Idaho Strategic Resources, Inc. — Q2 2022 Form 10-Q Summary
Business context and reporting period
Idaho Strategic Resources, Inc. is a gold producer focused on the Golden Chest Mine and New Jersey Mill in Idaho, with additional exploration and development interests in Idaho and Montana, including rare earth element and thorium properties. The filing covers the three and six months ended June 30, 2022. The company owned 65% of the New Jersey Mill Joint Venture and was producing from both open-pit and underground operations at Golden Chest.
Financial performance and key metrics
| Metric | Three months ended June 30, 2022 | Six months ended June 30, 2022 | Comparable 2021 period |
|---|---|---|---|
| Revenue | $2.36 million | $4.40 million | $2.18 million; $3.77 million |
| Gross profit | $7,457 | $313,599 | $362,249; $290,845 |
| Gross margin | 0.3% | 7.1% | 16.6%; 7.7% |
| Operating loss | $(846,721) | $(1.27 million) | $(80,689); $(1.71 million) |
| Net loss attributable to the company | $(818,598) | $(1.27 million) | $(109,188); $(1.76 million) |
| Loss per share | $(0.07) | $(0.11) | $(0.01); $(0.18) |
| Operating cash flow | $(1.69 million) for six months | $(762,582) |
- Gold and silver product revenue was $2.36 million in the second quarter and $4.40 million year to date. Gold revenue was $4.73 million for the six-month period before smelter and refining charges.
- Second-quarter production was approximately 1,589 ounces of gold, compared with 1,373 ounces in the prior-year quarter. Six-month production was 2,730 ounces versus 2,429 ounces.
- Cash cost per ounce was $1,302 in the quarter and $1,167 year to date. AISC was $1,825 per ounce in the quarter and $1,712 year to date. These are non-GAAP measures.
- At June 30, 2022, cash and cash equivalents were $3.13 million, compared with $1.98 million at December 31, 2021. Total current assets were $5.08 million and current liabilities were $1.69 million.
- Total debt, including current and long-term notes, related-party notes and the SBA loan, was approximately $2.11 million. Convertible debt of $1.95 million outstanding at year-end was converted into common stock during March 2022.
- Stockholders’ equity was $17.89 million, including $2.86 million of non-controlling interest. Common shares outstanding increased to 11,985,747 from 10,940,969 at December 31, 2021.
Material changes versus the prior comparable period
- Revenue increased 8.2% in the second quarter and 16.9% for the first six months, primarily due to higher production.
- Second-quarter gross profit declined sharply to $7,457 from $362,249. Management attributed the decline to lower gold prices, higher consumable costs and a gold inventory adjustment.
- The second-quarter operating loss increased substantially, reflecting higher exploration, professional, general and administrative costs, NYSE listing and SEC filing expenses, and other corporate costs. The prior-year period included $604,571 of stock-based compensation that was not recorded in 2022.
- Six-month operating loss improved from $1.71 million to $1.27 million, while six-month net loss attributable to the company improved from $1.76 million to $1.27 million.
- Operating cash use increased to $1.69 million from $762,582, partly because of increases in gold receivables, inventories and other current assets.
- Investing cash use declined to $889,004 from $2.33 million, primarily because 2021 included significantly higher mineral-property additions. 2022 investing activity included $217,800 of reclamation bonds, $408,913 of mineral-property additions and purchases of property and equipment.
- Financing provided $3.74 million, including $3.68 million from common-stock sales and warrant exercises. The company also entered into a $10 million at-the-market equity facility and had received approximately $980,107 of net proceeds under it by June 30, 2022.
Outlook, commentary, risks and unusual items
- Management stated that existing cash, planned production, equity sales and potential debt borrowings or restructurings are expected to be sufficient for planned operations and contractual obligations for the next 12 months. No formal production or financial guidance was provided.
- During the quarter, the company processed 11,624 dry metric tonnes at the New Jersey Mill at a 4.58 grams-per-tonne feed grade and 90.1% gold recovery. Underground ore mined was approximately 8,540 tonnes, and approximately 3,100 tonnes were mined from surface operations.
- The company drilled 1,700 meters in nine holes at Golden Chest and began work on rare earth and thorium properties, including the Lemhi Pass project. Assay results for the quarter’s drilling were pending at quarter-end.
- Gold concentrate sales are subject to final settlement and future metal-price changes. At June 30, 2022, 2,568 ounces of sold gold remained exposed to price changes, with related receivables of $734,594 due from a single broker, H&H Metal.
- Key operating risks include commodity-price volatility, production and grade variability, rising consumable and operating costs, exploration uncertainty, permitting and environmental requirements, reclamation obligations, financing dependence and reliance on a single concentrate broker.
- The asset retirement obligation was $254,596 at June 30, 2022. Management increased the estimated reclamation cost for the New Jersey Mine and Mill by $107,000 for a tailings impoundment expansion.
- The company recorded a $10,000 gain from forgiveness of an SBA-related amount and purchased an office and warehouse building in Salmon, Idaho, partly financed with a $310,285 note.
- The filing states that disclosure controls were effective and that there was no material change in internal control over financial reporting. No legal proceedings were reported.
Most important facts for investors to verify
- Reconcile the MD&A reference to a six-month net loss of $1,352,318 with the consolidated statement of operations, which reports $1,325,318.
- Verify whether the company can achieve sustained positive operating cash flow, given the $1.69 million operating cash outflow during the first six months.
- Assess sensitivity to gold prices and production costs, particularly the second-quarter gross margin of approximately 0.3% and AISC of $1,824.50 per ounce.
- Monitor the $10 million ATM facility, future equity issuance and potential dilution, including 562,263 outstanding warrants and 405,384 outstanding options at June 30, 2022.
- Confirm final settlement prices and recoveries for the 2,568 ounces of unsettled gold and the collectability concentration in H&H Metal.
- Evaluate Golden Chest production, mine-plan execution, drilling results, permitting and reclamation-cost estimates, as well as the commercial prospects of the rare earth and thorium properties.