter and 3,877 ounces for the six-month period.
Cash cost per ounce was $924.83 in the second quarter and $1,086.12 for the six-month period, compared with $1,302.01 and $1,166.53, respectively, in the prior-year periods. All-in sustaining cost per ounce was $1,121.39 in the quarter and $1,307.73 for the six months, compared with $1,727.50 and $1,623.39, respectively.
Cash Flow, Liquidity, and Debt
| Metric | June 30, 2023 | December 31, 2022 |
|---|---|---|
| Cash and cash equivalents | $2.23 million | $1.64 million |
| Total current assets | $3.86 million | $3.36 million |
| Total assets | $22.78 million | $20.98 million |
| Current liabilities | $1.82 million | $1.63 million |
| Total notes payable | $2.78 million | $2.17 million |
| Total liabilities | $3.83 million | $3.27 million |
| Total stockholders' equity | $18.95 million | $17.71 million |
- Operating activities provided $1.14 million in cash during the first six months of 2023, compared with $1.69 million used in the prior-year period.
- Investing activities used $869,741, including $343,356 for property, plant and equipment and $523,785 for mineral property additions.
- Financing activities provided $318,382, including $878,503 of net common-stock proceeds and $578,131 of principal payments on notes payable and related-party notes.
- The company had $1.04 million of notes payable due within 12 months and $1.74 million due thereafter. Notes are collateralized by the related property or equipment.
- Management stated that planned production, existing cash, equity sales, and potential debt borrowings or restructurings are expected to provide sufficient liquidity for operations and contractual obligations for the next 12 months.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue increased 37.2%, and six-month revenue increased 49.4%, primarily because of higher gold production and a higher average realized gold price.
- Gross margin expanded to 24.5% for the quarter and 25.2% for the six months, compared with 0.3% and 7.1% in the prior-year periods.
- The company moved from operating losses to operating income in both comparable periods and from net losses to net income.
- Exploration expense declined to $207,369 for the quarter and $480,811 for the six months, primarily because of reduced drilling and exploration activity.
- Six-month professional services expense increased materially because of legal fees related to merger and acquisition activity; management characterized the increase as one-time and not expected to continue.
- Total notes payable increased by approximately $608,000 from year-end 2022, primarily reflecting equipment financing, including a $1.04 million note for a Caterpillar AD30 underground truck.
- Common shares increased from 12,098,070 at December 31, 2022 to 12,256,523 at June 30, 2023 following a February private placement that generated $878,503 of net proceeds.
- The company repaid the $75,183 related-party note on May 10, 2023.
Outlook, Commentary, Risks, and Unusual Items
- Management expects gold production to remain approximately at the current level for the remainder of 2023 while mining continues on the H-Vein.
- The Main Access Ramp and related drifts advanced 60 meters during the quarter, and a ventilation raise was completed. The company also began work on a portal at the Jumbo Pit to explore vein continuity and grade.
- A core drilling program at Golden Chest is planned for late third quarter or early fourth quarter and may increase all-in sustaining costs in the second half of 2023.
- The company expanded and consolidated its Mineral Hill rare earth elements project. A post-quarter-end sample reportedly returned 23.5% total rare earth elements; the filing does not provide sufficient information to assess the representativeness or economic significance of the sample.
- Revenue and gold receivables are exposed to changes in gold prices before final settlement of concentrate shipments. At June 30, 2023, gold sales receivables were $840,288 and were due from a single broker, H&H Metal.
- Key estimates include recoverable ounces in process and concentrate inventory and future reclamation costs. Estimated undiscounted reclamation costs were $103,320 for Golden Chest and $203,600 for the New Jersey Mine and Mill; the recorded asset retirement obligation was $270,073.
- The filing states that interim results are not necessarily indicative of full-year results. Mining operations remain subject to production, grade, recovery, commodity-price, equipment, permitting, environmental, and financing risks.
- No legal proceedings or defaults upon senior securities were reported. Management stated that disclosure controls were effective as of June 30, 2023, with no material change in internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Whether production and cash costs remain near second-quarter levels as mining shifts among H-Vein, Idaho Vein, and Jumbo areas.
- The timing, cost, and financing of the planned Golden Chest drilling program and its effect on second-half AISC.
- The company’s ability to fund $1.04 million of near-term note maturities while continuing capital investment and exploration.
- Final settlement values for the 5,223 ounces sold but not finally settled, including the 947 ounces still exposed to metal-price changes.
- Customer concentration risk arising from the $840,288 gold receivable due entirely from H&H Metal.
- Whether the Mineral Hill rare earth elements sampling results can be confirmed through additional drilling, sampling, resource estimation, permitting, and economic studies.
- The terms and potential dilution associated with 289,294 outstanding warrants expiring in October and November 2023, plus 491,164 outstanding and exercisable stock options.