Fortitude Gold Corp

OTC:FTCO

Earnings Call Transcript 2023-Q3

[Operator]

Good day, everyone, and welcome to the Fortitude Gold Third Quarter 2023 Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Mr. Jason Reid, CEO and President of Fortitude Gold. Sir, the floor is yours.

[Jason Reid, executive]

Thank you. Good morning, everyone and thank you for joining Fortitude Gold Corp's 2023 Third Quarter Conference Call. Following my brief comments and associated presentation for those who joined online, we will have a brief question-and-answer period. Joining me on the call today for the Q&A portion will be Mr. John Labate, our Chief Financial Officer.

Let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued yesterday along with the comments on this call, are made only as of today, November 1, 2023, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of non-GAAP financial measures referred to in our remarks in our Form 10-K filed with the SEC for the year ended December 31, 2022. The third quarter was another strong one for the company. We achieved $21.3 million net sales, $5.7 million net income or $0.24 per share compared to $0.15 per share the prior quarter. At the end of the third quarter, our cash balance grew by over $5 million to $52 million compared to $46.9 million in the prior quarter. 11,122 gold ounces were produced, 2.04 grams per tonne average gold grade mine, $91.8 million working capital at September 30, 2023, $11.8 million mine gross profit, $547 million total cash cost after by-product credits per gold ounce sold, 651 per ounce total all-in sustaining cash cost and $2.9 million cash dividends paid to shareholders. Exploration spending was $3.8 million, which resulted in great drill results like those released from the new mineralized area along our Isabella Pearl train called Scarlet North. It's located just 700 meters from the Isabella Pearl deposit, which would amount to a very short haul distance if we were able to be -- if we were able to delineate a deposit in the area from future drilling. High-grade intercepts included 6.1 meters grading 2 grams per tonne gold and 13.72 meters grading 1.28 grams per tonne gold at the Scarlet North target. We are working to obtain new exploration drill permits from the Bureau of Land Management to drill Scarlet from new pads in the area. But until then, we plan to drill from the existing pads with a follow of drill program in the near term to step out and infill on these good results. We still await questions back from the BLM on our plan of operations submitted for our County Line project. We have also recently filed our plan of operations for our Golden Mile project with the BLM as well. We continue to drill numerous targets on our Isabella Pearl trend as well as that East Camp Douglas and await assay results for East Camp Douglas is North Veins. Results are expected soon. Along with 2 to 3 drills turning, we continue our mapping and sampling programs on most all our properties, generating additional drill targets to add to a list of future exploration programs. We took advantage of the volatility in the gold price during the quarter to add to our growing physical metal bullion holdings as part of our treasury diversification program. We now hold both physical gold and silver bullion in our treasury. To conclude, Q3 2023 was another strong quarter and we thank you for your continued support. With that, I would like to thank everyone for their time today on this conference call. And operator, if you can please open up the lines for a possible Q&A and let people get in the queue if there are any. And while that's happening, I'll move to the writing Q&A.

[Operator]

[Operator Instructions]

[Jason Reid, executive]

Thank you, operator. Before we move to the any live questions, we have several write-ins that have just come in. The first one is from Jim Strollin. Thanks for the great work and outstanding results. On the East Camp Douglas property, have you drilled both the North Targets and the Lithocap? Thanks.

Yes, we continue to drill the Lithocap. It is a very large target and we'll take expecting quite a bit of time to drill it thoroughly. So we continue to do that. Having said that, you're all aware that we've moved a drill to the Northern veins, and we did our initial drill program there, and we are just awaiting our first tranche of drill results from the assay lab. So we eagerly await those. But yes, we are drilling both those targets. Thanks for the question. The next written question is from Ray Lieb. How are the cash holdings invested? What rate of return is realized? And what is the progress on regulatory submissions for County Line and Golden Mile, when is the response expected?

Thanks for the question, Ray. First, a part of that question, where the cash holdings invested. They're in U.S. treasury bonds and they generate approximately 5%, a little over 5%. The actual rate of return is variable and it really depends on the purchase date. But that's more or less what we're looking at which is quite nice given our cash position and we're putting that to work to generate additional income. So the second part of your question is, what is the progress on regulatory submissions for County line and Golden Mile?

We expect the County Line first questions back from the regulators any day. Unfortunately, their timing is their timing and they're taking a little longer than we would like. But we hope to get their first round of questions. Keep in mind that in County Line, we're not building the entire project from scratch like you would a normal mine. And as much as we're going to mine it as an aggregate. So we're not building a heap leach. We're not building a process plant. We're not building a lot of infrastructure. So County Line is less to review, if you will. We're basically building a crushing circuit and stockpiling some waste. So it's not a heavily reviewed permit because there's not a lot there, if you will, because we're utilizing our processing plant just down the road. So again, we expect, hopefully, the first round of questions any day.

And in Golden Mile, we turned in the plan of operations there. We obviously expect County Line before Golden Mile as far as any questions go. So when is the response expected, I would have liked one weeks ago. But unfortunately, they work on their own time frame. So thanks for the question. The next question, I guess, actually is from Ray Lieb again. When is Isabella Pearl expected to exhaust, have mining costs stabilized or are they continuing to inflate?

Another good couple of questions. As far as Isabella Pearls exhaustion, we don't know in as much as we know there's a lot of high-grade transitional ore in the bottom of the pit, and we really won't know until we mine it. I think everybody has followed us is fully aware that we've defined a lot of high-grade mineral in the bottom, and it's a function of mining and testing, it's PH to see if we can put it on the heap leach pad. So that, coupled with the fact that we still have mineral at Civit Cat, which is north edge of the deposit to mine, whether it's by year-end or early next year, could be depleted or it could go longer. So we just don't know yet, but we'll be mining likely for the rest of the year, at least. Thanks for the question. The next question is from Greg Hooper. Can you elaborate on the status of any stockpile ore amount in grade and how it relates to Q3 overall grade stated in our earnings release?

That's a really good question. And I really can't elaborate a lot on it because there's a blending always happens. So we blend low and high grade. It also depends on quarter-on-quarter, which can be highly variable. But I think when you compare the 9 months year-to-date, you're going to see the grade is close to what it was last year. Another extenuating circumstance that hit us in the Q3 was I think most people were aware or read about the floods, the flooding that took place in Nevada. And for instance, it did locked everybody who went to Burning Man, into Burning Man for a long time. Well, we weren't exempt from that flooding and one of those storm cells hit us with a 100-year event and washed out some roads, it actually washed out the paid public road in one of the lanes. So it is that extensive.

So we took on a tremendous amount of water, which dilutes the pad and throws that off. Pads are almost like a living organism and environmental factors can affect that. So we obviously have built this project who was staying to sustain 100-year events. And so we live through it fine. But we also -- in context, we had a massive amount of water hit our pad, which throws the whole pad off, if you will, for a while. So we're still working through that. But that is a big factor in Q3. It's not often you sustain a 100-year event. So I can't really expand any more beyond that, but thanks for the question, Craig. Right. The next question is from Donald Waterlender. Golden Mile, when is the expected mining start-up?

Well, first, we want to get County Line into production. So we're obviously pushing that really hard. As I mentioned earlier in the call, it doesn't have the extensive build like the project from scratch. So that's our next focus after that is Golden Mile. Golden Mile has more build than as much as we're going to build a heap leach. We're going to build a process, but we're not doing an ADR, which for Isabella Pearl took the longest to get the permit.

So we hope Golden Mile, while we fully understand it will take a little longer to get the permits than county line presumably because there's a little more build, we're not going to have an ADR there. So we hope that shortens the permit time frame. But when is expected to start up, that really depends on the regulators. The BLM is understaffed. So that's all I can really comment in that regard. But thanks for the question.

Our next question is from Tom Sterck. Are there any future plans for an option to receive the dividend in metal bullion?

Great question, Tom. And we kicked that around a lot. We executed on that with our previous company. And we're proud of the fact that we were able to do that. Having said that, there were several hoops that you had to jump through to be able to do that and deter a lot of shareholders from that. So this time around, what we're looking at is having shareholders and even the general public for that matter, have the ability to purchase those rounds as they want. They wouldn't necessarily have to be a shareholder to do it. So we are working with a ment, who's purchased -- who's already mented our first tranche of rounds that went in, some of which went into our treasury and we'll be working with them to try to launch, and I say try because it's not done yet, try to launch a program and where shareholders could take their dividend money and turn around and purchase physical and effectively execute the same process as we did previously, but do it in a much simpler fashion. It would also allow shareholders or just collectors who wanted to go in and pick up a rare round to go buy them there. So we are working in that regard, but it wouldn't be your dividend. You'd have to take your cash dividend and convert it into metal. But that's what you had to do previously as well. And I won't go into all the reasons why, but that it will be the net effect. Same thing, same, same. So great question, Tom, and we're working hard to -- Greg is spearheading that and doing a great job, and it's looking like that may come to fruition. And at that point, when it does, we'll let everybody know and then they can go in and convert their dividend over. Thanks for the question. Next question is from Mark Smith. Regarding graded IP, what is your outlook for graded IP?

Another great question, Mark. We know that a lot of high-grade deep in that transitional ore. When you get into that transitional ore depending on PH, depending on if you can put it on the pad, depending on recovery, because that transitional ore does have some sulfides in it, some base metals, which are cyanide consumers. There's so many variables at work there that the outlook as far as grade deep, we won't know until we put it on the pad and try to recover it. So I don't know. We don't know. We won't know until we mine the last couple of benches of this. Having said that, this is great grade. We continue to be in great grade. And if you look at our year-to-date grade over 3 grams, we're very happy. So Isabella Pearl has not disappointed and I don't expect it to disappoint as we mine the remaining benches and then move over to Civit Cat, which is, again, part of the deposit, but on the North side. But thanks for the question, Mark.

Okay. The next question is from Harvey Bolen. What is the projected cost of building out the 2 mines for the BLM?

Thanks for the question, Harvey. The cost to build County Line is going to be about as cheap as any mine could possibly be built because we're moving in a modular crushing facility. So it's -- as mines go, it's not going to be a material amount. Having said that, we're spending money with engineering, et cetera, on it. We're going to be moving a crushing plant in there. We're going to be hopefully moving dirt once we get approval for this. Yes, we have cash in the bank to cover both mine builds, we believe, and then some. County Line and Golden Mile is more in depth. I think you're all aware, we've spent well over $12 million. Actually, John can correct me if I'm wrong, but we're probably pushing quite a bit more than that $12 million number in an equipment we've already bought there. So what's left is actual the construction build. And again, since we've already bought all the equipment, the rolling stock, the liner, the process plant, all of which sits on yards ready to go in, the remaining build isn't going to be substantial as far as cash goes. And with our cash balance, we'll be able to build both. So that's where we are with the 2 mines. We have cash in the bank to build them both.

As far as -- okay, thanks, Harvey, for that question. As far as the next question, Mark Smith. $52 million cash, do you have any estimated -- estimate of CapEx we're counting? Actually, just touched on that. So let's go to the next one.

Steffan Banker. What is your view of the price of gold heading in 2024, given geopolitical events? That's a great question, and I could talk all day on that. I don't have a crystal ball, though. And I just don't see a world in which gold isn't going to be materially higher. There's plenty of interest out there to suppress the gold price. We've seen that with the JPMorgans, the world getting find $1 billion for suppressing the gold price, [indiscernible]. That will continue to happen, but I think the power of beer are going to lose control. You just can't print the amount of money that's been printed in the last -- I think more money has been printed in the last 5 years than has ever been created ever in the U.S. So I think some of this is going to come on to roost, and we're already seeing that with the goal being as strong as it is, even given the interest rates going up, I mean, it should be counter. So anyway, I'll stop talking there because I could talk all day on that, but I like the gold price where it is, it's nice selling gold at this price and anything above this is going to be gravy. But thanks for the question. Our next question, Chris Miller, why did the average grade decrease over 30% this quarter? Was that related to the rain? Do you have the permits to drill the high grade, the bottom of the Pearl? How much ore do you have now in your treasury gold, silver? Great quarters.

Chris, thanks for the questions. First part of it, why did the average grade decrease over 30% this quarter, was that related to the rain? In part of it was the rain, absolutely, the rain had a major impact, but that wasn't the only reason. Quarter-on-quarter, grade varies, Chris, and it does over and over again. And I think the biggest thing, if you try to compare quarter-on-quarter, you're going to go, okay, wow, there's just fluctuations up and down. Having said that, if you look at the 9 months, in 2022, our grade is 3.3% and in -- and this year, it's 3.1%. I mean we still have excellent great, Chris. So as far as grade goes, we're happy where the grade is. And yes, you can look at quarter-on-quarter. But again, it's also a function of there's high-grade pockets in this deposit, and it takes a while for those to actually show itself, when you put it on the pad and you blend it and then you're reaching certain cells, you're not leaching the whole thing at the same time. So there's just so many variables. So that's part of it.

The rain was absolutely a part of it. But in no world, do I want you to leave this conference call like some there's any excuse here. There's no excuse. We're happy where the grade is. And I'm actually proud of our team and our build that we were able to sustain a 100-year event and not blank at it. So I think that answers the question on the grade. Do you have the permits to drill the high grade at the bottom of the pit? We're working on that. Those permits, in my opinion, should have been done long ago. And that's a function of the BLM being understaffed. I guess all I can say to that is if you don't like hearing me say that. You can write the congressmen in Nevada and what have you and push from your end to say, hey, staff the BLM. That's all I can kind of say to that. But I do know the BLM guys that are there, men and women are working hard, they're just overworked because this administration chooses not to staff the BLM fully.

And then last part of your question, how much ore do you have now in your treasury gold and silver? It's in the queue. I don't have that on the top of my head, but we're pushing like $1 million of gold and silver. So that is likely to grow over time. But this is something we did with the previous company. I think all mining companies should put their money where their mouth is and hold a portion of their treasury in gold and silver, if you need it to build the project or whatever you can sell it. But to me, it's also a great hedge. Inflation is all around us, both as a company, and I'm sure to all everybody listening on this call and gold and silver are a good hedge against that inflation. Chris, thanks for all the questions. I hope I got to them all.

The next question, [indiscernible], how many ounces are in Civit Cat deposit?

I don't have the exact number of ounces in the Civit Cat deposit on the top of my head, but we still have a while to move to mine and Civit Cat. So that will just be part of the mine life. I have answered a lot of writing questions. Operator, do we have anybody waiting on the line? I hate to have had him hold this long.

[Operator]

There are no participants in the queue at this time.

[Jason Reid, executive]

Perfect. Okay. With that, I think we're going to call this conference call. I really appreciate all the questions. If we didn't get to your question, call Greg or myself directly. Happy to discuss any questions you may have. Again, thank you, everybody, for all the questions. It's great to see everybody engaged and watching us. So with that, thank you, everybody, and we'll talk to you next quarter.

[Operator]

Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.