Idaho Strategic Resources, Inc. — Q3 2022 Form 10-Q Summary
Business Context and Reporting Period
Idaho Strategic Resources, Inc. is a gold producer and mineral exploration company focused on the Golden Chest Mine, the New Jersey Mill, the Butte Highlands joint venture, and gold, rare earth element, and thorium properties in Idaho and Montana. The company currently produces from open-pit and underground operations at Golden Chest and owns 65% of the New Jersey Mill Joint Venture.
This unaudited Form 10-Q covers the three and nine months ended September 30, 2022. The company is a non-accelerated filer and smaller reporting company. Common stock trades on NYSE American under the symbol IDR. Shares outstanding were 12,098,070 at November 1, 2022.
Financial Results and Key Metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Revenue | $1.745 million | $2.099 million | $6.148 million | $5.866 million |
| Gross profit (loss) | $(0.229) million | $0.278 million | $0.085 million | $0.569 million |
| Gross margin | Approximately (13.1%) | Approximately 13.2% | Approximately 1.4% | Approximately 9.7% |
| Operating loss | $(1.888) million | $(0.187) million | $(3.161) million | $(1.895) million |
| Net loss | $(1.909) million | $(0.238) million | $(3.235) million | $(2.041) million |
| Net loss attributable to IDR | $(1.894) million | $(0.219) million | $(3.169) million | $(1.975) million |
| Loss per share | $(0.16) | $(0.02) | $(0.27) | $(0.20) |
Gold and silver sales were $6.631 million before $0.483 million of smelter and refining charges during the first nine months. Concentrate sales represented $5.845 million of nine-month revenue, while doré sales contributed $0.304 million. The company had 3,685 ounces of gold sold but not finally settled at September 30, 2022, exposing reported revenue and receivables to subsequent metal-price changes.
For the third quarter, the company produced 1,360 ounces of gold from 10,024 dry metric tonnes processed, with a 4.59 grams-per-tonne flotation feed grade and 89.8% recovery. Nine-month production was 4,094 ounces, compared with 3,740 ounces in the prior-year period.
Reported cash cost per ounce was $1,298.97 in Q3 and $1,209.38 for the first nine months. All-in sustaining cost was $2,463.71 per ounce in Q3 and $1,960.22 for the first nine months, compared with $1,592.34 and $1,741.66, respectively, in the prior-year periods.
Net cash used in operating activities was $2.007 million for the first nine months, compared with $0.758 million in 2021. Investing cash outflows were $1.787 million, including $1.145 million for property, plant and equipment, $0.451 million for mineral properties, and $0.223 million for reclamation bonds. Financing activities provided $4.074 million, primarily from $3.681 million of equity proceeds and $1.030 million from warrant exercises.
Cash and cash equivalents increased to $2.256 million at September 30, 2022, from $1.977 million at December 31, 2021. Current assets were $3.550 million and current liabilities were $1.924 million, implying a current ratio of approximately 1.85.
Total notes payable were $2.349 million, including $0.900 million due within one year and $1.449 million due thereafter. Related-party notes totaled $85,695, and the SBA loan balance was approximately $163,315. Convertible debt was reduced to zero after $1.950 million was converted into common stock in March 2022.
Material Changes Versus the Prior Comparable Period
- Q3 revenue decreased approximately 16.8%, primarily because of lower gold prices. Nine-month revenue increased approximately 4.8%, mainly because production increased by 354 ounces.
- Q3 gross profit declined to a $0.229 million loss from a $0.278 million profit. Management attributed the deterioration to lower gold prices and increased consumable costs.
- Operating and net losses increased substantially because of higher exploration spending, NYSE listing and SEC filing costs, legal and professional fees, and $0.547 million of stock-based compensation recognized in Q3.
- Exploration expense increased to $1.530 million for the first nine months from $1.194 million, reflecting expanded gold drilling and rare earth element exploration.
- Property, plant and equipment increased to $9.722 million from $8.256 million, while mineral properties increased to $6.354 million from $5.843 million.
- Inventory increased to $0.608 million from $0.214 million, including higher concentrate, mine-parts, mill-parts, and drilling-supply balances.
- Common shares outstanding increased from 10,940,969 at year-end 2021 to 12,098,070 at September 30, 2022, following equity issuances, warrant exercises, and conversion of convertible debt.
- The company expanded its New Jersey Mill tailings storage facility and acquired or financed additional underground mining equipment, including a double-boom jumbo and a narrow-heading bolter.
Guidance, Outlook, Risks, and Unusual Items
The filing does not provide formal production, revenue, earnings, or cost guidance. Management expects operational efficiencies and higher processed ore grades from underground operations to improve gross profit. Management also states that existing cash, planned production, equity sales, and potential debt borrowings or restructurings should fund planned operations and contractual obligations for the next 12 months.
Open-pit mining was suspended while the contractor worked on the New Jersey Mill tailings facility. The facility expansion added approximately four years of tailings storage capacity, according to management. The Moose Fire delayed drilling at the Diamond Creek rare earth element project.
Key risks include continued operating losses and negative operating cash flow, dependence on gold prices, higher consumable and sustaining costs, exposure to provisional concentrate settlements, exploration and development uncertainty, financing and dilution risk, debt maturities, environmental and reclamation obligations, mine-safety and regulatory requirements, and potential impacts from COVID-19 and wildfire disruptions.
Unusual items included a $10,000 gain from forgiveness of an SBA-related amount, a $68,641 loss on disposal of equipment, and $547,275 of stock-based compensation. Management reported no legal proceedings and stated that disclosure controls were effective as of September 30, 2022, with no material change in internal control over financial reporting.
Important Facts Investors Should Verify
- Whether Golden Chest production, recoveries, grades, and gold prices can improve enough to restore positive gross margins and reduce AISC.
- The timing and amount of cash required for exploration, tailings capacity, underground development, equipment purchases, and reclamation obligations.
- Whether operating cash flow can become positive before available cash is depleted, given $2.007 million of operating cash outflow during the first nine months.
- The company’s ability to refinance or repay approximately $0.900 million of notes due within one year and meet other scheduled debt payments.
- The potential dilution from 542,525 outstanding stock options and 289,294 warrants, all excluded from diluted loss per share because they were anti-dilutive.
- Final settlement adjustments for the 3,685 ounces of gold sold but not finally settled at quarter-end.
- The economic potential and permitting status of the Murray Gold Belt, Diamond Creek rare earth element project, and other exploration properties; reported drill results remain preliminary.
- The adequacy of estimated asset retirement obligations and reclamation costs, which management estimates at $103,320 for Golden Chest and $203,600 for the New Jersey Mine and Mill.