Fortitude Gold Corp 10-Q for FY2021 Q2
Fortitude Gold Corp (FTCO)
About this 10-Q
Fortitude Gold Corp filed this 10-Q on August 3, 2021, covering the quarter ended June 30, 2021 (FY2021 Q2).
Headline figures
Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $25.9M
- up 202.0% from $8.58M a year earlier
- Net income
- $8.33M
- compared with a net loss of $1.68M a year earlier
- Diluted EPS
- $0.34
- compared with -$168.00 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One) |
EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
(Address of Principal Executive Offices)
(
(Registrant’s telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
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 | ◻ | | |
| | | | | |
⌧ | Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading symbol | Name of Exchange on which registered |
N/A |
As of August 2, 2021, the registrant had
TABLE OF CONTENTS
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| | 1 | ||
| | Condensed Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020 | | 1 |
| | | 2 | |
| | | 3 | |
| | | 4 | |
| | Notes to Condensed Consolidated Financial Statements (Unaudited) | | 5 |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 14 | |
| | 22 | ||
| | 22 | ||
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| | 22 | ||
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| | 23 | ||
| | 23 | ||
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PART I – FINANCIAL INFORMATION
ITEM 1. Financial Statements
FORTITUDE GOLD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. Dollars in thousands, except per share data)
| | June 30, | | December 31, | ||
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| 2021 |
| 2020 | ||
| | (Unaudited) | |
| | |
ASSETS | | |
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Current assets: | | |
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Cash and cash equivalents | | $ | | | $ | |
Accounts receivable | |
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Inventories | |
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Prepaid expenses and other current assets | |
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Total current assets | |
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Property, plant and mine development, net | |
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Operating lease assets, net | |
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Deferred tax assets | | | | | | |
Other non-current assets | |
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Total assets | | $ | | | $ | |
LIABILITIES AND SHAREHOLDERS' EQUITY | |
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Current liabilities: | |
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Accounts payable | | $ | | | $ | |
Loans payable, current | |
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Finance lease liabilities, current | |
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Operating lease liabilities, current | |
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Income taxes payable | | | | | | — |
Mining taxes payable | |
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Other current liabilities | |
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Total current liabilities | |
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Asset retirement obligations | |
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Loans payable, long-term | |
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Finance lease liabilities, long-term | |
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Total liabilities | |
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Shareholders' equity: | |
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Preferred stock - $ | |
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Common stock - $ | |
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Additional paid-in capital | |
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Retained earnings (accumulated deficit) | |
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| ( |
Total shareholders' equity | |
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Total liabilities and shareholders' equity | | $ | | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
FORTITUDE GOLD CORPORATION
Condensed Consolidated Statements of Operations
(U.S. Dollars in thousands, except per share data)
(Unaudited)
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| Three months ended | | Six months ended | | ||||||||
| | June 30, | | June 30, | | ||||||||
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| 2021 |
| 2020 |
| 2021 |
| 2020 | | ||||
Sales, net | | $ | | | $ | | | $ | | | $ | | |
Mine cost of sales: | |
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Production costs | |
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Depreciation and amortization | |
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Reclamation and remediation | |
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| ( | |
Total mine cost of sales | |
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Mine gross profit (loss) | |
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| ( | |
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| ( | |
Costs and expenses: | |
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General and administrative expenses | |
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Exploration expenses | |
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Other expense, net | |
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Total costs and expenses | |
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Income (loss) before income and mining taxes | |
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| ( | |
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| ( | |
Mining and income tax expense | |
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Net income (loss) | | $ | | | $ | ( | | $ | | | $ | ( | |
Net income (loss) per common share: | |
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Basic | | $ | | | $ | ( | | $ | | | $ | ( | |
Diluted | | $ | | | $ | ( | | $ | | | $ | ( | |
Weighted average shares outstanding: | |
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Basic | | | | | | | | | | | | | |
Diluted | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
FORTITUDE GOLD CORPORATION
Condensed Consolidated Statements of Shareholders’ Equity
(U.S. Dollars in thousands)
(Unaudited)
|
| Three Months Ended June 30, 2021 and 2020 | ||||||||||||
| | | | Par | | | | | | Retained | | | | |
| | Number of | | Value of | | | | | Earnings | | Total | |||
| | Common | | Common | | Additional Paid- | | (Accumulated | | Shareholders' | ||||
|
| Shares |
| Shares |
| in Capital |
| Deficit) |
| Equity | ||||
Balance, March 31, 2020 (GRCN) | | | | $ | — | | $ | | | $ | ( | | $ | |
Capital contributions by Parent | | — | | | — | | | | | | — | | | |
Net loss | | — | | | — | | | — | | | ( | | | ( |
Balance, June 30, 2020 (GRCN) | | | | $ | — | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | |
Balance, March 31, 2021 (Fortitude) | | | | $ | | | $ | | | $ | | | $ | |
Stock-based compensation | | | |
| | |
| | |
| — | |
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Dividends | | — | |
| — | |
| — | |
| ( | |
| ( |
Net income | | — | |
| — | |
| — | |
| | |
| |
Balance, June 30, 2021 (Fortitude) | | | | $ | | | $ | | | $ | | | $ | |
|
| Six Months Ended June 30, 2021 and 2020 | ||||||||||||
| | | | Par | | | | | | Retained | | | | |
| | Number of | | Value of | | | | | Earnings | | Total | |||
| | Common | | Common | | Additional Paid- | | (Accumulated | | Shareholders' | ||||
|
| Shares |
| Shares |
| in Capital |
| Deficit) |
| Equity | ||||
Balance, December 31, 2019 (GRCN) | | | | $ | — | | $ | | | $ | ( | | $ | |
Capital contributions by Parent | | — | | | — | | | | | | — | | | |
Net loss | | — | | | — | | | — | | | ( | | | ( |
Balance, June 30, 2020 (GRCN) | | | | $ | — | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | |
Balance, December 31, 2020 (Fortitude) | | | | $ | | | $ | | | $ | ( | | $ | |
Stock-based compensation | | | |
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| | |
| — | |
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Issuance of shares under private placement | | | |
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| | |
| — | |
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Dividends | | — | |
| — | |
| — | |
| ( | |
| ( |
Net income | | — | |
| — | |
| — | |
| | |
| |
Balance, June 30, 2021 (Fortitude) | | | | $ | | | $ | | | $ | | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
FORTITUDE GOLD CORPORATION
Condensed Consolidated Statements of Cash Flows
(U.S. Dollars in thousands)
(Unaudited)
| | Six months ended | ||||
| | June 30, | ||||
|
| 2021 |
| 2020 | ||
Cash flows from operating activities: |
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Net income (loss) | | $ | | | $ | ( |
Adjustments to reconcile net income (loss) to net cash from operating activities: | |
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Depreciation and amortization | |
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Stock-based compensation | | | | | | — |
Deferred taxes | | | | | | — |
Other operating adjustments | |
| | |
| ( |
Changes in operating assets and liabilities: | |
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Accounts receivable | |
| ( | |
| ( |
Inventories | |
| ( | |
| ( |
Prepaid expenses and other current assets | |
| ( | |
| ( |
Other non-current assets | |
| ( | |
| ( |
Accounts payable and other accrued liabilities | |
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| ( |
Income and mining taxes payable | |
| ( | |
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Net cash provided by (used in) operating activities | |
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| ( |
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Cash flows from investing activities: | |
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Capital expenditures | |
| ( | |
| ( |
Net cash used in investing activities | |
| ( | |
| ( |
| | | | | | |
Cash flows from financing activities: | |
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Contributions from GRC | |
| — | |
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Dividends paid | | | ( | | | — |
Issuance of common stock | | | | | | — |
Repayment of loans payable | |
| ( | |
| ( |
Repayment of capital leases | |
| ( | |
| ( |
Net cash (used in) provided by financing activities | |
| ( | |
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| | | | | | |
Net increase (decrease) in cash and cash equivalents | |
| | |
| ( |
Cash and cash equivalents at beginning of period | |
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Cash and cash equivalents at end of period | | $ | | | $ | |
| | | | | | |
Supplemental Cash Flow Information | |
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Interest expense paid | | $ | | | $ | |
Income and mining taxes paid | | $ | | | $ | — |
Non-cash investing and financing activities: | |
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Change in capital expenditures in accounts payable | | $ | | | $ | ( |
Change in estimate for asset retirement costs | | $ | | | $ | |
Stock contributed from Parent | | $ | — | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
FORTITUDE GOLD CORPORATION
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, unless otherwise stated)
(Unaudited)
1. Basis of Presentation
Fortitude Gold Corporation (the “Company,” “FGC,” or “Fortitude”) was organized under the laws of the State of Colorado on August 11, 2020. On August 18, 2020, Gold Resource Corporation (“GRC” or “Parent”) transferred all of the
On December 31, 2020, GRC completed the spin-off of FGC (“Spin-Off”), which separated FGC’s business, activities, and operations into a separate, public company. The Spin-Off was effected by the distribution of all of the outstanding shares of FGC common stock to GRC’s shareholders. GRC’s shareholders received one share of FGC common stock for every
FGC is a mining company which pursues gold and silver projects that are expected to have both low operating costs and high returns on capital.
These interim Condensed Consolidated Financial Statements (“interim financial statements”) are unaudited and have been prepared in accordance with the rules of the Securities and Exchange Commission for interim statements. The condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020, the condensed consolidated statements of operations and shareholders’ equity for the three and six months ended June 30, 2021, and the condensed consolidated statement of cash flows for the six months ended June 30, 2021 include the accounts of the Company, its subsidiaries GRCN, Walker Lane Minerals Corp. (“Walker Lane”), County Line Holdings, Inc., and County Line Minerals Corp. The condensed consolidated statements of operations and shareholder’s equity for the three and six months ended June 30, 2020, and the condensed consolidated statement of cash flows for the six months ended June 30, 2020 include the accounts of GRCN, WLMC, County Line Holdings, Inc., and County Line Minerals Corp. and have been derived from the accounting records of GRC and should be read with the accompanying notes thereto. All intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures required by United States Generally Accepted Accounting Principles (“U.S. GAAP”) have been condensed or omitted as permitted by such rules, although the Company believes that the disclosures included are adequate to make the information presented not misleading. The interim financial statements included herein are expressed in United States dollars. In the opinion of management, all adjustments (all of which are of a normal recurring nature) and disclosures necessary for a fair presentation of these interim financial statements have been included. The results reported in these interim financial statements are not necessarily indicative of the results that may be reported for the entire year. These interim financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2020 included in the Company’s annual report on Form 10-K. The year-end balance sheet data was derived from the audited financial statements. Unless otherwise noted, there have been no material changes to the footnotes from those accompanying the audited consolidated financial statements contained in the Company’s annual report on Form 10-K.
The condensed consolidated statements of operations and shareholder’s equity for the three and six months ended June 30, 2020 and the condensed consolidated statement of cash flows for the six months ended June 30, 2020 have been prepared on a “carve-out” basis. The accompanying statements include allocations of certain expenses for human resources, accounting, and other services, plus share-based compensation allocated from GRC. The expense allocations have been determined on basis that the Company and GRC consider to be reasonable reflections of the utilization of services or the benefits provided. In addition, the assets and liabilities include only those assigned to the carve-out entities. The allocations and related estimates and assumptions are described more fully in Note 2, Related Party Transactions. Further, the condensed consolidated financial statements do not necessarily reflect what the results of operations, financial position, or cash flows would have been had the Company been a separate entity nor are they indicative of the future results of the Company.
5
2. Related Party Transactions
Effective December 31, 2020, in connection with the Spin-Off, the Company entered into a Management Services Agreement (“MSA” or “Agreement”) with GRC that governs the relationship of the parties following the Spin-Off. The MSA provides that the Company receives services from GRC and its subsidiaries to assist in the transition of the Company as a separate company including, managerial and technical supervision, advisory and consultation with respect to mining operations, exploration, environmental, safety and sustainability matters. The Company also receives certain administrative services related to information technology, accounting and financial advisory services, legal and compliance support and investor relation and shareholder communication services. The agreed upon charges for services rendered are based on market rates that align with the rates that an unaffiliated service provider would charge for similar services. The MSA’s initial term was to expire on December 31, 2021, would automatically renew annually and may be cancelled upon
Prior to the Spin-Off, GRC provided human resources, information technology, accounting, legal, technical, and other services to the Company. The Company obtained its business insurance under GRC. The accompanying condensed consolidated statements of operations and shareholder’s equity for the three and six months ended June 30, 2020 and condensed consolidated statement of cash flows for the six months ended June 30, 2020 include allocations of all of these expenses. The allocation method calculates the appropriate share of overhead cost to the Company by using time spent by GRC employees. The Company believes the allocation methodology used is reasonable, has been consistently applied, and results in an appropriate allocation of costs incurred. However, these allocations may not be indicative of the cost had the Company been a stand-alone entity or of future services. GRC allocated $
3. Revenue
The following table presents the Company’s net sales disaggregated by source:
|
| Three months ended |
| Six months ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
| | (in thousands) | | (in thousands) | ||||||||
Sales, net | |
| | |
| | |
| | |
| |
Gold doré sales | | $ | | | $ | | | $ | | | $ | |
Less: Refining charges | |
| ( | |
| ( | |
| ( | |
| ( |
Total sales, net | | $ | | | $ | | | $ | | | $ | |
6
4. Inventories
At June 30, 2021 and December 31, 2020, current inventories consisted of the following:
|
| June 30, |
| December 31, | ||
|
| 2021 |
| 2020 | ||
|
| (in thousands) | ||||
Stockpiles | | $ | | | $ | |
Leach pad | |
| | |
| |
Doré | |
| | |
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Subtotal - product inventories | |
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Materials and supplies | |
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Total | | $ | | | $ | |
In addition to the inventory above, as of June 30, 2021 and December 31, 2020, the Company has $
For the three and six months ended June 30, 2020 the Company recorded $
5. Income Taxes
The Company accounts for income taxes in accordance with the provisions of ASC 740, “Income Taxes” (“ASC 740”), on a tax jurisdictional basis. The Company files a consolidated U.S. income tax return and at the federal level its income and losses are taxed at
The Company evaluates the evidence available to determine whether a valuation allowance is required on the deferred tax assets. The Company determined that its deferred tax assets were “more likely than not” to be realized as of June 30, 2021 and December 31, 2020, thus
As of June 30, 2021, the Company believes that is has no liability for uncertain tax positions.
6. Prepaid Expenses and Other Current Assets
At June 30, 2021 and December 31, 2020, prepaid expenses and other current assets consisted of the following:
| | | | | | |
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| June 30, |
| December 31, | ||
|
| 2021 |
| 2020 | ||
|
| (in thousands) | ||||
Contractor advances | | $ | | | $ | |
Prepaid insurance | | | | | | |
Other current assets | |
| | |
| |
Total | | $ | | | $ | |
7
7. Property, Plant and Mine Development, net
At June 30, 2021 and December 31, 2020, property, plant and mine development consisted of the following:
|
| June 30, |
| December 31, | ||
|
| 2021 |
| 2020 | ||
|
| (in thousands) | ||||
Asset retirement costs | | $ | | | $ | |
Construction-in-progress | |
| | |
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Furniture and office equipment | |
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Leach pad and ponds | |
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Land | |
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Light vehicles and other mobile equipment | |
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Machinery and equipment | |
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Mill facilities and infrastructure | |
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Mineral interests and mineral rights | |
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Mine development | |
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Software and licenses | |
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Subtotal (1) (2) | |
| | |
| |
Accumulated depreciation and amortization | |
| ( | |
| ( |
Total | | $ | | | $ | |
| (1) | Includes $ |
| (2) | Includes capital expenditures in accounts payable of $ |
For the three months ended June 30, 2021 and 2020, the Company recorded depreciation and amortization expense of $
8. Other Current Liabilities
At June 30, 2021 and December 31, 2020, other current liabilities consisted of the following:
|
| June 30, |
| December 31, | ||
|
| 2021 |
| 2020 | ||
|
| (in thousands) | ||||
Accrued royalty payments | | $ | | | $ | |
Accrued property taxes | |
| | |
| |
Other accrued expenses | | | | | | |
Total | | $ | | | $ | |
8
9. Asset Retirement Obligation
The following table presents the changes in the Company’s asset retirement obligation for the six months ended June 30, 2021 and year ended December 31, 2020:
| | | | | | |
|
| June 30, |
| December 31, | ||
|
| 2021 |
| 2020 | ||
|
| (in thousands) | ||||
Asset retirement obligation – balance at beginning of period | | $ | | | $ | |
Changes in estimate | |
| | |
| |
Payments | | | ( | | | — |
Accretion | |
| | |
| |
Asset retirement obligation – balance at end of period | | $ | | | $ | |
As of June 30, 2021 and December 31, 2020, the Company had a $
10. Loans Payable
The Company has financed certain equipment purchases on a long-term basis. The loans bear annual interest at rates ranging from
11. Commitments and Contingencies
The Company has a Contract Mining Agreement with a mining contractor relating to mining activities at its Isabella Pearl project. Included in this Agreement is an embedded lease for the mining equipment for which the Company has recognized a right-of-use asset and corresponding operating lease liability. Please see Note 12 for more information. In addition to the embedded lease payments, the Company pays the contract miner operational costs in the normal course of business. These costs represent the remaining future contractual payments for the Contract Mining Agreement over its term. The contractual payments are determined by rates within the Contract Mining Agreement, estimated tonnes moved and bank cubic yards for drilling and blasting. As of June 30, 2021, total estimated contractual payments remaining, excluding embedded lease payments, are $
12. Leases
Operating Leases
Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases as incurred over the lease term. For leases beginning in 2019 and later, the Company accounts for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) separately from the non-lease components (e.g., common-area maintenance costs).
The depreciable life of assets is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The weighted average remaining lease term for the Company’s operating leases as of June 30, 2021 is
The discount rate implicit within the Company’s leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate for the Company’s leases is determined based on the lease term adjusted for impacts of collateral. The weighted average discount rate used to measure the Company’s operating lease liabilities as of June 30, 2021 was
9
There are
The Company has an embedded lease in its Contract Mining Agreement. The Company’s lease payments for its mining equipment embedded lease are determined by tonnage hauled. This embedded lease is within a Contract Mining Agreement entered into for the mining activities at the Company’s Isabella Pearl Mine. The payments, amortization of the right-of-use asset, and interest vary immaterially from forecasted amounts due to variable conditions at the mine. During the three and six months ended June 30, 2021, the Company capitalized variable lease costs of $
Maturities of operating lease liabilities as of June 30, 2021 are as follows (in thousands)
Year Ending December 31: |
| |
|
2021 | | $ | |
Thereafter | |
| — |
Total lease payments | |
| |
Less imputed interest | |
| ( |
Present value of minimum payments | |
| |
Less: current portion | |
| ( |
Long-term portion of minimum payments | | $ | — |
Finance Leases
The Company has finance lease agreements for certain equipment. The leases bear annual imputed interest of
Year Ending December 31: |
| |
|
2021 | | $ | |
2022 | |
| |
2023 | |
| |
2024 | |
| |
Thereafter | |
| — |
Total minimum obligations | |
| |
Less: interest portion | |
| ( |
Present value of minimum payments | |
| |
Less: current portion | |
| ( |
Long-term portion of minimum payments | | $ | |
The weighted average remaining lease term for the Company’s finance leases as of June 30, 2021 is
10
Supplemental cash flow information related to the Company’s operating and finance leases is as follows for the six months ended June 30, 2021 and 2020:
|
| Six months ended | ||||
| | June 30, | ||||
|
| 2021 |
| 2020 | ||
|
| (in thousands) | ||||
Cash paid for amounts included in the measurement of lease liabilities: | |
| | |
| |
Operating cash flows from operating leases | | $ | | | $ | |
Operating cash flows from finance leases | |
| | |
| |
Investing cash flows from operating lease | |
| — | |
| |
Financing cash flows from finance leases | |
| | |
| |
13. Other Expense, Net
For the three and six months ended June 30, 2021 and 2020, other expense, net consisted of the following:
|
| Three months ended | | Six months ended | | ||||||||
| | June 30, | | June 30, | | ||||||||
|
| 2021 |
| 2020 | | 2021 |
| 2020 | | ||||
|
| (in thousands) | | (in thousands) | | ||||||||
Interest expense | | $ | | | $ | | | $ | | | $ | | |
Charitable contributions | | | | | | | | | | | | | |
Other income | | | ( | | | ( | | | ( | | | ( | |
Total | | $ | | | $ | | | $ | | | $ | | |
14. Net Income (Loss) per Common Share
Basic earnings per common share is calculated based on the weighted average number of common shares outstanding for the period. Diluted earnings per common share is calculated based on the assumption that stock options and other dilutive securities outstanding, which have an exercise price less than the average market price of the Company’s common shares during the period, would have been exercised on the later of the beginning of the period or the date granted and that the funds obtained from the exercise were used to purchase common shares at the average market price during the period.
The effect of the Company’s dilutive securities is calculated using the treasury stock method and only those instruments that result in a reduction in net income per common share are included in the calculation. Options to purchase
Basic and diluted net income per common share is calculated as follows:
|
| Three months ended | | Six months ended | | ||||||||
| | June 30, | | June 30, | | ||||||||
|
| 2021 |
| 2020 | | 2021 |
| 2020 | | ||||
Net income (loss) (in thousands) | | $ | | | $ | ( | | $ | | | $ | ( | |
Basic weighted average shares of common stock outstanding | | | | | | | | | | | | | |
Diluted effect of share-based awards | | | | | | — | | | | | | — | |
Diluted weighted average common shares outstanding | | | | | | | | | | | | | |
Net income (loss) per share: | | | | | | | | | | | | | |
Basic | | $ | | | $ | ( | | $ | | | $ | ( | |
Diluted | | $ | | | $ | ( | | $ | | | $ | ( | |
11
| | | | | | | | | | | | | |
15. Fair Value Measurement
Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1 | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; |
Level 2 | Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and |
Level 3 | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
As required by accounting guidance, assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables set forth certain of the Company’s assets measured at fair value by level within the fair value hierarchy as of June 30, 2021 and December 31, 2020:
|
| 2021 |
| 2020 |
| Input Hierarchy Level | ||
|
| (in thousands) |
| | ||||
Cash and cash equivalents | | $ | | | $ | | | Level 1 |
Accounts receivable | |
| | |
| | | Level 2 |
Loans payable | | $ | | | $ | | | Level 2 |
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Cash and cash equivalents consist primarily of cash deposits and are valued at cost, which approximates fair value.
Accounts receivable include amounts due to the Company for deliveries of doré sold to customers, which approximates fair value.
Loans payable consist of obligations for equipment purchases financed on a long-term basis. Loans payable are recorded at amortized cost, which approximates fair value. See Note 10 for additional information.
16. Stock-Based Compensation
The Fortitude Gold Corporation 2020 Equity Incentive Plan (the “Incentive Plan”) allows for the issuance of up to
During the three and six months ended June 30, 2021, in conjunction with its staffing process post Spin-Off, the Company issued
During the three and six months ended June 30, 2021, the Company issued options to purchase
12
Stock-based compensation is included in general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations. For the three and six months ended June 30, 2021, the Company recorded $
17. Shareholders’ Equity
On January 11, 2021, the Company completed a private placement sale of
During the three and six months ended June 30, 2021, the Company declared and paid dividends of $
See Note 16 for information concerning shares and options granted pursuant to the Company's Equity Incentive Plan.
18. Subsequent Event
On July 6, 2021, the Company increased its dividend by
13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
We are a Colorado corporation and our subsidiaries are GRC Nevada Inc. (“GRCN”), Walker Lane Minerals Corp. (“WLMC”), County Line Holdings Inc. (“CLH”), and County Line Minerals Corp. (“CLM”). WLMC, CLH, and CLM are wholly-owned subsidiaries of GRCN. We are a mining company which pursues gold and silver projects that are expected to have both low operating costs and high returns on capital.
Spin-Off from Gold Resource Corporation
Prior to December 31, 2020, we were a subsidiary of Gold Resource Corporation (“GRC”). On December 31, 2020, GRC completed the spin-off of our shares of common stock, which separated our business, activities, and operations into a separate, public company. The spin-off was effected by the distribution of all of our outstanding shares of common stock to GRC’s shareholders. GRC’s shareholders received one share of our common stock for every 3.5 shares of GRC’s common stock held as of December 28, 2020.
In February 2021, we began trading on the OTC Market “pink sheets” operated by the OTC Markets Group under the ticker symbol "FRTT". Subsequently the symbol was changed to “FTCO”. Our common stock was subsequently up listed to the OTCQB on March 5, 2021.
During the second quarter of 2021, and in response to GRC terminating the Management Services Agreement (“MSA”) post Spin-Off, we completed the staffing of our executive and management team.
The following discussion summarizes our results of operations for the three and six months ended June 30, 2021 and 2020, including GRCN prior to it becoming our wholly-owned subsidiary on August 18, 2020. It also analyzes our financial condition at June 30, 2021. This discussion should be read in conjunction with the management’s discussion and analysis and the audited consolidated financial statements and footnotes for the year ended December 31, 2020, contained in our annual report on Form 10-K for the year ended December 31, 2020.
The discussion also presents certain financial measures that are not prepared in accordance with U.S. Generally Accepted Accounting Principles (“Non-GAAP”) but which are important to management in its evaluation of our operating results and are used by management to compare our performance with what we perceive to be peer group mining companies and are relied on as part of management’s decision-making process. Management believes these measures may also be important to investors in evaluating our performance. For a detailed description of each of the non-GAAP financial measures, please see the discussion below under Non-GAAP Measures.
See Forward-Looking Statements at the end of this Item 2 for important information regarding statements contained herein.
Second Quarter 2021 Financial Results and Highlights
| ● | $16.4 million cash from year-to-date operating activities |
| ● | $8.3 million net income or $0.35 per share |
| ● | $41.5 million cash balance on June 30, 2021, an increase of 50% from December 31, 2020 |
| ● | $25.9 million net sales |
| ● | 14,579 gold ounces produced, a record quarter |
| ● | 6.75 grams per tonne average gold grade mined |
| ● | $72.0 million working capital at June 30, 2021, an increase of 72% from December 31, 2020 |
| ● | $13.2 million mine gross profit |
| ● | $564 total cash cost after by-product credits per gold ounce sold |
| ● | $628 per ounce total all in sustaining cost |
| ● | $0.24 annual cash dividend per share initiated, subsequently increased by 50% to $0.36 per share |
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Operating Data: The following tables summarize certain information about our operations at our Isabella Pearl Mine for the periods indicated:
|
| | | |
| | | |
| | Three months ended June 30, | | Six months ended June 30, | ||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
Ore mined |
|
|
|
|
|
|
|
|
Ore (tonnes) |
| 158,507 |
| 143,818 |
| 314,729 |
| 302,572 |
Gold grade (g/t) |
| 6.75 |
| 1.54 |
| 5.90 |
| 1.33 |
Low-grade stockpile (tonnes) |
|
|
|
|
|
|
|
|
Ore (tonnes) |
| — |
| — |
| — |
| 18,490 |
Gold grade (g/t) |
| — |
| — |
| — |
| 0.57 |
Pre-strip waste |
| — |
| — |
| — |
| 1,346,316 |
Waste (tonnes) |
| 1,681,710 |
| 1,715,609 |
| 3,056,909 |
| 2,160,341 |
Metal production (before payable metal deductions)(1) | | | | | | | | |
Gold (ozs.) |
| 14,579 |
| 5,208 |
| 26,115 |
| 8,900 |
Silver (ozs.) |
| 10,043 |
| 5,902 |
| 17,176 |
| 10,985 |
| (1) | The difference between what we report as “metal production” and “metal sold” is attributable to the difference between the quantities of metals contained in the doré we produce versus the portion of those metals actually paid for according to the terms of our sales contracts. Differences can also arise from inventory changes incidental to shipping schedules, or variances in ore grades and recoveries which impact the amounts of metals contained in doré produced and sold. |
|
| | | | | |
| | | | | |
| | Three months ended June 30, | | Six months ended June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Metal sold | |
| | |
| | |
| | |
| |
Gold (ozs.) | | | 14,510 |
| | 5,054 | | | 25,982 |
| | 8,809 |
Silver (ozs.) | | | 9,946 |
| | 5,851 | | | 16,841 |
| | 11,430 |
Average metal prices realized (1) | | | | | | | | | | | | |
Gold ($per oz.) | | | 1,794 |
| | 1,708 | | | 1,799 |
| | 1,651 |
Silver ($per oz.) | | | 26.30 |
| | 16.10 | | | 26.27 |
| | 16.36 |
Precious metal gold equivalent ounces sold | | | | | | | | | | | | |
Gold Ounces | | | 14,510 | | | 5,054 | | | 25,982 | | | 8,809 |
Gold Equivalent Ounces from Silver | | | 146 | | | 55 | | | 246 | | | 113 |
| | | 14,656 | | | 5,109 | | | 26,228 | | | 8,922 |
| | | | | | | | | | | | |
Total cash cost before by-product credits per gold ounce sold | | $ | 582 | | $ | 1,420 | | $ | 568 | | $ | 1,391 |
Total cash cost after by-product credits per gold ounce sold | | $ | 564 | | $ | 1,401 | | $ | 551 | | $ | 1,370 |
Total all-in sustaining cost per gold ounce sold | | $ | 628 | | $ | 1,455 | | $ | 605 | | $ | 1,402 |
| (1) | Average metal prices realized vary from the market metal prices due to final settlement adjustments from our provisional invoices when they are settled. Our average metal prices realized will therefore differ from the market average metal prices in most cases. |
15
Consolidated Results of Operations – Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020
Sales, net. For the three months ended June 30, 2021, consolidated sales, net were $25.9 as compared to $8.6 million for the same period in 2020. The increase is attributable to higher sales volumes and higher average realized prices. Average realized price for gold in second quarter 2021 increased 5% from the same period in 2020. Second quarter 2021 gold sales volumes increased 187% from the same period in 2020 as a result of higher-grade ore mined and processed.
Mine gross profit (loss). For the three months ended June 30, 2021, we recorded $13.2 million mine gross profit compared to $0.3 million mine gross loss for the same period in 2020. The change is attributable to higher sales volumes and higher average realized prices for gold and silver, resulting in a lower cash cost after by-products per gold ounce sold. The lower cash cost per ounce is due to mining efficiencies and higher-grade ore mined in 2021 as compared to 2020 as well as no net realizable value (“NRV”) expense related to our inventory in 2021 whereas in 2020, we recorded a $2.0 million NRV adjustment. For the three months ended June 30, 2021, average realized prices per ounce of gold and silver increased 5% and 63%, respectively, from 2020 while the cash cost per ounce after by-product credits decreased 60%.
General and administrative. For the three months ended June 30, 2021, general and administrative expenses totaled $1.2 million as compared to $0.6 million for the same period in 2020. The increase in 2021 was primarily the result of fully staffing the Company post Spin-Off as a standalone entity whereas the 2020 amount is an allocated amount from GRC based on time spent. While the Company anticipated working under the Management Services Agreement (“MSA”) for a longer period, the Company believed it would be prudent to fully staff up in the first quarter. On April 21, 2021, the Company was delivered official notice of cancellation of the MSA from GRC that the MSA was being canceled. See Note 2 to the Condensed Consolidated Financial Statements.
Exploration expenses. For the three months ended June 30, 2021, property exploration expenses totaled $1.0 million as compared to $0.4 million for the same period of 2020. The increased exploration expense was the result of focusing on expanding resources at the Scarlet target of the Isabella Pearl Mine and advancing the Golden Mile property towards a development decision.
Other expense, net. For the three months ended June 30, 2021, other expense, net did not materially change from the same period in 2020.
Income and mining tax expense. For the three months ended June 30, 2021, income and mining tax expense was $2.6 million as compared to $0.3 million for the same period in 2020. The increase is the result of our increased income before income and mining taxes and increased Nevada net proceeds of minerals tax as a result of increased metal sales. See Note 5 to the Condensed Consolidated Financial Statements.
Net income (loss). For the three months ended June 30, 2021 we recorded net income of $8.3 million as compared to net loss of $1.7 million in the corresponding period for 2020. The increase is due to the changes in our consolidated results of operations as discussed above.
Consolidated Results of Operations – Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Sales, net. For the six months ended June 30, 2021, consolidated sales, net were $46.6 million as compared to $14.4 million for the same period in 2020. The increase is attributable to higher sales volumes and higher average realized prices. Average realized price for gold in the first half of 2021 increased 9% from the same period in 2020. For the six months ended June 30, 2021, gold sales volumes increased 195% from the same period in 2020 as a result of higher-grade ore mined and processed.
Mine gross profit (loss). For the six months ended June 30, 2021, we recorded $24.1 million mine gross profit compared to $0.7 million mine gross loss for the same period in 2020. The change is attributable to higher sales volumes and higher average realized prices for gold and silver, resulting in a lower cash cost after by-products per gold ounce sold. The lower cash cost per ounce is due to mining efficiencies and higher-grade ore mined in 2021 as compared to 2020 as well as no NRV expense related to our inventory in 2021, whereas in 2020, we recorded a $3.6 million NRV adjustment.
16
For the six months ended June 30, 2021, average realized prices per ounce of gold and silver increased 9% and 61%, respectively, from 2020 while the cash cost per ounce after by-product credits decreased 60%.
In 2021, the Nevada state legislature passed Assembly Bill 495 (the “Bill”) to enact a new tax on mining companies engaged in the business of extracting gold and silver in the state of Nevada. The Bill imposes a new excise tax of 0.75% on annual gross revenue from $20 million to $150 million and an excise tax of 1.1% on annual gross revenue over $150 million. The excise tax will be included in Mine cost of sales.
General and administrative. For the six months ended June 30, 2021, general and administrative expenses totaled $7.3 million as compared to $1.2 million for the same period in 2020. The increase was primarily the result of non-recurring stock-based compensation and onboarding incentive compensation totaling $5.2 million relating to building out the Company’s staffing needs post Spin-Off which was recognized in the first quarter. While the Company anticipated working under the MSA for a longer period, the Company believed it would be prudent to fully staff up during the first quarter. On April 21, 2021, the Company was delivered official notice of cancellation of the MSA from GRC that the MSA was being canceled. See Note 2 to the Condensed Consolidated Financial Statements.
Exploration expenses. For the six months ended June 30, 2021, property exploration expenses totaled $2.4 million as compared to $0.6 million for the same period of 2020. The increase of $1.8 million is the result of increased drilling and other exploration activities at the Golden Mile and Isabella Pearl (Scarlet target) projects as well as geophysical studies at Isabella Pearl.
Other expense, net. For the six months ended June 30, 2021, other expense, net did not materially change from the same period in 2020.
Income and mining tax expense. For the six months ended June 30, 2021, income and mining tax expense was $3.5 million as compared to $0.5 million for the same period in 2020. The increase is the result of our increased income before income and mining taxes and increased Nevada net proceeds of minerals tax as a result of increased metal sales. See Note 5 to the Condensed Consolidated Financial Statements.
Net income (loss). For the six months ended June 30, 2021 we recorded net income of $10.7 million as compared to net loss of $3.1 million in the corresponding period for 2020. The increase is due to the changes in our consolidated results of operations as discussed above.
COVID-19 Update
In March 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic based on the rapid increase in global exposure. In response to the pandemic, many jurisdictions, including the United States, instituted restrictions on travel, public gatherings, and certain business operations.
During 2020 and 2021, and as of the date of this report, the mining industry is listed as an essential business in the state of Nevada. Accordingly, we continue to operate the Isabella Pearl Mine while utilizing safety measures and protocols. In an effort to mitigate the spread of COVID-19 and protect the health and safety of our employees, contractors, and communities, we have taken precautionary measures including specialized training, social distancing, screening workers before they enter facilities, a work from home mandate where possible, and close monitoring of national and regional COVID-19 impacts and governmental guidelines. As our non-mining workforce is able to work remotely using various technology tools, we have been able to maintain our operations and internal controls over financial reporting and disclosures.
The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including a widely available and utilized vaccine, the duration and severity of the pandemic and related restrictions, all of which are uncertain and cannot be predicted.
Non-GAAP Measures
Throughout this report, we have provided information prepared or calculated according to U.S. GAAP and have referenced some non-GAAP performance measures which we believe will assist with understanding the performance of
17
our business. These measures are based on precious metal gold equivalent ounces sold and include cash cost before by-product credits per ounce, total cash cost after by-product credits per ounce, and total all-in sustaining cost per ounce (“AISC”). Because the non-GAAP performance measures do not have any standardized meaning prescribed by U.S. GAAP, they may not be comparable to similar measures presented by other companies. Accordingly, these measures should not be considered in isolation, or as a substitute for measures of performance prepared in accordance with U.S. GAAP. These non-GAAP measures are not necessarily indicative of operating profit or cash flow from operations as determined under GAAP.
Revenue generated from the sale of silver is considered a by-product of our gold production for the purpose of our total cash cost after by-product credits for our Isabella Pearl Mine. We periodically review our revenues to ensure that our reporting of primary products and by-products is appropriate. Because we consider silver to be a by-product of our gold production, the value of silver continues to be applied as a reduction to total cash costs in our calculation of total cash cost after by-product credits per precious metal gold equivalent ounce sold. Likewise, we believe the identification of silver as by-product credits is appropriate because of its lower individual economic value compared to gold and since gold is the primary product we produce.
Total cash cost, after by-product credits, is a measure developed by the Gold Institute to provide a uniform standard for comparison purposes. AISC is calculated based on the current guidance from the World Gold Council.
Total cash cost before by-product credits includes all direct and indirect production costs related to our production of metals (including mining, milling and other plant facility costs, royalties, and site general and administrative costs) plus treatment and refining costs.
Total cash cost after by-product credits includes total cash cost before by-product credits less by-product credits, or revenues earned from silver.
AISC includes total cash cost after by-product credits plus other costs related to sustaining production, including sustaining allocated general and administrative expenses and sustaining capital expenditures. We determined sustaining capital expenditures as those capital expenditures that are necessary to maintain current production and execute the current mine plan.
Cash cost before by-product credits per ounce, total cash cost after by-product credits per ounce and AISC are calculated by dividing the relevant costs, as determined using the cost elements noted above, by precious metal gold equivalent ounces sold for the periods presented.
Reconciliations to U.S. GAAP
The following table provides a reconciliation of total cash cost after by-product credits to total mine cost of sales (a U.S. GAAP measure) as presented in the Consolidated Statements of Operations:
| | Three months ended June 30, | | Six months ended June 30, | ||||||||
|
| 2021 |
| 2020 | | 2021 |
| 2020 | ||||
| | (in thousands) | ||||||||||
Total cash cost after by-product credits | | $ | 8,185 | | $ | 7,084 | | $ | 14,317 | | $ | 12,068 |
Treatment and refining charges | |
| (126) | | | (54) | |
| (173) | | | (111) |
Depreciation and amortization | |
| 4,638 | | | 1,823 | |
| 8,285 | | | 3,208 |
Reclamation and remediation | | | 47 | | | 4 | | | 76 | | | (7) |
Total consolidated mine cost of sales | | $ | 12,744 | | $ | 8,857 | | $ | 22,505 | | $ | 15,158 |
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The following table presents a reconciliation of the non-GAAP measures of total cash cost and AISC:
| | Three months ended June 30, | | Six months ended June 30, | ||||||||
|
| 2021 |
| 2020 | | 2021 |
| 2020 | ||||
| | (in thousands, except ounces sold and cost per precious metal gold equivalent ounce sold) | ||||||||||
Total cash cost before by-product credits (1) | | $ | 8,446 | | $ | 7,178 | | $ | 14,759 | | $ | 12,254 |
By-product credits (2) | |
| (261) | | | (94) | |
| (442) | | | (186) |
Total cash cost after by-product credits | | $ | 8,185 | | $ | 7,084 | | $ | 14,317 | | $ | 12,068 |
Sustaining capital expenditures | | | 605 | | | - | | | 697 | | | - |
Sustaining exploration expenses | | | 323 | | | 274 | | | 706 | | | 286 |
Total all-in sustaining cost | | $ | 9,113 | | $ | 7,358 | | $ | 15,720 | | $ | 12,354 |
Non-sustaining capital expenditures | | | 37 | | | - | | | 37 | | | - |
Total all-in cost | | $ | 9,150 | | $ | 7,358 | | $ | 15,757 | | $ | 12,354 |
| | | | | | | | | | | | |
Gold ounces sold | |
| 14,510 | | | 5,054 | |
| 25,982 | | | 8,809 |
| | | | | | | | | | | | |
Total cash cost before by-product credits per gold ounce sold | | $ | 582 | | $ | 1,420 | | $ | 568 | | $ | 1,391 |
By-product credits per gold ounce sold (2) | | | (18) | | | (19) | | | (17) | | | (21) |
Total cash cost after by-product credits per gold ounce sold | | | 564 | | | 1,401 | | | 551 | | | 1,370 |
Other sustaining expenditures per gold ounce sold (3) | | | 64 | | | 54 | | | 54 | | | 32 |
Total all-in sustaining cost per gold ounce sold | | $ | 628 | | $ | 1,455 | | $ | 605 | | $ | 1,402 |
| (1) | Production cost plus treatment and refining charges. |
| (2) | Please see the tables below for a summary of our by-product revenue and by-product credit per precious metal equivalent ounces sold. |
| (3) | Sustaining capital expenditures and sustaining exploration expenses divided by gold ounces sold. |
The following tables summarize our by-product revenue and by-product credit per precious metal gold ounce sold:
| | Three months ended June 30, | | Six months ended June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
| | (in thousands) | ||||||||||
By-product credits by dollar value: | |
| | | | | |
| | | | |
Silver sales | | $ | 261 | | $ | 94 | | $ | 442 | | $ | 186 |
Total sales from by-products | | $ | 261 | | $ | 94 | | $ | 442 | | $ | 186 |
| | Three months ended June 30, | | Six months ended June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
By-product credits: | |
| | | | | |
| | | | |
Silver sales | | $ | 18 | | $ | 19 | | $ | 17 | | $ | 21 |
Total by-product credits | | $ | 18 | | $ | 19 | | $ | 17 | | $ | 21 |
Liquidity and Capital Resources
Through December 31, 2020, our primary source of liquidity during development, construction and ramp up stages of the Isabella Pearl Mine was cash contributions from GRC. Since December 31, 2020, our liquidity has largely been impacted through operating activities. As production and sales from Isabella Pearl have continued to increase, so has our cash position. As of June 30, 2021, we had a cash position of $41.5 million compared to $27.8 million at December 31, 2020. The increase is primarily due to increased cash from operations.
As of June 30, 2021, we had positive working capital of $72.0 million, representing an increase of $30.1 million from December 31, 2020. Our working capital balance fluctuates as we use cash to fund our operations, financing and investing activities, including exploration, mine development and income taxes. With our working capital balance as of June 30,
19
2021, we believe that our liquidity and capital resources are adequate to fund our operations, exploration, capital, and corporate activities for the next twelve months.
Net cash provided by operating activities for the six months ended June 30, 2021 was $16.4 million, compared to cash used in operations for six months ended June 30, 2020 of $3.5 million. The primary difference is due to increased net income.
Net cash used in investing activities for the six months ended June 30, 2021 was $0.1 million compared to $6.2 million during the same period in 2020. The decrease is due to the completion of Pearl mine development in 2020.
Net cash used in financing activities was $2.1 million for six months ended June 30, 2021 compared to $9.0 million net cash provided by financing activities for six months ended June 30, 2020. The net change is due to dividend payments in 2021, whereas in 2020, financing activities were substantially comprised of capital contributions from GRC. No such contributions were made in 2021.
Development and Exploration Activities
Isabella Pearl Mine: During the second quarter, our open pit, heap leach operations at the Isabella Pearl Mine continued and we advanced our engineering and permit preparation for the heap leach pad expansion project. Exploration activities during the quarter targeted expansion of the Scarlet target, including 15 in-fill and step-out holes totaling 1,925 meters. This drilling was conducted outside the current permitted mine plan. A helicopter-borne geophysical survey for the purposes of investigating the mineral potential along the Isabella Pearl mine mineralized trend was completed during the second quarter. Results of the geophysical program are currently being reviewed for future investigation and possible drill targeting.
Golden Mile property: During the second quarter, we evaluated results received from our first surface diamond drilling program on the Main Zone target area of the Golden Mile property. We have incorporated results from this drilling into our geological model and we remain on target to complete our maiden resource estimate during 2021. Material collected for metallurgical testing continues to be evaluated by a third-party process metallurgical services company specializing in column heap leaching. Initial metallurgical test results have been positive with column leach tests reporting up to 85% gold recovery. These positive results move the property closer to a production decision. Engineering, base line and background studies are also on-going with numerous revisions to the Golden Mile project and process facility layout, open-pit design, and infrastructure evaluations. A reverse circulation drill campaign for infill and step-out drilling has commenced. During 2021, we shall continue to evaluate the known mineralized zones among a much larger conceptual project plan of multiple open pits along a trend at Golden Mile to the northwest and onto the Mina Gold property. We are evaluating the potential of at least three pits feeding ore to a strategically located heap leach and process facility. The conceptualized process plant is being evaluated to take the gold to carbon stage and then haul the carbon for processing at our ADR facility at Isabella Pearl for final doré production.
East Camp Douglas property: During the second quarter, we continued to evaluate results received from our first surface diamond drilling program on the lithocap target area of our East Camp Douglas property. This initial program targeted three general areas: Discovery Breccia, Gypsum Shaft and D2 Cliffs. These mineralized zones are hosted in brecciated vuggy silicified volcanic rock with a high degree of oxidation. A follow-up drilling program is targeted for later this year, continuing to evaluate the resource potential of the gold-bearing silicified volcanic rocks of the lithocap target area.
Accounting Developments
Recently issued accounting pronouncements have been evaluated and do not presently impact our financial statements and supplemental data.
20
Forward-Looking Statements
This report contains or incorporates by reference “forward-looking statements,” as that term is used in federal securities laws, about our financial condition, results of operations and business. These statements include, among others:
| ● | The extent of the impact of the COVID-19 pandemic, including the duration, spread, severity, and any repeated resurgence of the COVID-19 pandemic, the duration and scope of related government orders and restrictions, the impact on our employees, and the extent of the impact of the COVID-19 pandemic on our mining operations |
| ● | Commodity price fluctuations |
| ● | Governmental regulation and taxes |
| ● | Mine protests and work stoppages |
| ● | Adverse technological changes and cybersecurity threats |
| ● | Unanticipated increases in our operating costs and other costs of doing business |
| ● | Access to land and availability of materials, equipment, supplies, labor and supervision, power, and water |
| ● | Results of current and future feasibility studies |
| ● | Interpretation of drill hole results and the geology, grade, and continuity of mineralization |
| ● | Litigation by private parties or regulatory action by governmental entities |
| ● | Acts of God such as pandemics, floods, earthquakes, and any other natural disasters |
| ● | The uncertainty of reserve and mineralized material estimates |
These statements may be made expressly in this document or may be incorporated by reference from other documents that we will file with the SEC. You can find many of these statements by looking for words such as “believes,” “expects,” “targets,” “anticipates,” “estimates,” or similar expressions used in this report or incorporated by reference in this report.
These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied in those statements. Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied. We caution you not to put undue reliance on these statements, which speak only as of the date of this report. Further, the information contained in this document or incorporated herein by reference is a statement of our present intention and is based on present facts and assumptions, which may change at any time and without notice, based on changes in such facts or assumptions.
Risk Factors Impacting Forward-Looking Statements
The important factors that could prevent us from achieving our stated goals and objectives include, but are not limited to, those set forth in other reports we have filed with the SEC, including our Form 10-K for the year ended December 31, 2020, and the following:
| ● | Global pandemics such as COVID-19 and governmental responses designed to control the pandemic |
| ● | The Biden administration’s current and future stance on resource permitting and development |
| ● | Changes in the worldwide price for gold and/or silver |
| ● | Volatility in the equities markets |
| ● | Adverse results from our exploration or production efforts |
| ● | Producing at rates lower than those targeted |
| ● | Political and regulatory risks |
| ● | Weather conditions, including unusually heavy rains |
| ● | Earthquakes or other unforeseen ground movements impacting mining or processing |
| ● | Failure to meet our revenue or profit goals or operating budget |
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| ● | Decline in demand for our common stock |
| ● | Downward revisions in securities analysts’ estimates or changes in general market conditions |
| ● | Technological innovations by competitors or in competing technologies |
| ● | Cybersecurity threats |
| ● | Investor perception of our industry or our prospects |
| ● | Lawsuits |
| ● | Economic impact from spread of disease |
| ● | Actions by government central banks |
| ● | General economic trends |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Smaller Reporting Companies are not required to provide the information required by this item.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As required by Rule 13a-15 under the 1934 Act, as of June 30, 2021, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer). Based upon and as of the date of that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2021.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the 1934 Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the 1934 Act) during the quarter ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II – OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Smaller Reporting Companies are not required to provide the information for this item.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In April 2021, we issued 30,000 shares of our common stock in conjunction with our staffing process. In April 2021, we also issued stock options to purchase 130,000 shares of our common stock, which vest over a three-year period, to employees and management other than our officers or directors. The stock options can be exercised at a price ranging from $4.60 to $5.48 per share on or before April 19, 2026.
We relied upon the exemption provided by Section 4(a)2 of the Securities Act of 1933 in connection with the issuance of the shares and options described above. The persons who acquired these securities acquired them for their own accounts. The certificates representing these securities will bear a restricted legend providing that they cannot be sold except pursuant to an effective registration statement or an exemption from registration. No commission was paid to any person in connection with the issuance of the shares and options.
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 Quarterly Report.
Item 5. Other Information
See Item 2 above.
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Item 6. Exhibits
The following exhibits are filed or furnished herewith.
Exhibit Number |
| Description |
| | |
3.1 | | |
3.2 | | |
4.1.1 | | |
4.1.2 | | |
4.1.3 | | |
4.2 | | |
10.1 | | |
10.2 | | |
10.3 | | Reserved |
10.4 | | |
10.5 | | |
10.6 | | |
10.7 | | |
10.8 | | |
14 | | |
21 | | |
31.1* | | Certification of Chief Executive Officer Pursuant to Rule 13a-15(e) or Rule 15d-15(e) |
31.2* | | Certification of Chief Financial Officer Pursuant to Rule 13a-15(e) or Rule 15d-15(e) |
32* | | |
95* | | |
101* | | Financial statements from the Quarterly Report on Form 10-Q of Fortitude Gold Corporation for the three and six months ended June 30, 2021, formatted in inline XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Changes in Shareholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) the Notes to the Condensed Consolidated Financial Statements. |
104 | | Cover Page Interactive Data File (embedded within the XBRL document) |
(1) Incorporated by reference to the same exhibit filed with the Company's registration statement on Form S-1 (File No. 333-249533).
(2) Incorporated by reference to same exhibit filed with the Company's 8-K report dated March 1, 2021 (File No. 333-249533).
*Filed with this Quarterly Report on Form 10-Q.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on August 3, 2021.
| FORTITUDE GOLD CORPORATION | |
| | |
| By: | /s/ Jason D. Reid |
| Name: | Jason D. Reid |
| Title: | Chief Executive Officer and President |
| | |
| By: | /s/ John A. Labate |
| Name: | John A. Labate |
| Title: | Chief Financial Officer |
| | |
| | |
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Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Jason D. Reid, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Fortitude Gold Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 3, 2021
| By: | /s/ Jason D. Reid |
| Name: | Jason D. Reid |
| Title: | Chief Executive Officer and President |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, John A. Labate, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Fortitude Gold Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 3, 2021
| By: | /s/ John A. Labate |
| Name: | John A. Labate |
| Title: | Chief Financial Officer |
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Fortitude Gold Corporation (the “Company”) on Form 10-Q for the three month period ended June 30, 2021 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, we, Jason D. Reid, Chief Executive Officer and President, and John A. Labate, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of our knowledge:
(1) | The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 3, 2021
| | |
| By: | /s/ Jason D. Reid |
| Name: | Jason D. Reid |
| Title: | Chief Executive Officer and President |
| | |
| By: | /s/ John A. Labate |
| Name: | John A. Labate |
| Title: | Chief Financial Officer |
Exhibit 95
The following disclosures are provided pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) and Item 104 of Regulation S-K, which require certain disclosures by companies required to file periodic reports under the Securities Exchange Act of 1934, as amended, that operate mines regulated under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). The disclosures reflect our U.S. mining operations only as the requirements of the Act and Item 104 of Regulation S-K do not apply to our mines operated outside the United States.
Mine Safety Information. Whenever the Federal Mine Safety and Health Administration (“MSHA”) believes a violation of the Mine Act, any health or safety standard or any regulation has occurred, it may issue a citation which describes the alleged violation and fixes a time within which the U.S. mining operator (e.g. our subsidiary, Walker Lane Minerals Corp.) must abate the alleged violation. In some situations, such as when MSHA believes that conditions pose a hazard to miners, MSHA may issue an order removing miners from the area of the mine affected by the condition until the alleged hazards are corrected. When MSHA issues a citation or order, it generally proposes a civil penalty, or fine, as a result of the alleged violation, that the operator is ordered to pay. Citations and orders can be contested and appealed, and as part of that process, are often reduced in severity and amount, and are sometimes dismissed. The number of citations, orders and proposed assessments vary depending on the size and type (underground or surface) of the mine as well as by the MSHA inspector(s) assigned. In addition to civil penalties, the Mine Act also provides for criminal penalties for an operator who willfully violates a health or safety standard or knowingly violates or fails or refuses to comply with an order issued under Section 107(a) or any final decision issued under the Act.
The below table reflects citations and orders issued to us by MSHA during the three months ended June 30, 2021. The proposed assessments for the three months ended June 30, 2021 were taken from the MSHA data retrieval system as of July 7, 2021.
Additional information about the Act and MSHA references used in the table follows:
| ● | Section 104(a) S&S Citations: Citations received from MSHA under section 104(a) of the Mine Act for violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard. |
| ● | Section 104(b) Orders: Orders issued by MSHA under section 104(b) of the Mine Act, which represents a failure to abate a citation under section 104(a) within the period of time prescribed by MSHA. This results in an order of immediate withdrawal from the area of the mine affected by the condition until MSHA determines that the violation has been abated. |
| ● | Section 104(d) S&S Citations and Orders: Citations and orders issued by MSHA under section 104(d) of the Mine Act for unwarrantable failure to comply with mandatory, significant and substantial health or safety standards. |
| ● | Section 110(b)(2) Violations: Flagrant violations issued by MSHA under section 110(b)(2) of the Mine Act. |
| ● | Section 107(a) Orders: Orders issued by MSHA under section 107(a) of the Mine Act for situations in which MSHA determined an “imminent danger” (as defined by MSHA) existed. |
Exhibit 95
| | |
| Mine or Operation (1) | |
| Isabella Pearl Mine | |
| MSHA ID #2602812 | |
Total # of "Significant and Substantial" Violations Under §104(a) | | - |
Total # of Orders Issued Under §104(b) | | - |
Total # of Citations and Orders Issued Under §104(d) | | - |
Total # of Flagrant Violations Under §110(b)(2) | | - |
Total # of Imminent Danger Orders Under §107(a) | | - |
Total Amount of Proposed Assessments from MSHA under the Mine Act | $ | - |
Total # of Mining-Related Fatalities | | - |
Received Notice of Pattern of Violations under Section 104(e) | | No |
Received Notice of Potential to have Patterns under Section 104(e) | | No |
Pending Legal Actions | | - |
Legal Actions Instituted | | - |
Legal Actions Resolved | | - |
| (1) | MSHA assigns an identification number to each mine or operation and may or may not assign separate identification numbers to related facilities. The definition of “mine” under section 3 of the Mine Act includes the mine, as well as other items used in, or to be used in, or resulting from, the work of extracting minerals, such as land, structures, facilities, equipment, machines, tools, and minerals preparation facilities. |