Idaho Strategic Resources, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022; the filing also provides fourth-quarter comparisons. The filing was signed March 31, 2023. IDR is a gold producer headquartered in Idaho, operating the 100%-owned Golden Chest Mine and a 65%-owned New Jersey Mill joint venture, while advancing rare earth element projects in Idaho.
Business Context and Operations
- Golden Chest is the company’s only producing mine, with underground and open-pit operations. Ore is processed at the 360-tonne-per-day New Jersey Mill.
- The company produced 6,103 ounces of gold and sold 5,672 payable ounces in 2022, compared with 4,826 ounces produced and 4,493 ounces sold in 2021.
- The mill processed 42,260 tonnes at an average head grade of 4.33 grams per tonne and 89.8% gold recovery.
- IDR completed 6,353 meters of Golden Chest drilling and initiated a 12-hole Diamond Creek REE drill program.
- Diamond Creek, Roberts, and Lemhi Pass comprise approximately 18,030 acres of REE properties. No mineral reserves or resources have been established for these REE properties.
Financial and Operating Metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Gold sales revenue | $9.58 million | $7.63 million | Up 25.6% |
| Gross profit | $1.55 million | $0.49 million | Up $1.07 million |
| Gross margin | 16.2% | 6.4% | Up 9.8 percentage points |
| Net loss | $2.63 million | $3.26 million | Improved by $0.63 million |
| Net loss attributable to IDR | $2.54 million | $3.16 million | Improved by $0.62 million |
| Cash cost per ounce | $1,087.60 | $1,350.10 | Down 19.4% |
| AISC per ounce | $1,777.14 | $1,818.22 | Down 2.3% |
| Operating cash flow | $(1.82) million | $(1.35) million | More negative |
| Investing cash flow | $(2.37) million | $(3.09) million | Lower use of cash |
| Financing cash flow | $3.85 million | $3.88 million | Broadly unchanged |
Liquidity, Debt, and Balance Sheet
- Cash and cash equivalents were $1.64 million at December 31, 2022, down from $1.98 million.
- Working capital was $1.73 million. Current assets were $3.36 million versus current liabilities of $1.63 million.
- Total notes payable were $2.17 million, including $859,393 due within one year and $1.32 million due thereafter. The debt is collateralized by related property or equipment.
- Convertible debt of $1.95 million outstanding at December 31, 2021 was converted into common stock during 2022.
- Gold sales receivable increased to $909,997 from $408,187, partly because of shipping delays and unsettled concentrate pricing.
- Total assets were $20.98 million and total liabilities were $3.27 million at year-end. Shares outstanding increased to 12.10 million from 10.94 million.
Material Changes Versus the Prior Period
- Revenue increased due to higher gold volumes, higher recognized gold prices, and a greater proportion of underground ore.
- Production rose approximately 26%, while cash cost per ounce declined as mine efficiencies improved. AISC declined modestly despite higher exploration and sustaining capital spending.
- Exploration expense increased to $2.11 million from $1.42 million, primarily due to Diamond Creek REE drilling and Golden Chest drilling.
- Property, plant and equipment increased to $9.92 million from $8.26 million, and mineral properties increased to $6.53 million from $5.84 million.
- Proven and probable Golden Chest reserves increased to 53,754 tonnes at 4.73 grams of gold per tonne from 38,700 tonnes at 4.87 grams per tonne. The 2022 total consisted of 32,039 proven tonnes and 21,715 probable tonnes.
- For the first time, IDR reported S-K 1300-compliant Golden Chest resources: 1.10 million measured and indicated tonnes at 4.41 grams per tonne, plus 753,502 inferred tonnes at 3.44 grams per tonne. Resources are not reserves and do not have demonstrated economic viability.
- Common shares issued during 2022 included shares issued for cash, warrant exercises, services, option exercises, and conversion of $1.95 million of convertible debt.
Guidance, Outlook, Risks, and Unusual Items
- Management expects underground mining to become the primary source of ore and believes planned production over the next 18 months could restore positive operating cash flow.
- Management states that existing cash, continuing operating cash flows, and potential financings should support contractual obligations and planned operations for the next 12 months. The filing nevertheless identifies substantial going-concern risk because the company has recurring operating losses and negative operating cash flow.
- Management cited higher underground production, continued Golden Chest exploration, and advancement of REE projects as key priorities. The filing does not provide formal production, revenue, or earnings guidance.
- At December 31, 2022, 5,361 ounces of gold had been sold but not finally settled; 2,861 ounces remained exposed to future gold-price changes.
- H&H Metals accounted for approximately 97% of 2022 gold sales and the entire gold sales receivable balance. Concentrate is shipped to a smelter in Japan.
- The company is exposed to gold-price volatility, mine grade and recovery risk, equipment failure, labor and supply constraints, weather, water availability, permitting delays, environmental liabilities, reclamation costs, and potential dilution from future equity issuance.
- The New Jersey Mill and Golden Chest properties are within the expanded Bunker Hill Superfund area. IDR reports no cleanup notification or current known liability, but potential historical environmental claims could be material.
- The New Jersey Mill’s cyanidation closure plan remained under Idaho DEQ review. The company estimates approximately $10,000 of annual water-monitoring costs associated with the former cyanidation plant.
- Asset retirement obligations increased to $262,217 from $172,348, including obligations associated with the tailings-storage expansion.
- In February 2023, after year-end, IDR raised net proceeds of $878,509 through a private placement of 158,453 shares.
Investor Verification Items
- Verify whether underground production actually generates positive operating cash flow and whether the 18-month production outlook is achieved.
- Reconcile reported production, payable ounces, concentrate settlement terms, smelter charges, and the $909,997 gold receivable concentration with H&H Metals.
- Review the technical report supporting the 2022 Golden Chest reserves and resources, including assumptions for the $1,800 per-ounce gold price, recovery, dilution, cutoff grade, and operating costs.
- Assess the company’s ability to fund approximately $859,393 of current debt maturities while operating cash flow remains negative.
- Evaluate whether REE exploration results can be converted into compliant resources, reserves, economic studies, permits, and eventually production; the filing provides no established REE resource or reserve.
- Monitor reclamation, tailings, cyanidation, Superfund, water-quality, and public-land permitting developments.
- Track dilution from outstanding options and warrants, including 535,953 options and 289,294 warrants reported as outstanding at year-end.
- Note that the filing’s financial statements were audited, but the auditor did not express an opinion on the effectiveness of internal control over financial reporting because the company was not required to obtain such an audit.