Business Context and Reporting Period
Idaho Strategic Resources, Inc. filed this unaudited Form 10-Q for the three months ended March 31, 2022. The company produces gold from the Golden Chest Mine, processes material at the New Jersey Mill Joint Venture, and holds additional gold and rare earth element exploration properties in Idaho and Montana. The company owns 65% of the New Jersey Mill Joint Venture and accounts for it on a consolidated basis.
At May 1, 2022, 11,777,935 common shares were outstanding. The company uplisted its common stock to NYSE American during the quarter.
Financial Performance and Position
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $2.044 million | $1.587 million |
| Gross profit (loss) | $306 thousand | $(71) thousand |
| Gross margin | 15.0% | (4.5)% |
| Operating loss | $(426) thousand | $(1.627) million |
| Operating margin | (20.9)% | (102.5)% |
| Net loss | $(473) thousand | $(1.662) million |
| Net loss attributable to IDR | $(456) thousand | $(1.646) million |
| Loss per share | $(0.04) | $(0.17) |
| Cash flow from operations | $(848) thousand | $(719) thousand |
| Cash flow from investing | $(289) thousand | $(190) thousand |
| Cash flow from financing | $2.570 million | $1.481 million |
| Ending cash | $3.409 million | $3.112 million |
Revenue increased 29% year over year, primarily due to higher realized gold prices and increased gold inventories. Gold sales were $2.183 million before silver sales and smelter and refining charges. All reported product revenue in 2022 was from concentrate sales to H&H Metal; the filing does not identify a separate dore sale in the quarter.
Cash cost per ounce declined to $978.70 from $1,476.24, while all-in sustaining cost declined to $1,557.32 from $2,097.34. The company reported 1,140 ounces produced versus 1,065 ounces in the prior-year quarter.
As of March 31, 2022, cash and cash equivalents were $3.409 million, total current assets were $5.122 million, and total current liabilities were $1.660 million. Total liabilities were $3.060 million, compared with $4.855 million at December 31, 2021. Debt included $1.676 million of equipment and other notes payable, $0.106 million of related-party notes, and $0.171 million of SBA loan obligations. The $1.950 million convertible debt balance outstanding at year-end was converted into common stock during March 2022.
Total assets were $20.405 million and total stockholders’ equity was $17.345 million at March 31, 2022. Gold sales receivable increased to $806 thousand from $408 thousand, and inventories increased to $606 thousand from $214 thousand at December 31, 2021.
Material Changes Versus the Prior Comparable Period
- Revenue increased by $458 thousand, or approximately 29%.
- Gross profit improved by $378 thousand, primarily reflecting improved gold prices.
- Operating loss narrowed by $1.200 million, largely because Q1 2021 included substantial contract drilling and $604,571 of stock-based compensation.
- Exploration expense declined to $396 thousand from $718 thousand as the company relied more on in-house drilling.
- General and administrative expense declined to $201 thousand from $514 thousand, and management expense declined to $55 thousand from $201 thousand.
- Operating cash use increased to $848 thousand from $719 thousand, driven in part by increases in gold sales receivables and inventories.
- Financing provided $2.570 million, including $2.701 million of net proceeds from a February private placement and $68 thousand from warrant exercises.
- Common shares outstanding increased to 11.750 million from 10.941 million at December 31, 2021, excluding the additional shares outstanding at May 1, 2022.
Guidance, Outlook, Risks, and Unusual Items
Management stated that the company is producing from both open-pit and underground operations at Golden Chest and expects existing cash, planned production, equity sales, and potential debt borrowings or restructurings to be sufficient for planned operations and contractual obligations for the next 12 months. No formal production or revenue guidance was provided.
- Q1 operations included approximately 4,900 tonnes mined from underground stopes, 3,200 tonnes of development waste, and average open-pit production of approximately 1,140 tonnes per day.
- The New Jersey Mill processed 11,014 dry metric tonnes at a 3.55 gpt flotation feed grade and 89.5% gold recovery.
- The company drilled 1,437 meters and reported exploration results from the Klondike area of Golden Chest.
- The company expects to conduct approximately $1 million of rare earth element drilling at Diamond Creek through its participation in the Idaho Global Entrepreneurial Mission project.
- At March 31, 2022, 1,205 ounces of gold had been sold but not finally settled, exposing reported receivables and revenue to future metal-price and assay adjustments.
- The company identified COVID-19, commodity prices, production performance, inventory assays, mineral property impairment, and reclamation-cost estimates as material uncertainties.
- The asset retirement obligation was $175 thousand, while the related reclamation bond was $103 thousand. Future environmental requirements or cost estimates could increase obligations.
- Concentrate sales were substantially concentrated with a single broker, H&H Metal; the related receivable had no allowance for doubtful accounts.
- The company reported no legal proceedings, no defaults upon senior securities, and no material change in internal control over financial reporting. Management concluded that disclosure controls were effective.
Important Facts for Investors to Verify
- Reconcile reported production, sales volumes, realized gold prices, and the non-GAAP cash cost and AISC calculations to underlying operating data.
- Assess whether negative operating cash flow and continued capital requirements could require additional equity or debt financing despite management’s 12-month liquidity assessment.
- Review the terms, collateral, maturities, and cash-service requirements of the $1.676 million of notes payable and SBA obligations.
- Evaluate exposure to gold-price changes and final assay or settlement adjustments on the 1,205 ounces of unsettled gold sales.
- Consider dilution from 455,386 outstanding options and 646,410 warrants, as well as the increase in common shares issued during the quarter.
- Review the economic potential and funding requirements of the Golden Chest expansion, Butte Highlands interest, and rare earth element projects.
- Examine reclamation estimates, permitting obligations, mine safety disclosures, and potential environmental liabilities.