Plan of Operation
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 technical and operating skills to build a portfolio of producing mines and milling operations with a focus on gold and exploration for Rare Earth elements (REE).
The Company's properties include: the
COVID-19 Coronavirus Pandemic Response and Impact
Following the outbreak of the COVID-19 coronavirus global pandemic ("COVID-19")
in early 2020, in
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
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
26 Table of Contents
Critical Accounting Estimates
The
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.
27 Table of Contents
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.
Critical Accounting Policies
We have identified our critical accounting policies, the application of which may materially affect the financial statements, either because of the significance of the financials statement item to which they relate, or because they require management's judgment in making estimates and assumptions in measuring, at a specific point in time, events which will be settled in the future. The critical accounting policies, judgments and estimates which management believes have the most significant effect on the financial statements are set forth below:
a) Estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in
b) Stock-based Compensation. All transactions in which goods or services are received for the issuance of shares of the Company's common stock or options to purchase shares of common stock are accounted for based on the fair value of the equity interest issued. The value of common stock awards is determined based upon the closing price of the Company's stock on the date of the award. The Company estimates the fair value of stock-based compensation using the Black-Scholes model, which requires the input of some subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them ("expected life"), the estimated volatility of the Company's common stock price over the expected term ("volatility"), the risk-free interest rate and the dividend yield. Changes in the subjective assumptions can materially affect the estimate of the fair value of stock-based compensation.
c) Income Taxes. Income taxes are accounted for under the liability method. Under this method deferred income tax liabilities or assets are determined at the end of each period using the tax rate expected to be in effect when the taxes are expected to be paid or recovered. A valuation allowance is recorded to reduce the deferred tax assets if there is uncertainty regarding their realization. Uncertain tax positions are evaluated in a two-step process, whereby (i) it is determined whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the related tax authority would be recognized.
d) Investments. In a joint venture 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 influences exist, the Company considers its participation in policy-making decisions and its representation on the venture's management committee.
Highlights for 2021 include: · For the year endingDecember 31, 2021 , the Company processed 44,300 dry metric tonnes (dmt) at theCompany's New Jersey Mill with an average gold head grade of 3.85 grams per tonne gold (gpt). · IDR produced a total of 4,826 ounces of gold contained in concentrates and dore'. · Mined 27,125 tonnes of ore from the open pit at an average grade of 2.92 gpt gold with an average stripping ratio of 6.4 and an average daily mining rate of 1,024 tonnes per day (tpd). Tonnes and grade were lower than expected because of unmapped historic stopes where the old-timer's mined portions of the veins. · Mined 17,318 tonnes of ore from the underground mine at an average grade of 5.32 gpt gold and completed 190 meters of development related to the Main Access Ramp (MAR) to access new stopes. Two ventilation raises were completed by IDR miners as well. · Completed 6,935 meters of core drilling at the Golden Chest with significant gold-vein intercepts in the Paymaster and Klondike areas. A highlight of the 2021 drilling included drillhole GC 21-193 which intercepted 7.3 meters of 11.5 gpt gold in the Paymaster area. · Increased land position at rare earth element properties in centralIdaho . · Increased the size of theAlder Gulch Project by acquiring an additional 500 acres of patented mining claims located just west of the Golden Chest. 28 Table of Contents Results of Operations
Our financial performance for the years ended
· Revenue from gold concentrate sales was$7,630,416 for the year endingDecember 31, 2021 , compared to$5,674,947 for the comparable period in 2020. The increase in revenue from mining operations is the result of an increase in tonnes processed at the mill and a higher ratio of underground to open pit ore processed at the mill, resulting in a higher average gold grade. We are anticipating this higher underground ore ratio to continue for the foreseeable future. · Gross profit in 2021 was$487,877 compared to a gross profit of$67,546 in 2020 providing an increase in gross profit as a percentage of sales from 1.2% in 2020 to 6.4% in 2021. The percentage increase is largely due to the higher gold grade processed at the mill, as well as increased mining efficiency from our new underground equipment placed in service during the year. · The Company had a net loss of$3,260,361 in 2021 compared to a net loss of$739,939 for the same period in 2020 due to the planned increase in gold exploration and a non-cash charge related to an increase in stock-based compensation to employees · The consolidated net loss included non-cash charges of$1,977,841 ($236,493 in 2020) as follows: depreciation and amortization of$814,422 ($575,671 in 2020), accretion of asset retirement obligation of$9,953 ($9,632 in 2020), stock based compensation of$1,087,575 (none in 2020), stock issued for services of$69,673 (none in 2020), loss on write off of equipment none ($9,536 in 2020), equity income (loss) on investment in Buckskin$3,782 (none in 2020), gain on forgiveness of CARES Act loan of none ($358,346 in 2020). · Net loss attributable toIdaho Strategic Resources, Inc. was$3,160,169 and$642,876 in the years endedDecember 31, 2021 , and 2020, respectively. · Gold sales receivable increased to$408,187 from$264,779 atDecember 31, 2021 compared to 2020 as a result of shipping delays related to the global shipping situation. · Inventories decreased as ofDecember 31, 2021 , compared to 2020 as a result of where material was in the process at the mill. · Exploration expenses increased in 2021 compared to 2020 as funds became available. These exploration costs were primarily associated with core drilling at the Golden Chest and rare earth exploration inCentral Idaho . · Management, professional services, and general and administrative costs increased in 2021 compared to 2020 for reasons including stock based compensation that was awarded in 2021 (none in 2020), and an overall increase in corporate activities as the Company is growing. · Stock based compensation increased in 2021 compared to 2020 as the company resumed the program after forgoing any awards in 2020. · Mineral properties increased in 2021 with the addition of and to several properties most significantly with the addition of 508 acres to the Alder Gulch property for$1,699,965 . 29 Table of Contents
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
produced and all in sustaining costs per ounce produced for the Company's gold
production for the years ended
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 the expenditures incurred to discover, develop, and sustain gold production.
December 31, 2021 2020
Cost of sales and other direct production costs and depreciation, depletion, and amortization
$ 7,142,539 $ 5,607,401 Depreciation, depletion, and amortization (814,422 ) (575,671 ) Change in concentrate inventory 188,815 (177,391 ) Cash Cost$ 6,516,932 $ 4,854,339 Exploration 1,417,605 303,291 Sustaining capital 676,340 515,742 General and administrative 1,319,145 397,315
Less stock-based compensation and other non-cash items (1,153,466 ) (9,632 ) All in sustaining costs
$ 8,776,556 $ 6,061,055 Divided by ounces produced 4,827 3,755 Cash cost per ounce$ 1,350.10 $ 1,292.77 All in sustaining cost (AISC) per ounce$ 1,818.22 $ 1,614.13
Financial Condition and Liquidity
For the Years Ended December 31, Net cash provided (used) by: 2021 2020 Operating activities$ (1,351,027 ) $ (482,418 ) Investing activities (3,090,946 ) (1,593,541 ) Financing activities 3,878,546 4,398,108 Net change in cash and cash equivalents (563,427 ) 2,322,149 Cash and cash equivalents, beginning of period 2,539,945 217,796
Cash and cash equivalents, end of period
The Company has accumulated deficit of approximately
© Edgar Online, source