Idaho Strategic Resources, Inc. — 2023 Q3 Form 10-Q Summary
Business Context and Reporting Period
Idaho Strategic Resources, Inc. is a gold producer and rare earth elements exploration company. Its Golden Chest Mine was producing underground during the period, and the company also operates the majority-owned New Jersey Mill Joint Venture and explores rare earth element properties in Idaho. This unaudited Form 10-Q covers the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods.
Financial Performance and Key Metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $3.30 million | $1.75 million | $9.88 million | $6.15 million |
| Gross profit | $1.11 million | $(0.23) million | $2.77 million | $0.08 million |
| Gross margin | 33.5% | (13.1%) | 28.0% | 1.4% |
| Operating income (loss) | $0.41 million | $(1.89) million | $0.72 million | $(3.16) million |
| Net income (loss) | $0.40 million | $(1.91) million | $0.74 million | $(3.23) million |
| Net income attributable to IDR | $0.42 million | $(1.89) million | $0.81 million | $(3.17) million |
| Basic EPS | $0.03 | $(0.16) | $0.07 | $(0.27) |
- Gold and silver sales, net of smelter and refining charges, generated substantially all revenue. Revenue increased 89.2% year over year in Q3 and 60.7% in the first nine months.
- Q3 production was approximately 1,993 ounces of gold, compared with 1,360 ounces in Q3 2022. Nine-month production was 5,870 ounces, compared with 4,094 ounces.
- Cash cost per ounce was $895.96 in Q3 and $1,021.55 for the nine-month period. All-in sustaining cost was $1,170.55 per ounce in Q3 and $1,261.16 for the nine-month period.
- Net cash provided by operating activities was $1.34 million for the nine months ended September 30, 2023, compared with cash used of $2.01 million in the prior-year period.
- Investing cash outflows were $1.07 million, including $467,655 for property, plant and equipment and $645,962 for mineral properties.
- Financing activities provided $56,253, including $878,503 of net proceeds from common stock issuance and $841,897 of principal payments on notes payable and related-party notes.
- Cash and cash equivalents increased to $1.97 million at September 30, 2023, from $1.64 million at December 31, 2022. Total current assets were $4.14 million versus current liabilities of $1.76 million.
- Total notes payable were $2.52 million, including $1.01 million due within one year and $1.51 million due thereafter. The notes are collateralized by the related property or equipment.
- Total assets were $22.90 million and total stockholders’ equity was $19.36 million at September 30, 2023.
Material Changes Versus the Prior Comparable Period
- Higher gold production, increased throughput and a higher average realized gold price drove the substantial revenue increase.
- Improved ore grades reduced cash cost and AISC per ounce. The company attributed the improvement primarily to higher-grade ore mined.
- Exploration expense declined to $916,250 for the first nine months from $1.53 million, primarily because of reduced drilling and overall exploration activity.
- General and administrative expense declined to $504,241 from $1.08 million, while professional services increased to $444,899 from $301,446 because of legal fees associated with first-quarter merger and acquisition activity. Management characterized that increase as one-time.
- Depreciation and amortization increased to $1.03 million from $717,939, consistent with a larger operating asset base and increased production.
- The company issued 158,453 common shares in a February 2023 private placement for net proceeds of $878,503. Shares outstanding increased to 12,256,523 from 12,098,070 at December 31, 2022.
- The company paid the remaining $75,183 balance owed to related party Ophir Holdings on May 10, 2023; no related-party note payable remained outstanding at September 30, 2023.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expects gold production to remain approximately at the current level for the remainder of 2023 as mining continues on the H-Vein.
- A core drilling exploration program at Golden Chest was planned for late Q3 and early Q4 2023 and may increase fourth-quarter AISC.
- During Q3, approximately 9,500 tonnes were mined from underground stopes, approximately 10,430 dry metric tonnes were processed at the New Jersey Mill, mill feed grade was 6.41 grams per tonne gold, and recovery was 92.1%.
- Rare earth activities included identifying greater than 23% total rare earth elements at Mineral Hill, tracing mineralization over more than 0.5 miles, trenching at Lemhi Pass, and advancing permitting for a 2024 Diamond Creek core-drilling program. Several assay results remained pending.
- At September 30, 2023, 6,512 ounces of metals sold had not been finally settled; 2,330 ounces remained exposed to future metal-price changes. The related gold sales receivable was $1.13 million and was owed by a single broker, H&H Metals.
- Management stated that operating cash flows and existing cash, together with planned equity sales and potential debt borrowings or restructurings, are expected to fund operations and contractual obligations for the next 12 months. This assessment depends on production, financing and metal-price assumptions.
- The company is exposed to gold and silver prices, concentrate settlement adjustments, production and grade variability, exploration and permitting outcomes, reclamation obligations, equipment financing requirements and reliance on a single concentrate broker.
- The asset retirement obligation was $274,091. Management estimated future reclamation costs of $103,320 for Golden Chest and $203,600 for the New Jersey Mine and Mill, subject to changes in timing, costs and permitting requirements.
- On October 12, 2023, the company extended the expiration dates of 289,294 warrants by one year: 235,722 warrants at $5.60 per share to October 15, 2024, and 53,572 warrants at $7.00 per share to November 12, 2024.
- No legal proceedings were reported, and management concluded that disclosure controls were effective with no material change in internal control over financial reporting.
Important Facts for Investors to Verify
- Verify whether production from the H-Vein remains at the expected level and whether planned drilling affects Q4 production costs and AISC.
- Monitor gold prices, final settlement of the 6,512 ounces outstanding and concentration of receivables with H&H Metals.
- Review the $1.01 million of notes payable due within 12 months against expected operating cash flow and available financing.
- Assess whether the company’s stated 12-month liquidity outlook is achievable without additional equity issuance, debt restructuring or other financing.
- Track pending rare earth assay results, permitting and the planned 2024 Diamond Creek drilling program; exploration results do not establish economic reserves.
- Review warrant and option dilution, including 289,294 extended warrants and 477,449 outstanding and exercisable options at September 30, 2023.
- Confirm the effect of changes in reclamation estimates and the adequacy of the $274,091 asset retirement obligation.