Idaho Strategic Resources, Inc. — FY2021 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2021; it is an annual report rather than a quarterly filing. The company, formerly New Jersey Mining Company, changed its name to Idaho Strategic Resources, Inc. on December 6, 2021 and completed a 1-for-14 reverse stock split. IDR operates the Golden Chest gold mine in northern Idaho, owns a majority interest in the New Jersey Mill, holds a 50% carried-to-production interest in the Butte Highlands project, and is expanding exploration of gold and rare earth element properties.
Golden Chest production includes underground and open-pit mining. Ore is processed at the 360-tonne-per-day New Jersey Mill. IDR also holds the Diamond Creek and Roberts rare earth projects, which are exploration-stage properties.
Key financial and operating metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Gold sales revenue | $7.630 million | $5.675 million |
| Gross profit | $487,877 | $67,546 |
| Net loss | $3.260 million | $739,939 |
| Net loss attributable to IDR | $3.160 million | $642,876 |
| Operating cash flow | $(1.351) million | $(482,418) |
| Investing cash flow | $(3.091) million | $(1.594) million |
| Financing cash flow | $3.879 million | $4.398 million |
| Cash and cash equivalents | $1.977 million | $2.540 million |
| Working capital | $1.439 million | Not clearly provided |
| Total assets | $17.919 million | $14.669 million |
| Total liabilities | $4.855 million | $3.405 million |
Revenue increased approximately 34%, while gross margin improved to approximately 6.4% from approximately 1.2%. Despite higher revenue and gross profit, the company reported a substantially larger net loss because of increased exploration, corporate costs, and $1.088 million of stock-based compensation. The filing does not provide a clear adjusted EBITDA value.
- Gold production was approximately 4,826–4,827 ounces, compared with 3,755 ounces in 2020.
- The mill processed approximately 44,305 tonnes at an average head grade of 3.85 grams per tonne and 89% recovery.
- Reported cash cost was $1,350.10 per ounce, compared with $1,292.77 in 2020.
- Reported all-in sustaining cost was $1,818.22 per ounce, compared with $1,614.13 in 2020.
- Underground mining produced approximately 17,180–17,318 tonnes at 5.32 grams per tonne. The filing contains both figures; the discrepancy should be verified.
- Open-pit mining produced 27,125 tonnes at 2.92 grams per tonne and 174,000 tonnes of waste.
- Proven underground reserves declined to 38,700 tonnes at 4.87 grams per tonne from 42,500 tonnes at 5.17 grams per tonne in 2020, using a 93% recovery assumption.
Debt, liquidity, and capital structure
Total notes payable were $1.626 million at year-end, including $664,153 due within one year and $961,748 due thereafter. Convertible debt was $1.950 million, including $1.750 million issued in 2021 at 8% interest and convertible at $4.90 per share, with principal due in March 2024. The company also had $166,742 of long-term Small Business Administration debt and $106,068 of long-term related-party notes payable.
Financing included $2.580 million of net proceeds from equity and warrant offerings and $1.750 million of convertible debt. Capital expenditures and mineral-property additions totaled approximately $3.079 million. Shares outstanding increased to 10,940,969 at December 31, 2021 from 9,826,665 at December 31, 2020, before subsequent 2022 issuances.
Management stated that existing cash, expected operating cash flows, and potential financings should be sufficient for planned operations and contractual obligations for the next 12 months. However, operating cash flow was negative in 2021, the company had an accumulated deficit of approximately $15.8 million, and continued access to capital remains important.
Material changes versus the prior comparable period
- Gold sales increased by approximately $1.955 million, and gross profit increased by approximately $420,331.
- Net loss attributable to IDR increased by approximately $2.517 million.
- Exploration expense increased to $1.418 million from $303,291, primarily for Golden Chest drilling and rare earth exploration.
- All-in sustaining costs increased approximately 45%, while production increased approximately 29%.
- Cash declined by $563,427 during 2021 despite $3.879 million of financing inflows, reflecting negative operating cash flow and significant investment spending.
- Mineral properties increased to $5.843 million from $3.455 million, principally due to the Alder Gulch acquisition and other property additions.
- Property, plant and equipment increased to $8.256 million from $7.227 million.
- Stock-based compensation increased from none reported in 2020 to $1.088 million in 2021.
- The company acquired additional Alder Gulch acreage for approximately $1.700 million and expanded its rare earth and gold exploration portfolio.
Guidance, outlook, risks, and unusual items
Management expects underground mining to become the primary source of mineralized material over the next 18 months and projects that this transition will restore positive operating cash flow. Approximately 8,000 meters of Golden Chest core drilling were planned for 2022, along with additional exploration at Alder Gulch, Buckskin, Giant Ledge, Eastern Star, and the rare earth properties.
- Shipping disruptions related to COVID-19 increased concentrate inventory and contributed to higher gold sales receivables. At year-end, 2,196 ounces of sold gold remained subject to final settlement and future price changes.
- H&H Metals accounted for approximately 95% of gold sales and is also a company shareholder, creating customer concentration and related-party exposure.
- The company is exposed to gold and silver price volatility, operating and equipment failures, mining dilution, grade variability, labor availability, inflation, and cost escalation.
- Permitting for exploration on public lands can take one to two years. The Diamond Creek drilling plan was under USFS review.
- The New Jersey Mill tailings-storage expansion remained subject to permit approval. Delay could require more expensive tailings back-hauling to Golden Chest.
- Environmental and reclamation obligations are estimated at $172,348 on the balance sheet. Additional exposure could arise from changing regulations or potential historical contamination associated with the Bunker Hill Superfund site, although the company had not received a cleanup-liability notice.
- Golden Chest production is subject to a 2% net smelter return royalty. Buckskin is subject to a lease requiring annual payments and a 2% royalty on future production from leased patented claims.
- Mineral reserves and property carrying values depend on estimates of grades, recoveries, commodity prices, operating costs, and reclamation costs. The audit identified the impact of ore reserves on mineral properties as a critical audit matter.
- Subsequent to year-end, IDR raised approximately $2.701 million in a February 2022 private placement and began trading on NYSE American under IDR on March 11, 2022.
Most important facts for investors to verify
- Whether the planned shift from open-pit to underground mining produces positive operating cash flow as projected.
- Actual 2022 production, grades, recoveries, cash costs, and all-in sustaining costs compared with the 2021 baseline.
- The reconciliation of the filing’s conflicting underground ore-tonnage figures of 17,180 and 17,318 tonnes.
- Remaining liquidity after scheduled debt payments, including $664,153 of notes payable due in 2022 and interest obligations on convertible debt.
- Potential dilution from 669,467 warrants, 507,175 stock options, and convertible debt that could be exchanged for approximately 392,866 shares based on the filing’s disclosures.
- Concentrate shipping and final-settlement risks, including the company’s dependence on H&H Metals.
- Approval and timing of the New Jersey Mill tailings-storage expansion and Diamond Creek exploration permits.
- Whether the 38,700-tonne proven reserve estimate is replaced or expanded through 2022 drilling.
- Environmental, reclamation, royalty, and permitting liabilities affecting the Golden Chest, New Jersey Mill, and exploration properties.