UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File No. 000-28837
IDAHO STRATEGIC RESOURCES, INC
(Name of small business issuer in its charter)
Idaho
82-0490295
(State or other jurisdiction
of incorporation or organization)
(I.R.S. employer
identification No.)
201 N. Third Street, Coeur d’Alene, ID 83814
(Address of principal executive offices) (zip code)
(208) 625-9001
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, $0.00 par value
IDR
NYSE American
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer
Accelerated Filer
Non-accelerated Filer
Small Reporting Company
Emerging Growth Company
Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
APPLICABLE ONLY TO CORPORATE ISSUERS:
At May 1, 2022, 11,777,935 shares of the registrant’s common stock were outstanding.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 2022
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
3
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
14
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
18
ITEM 4: Controls and Procedures
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
19
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
ITEM 3. Defaults upon Senior Securities
ITEM 4. Mine Safety Disclosures
ITEM 5. Other Information
ITEM 6. Exhibits
20
ITEM 1: CONSOLIDATED Financial Statements
Idaho Strategic Resources, Inc
Consolidated Balance Sheets (Unaudited)
March 31,
2022
December 31,
2021
ASSETS
Current assets:
Cash and cash equivalents
Gold sales receivable
Inventories
Joint venture receivable
Other current assets
Total current assets
Property, plant and equipment, net of accumulated depreciation
Mineral properties, net of accumulated amortization
Investment in Buckskin
Investment in joint venture
Reclamation bond
Deposits
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses
Accrued payroll and related payroll expenses
Notes payable related parties, current portion
Notes payable, current portion
Small Business Administration loan and interest, current portion
Total current liabilities
Asset retirement obligation
Notes payable related parties, long term
Convertible debt
Notes payable, long term
Small Business Administration loan and interest, long term
Total long-term liabilities
Total liabilities
Commitments (Note 11)
Stockholders’ equity:
Preferred stock, no par value, 1,000,000 shares authorized; no shares issued or outstanding
Common stock, no par value, 200,000,000 shares authorized; March 31, 2022-11,749,579 and December 31, 2021- 10,940,969 shares issued and outstanding
Accumulated deficit
Total Idaho Strategic Resources, Inc stockholders’ equity
Non-controlling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
Idaho Strategic Resources, Inc.
Consolidated Statements of Operations (Unaudited)
For the Three-Month Periods Ended March 31, 2022 and 2021
March 31
Revenue:
Sales of products
Total revenue
Costs of Sales:
Cost of sales and other direct production costs
Depreciation and amortization
Total costs of sales
Gross profit (loss)
Other operating expenses:
Exploration
Management
Professional services
General and administrative
Total other operating expenses
Operating loss
Other (income) expense:
Equity income on investment in Buckskin
Timber revenue net of costs
Interest income
Interest expense
Total other expense
Net loss
Net loss attributable to non-controlling interest
Net loss attributable to Idaho Strategic Resources, Inc
Net loss per common share-basic and diluted
Weighted average common shares outstanding-basic and diluted
Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)
Common Stock Shares
Common Stock Amount
Accumulated Deficit Attributable to Idaho Strategic Resources, Inc
Non-Controlling Interest
Stockholders’ Equity
Balance January 1, 2021
Contribution from non-controlling interest in Mill JV
Issuance of common stock for services
Options issued to management, directors, and employees
Options issued for services
Issuance of common stock for cashless option exercise
Balance March 31, 2021
Balance January 1, 2022
Issuance of common stock for cash net of offering costs
Issuance of common stock for warrants exercised
Conversion of convertible debt to common stock
Balance March 31, 2022
Consolidated Statements of Cash Flows (Unaudited)
Cash flows from operating activities:
Adjustments to reconcile net loss to net cash used by operating activities:
Accretion of asset retirement obligation
Stock based compensation
Change in operating assets and liabilities:
Net cash used by operating activities
Cash flows from investing activities:
Purchases of property, plant, and equipment
Deposits on equipment
Additions to mineral property
Net cash used by investing activities
Cash flows from financing activities:
Proceeds from sale of common stock net of issuance cost
Proceeds from exercise of common stock warrants
Principal payments on notes payable
Principal payments on notes payable, related parties
Issuance of convertible debt
Contributions from non-controlling interest
Net cash provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Non-cash investing and financing activities:
Notes payable for equipment purchase
Deposit on equipment paid by lender
Notes to Consolidated Financial Statements (Unaudited)
1. The Company and Significant Accounting Policies
These unaudited interim consolidated financial statements have been prepared by the management of Idaho Strategic Resources, Inc (IDR) (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of the Company’s management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair statement of the interim consolidated financial statements have been included.
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company’s financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions, which could have a material effect on the reported amounts of the Company’s financial position and results of operations. Operating results for the three-month period ended March 31, 2022, is not necessarily indicative of the results that may be expected for the full year ending December 31, 2022.
On December 6, 2021, New Jersey Mining Company changed its name to Idaho Strategic Resources Inc. and also finalized a 1 for 14 reverse stock split of its common stock as previously approved by shareholders at a Special Meeting of the Shareholders held on October 6, 2021. On the date of the reverse stock split, every fourteen (14) shares of New Jersey Mining Company were automatically converted into one issued and outstanding share of Idaho Strategic Resources, Inc. common stock without any change in the par value per share.
For further information refer to the financial statements and footnotes thereto in the Company’s audited consolidated financial statements for the year ended December 31, 2021, as filed with the Securities and Exchange Commission.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its majority-owned subsidiary, the New Jersey Mill Joint Venture (“NJMJV”). Intercompany accounts and transactions are eliminated. The portion of entities owned by other investors is presented as non-controlling interests on the consolidated balance sheets and statements of operations.
Revenue Recognition
Gold Revenue Recognition and Receivables-Sales of gold sold directly to customers are recorded as revenues and receivables upon completion of the performance obligations and transfer of control of the product to the customer. For concentrate sales, the performance obligation is met, the transaction price can be reasonably estimated, and revenue is recognized generally at the time of shipment at estimated forward prices for the anticipated month of settlement. Due to the time elapsed from shipment to the customer and the final settlement with the customer, prices at which sales of our concentrates will be settled are estimated. Previously recorded sales and accounts receivable are adjusted to estimated settlement metals prices until final settlement by the customer. For sales of doré and metals from doré, the performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of control of the agreed-upon metal quantities to the customer by the refiner.
Sales and accounts receivable for concentrate shipments are recorded net of charges by the customer for treatment, refining, smelting losses, and other charges negotiated with the customers. Charges are estimated upon shipment of concentrates based on contractual terms, and actual charges typically do not vary materially from estimates. Costs charged by customers include fixed costs per ton of concentrate and price escalators. Refining, selling, and shipping costs related to sales of doré and metals from doré are recorded to cost of sales as incurred. See Note 4 for more information on our sales of products.
Other Revenue Recognition-Revenue from harvest of raw timber is recognized when the performance obligation under a contract and transfer of control of the timber have both been completed. Sales of timber found on the Company’s mineral properties are not a part of normal operations.
Inventories are stated at the lower of full cost of production or estimated net realizable value based on current metal prices. Costs consist of mining, transportation, and milling costs including applicable overhead, depreciation, depletion and amortization relating to the operations. Costs are allocated based on the stage at which the ore is in the production process. Supplies inventory is stated at the lower of cost or estimated net realizable value.
1. The Company and Significant Accounting Policies (continued)
Mine Exploration and Development Costs
The Company expenses exploration costs as such in the period they occur. The mine development stage begins once the Company identifies ore reserves which is based on a determination whether an ore body can be economically developed. Expenditures incurred during the development stage are capitalized as deferred development costs and include such costs for drift, ramps, and infrastructure. Costs to improve, alter, or rehabilitate primary development assets which appreciably extend the life, increase capacity, or improve the efficiency or safety of such assets are also capitalized. The development stage ends when the production stage of ore reserves (as defined by the SEC) begins. Amortization of deferred development costs is calculated using the units-of-production method over the expected life of the operation based on the estimated recoverable mineral ounces.
Fair Value Measurements
When required to measure assets or liabilities at fair value, the Company uses a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used. The Company determines the level within the fair value hierarchy in which the fair value measurements in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Level 1 uses quoted prices in active markets for identical assets or liabilities, Level 2 uses significant other observable inputs, and Level 3 uses significant unobservable inputs. The amount of the total gains or losses for the period that are included in earnings are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date. At March 31, 2022, and December 31, 2021, the Company had no assets or liabilities that required measurement at fair value on a recurring basis.
Accounting for Investments in Joint Ventures and Equity Method Investments
Investment in Joint Ventures
For joint ventures where the Company holds more than 50% of the voting interest and has significant influence, the joint venture is consolidated with the presentation of non-controlling interest. In determining whether significant influence exists, the Company considers its participation in policy-making decisions and its representation on the venture’s management committee.
For joint ventures in which the Company does not have joint control or significant influence, the cost method is used. For those joint ventures in which there is joint control between the parties, the equity method is utilized whereby the Company’s share of the ventures’ earnings and losses is included in the statement of operations as earnings in joint ventures and its investments therein are adjusted by a similar amount. The Company periodically assesses its investments in joint ventures for impairment. If management determines that a decline in fair value is other than temporary it will write-down the investment and charge the impairment against operations.
Equity Method Investments
Investments in companies and joint ventures in which we have the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting. In determining whether significant influence exists, the Company considers its participation in policy-making decisions and representation on governing bodies. Under the equity method of accounting, our share of the net earnings or losses of the investee are included in net income (loss) in the consolidated statements of operations. We evaluate equity method investments whenever events or changes in circumstance indicate the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period. At March 31, 2022, and December 31, 2021, the Company’s 37% common stock holding of Buckskin Gold and Silver, Inc. is accounted for using the equity method (Note 10).
At March 31, 2022 and December 31, 2021, the Company’s percentage ownership and method of accounting for each joint venture and equity method investment is as follows:
March 31, 2022
December 31, 2021
Joint Venture
% Ownership
Significant Influence?
Accounting Method
NJMJV
65%
Yes
Consolidated
Butte Highlands Joint Venture (“BHJV”)
50%
No
Cost
Buckskin Gold and Silver
37%
Equity
Reclassifications
Certain prior period amounts have been reclassified to conform to the 2022 financial statement presentation. Reclassifications had no effect on net income (loss), stockholders’ equity, or cash flows as previously reported.
New Accounting Pronouncement
Accounting Standards Updates Adopted-In August 2020, the FASB issued ASU No. 2020-06 Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The update is to address issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. The update is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years and with early adoption permitted. The adoption of this update on January 1, 2022, did not have a material impact on our consolidated financial statements.
2. Going Concern
The Company is currently producing from both the open-pit and underground at the Golden Chest Mine. In the past, the Company has been successful in raising required capital from sale of common stock, forward gold contracts, and debt. As a result of its planned production, equity sales and potential debt borrowings or restructurings, management believes cash flows from operations and existing cash are sufficient to conduct planned operations and meet contractual obligations for the next 12 months.
3. Inventories
At March 31, 2022 and December 31, 2021, the Company’s inventories consisted of the following:
Concentrate inventory
In process
Finished goods
Total concentrate inventory
Supplies inventory
Mine parts and supplies
Mill parts and supplies
Total supplies inventory
Total
The carrying value of inventory is determined each period based on the lower of cost or net realizable value. At March 31, 2022 and December 31, 2021 gold concentrate is carried at cost.
4. Sales of Products
Our products consist of both gold flotation concentrates which we sell to a single broker (H&H Metal), and an unrefined gold-silver product known as doré which we sell to a precious metal refinery. At March 31, 2022, metals that had been sold but not final settled thus exposed to future price changes totaled 1,205 ounces of gold. The Company has received provisional payments on the sale of these ounces with the remaining amount due reflected in gold sales receivable. Sales of products by metal type for the three-month periods ended March 31, 2022, and 2021 were as follows:
Gold
Silver
Less: Smelter and refining charges
Sales by significant product type for the three-month periods ended March 31, 2022, and 2021 were as follows:
Concentrate sales to H&H Metal
Dore sales to refinery
At March 31, 2022 and December 31, 2021, our gold sales receivable balance related to contracts with customers of $806,417 and $408,187, respectively, consist only of amounts due from H&H Metal. There is no allowance for doubtful accounts.
5. Related Party Transactions
At March 31, 2022 and December 31, 2021, the Company had the following note payable to related parties:
Ophir Holdings LLC, a company owned by two officers of the Company, 3.99% interest, monthly payments of $1,250 with a balloon payment of $85,016 in February 2024
Current portion
Long term portion
As of March 31, 2022 and December 31, 2021, there was no accrued interest payable to related parties. Related party interest expense for the three-months ended March 31, 2022 and 2021 is $1,129 and $3,181, respectively.
The Company leases office space from certain related parties on a month-to-month basis. $1,500 per month is paid to NP Depot, a company owned by the Company’s president, John Swallow. Payments under these short-term lease arrangements are included in general and administrative expenses on the Consolidated Statement of Operations and are as follows:
6. Joint Ventures
New Jersey Mill Joint Venture Agreement
The Company owns 65% of the New Jersey Mill Joint Venture (JV) and has significant influence in its operations. Thus, the venture is included in the consolidated financial statements along with presentation of the non-controlling interest. At March 31, 2022 and December 31, 2021, an account receivable existed with Crescent Silver, LLC, the other joint venture participant (“Crescent”), for $2,828 and $4,442, respectively, for shared operating costs as defined in the JV agreement.
Butte Highlands JV, LLC (“BHJV”)
On January 29, 2016, the Company purchased a 50% interest in Butte Highlands JV, LLC (“BHJV”) from Timberline Resources Corporation for $225,000 in cash and 3,000,000 restricted shares of the Company’s common stock valued at $210,000 for a total consideration of $435,000. Highland Mining, LLC (“Highland”) is the other 50% owner and manager of the joint venture. Under the agreement, Highland will fund all future project exploration and mine development costs. The agreement stipulates that Highland is manager of BHJV and will manage BHJV until such time as all mine development costs, less $2 million are distributed to Highland out of the proceeds from future mine production. The Company has determined that because it does not currently have significant influence over the joint venture’s activities, it accounts for its investment on a cost basis.
7. Earnings per Share
For the three-month periods ended March 31, 2022, and 2021, potentially dilutive shares including outstanding stock options (Note 14), warrants (Note 13), and convertible debt (Note 15) were excluded from the computation of diluted loss per share because they were anti-dilutive due to net losses in those periods. For the three-month periods ended March 31, 2022, and 2021, potentially dilutive common stock equivalents excluded from the calculation of diluted earnings per share as their effect would have been anti-dilutive are as follows:
Stock options
Stock purchase warrants
8. Property, Plant, and Equipment
Property, plant and equipment at March 31, 2022 and December 31, 2021 consisted of the following:
Mill
Land
Building
Equipment
Less accumulated depreciation
Total mill
Building and equipment
Buildings
Total building and equipment
Bear Creek
BOW
Eastern Star
Gillig
Highwater
Total land
9. Mineral Properties
Mineral properties at March 31, 2022 and December 31, 2021 consisted of the following:
Golden Chest
Mineral Property
Infrastructure
Total Golden Chest
New Jersey
McKinley-Monarch
Butte Potosi
Alder Gulch
Park Copper
Less accumulated amortization
For the three-month periods ended March 31, 2022, and 2021 $13,003 and $10,186, respectively of interest expense was capitalized in association with the ramp access project at the Golden Chest.
10. Investment in Buckskin
In August 2021, the Company exchanged 45,940 shares of the Company’s common stock for 22% of Buckskin Gold and Silver Inc. The Company’s closing share price on the date of the agreement (August 18, 2021) was recorded as the cost basis for the property. In October 2021 the Company exchanged an additional 30,358 shares of the Company’s common stock for an additional 15% of Buckskin. The Company’s closing share price on the date of the exchange (October 15, 2021) was recorded as the cost basis for the investment addition. This investment in Buckskin is being accounted for using the equity method and resulted in recognition of equity income on the investment of $331 during the first quarter of 2022. The Company makes an annual payment of $12,000 to Buckskin per a lease covering 218 acres of patented mining claims. As of March 31, 2022, the Company holds 37% of Buckskin’s outstanding shares.
11. Notes Payable
At March 31, 2022 and December 31, 2021, notes payable are as follows:
Resimin Muki Bolter, 36-month note payable, 7.00% interest payable monthly through January 2025, monthly payments of $2,176
Paus 2 yrd. LHD, 48-month note payable, 4.78% interest rate payable through September 2024, monthly payments of $5,181
Paus 2 yrd. LHD, 60-month note payable, 3.45% interest rate payable through July 2024, monthly payments of $4,847
Compressor, 48-month note payable, 5.25% interest rate payable monthly through January 2022, monthly payments of $813
CarryAll transport, 36-month note payable, 4.5% interest rate payable monthly through June 2024, monthly payments of $627
CarryAll transport, 36-month note payable, 4.5% interest rate payable monthly through February 2024, monthly payments of $303
Atlas Copco loader, 60-month note payable, 10.5% interest rate payable monthly through June 2023, monthly payments of $3,550
Sandvik LH203 LHD, 36-month note payable, 4.5% interest payable monthly through May 2027, monthly payments of $10,352
Doosan Compressor, 36-month note payable, 6.99% interest payable monthly through July 2024, monthly payments of $602
Caterpillar 306 excavator, 48-month note payable, 4.6% interest payable monthly through November 2024, monthly payments of $1,512
Caterpillar 938 loader, 60-month note payable, 6.8% interest rate payable monthly through August 2023, monthly payments of $3,751
Caterpillar R1600 LHD, 48-month note payable, 4.5% interest rate payable through January 2025, monthly payments of $17,125
Caterpillar AD22 underground truck, 48-month note payable, 6.45% interest rate payable through June 2023, monthly payments of $12,979
2022 Dodge Ram, 75-month note payable, 5.99% interest rate payable monthly through June 2028, monthly payments of $1,152
2016 Dodge Ram, 75-month note payable, 5.99% interest rate payable monthly through June 2028, monthly payments of $1,190
Total notes payable
Due within one year
Due after one year
All notes are collateralized by the property or equipment purchased in connection with each note. Future principal payments of notes payable at March 31, 2022 are as follows:
12 months ended March 31,
2023
2024
2025
2026
2027
2028
2029
12. Small Business Administration Loans and Grant
In the second quarter of 2020 the Company received loans of $159,900 pursuant to the Small Business Act Section 7(b). The loan which was in the form of a Note dated May 16, 2020, matures May 16, 2050, and bears interest at a rate of 3.75% per annum. Payments of $731 are due monthly and will begin in April 2022. At March 31, 2022, and December 31, 2021 accrued interest on the loan was $10,902 and $9,311, respectively and is included in the Small Business Administration Loan balance on the consolidated balance sheet.
13. Stockholders’ Equity
Stock issuance activity
The Company closed a private placement in February 2022. Under the private placement, the Company sold 360,134 units at $7.50 per unit for net proceeds of $2,701,000. Each unit consisted of one share of the Company’s common stock. In the first quarter of 2022 the Company issued 3,572 shares of common stock at $9.05 per share for services provided for a total value of $32,326.
Stock Purchase Warrants Outstanding
In the first quarter of 2022, 23,057 shares were issued in exchange for outstanding warrants for net proceeds of $68,006.
The activity in stock purchase warrants is as follows:
Number of
Warrants
Exercise Prices
Balance December 31, 2020
$2.52-5.60
Issued
$5.60-7.00
Exercised
Balance December 31, 2021
$2.52-7.00
These warrants expire as follows:
Shares
Exercise Price
Expiration Date
April 21, 2022
August 28, 2022
October 14, 2023
November 12, 2023
14. Stock Options
In February 2021, the board granted 283,936 stock options to officers, board members, and employees. These options vested immediately and are exercisable at $5.60 for 3 years. Total stock-based compensation recognized on these options was $604,571. In March 2021, the Company granted 3,572 stock options to an individual for services rendered to the Company. These options vested immediately and are exercisable at $5.60 for 3 years. Total stock-based compensation recognized on these options was $9,860. No options were granted in the first quarter of 2022. The fair value of stock option awards granted, and the key assumptions used in the Black-Scholes valuation model to calculate the fair value of the options are as follows:
February 11,
March 15,
Fair value
Options issued
Exercise price
Expected term (in years)
Risk-free rate
Volatility
In the first quarter of 2022, 51,789 options were exercised in exchange for 28,981 shares at an average price of $9.72 per share in a cashless warrant exercise. Activity in the Company’s stock options is as follows:
Options
Exercise
Prices
1.40-1.96
Granted
Forfeited
1.96-5.60
Outstanding and exercisable at March 31, 2022
At March 31, 2022, outstanding stock options have a weighted average remaining term of approximately 2.02 years and an intrinsic value of approximately $2,317,000. Intrinsic value of the options exercised for the three-month period ended March 31, 2022, was $134,360.
15. Convertible Debt
The balance of convertible debt at December 31, 2021 consisted of $200,000 convertible to Common shares at a price of $5.60 per share (35,715 shares) and $1,750,000 convertible to Common shares at a price of $4.90 per share (357,151 shares). All of this debt was converted to Common shares as provided in the respective agreements in March 2022.
ITEM 2: Management’s Discussion AND Analysis of Financial Condition and Results of Operations
Plan of Operation
Idaho Strategic Resources, Inc is a gold producer focused on diversifying and building its asset base and cash flows through a portfolio of mineral properties located in historic producing gold districts in Idaho and Montana.
The Company’s plan of operation is to generate positive cash flow, increase its gold production and asset base over time while being mindful of corporate overhead. The Company’s management is focused on utilizing its in-house skills to build a portfolio of producing mines and milling operations with a primary focus on gold and exploration for Rare Earth elements (REE).
The Company’s properties include: the Golden Chest Mine (currently in production), the New Jersey Mill (majority ownership interest), and a 50% carried to production interest in the past producing Butte Highlands Mine located in Montana. In addition to its producing and near-term production projects, Idaho Strategic Resources, Inc. has additional gold exploration prospects, including the McKinley-Monarch and Eastern Star located in Central Idaho, and additional holdings near the Golden Chest in the Murray Gold Belt. Recently, the Company added two rare earth element properties in Idaho to its portfolio of exploration properties in an effort to diversify its holdings towards the anticipated demand for these elements in the electrification of motorized vehicles.
COVID-19 Coronavirus Pandemic Response and Impact
Following the outbreak of the COVID-19 coronavirus global pandemic (“COVID-19”) in early 2020, in March 2020 the U.S. Centers for Disease Control issued guidelines to mitigate the spread and health consequences of COVID-19. The Company implemented changes to its operations and business practices to follow the guidelines and minimize physical interaction, including using technology to allow employees to work from home when possible and altering production procedures and schedules, asset maintenance, and limiting discretionary spending. As long as they are required, the operational practices implemented could have an adverse impact on our operating results due to deferred production and revenues or additional costs. The negative impact of COVID-19 remains uncertain, including on overall business and market conditions. There is uncertainty related to the potential additional impacts COVID-19 could have on our operations and financial results for the year.
Critical Accounting Estimates
We have, besides our estimates of the amount of depreciation on our assets, two critical accounting estimates. The ounces of gold contained in our process and concentrate inventory is based on assays taken at the time the ore is processed and the ounces of gold contained in shipped concentrate which is based upon assays taken prior to shipment however subject to final assays at the refinery, these shipments are also subject to the fluctuation in gold prices between our shipment date and estimated and actual final settlement date. Also, the reclamation bond obligation on our balance sheet is based on an estimate of the future cost to recover and remediate our properties as required by our permits upon cessation of our operations, and may differ when we cease operations.
Our concentrate sales sometimes involve variable consideration, as they can be subject to changes in metals prices between the time of shipment and their final settlement. However, we are able to reasonably estimate the transaction price for the concentrate sales at the time of shipment using forward prices for the estimated month of settlement, and previously recorded sales and accounts receivable are adjusted to estimated settlement metals prices until final settlement for financial reporting purposes. The embedded derivative contained in our concentrate sales is adjusted to fair value through earnings each period prior to final settlement. It is unlikely a significant reversal of revenue for any one concentrate lot will occur. As such, we use the expected value method to price the concentrate until the final settlement date occurs, at which time the final transaction price is known. At March 31, 2022, metals that had been sold but not final settled thus exposed to future price changes totaled 1,205 ounces of gold. The Company has received provisional payments on the sale of these ounces with the remaining amount due reflected in gold sales receivable.
The asset retirement obligation and asset on our balance sheet is based on an estimate of the future cost to recover and remediate our properties as required by our permits upon cessation of our operations, and may differ when we cease operations. At March 31, 2022 we reviewed our December 31, 2021 estimate that the cost of the machine and man hours probable to be needed to put our properties in the condition required by our permits once we cease operations would be $103,906 for the Golden Chest property and $96,600 for the New Jersey Mine and Mill. For purposes of the estimate, we evaluated the expected life in years and costs that, initially, are comparable to rates that we would incur at the present. We are adding to the liability each year, and amortizing the asset over the estimated life, which decreases our net income in total each year. We make periodic reviews of the remaining life of the mine and other operations, and the estimated remediation costs upon closure, and adjust our account balances accordingly. At this time, we think that an adjustment in our asset recovery obligation is not required, and an adjustment in future periods would not have a material impact in the year of adjustment, but would change the amount of the annual accretion and amortization costs charged to our expenses by an undetermined amount.
The SEC has requested that all registrants address their most critical accounting policies. The SEC has indicated that a “critical accounting policy” is one which is both important to the representation of the registrant’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We base our estimates on past experience and on various other assumptions our management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results will differ, and may differ materially from these estimates under different assumptions or conditions. Additionally, changes in accounting estimates could occur in the future from period to period. Our management has discussed the development and selection of our most critical financial estimates with the Audit and Finance Committee of our Board of Directors. The following paragraphs identify our most critical accounting policies:
Determination of Fair Values
Management determines the fair value of a financial instrument based on the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value is calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities includes consideration of non-performance risk, including the party’s own credit risk.
Impairment of Mineral Rights and Properties, Plant and Equipment
The Company assesses its mineral rights and properties, plant and equipment for possible impairment whenever events or changes in circumstances indicate the carrying value of the assets may not be recoverable. Such indicators include changes in the Company’s business plans, changes in precious metal prices and significant downward revisions of estimated mineralization quantities. If the carrying value of an asset exceeds the future undiscounted cash flows expected from the asset, an impairment charge is recorded for the excess of carrying value of the asset over its estimated fair value.
Determination as to whether and how much an asset is impaired involves management estimates on highly uncertain matters such as future commodity prices, the effects of inflation and technology improvements on operating expenses, and the outlook for global or regional demand conditions for gold and silver. However, the impairment reviews and calculations are based on assumptions that are consistent with the Company’s business plans and long-term investment decisions. Management does not believe there are impairments present in mineral rights and properties, plant, and equipment.
Reclamation and Remediation Obligations
Reclamation costs are allocated to expense over the life of the related assets and are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and remediation costs. Reclamation obligations are based on when the spending for an existing environmental disturbance will occur. We review, on at least an annual basis, the reclamation obligation at each mine site in accordance with guidance for accounting for asset retirement obligations.
Reclamation obligations for inactive mines are accrued based on management’s best estimate of the costs expected to be incurred at a site. Such cost estimates include, where applicable, ongoing care, maintenance and monitoring costs. Changes in estimates at inactive mines are reflected in earnings in the period an estimate is revised.
Accounting for reclamation and remediation obligations requires management to make estimates unique to each mining operation of the future costs we will incur to complete the reclamation and remediation work required to comply with existing laws and regulations. Actual costs incurred in future periods could differ from amounts estimated. Additionally, future changes to environmental laws and regulations could increase the extent of reclamation and remediation work required. Any such increases in future costs could materially impact the amounts charged to earnings for reclamation and remediation.
Income Taxes
Our income tax expense and deferred tax assets and liabilities reflect management’s best assessment of estimated future taxes to be paid. Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, we develop assumptions including the amount of future state and federal pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates that we are using to manage the underlying businesses. Valuation allowances are recorded as reserves against net deferred tax assets by the Company when it is determined that net deferred tax assets are not likely to be realized in the foreseeable future.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized.
Highlights during the first quarter of 2022 include:
·
IDR up-listed its common stock onto the NYSE American and ‘rang’ the Opening Bell for the New York Stock Exchange (NYSE) on Monday, March 21st, 2022. IDR became the first company to ring the Opening Bell of the New York Stock Exchange virtually, via video stream, from underground at the Golden Chest Mine.
At the Golden Chest, ore mined from underground stopes totaled approximately 4,900 tonnes from the 815 and 830 stopes. Development waste tonnage totaled 3,200 tonnes as the Main Access Ramp (MAR) was extended at depth. Additionally, 2,800 cubic meters of backfill was placed during the quarter which was a record thanks to our hard-working miners.
Open pit mining progressed from the 1005 bench to the 1002 bench as production averaged 1,140 tonnes per day.
For the quarter ended March 31, 2022, a total of 11,014 dry metric tonnes (dmt) were processed at the Company’s New Jersey mill with a flotation feed head grade of 3.55 gpt with gold recovery of 89.5%
The Company drilled 1,437 meters during the quarter and released core drilling results from the Klondike area of the Golden Chest mine which is on the northern end of the property. The intercepts are summarized below:
GC 21-210
0.74 gpt gold over 51.6 meters (m) from 185.1 to 236.7 m including the following higher-grade intervals:
o
2.11 gpt gold over 6.1 m from 196.2 to 202.3 m
14 gpt gold over 0.7 m from 249.3 to 250.0 m
31.7 gpt gold over 0.8 m from 272.2 to 273.0 m
GC 22-212
8.77 gpt gold over 9.2 m from 137.6 m to 146.8 m including the following higher-grade interval:
37.35 gpt gold over 1.3 m from 143.3 to 144.6 m
3.14 gpt gold over 1.3 m from 149.6 to 150.9 m
13.87 gpt gold over 0.7 m from 157.6 to 158.3 m
3.17 gpt gold over 1 m from 192.2 to 193.2 m
7.00 gpt gold over 1.4 m from 218.3 to 219.7 m
Regarding the Company’s Rare Earth Element projects, the Company announced its partnership and participation in the Idaho Global Entrepreneurial Mission (IGEM) Project focused on the “Development of Idaho-Sourced Rare Earth Elements Drilling and Extraction”. In addition to IDR, the complete list of participants includes the University of Idaho (UI), Idaho Geological Survey (IGS), Idaho National Labs (INL), Center for Advanced Energy Studies (CAES), and the Idaho Department of Commerce.
The overall goal of the IGEM Project is to advance Idaho-sourced rare earth elements (REEs), with a possible result being the demonstration of the potential for environmentally minded Idaho-based commercialization of REEs and REE end products. Idaho Strategic was chosen as the industry partner for the project due to its ownership of two nationally recognized REE project(s) in Idaho (Roberts and Diamond Creek). The Company plans to conduct roughly $1 million worth of rare earth element drilling on its Diamond Creek property near Salmon, Idaho, and will supply REE core samples to its program partners for study and analysis.
Results of Operations
Our financial performance during the quarter is summarized below:
The Company had a gross profit of $306,143 compared to a gross loss of $71,403 for the three-month periods ended March 31, 2022, and 2021 respectively. Gross profit increased primarily because of improved gold prices.
Cash costs per ounce decreased for the three-month period ended March 31, 2022, to $978.70 per ounce compared to $1,476.24 per ounce in 2021 because of increased production and improved inventory valuation. AISC per ounce decreased to $1,557.32 per ounce for the three-month period ended March 31, 2022, compared to $2,097.34 for the comparable period in 2021 as a result of utilizing the Company’s in house core drilling versus using in-house drilling in addition to using a contract driller for drilling in the Paymaster/Joe Dandy.
Revenue was $2,044,417 for the three-month period ended March 31, 2022, compared to $1,586,627 for the comparable period of 2021. The increase was mostly the result of higher realized gold prices and increased gold inventories.
An operating loss of $426,166 for the three-month period ended March 31, 2022, compared to an operating loss of $1,626,655 in the comparable period of 2021. The change was mostly a result of contract core drilling in the Paymaster/Joe Dandy and expense for stock options granted in the first quarter of 2021.
Net loss of $473,069 for the three-period ended March 31, 2022, compared to net loss of $1,662,404 for the three-month period ended March 31, 2021. The reasons for these changes are the same as those for the operating loss described above.
Exploration costs decreased in 2022 compared to 2021 because of the elimination of contract core drilling in the Paymaster/Joe Dandy and an increase in core drilling completed by the Company’s in-house drill.
Management, professional services, and general and administrative expenses decreased in the three-month period ended March 31, 2022, compared to 2021 as a result of options being granted to management, directors, and employees for a total cost of $604,571.
Timber revenue decreased in 2022. No logging on the Company’s property occurred in 2022.
The consolidated net loss for the three-months ended March 31, 2022, and 2021 included non-cash charges as follows: depreciation and amortization of $230,208 ($182,795 in 2021), accretion of asset retirement obligation of $2,516 ($2,498 in 2021), stock-based compensation of none in 2022 ($614,431 in 2021), the issuance of common stock for services $32,326 ($2,300 in 2021), and equity income on investment in Buckskin $331 in 2022 (None in 2021).
Cash Costs and All-In Sustaining Costs Reconciliation to GAAP-Reconciliation of cost of sales and other direct production costs and depreciation, depletion and amortization (GAAP) to cash cost per ounce and all-in sustaining costs (AISC) per ounce (non-GAAP).
The table below presents reconciliations between the most comparable GAAP measure of cost of sales and other direct production costs and depreciation, depletion, and amortization to the non-GAAP measures of cash cost per ounce and all in sustaining costs per ounce for the Company’s gold production in the three-month periods ended March 31, 2022, and 2021.
Cash cost per ounce is an important operating measure that we utilize to measure operating performance. AISC per ounce is an important measure that we utilize to assess net cash flow after costs for pre-development, exploration, reclamation, and sustaining capital. Current GAAP measures used in the mining industry, such as cost of goods sold do not capture all of the expenditures incurred to discover, develop, and sustain gold production.
Cost of sales and other direct production costs and depreciation and amortization
Change in concentrate inventory
Cash Cost
Sustaining capital
Less stock-based compensation and other non-cash items
All in sustaining costs
Divided by ounces produced
Cash cost per ounce
All in sustaining cost (AISC) per ounce
Financial Condition and Liquidity
For the Three Months Ended
Net cash provided (used) by:
Operating activities
Investing activities
Financing activities
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for small reporting companies.
ITEM 4: CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
At March 31, 2022, our Vice President who also serves as our Chief Accounting Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), which disclosure controls and procedures are designed to insure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized, and reported within required time periods specified by the Securities & Exchange Commission rules and forms.
Based upon that evaluation, it was concluded that our disclosure controls were effective as of March 31, 2022, to ensure timely reporting with the Securities and Exchange Commission. Specifically, the Company’s corporate governance and disclosure controls and procedures provided reasonable assurance that required reports were timely and accurately reported in our periodic reports filed with the Securities and Exchange Commission.
Changes in internal control over financial reporting
There was no material change in internal control over financial reporting in the quarter ended March 31, 2022.
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Neither the constituent instruments defining the rights of the Company’s securities filers nor the rights evidenced by the Company’s outstanding common stock have been modified, limited or qualified.
In the first quarter of 2021 the Company issued 714 shares of common stock at $3.22 per share for services provided for a total value of $2,300. Also, in the first quarter of 2021 44,643 options were exercised in exchange for 28,196 shares at $5.32 per share in a cashless warrant exercise.
The Company closed a private placement in February 2022. Under the private placement, the Company sold 360,134 units at $7.50 per unit for net proceeds of $2,701,000. Each unit consisted of one share of the Company’s common stock. In the first quarter of 2022 the Company issued 3,572 shares of common stock at $9.05 per share for services provided for a total value of $32,326. In the first quarter of 2022 23,057 shares were issued in exchange for outstanding warrants for net proceeds of $68,006. In the first quarter of 2022 51,789 options were exercised in exchange for 28,981 shares at an average price of $9.72 per share in a cashless warrant exercise. In March of 2022 392,866 shares of the Company’s stock were issued to holders of convertible debt. 35,715 of those shares were issued at rate of $5.60 per share and the remaining 357,151 of those shares were issued at a rate of $4.90 per share in exchange for a total of $1,950,000 in debt.
The Company relied on the transaction exemption afforded by Section 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D Rule 506(b). The common shares are restricted securities which may not be publicly sold unless registered for resale with the Securities and Exchange Commission or exempt from the registration requirements of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has no outstanding senior securities.
ITEM 4. MINE SAFETY DISCLOSURES
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in exhibit 95 to this report.
ITEM 5. OTHER INFORMATION
In January 2022, the Board adopted its (a) Code of Business Conduct and Ethics; (b) Charter of the Audit Committee; (c) Charter of the Compensation Committee; (d) Charter of the Corporate Governance and Nominating Committee; and (e) Whistle Blower Policy. Copies of each are attached hereto as Exhibits 14, 99.1, 99.2, 99.3, and 99.4, respectively.
ITEM 6. EXHIBITS
Exhibits
3.1
Amended and Restated Articles of Incorporation, incorporated by reference to the Company’s Form 8-K as filed with the Securities and Exchange Commission on October 27, 2021
3.2
Amended and Restated By-laws of Idaho Strategic Resources, Inc., incorporated by reference to the Company’s Form 8-K as filed with the Securities and Exchange Commission on October 27, 2021
10.1*
Venture Agreement with United Mine Services, Inc. dated January 7, 2011.
10.2***
Consent, Waiver and Assumption of Venture Agreement by Crescent dated February 14, 2014
10.3
Registrant’s Grant of Options to Directors and Officers dated December 30, 2016, incorporated by reference to the Company’s Form 8-K as filed with the Securities and Exchange Commission on January 4, 2017.
10.4
Registrant’s Grant of Options to Employees and Directors of the Company dated October 20, 2021, incorporated by reference to the Company’s Form 8-K as filed with the Securities and Exchange Commission on October 22, 2021.
10.5
Form of Convertible Note Purchase Agreement dated as of February 18, 2020, incorporated by reference to the Company’s 8-K as filed with the Securities and Exchange Commission on February 20, 2020.
10.6
Form of Convertible Promissory Note dated as of February 18, 2020, incorporated by reference to the Company’s 8-K as filed with the Securities and Exchange Commission on February 20, 2020.
10.7
Form of Convertible Note Purchase Agreement dated as of April 14, 2021, incorporated by reference to the Company’s 8-K as filed with the Securities and Exchange Commission on April 19, 2021.
10.8
Form of Convertible Promissory Note dated as of April 14, 2021, incorporated by reference to the Company’s 8-K as filed with the Securities and Exchange Commission on April 19, 2021.
14****
Code of Business Conduct and Ethics.
31.1****
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2****
32.1****
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2****
95****
Mine safety information listed in Section 1503 of the Dodd-Frank Act. ****
99.1****
Charter of the Audit Committee
99.2****
Charter of the Compensation Committee
99.3****
Charter of the Corporate Governance and Nominating Committee
99.4****
Whistle Blower Policy
101.INS****
XBRL Instance Document
101.SCH****
XBRL Taxonomy Extension Schema Document
101.CAL****
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF****
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB****
XBRL Taxonomy Extension Label Linkbase Document
101.PRE****
XBRL Taxonomy Extension Presentation Linkbase Document
*
Filed with the Registrant’s Form 10 on June 4, 2014.
**
Filed July 2, 2014
***
Filed March 31, 2015.
****
Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
By:
/s/ Grant Brackebusch
Grant Brackebusch,
its: Vice President and Chief Financial Officer
Date: May 16, 2022