Fortitude Gold Corp

OTC:FTCO

Earnings Call Transcript 2022-Q4

[Operator]

Good day, everyone, and welcome to the Fortitude Gold 2022 Year-End Conference Call. At this time, all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation.

It is now my pleasure to turn the floor over to your host, Jason Reid. Sir, the floor is yours.

[Jason Reid, Chief Executive Officer]

Thank you. Good morning, everyone, and thank you for joining Fortitude Gold Corp's 2022 yearend conference call. Following my comments in the associated 11-page presentation for those who joined us 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, March 1, 2023, and we undertake no obligation to publicly update any of those 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. Fortitude Gold has a long list of strengths, including being one of the lowest cost gold producers in the space with high margins, and ultra-tight capital structure, no long-term debt, a strong treasury, and with excellent exploration potential on our significant Nevada property portfolio.

An attractive investment thesis on these merits alone as a gold equity. But Fortitude was specifically designed and engineered to create shareholder value by transcending being just a gold equity by having a second valuation metric of an attractive dividend yield. Fortitude's substantial dividend currently at $0.48 annually and paid monthly, is providing an attractive 7.5% yield to shareholders. This is the same slide for those joining in the presentation that we presented after Fortitude began publicly trading and we have worked to increase the dividend up to $0.48 as this goal. We could increase the dividend today, but we want to make sure we have enough capital to build the next mines we target building.

This dividend approach separates Fortitude as a junior gold producer from most all other gold equity peers by tapping into a pool of investment capital that is larger than the gold space itself. That pool of investment capital chases dividends and yield. This unique business model translated to Fortitude Gold regularly outperforming our peers as was the case again in 2022 and thus far in 2023. The last 12 months have been difficult for the mining industry. Over that time frame, our peers in the GDXJ or Junior Gold Miners Index were down over 21%.

The majors in the GDX Gold Miner Index were down over 20%. Physical gold, noted here on the slide as GLD ETF, as a proxy for the physical gold price was down 3.6%. Fortitude Gold beat our peers who were down double digits as well as physical gold, which is a small 1.2% decrease. Fortitude Gold's unique business model outperformed our peers in 2022 and continues to do so in 2023. Production results for the quarter were not only in line with our 2022 production outlook range, but our year-end production total exceeded our high end 2022 target by 3% with 41,231 gold ounces produced.

2022 highlights and financial results include net income of $14.7 million or $0.61 per share, $74.4 million net sales, $11.5 million paid to shareholders in cash dividends, $35.4 million in mine gross profit, a very low $725 all-in sustaining cash cost, and we paid $3.3 million in income tax and mining taxes. We have also deployed and invested over $10 million to date toward the CapEx for Golden Mile. We deployed $11.6 million toward exploration, which resulted in terrific drill results intercepting high-grade surface and near surface gold on every property we drilled in 2022. We achieved all this while growing our cash balance by $5 million to $45.1 million. 2022 was another great year.

During the 2022 production year, we mined an average gold grade of 3.71 grams per ton from the Isabella Pearl Mine. Operationally, we blended this high-grade gold with low-grade stockpiles as part of the overall mine plan. Our 2022 production of 41,231 gold ounces exceeded our high end 2022 production outlook. We again target a range of 36,000 to 40,000 gold ounces in 2023. We also estimate approximately 52,000 recoverable ounces were on the heap leach pad at year-end.

This, coupled with approximately 50,000 gold ounces to be mined in 2023 pushes the Isabella Pearl production profile out into 2025. In addition, at the end of 2022, we had a small window of time from which to drill deeper in the Isabella Pearl pit at elevations below the permitted pit bottom. We intercepted additional mineral blocks of oxide and transitional oxide mineral amicable to cyanide leaching. Oxide intercepts included 3.05 meters grading 15.15 grams per ton gold, within 21.34 meters grading 7.21 grams per ton gold and 18.29 meters grading 3.72 grams per ton gold. While a small amount of this mineral made it into the resource, the ultimate recoverable gold ounces and elevations below the permitted pit bottom won't be fully known until it's actually mined and the transitional ore blocks are pH tested for heap leach amicability and inclusion.

We are working to modify our existing open pit permit depth to mine deeper by several more benches so we can pull this mineral into production, further extending the Isabella Pearl mine life. We deployed $11.5 million in exploration during 2022, which is 115% more spend year-over-year. Our exploration efforts paid off with numerous exciting drill results on several of our properties. Excellent County Line drill results launched the property into a race with Golden Mile for pole position for our next operating mine. County Line Drilling delivered a maiden resource of approximately 37,000 gold ounces in measured and indicated and even more inferred mineralization on top of that.

While the grade is excellent at close to 1 gram per ton, low grades in portions of the block model brought down higher-grade zones that were in excess of 2 grams per ton gold. We believe there is an opportunity to not only add ounces, but possibly improve grade with further drilling of this mineral that remains open on both strike and depth. We are currently drilling the main open pit area at County Line looking for possible mineral extensions and additional gold ounces. Equally as exciting, we identified public information from a past operator at County Line on the East Zone open pit, east of the main County Line pit. References were made to leaving half the mineral in the ground when they walked away due to timing business issues and low metal prices at that time in history.

We sampled blasted rock in the bottom of the East Zone pit at 2 grams per ton gold. We are now planning a drill program at the East pit as well to quantify the potential of this opportunity. We look to not only add to the property's gold resource, but pull as much gold as possible into an initial mine plan and are moving forward with permit preparations. Due to County Line's proximity to our Isabella Pearl processing facility, County Line is being approached as an aggregate mining operation followed by transporting crushed material to Isabella Pearl for processing and/or A production. This should keep mine build cost to a minimum and expedite permit timing.

Because of these and other factors, County Line is likely to become a mine sooner than Golden Mile. At Golden Mile, we are keeping our foot on the gas and are finalizing remaining permit requirements and target an updated Phase I EA permit submission by the end of Q1 or early Q2. We continue to intercept very high-grade gold at Golden Mile with recently released intercepts, including 3 meters of over 30 grams per ton gold, within 24 meters of over 6 grams per ton gold. As we noted in the most recent Golden Mile press release, drilling to date has shed light on an expanded geologic model, whereby the mineralization may situate in more horizontal strata as opposed to only vertical vein and fault structures. While we believe we have enough mineral blocks defined for a Phase 1 starter pit, we need additional drilling programs to test the open spaces and extensions of the new geologic model with the goal to pull more ore blocks into subsequent open pit phases.

Most all equipment and materials have been purchased or committed for Golden Mile totaling more than now $10 million spent to date. We are currently in the process of drilling monitoring wells for a Phase 1 open pit as we move this property forward. Equipment and materials purchased to date includes a modular processing plant that takes gold to the carbon phase, crushing and stacking equipment, modular offices, heap leach pad liner, operational rolling stock like loader and dozer, among other equipment and materials that have been purchased. Much of it has been or is expected to be delivered soon.Exploration drilling at East Camp Douglas delivered numerous gold intercepts within our huge lithocap target. It is such a large area in target, had we not hit any mineral in our first several drill campaigns, I would not have been deterred.

But we have been fortunate to have hit mineral in both our first and second drill campaigns while we were primarily just looking to understand the geologic structures in this unique target. Intercepts include 4.5 meters grading 5.24 grams per ton gold within 15.2 meters grading 1.87 grams per ton gold. Like County Line and Golden Mile, we plan to continue to drill East Camp litho target hard in 2023. In addition to the exciting lithocap target, we also have high-grade gold veins at East Camp's north end, and we are looking at possibly drilling those vein targets in 2023 as well. Alternating the drill back and forth between the East Camp's lithocap target and the Northern vein target could be very beneficial and very exciting.

Assuming availability of both drill rigs and the NOI exploration permits, alternating back and forth between these targets while we receive and digest the prior drill campaign's assay results could speed up the advancement of both these targets. During 2022, our mapping and surface sampling of high-grade gold at our Ripper property was a success and warrants a maiden drill campaign targeted at this point for late 2023. We are also very focused and are prioritizing exploration of our Isabella Pearl trend as NOI exploration permits and rig availability allow. We are excited to begin drilling the next targets along the extensive mineralized corridor northwest from our Isabella Pearl mine. With our stellar portfolio of 100% owned properties and another $10 million to $12 million drill budget in the queue for 2023, I expect another year of exciting drill results on our properties.

As we look forward into 2023 and beyond, we have a clear vision of our goals to include continued mining at the Isabella Pearl and permit approval to mine deeper for additional ounces. We are working very hard at potentially bringing online two additional gold mines in the coming years. We also plan to explore our exceptional portfolio of exploration properties with the end goal of being a long-term gold producer in Nevada. A unique gold producer that in addition to producing gold at a profit also continues to distribute significant cash dividends to our shareholders. We provide both gold exposure and yield and are financially solid while positioned for continued success.

To conclude, 2022 was a great year, and we look to 2023 as being another exceptional year for fellow shareholders of Fortitude Gold Corporation. We thank you for your continued support. With that, I would like to thank everybody for their time today on this call. And before we open up the live Q&A with the Operator, I do have several e-mail questions that came in much earlier, and I'll start with those. The first one is from Gary Ribe who asked the question, how much more CapEx for Golden Mile?

We now are approaching about $10 million of spend toward Golden Mile, which is great, of an estimated approximately $28 million CapEx spend. We are well on our way to fighting off the CapEx with our cash flow. With the cash on hand and with what we expect to make in 2023, I expect us to generate a lot of cash in 2023. I believe we can build Golden Mile with cash and no dilution to shareholders. The same holds true for County Line especially since the CapEx should be very low at County Line.

The next question was a write-in question from Bob Schwering. Let's see, he's got a couple of them. The first one is, $9 million CapEx spent to date. I think I just addressed that. I'll skip that question.

Number two, we are waiting on permits, which ones? For Golden Mile, the big permit you turn in is called the EA, and we're working really hard to finalize that and try to get it in by the end of this quarter or early next quarter. That is the more comprehensive big package of permits that we seek. Now we are not building an ADR plant at Golden Mile, and that was the portion of the permitting that took the longest for Isabella Pearl. We expect that to shorten the permit timing.

I would say, to be very conservative, that building that project should be less than a year, especially since the process is being built modularly, tested off-site modularly, and it will just be hauled in and ready to go. The largest build for Golden Mile is the heap leach pad. That will be the largest project. But to put all that in perspective, we broke ground at Isabella Pearl and produced gold in 10 months, building an ADR. We're not building an ADR, so because of that, I think we will, again, to be very conservative, less than a year.

But why couldn't we beat our 10-month target? I don't know, maybe we can, we'll see. Okay. And then one last question from Bob is, is current life of mine oxide still estimated at mid-2025? The answer is yes.

And can additional benches extend it? The answer is yes. Okay. Operator, if you have any live questions, let's take a few of those.

[Operator]

Certainly. [Operator Instructions]

[Jason Reid, Chief Executive Officer]

While we wait to see if there's any telephone questions. I see a bunch coming in on the portal for those joined online. I'll take a few of those. The first one is from Harvey Boland, private investor. I noticed that the exploration budget for 2023 is slightly less than that for 2022.

Cash flow in 2023 was strong enough to add $5 million to assets. In view of all that and with production to at least be equal to 2022, what are the prospects for dividend increase? Thanks for your question, Harvey. We could increase the dividend today no problem. But we also want to take a longer-term view for this company.

We want to make sure we have plenty of cash on hand to build, as you heard, two mines that we're going after. Those mines in the grand scheme of things in the mining industry are very low CapEx. But having said all that, we just want to make sure we strike that balance of returning a nice sizable dividend to shareholders, but also having enough cash on hand to build. So again, we could increase it today. We're not going to today.

At some point in the future, we hope to be in a position to increase the dividend. But we -- our dividend compared to our peers outsizes everybody, so I think we're doing pretty well. And we're growing our cash and we're building, so I think that's the main approach. The next question is from Clyde Lagomarcino, sorry if I mispronounced your last name. Is there a chance to receive our dividends in gold?

Great question, Clyde. As you guys know, my associate Greg Patterson and I developed that when we were -- our previous company, we developed our conversion of dividends into gold. We may potentially do that here again, but at this point, we don't have that ability. But is there a chance? Sure, there's a chance.

We did it before. We'd like to do it again. We do have a lot on our plate right now. And at some point, when we have a little more time, we'll focus on that. But yes, we've done it in the past and it would be fun to do it again.

We have another one from Ray Lieb, individual investor. What would it take to recover non-oxide ore from Isabella Pearl? It really depends on the metallurgy of the non-oxide ore. But from the initial look at this, it's pretty complicated, so taking a completely different operation. And so our business plan is to go after the oxides and mine them from our properties with an open pit heap leach.

To go after the sulfide is a whole other ball game. Now you could take the approach, which some are doing, even some of our neighbors are doing there on the Walker Lane where they hope to someday mine a bunch of sulfides and then sell them, toll mill them, whatever, to the majors who have large facilities from which to process the sulfide ores. That's one approach too. I don't particularly care for that approach because you are over a barrel when you don't control your own destiny on what you produce. There's optionality for us in the future to look at some of these sulfides, and who knows, maybe someday we potentially sell those sulfides to a major or somebody else who wants them.

Sure, we could potentially mine it in total, mill it so to speak, to some major. But again, you open yourself up to a rude awakening when they can't take your material, and I don't know that we're going to put ourselves in that position. What would it take? It would take a lot, and it's not our focus. Great question, but that's not going to be for us anytime soon.

Okay, the next one is Greg Nelson. Great job, guys, managing the business plan. Question. Since there is significant metal currency in the leach pads, could you elaborate on typical timing of scooping ore and delivering to leach pad? And also leach pads to finish product ready for market?

Thanks. Great question. A leach pad is like a living organism. It takes a life of its own. I mean even our hard rain can change the chemistry makeup and how it leaches.

When we stack different benches and then we divide those into what we call cells and then we put solution on each cell, it really depends on how long you leach for, the depths of the cells, how many benches high it is. I mean it is a very intricate science, if you will. It just takes time. And as everybody who follows leach pads knows, leach pads produce long after they're done being stacked with ore just as a function of how these operate. We're living in the same world as anybody else who build a leach pad.

You stack ore, you put cells under leach, maybe you alternate the cells before their time is done and it's all been depleted and you come back and get those later. Operationally, there's actually some really good reasons to take them off leach and put them back on, but I won't dive into that rabbit hole right now. But point being, it just takes a while. The good news is, we believe we have a lot of gold on that pad, and we're going to be adding a lot more. Things are going really well.

Hopefully, that more or less answers your question. Okay, next question is Mark Smith. On Scarlet, what is the status? You said -- okay, on Scarlet, what is the status? You said we would see a reduction in waste.

Thanks for delivering. Okay. Scarlet is just an ancillary area, if you will, from the Isabella Pearl mine. And there are several of them and we're drilling them all. We found mineral at Scarlet.

We're trying to connect it. We're actually looking at other additional targets in that area. So hopefully, that answers your question on Scarlet. But on the bigger picture, we all know, if you followed us, that there's four past heap leaches along trend, open pits across the highway from us. And then you get to our claims going northwest and we've locked up a tremendous amount of ground and Isabella Pearl is on the end of that claim and that goes up to the Northwest.

I don't believe that this mineral just stops at Isabella Pearl. I think we're going to find many additional deposits along this trend, but it does take time. And not all targets we drill will be the homerun and become a deposit, but I believe some of them will. What I mentioned in the conference call, and I'll reiterate here, we're very focused on the Isabella Pearl trend because obviously, if we find something on that trend, it's a short haul distance to Isabella Pearl. Hopefully, that answers your question on the Scarlet.

The second part of your question, when you say you said we would see a reduction in waste, thanks for delivering, if you look at our waste, and I may get these numbers a little bit off, but we went from like 8 million tons down to 1 million and change. And going forward, we have a couple of hundred thousand. Yes, our waste at Isabella Pearl is dropping dramatically, which will help our costs or at least our cash going out on operations. So yes, we are reducing waste as a function of this Isabella Pearl at a 7:1 strip ratio, and we're through all the waste, basically. I think you're seeing that in the results of the financials, and you'll continue to see it.

Thanks for the question, Mark. Another question from Chris Abbott from 1035 Capital Management. Once you get these two new mines online, when do you start to uplist to a major exchange? Great question, Chris. We get this question quite a bit.

Our logical and landing spot, when and if we update uplist, will be the New York Stock Exchange. It won't be the NASDAQ. We know the guys over at New York Stock Exchange. We've been over there. We've had experience through our past company being on there.

And there's a lot of good reasons to move up, and it's just a matter of timing. We just want to time it right. There are some case studies, I won't throw some company names under the bus here, but there are some that have uplisted just to uplist, and it didn't do anything for them. You want a catalyst. We're looking at that as well, but if and when we uplist, it will be to the New York Stock Exchange as opposed to the NASDAQ.

Okay, another question, H.R. Gross from Goss Capital -- or H.R. Goss, Goss Capital. Status at Scarlet, I think I hit that. I think I touched on that.

Another question, Gary Hayes. Will FTCO be holding gold as cash reserves? Great question, Gary. Yes, we may. We did that with our previous company, we had gold in our treasury, and we may do that again.

Okay, we've got another question -- thanks for all these questions, guys. There's a lot coming in. Ariel Dickins. Did you ever drop power to Isabella Pearl? I don't recall ever hearing.

No, great question. There's been some hiccups with getting that power line hooked up, not having anything to do with us, but having everything to do with the bureaucracies and the large organizations trying to focus on us. We are unfortunately right at the border of two different electric companies, jurisdictions, and where we don't feel like we're getting a lot of focus. Having said that, we've been working really hard with them, and we believe we're getting some traction. We fully expect to connect to the power grid.

We're working hard on that. And yes, I just -- I'm hesitant to give another timeframe because we don't control that timing. It's kind of like when they can get to you. We obviously have the money. We've done everything we can on our end, and we're just continuing to push that one forward.

Let's see -- with that, we've answered a lot of -- well, I think do we have any phone questions, Operator?

[Operator]

Yes. Your next question is coming from Paul Caballo. Your line is live.

[Unidentified Analyst]

Great leadership, Sir. Congratulations. I've got a question for you with regard to County Line once it's up and running. Is your intention to increase the dividend once that's going?

[Jason Reid, Chief Executive Officer]

Yes, possibly. I don't want to have that be the only catalyst. I mean it's -- the dividend has to do with a bigger picture of like the overall trajectory of the Company. If you were to ask me this question when we first launched, we didn't even have a dividend when we first started trading and then we slowly started to create a dividend and increase it. And there were people who never thought we'd get to $0.48.

Now we're at $0.48 and everybody is saying, hey, when you're going higher? I get it. I love the dividend as a shareholder. The dividend is great. But just because we bring on County Line doesn't necessitate or mean we'll be increasing the dividend because we have another mine to build after that.

Could it happen? Sure. But I don't think just bringing County Line on will be the reason for it. It will be a function of as we look down the road, as we sit today we have two mines to build. It's just prudent to hang on to our cash.

We still paid a nice dividend, but let's get these built and then decide. So yes, I don't have an answer, Paul, sorry, whether that will be the catalyst. But I think we've shown and demonstrated with not only history of our past company but with Fortitude Gold that we're very committed to the dividend, and we've distributed as large a dividend as we can while balancing the needs of the operation. And we'll continue to do that. Hopefully, that answers your question.

[Unidentified Analyst]

Yes, thank you.

[Jason Reid, Chief Executive Officer]

Yes. Okay, I answered a lot of questions there. With that, let's close the -- let's close the conference call.

[Operator]

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