FTCO 10-Q
Fortitude Gold Corp (FTCO)
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
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TABLE OF CONTENTS
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, | |||||
| 2023 |
| 2022 | |||
(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Gold and silver rounds/bullion | | — | ||||
Inventories |
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Prepaid taxes | | | ||||
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 | $ | | $ | | ||
Operating lease liabilities, current |
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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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Other non-current liabilities |
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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 |
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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)
| Three months ended | Six months ended | |||||||||||
June 30, | June 30, | ||||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||
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 |
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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 (income) expense, net |
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Total costs and expenses |
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Income before income and mining taxes |
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Mining and income tax expense |
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Net income | $ | | $ | | $ | | $ | | |||||
Net income 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, 2023 and 2022 | |||||||||||||
Par | ||||||||||||||
Number of | Value of | Total | ||||||||||||
Common | Common | Additional Paid- | Retained | Shareholders' | ||||||||||
| Shares |
| Shares |
| in Capital |
| Earnings |
| Equity | |||||
Balance, March 31, 2022 | | $ | | $ | | $ | | $ | | |||||
Stock-based compensation | | — | |
| — |
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Dividends | — | — | — |
| ( |
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Net income | — | — | — | | | |||||||||
Balance, June 30, 2022 | | $ | | $ | | $ | | $ | | |||||
Balance, March 31, 2023 | | $ | | $ | | $ | | $ | | |||||
Stock-based compensation | |
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Dividends | — |
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| ( |
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Net income | — |
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Balance, June 30, 2023 | | $ | | $ | | $ | | $ | | |||||
| Six Months Ended June 30, 2023 and 2022 | |||||||||||||
Par | ||||||||||||||
Number of | Value of | Total | ||||||||||||
Common | Common | Additional Paid- | Retained | Shareholders' | ||||||||||
| Shares |
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| Earnings |
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Balance, December 31, 2021 | | $ | | $ | | $ | | $ | | |||||
Stock-based compensation | — |
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Dividends | — | — | — | ( | ( | |||||||||
Stock options exercised | | — | | — | | |||||||||
Net income | — | — | — | | | |||||||||
Balance, June 30, 2022 | | $ | | $ | | $ | | $ | | |||||
Balance, December 31, 2022 | | $ | | $ | | $ | | $ | | |||||
Stock-based compensation | — |
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Dividends | — |
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Stock options exercised | | | | — | | |||||||||
Net income | — |
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Balance, June 30, 2023 | | $ | | $ | | $ | | $ | | |||||
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, | ||||||
| 2023 |
| 2022 | |||
Cash flows from operating activities: |
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Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash from operating activities: |
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Depreciation and amortization |
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Stock-based compensation | | | ||||
Deferred taxes | ( | ( | ||||
Reclamation and remediation accretion | | | ||||
Other operating adjustments |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other current assets |
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Other non-current assets |
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Accounts payable and other accrued liabilities |
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Income and mining taxes payable |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Capital expenditures |
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Other investing activities | ( | — | ||||
Net cash used in investing activities |
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Cash flows from financing activities: |
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Dividends paid | ( | ( | ||||
Proceeds from exercise of stock options | | | ||||
Repayment of loans payable |
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Repayment of capital leases |
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Net cash used in financing activities |
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Net increase in cash and cash equivalents |
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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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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 | $ | — | $ | | ||
Right-of-Use assets acquired through operating lease | $ | — | $ | | ||
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 of Financial Statements
These interim Condensed Consolidated Financial Statements (“interim financial statements”) of Fortitude Gold Corporation and its subsidiaries (collectively, the “Company”) are unaudited and have been prepared in accordance with the rules of the Securities and Exchange Commission for interim statements. 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, 2022 included in the Company’s annual report on Form 10-K. The year-end balance sheet data were 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. All intercompany accounts and transactions have been eliminated in consolidation.
Certain items in the prior period’s Condensed Consolidated Financial Statements have been reclassified to conform to the current presentation.
2. Revenue
The following table presents the Company’s net sales:
| Three months ended |
| Six months ended | |||||||||
June 30, | June 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
(in thousands) | (in thousands) | |||||||||||
Sales, net |
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Gold sales | $ | | $ | | $ | | $ | | ||||
Less: Refining charges |
| ( |
| ( |
| ( |
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Total sales, net | $ | | $ | | $ | | $ | | ||||
3. Gold and Silver Rounds/Bullion
The Company periodically purchases gold and silver rounds/bullion on the open market for investment purposes.
At June 30, 2023, the Company’s holdings of rounds/bullion, using quoted market prices, consisted of the following:
June 30, | ||||||||
2023 | ||||||||
Ounces | Per Ounce | Amount | ||||||
(in thousands) | ||||||||
Silver | | $ | | $ | | |||
Total holdings | $ | | ||||||
5
As of June 30, 2023, the Company did not have any holdings of gold rounds/bullion. The Company did not have any holdings of rounds/bullion at December 31, 2022.
4. Inventories
On June 30, 2023 and December 31, 2022, current inventories consisted of the following:
| June 30, |
| December 31, | |||
| 2023 |
| 2022 | |||
| (in thousands) | |||||
Stockpiles | $ | | $ | | ||
Leach pad |
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Doré |
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Subtotal - product inventories |
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Materials and supplies |
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Total | $ | | $ | | ||
In addition to the inventories above, as of June 30, 2023 and December 31, 2022, the Company has
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, 2023 and December 31, 2022, thus
As of June 30, 2023, the Company believes that it has
6. Prepaid Expenses and Other Current Assets
At June 30, 2023 and December 31, 2022, prepaid expenses and other current assets consisted of the following:
| June 30, |
| December 31, | |||
| 2023 |
| 2022 | |||
| (in thousands) | |||||
Contractor advances | $ | | $ | | ||
Prepaid insurance | | | ||||
Interest receivable |
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Other current assets |
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Total | $ | | $ | | ||
6
7. Property, Plant and Mine Development, net
At June 30, 2023 and December 31, 2022, property, plant and mine development consisted of the following:
| June 30, |
| December 31, | |||
| 2023 |
| 2022 | |||
| (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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Process 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) |
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Accumulated depreciation and amortization |
| ( |
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Total | $ | | $ | | ||
| (1) | Includes capital expenditures in accounts payable of $ |
For the three months ended June 30, 2023 and 2022, the Company recorded depreciation and amortization expense of $
8. Other Current Liabilities
At June 30, 2023 and December 31, 2022, other current liabilities consisted of the following:
| June 30, |
| December 31, | |||
| 2023 |
| 2022 | |||
| (in thousands) | |||||
Accrued royalty payments | $ | | $ | | ||
Accrued property and excise taxes |
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Other accrued expenses | | | ||||
Total | $ | | $ | | ||
7
9. Asset Retirement Obligation
The following table presents the changes in the Company’s asset retirement obligation for the six months ended June 30, 2023 and year ended December 31, 2022:
| June 30, |
| December 31, | |||
| 2023 |
| 2022 | |||
| (in thousands) | |||||
Asset retirement obligation – balance at beginning of period | $ | | $ | | ||
Changes in estimate |
| — |
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Payments | ( | ( | ||||
Accretion |
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Asset retirement obligation – balance at end of period | $ | | $ | | ||
As of June 30, 2023, the Company had a $
10. Commitments and Contingencies
The Company has a Contract Mining Agreement with a mining contractor relating to mining activities at its Isabella Pearl Mine. 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 11 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, 2023, total estimated contractual payments remaining, excluding embedded lease payments, are $
11. 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. 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, 2023 is years.
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, 2023 was
There are
The Company has an embedded lease in its Contract Mining Agreement. In November 2022, the Company extended the Contract Mining Agreement for a
8
and interest vary immaterially from forecasted amounts due to variable conditions at the mine. During the three and six months ended June 30, 2023, the Company capitalized variable lease costs of $
Maturities of operating lease liabilities as of June 30, 2023 are as follows (in thousands)
Year Ending December 31: |
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2023 | $ | | |
Thereafter |
| — | |
Total lease payments |
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Less imputed interest |
| ( | |
Present value of minimum payments |
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Less: current portion |
| ( | |
Long-term portion of minimum payments | $ | — |
Supplemental cash flow information related to the Company’s operating lease is as follows for the six months ended June 30, 2023 and 2022:
| Six months ended | |||||
June 30, | ||||||
| 2023 |
| 2022 | |||
| (in thousands) | |||||
Cash paid for amounts included in the measurement of lease liabilities: |
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Operating cash flows from operating leases | $ | | $ | | ||
11. Other (Income) Expense, Net
For the three and six months ended June 30, 2023 and 2022, other (income) expense, net consisted of the following:
| Three months ended | Six months ended | |||||||||||
June 30, | June 30, | ||||||||||||
| 2023 |
| 2022 | 2023 |
| 2022 | |||||||
| (in thousands) | (in thousands) | |||||||||||
Interest (income) expense | $ | ( | $ | | $ | ( | $ | | |||||
Charitable contributions | | | | | |||||||||
Unrealized loss from gold and silver rounds/bullion, net (1) | | — | | — | |||||||||
Other income | ( | ( | ( | ( | |||||||||
Total | $ | ( | $ | | $ | ( | $ | | |||||
| (1) | Gains and losses due to changes in fair value are non-cash in nature until such time that they are realized through cash transactions. For additional information regarding the Company’s fair value measurements and investments, please see Note 14. |
13. Net Income 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.
9
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. As of June 30, 2023 and 2022, potentially dilutive securities representing
Basic and diluted net income per common share is calculated as follows:
| Three months ended | Six months ended | |||||||||||
June 30, | June 30, | ||||||||||||
| 2023 |
| 2022 | 2023 |
| 2022 | |||||||
Net income (in thousands) | $ | | $ | | $ | | $ | | |||||
Basic weighted average shares of common stock outstanding | | | | | |||||||||
Diluted effect of share-based awards | | | | | |||||||||
Diluted weighted average common shares outstanding | | | | | |||||||||
Net income per share: | |||||||||||||
Basic | $ | | $ | | $ | | $ | | |||||
Diluted | $ | | $ | | $ | | $ | | |||||
14. 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, 2023 and December 31, 2022:
| June 30, | December 31, | ||||||
| 2023 |
| 2022 |
| Input Hierarchy Level | |||
| (in thousands) |
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Cash and cash equivalents | $ | | $ | | Level 1 | |||
Gold and silver rounds/bullion | | — | Level 1 | |||||
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 with an original maturity of 3 months or less and are valued at cost, which approximates fair value. Gold and silver rounds/bullion consist of precious metals used for investment purposes which are valued using quoted market prices. Please see Note 3 for additional information.
10
Gains and losses related to changes in the fair value of these financial instruments were included in the Company’s Condensed Consolidated Statements of Operations as shown in the following table:
Three months ended | Six months ended | |||||||||||||
June 30, | June 30, | |||||||||||||
2023 |
| 2022 | 2023 |
| 2022 | Statement of Operations Classification | ||||||||
(in thousands) | ||||||||||||||
Unrealized gold and silver rounds/bullion loss, net | $ | | $ | — | $ | | $ | — | Other (income) expense, net | |||||
15. 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 month ended June 30, 2023, the Company granted RSUs of
During the six months ended June 30, 2022, the Company issued options to purchase
During the six months ended June 30, 2023, stock options to purchase an aggregate of
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, 2023 the Company recorded $
16. Shareholders’ Equity
During the three and six months ended June 30, 2023 the Company declared and paid dividends of $
See Note 15 for information concerning shares and options granted pursuant to the Company's Equity Incentive Plan.
11
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”), County Line Minerals Corp. (“CLMC”), and Golden Mile Minerals Corp. (“GMMC”). WLMC, CLH, CLMC and GMMC 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. We are presently focused on mineral production from our Isabella Pearl Mine in Nevada. The ore mined at Isabella Pearl is processed on site at our processing facilities and sold to a refiner as doré, which contains precious metals of gold and silver. We also continue exploration and evaluation work on our portfolio of other precious metal properties in Nevada and continue to evaluate other properties for possible acquisition.
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.
The following discussion summarizes our results of operations for the three and six months ended June 30, 2023 and 2022. It also analyzes our financial condition at June 30, 2023. 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, 2022 contained in our annual report on Form 10-K for the year ended December 31, 2022.
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 2023 Financial Results and Highlights
| ● | $19.2 million net sales |
| ● | $3.6 million net income or $0.15 per share |
| ● | $46.9 million cash balance on June 30, 2023 |
| ● | 9,684 gold ounces produced |
| ● | 3.36 grams per tonne average gold grade mined |
| ● | $91.9 million working capital at June 30, 2023 |
| ● | $11.2 million mine gross profit |
| ● | $6.1 million exploration expenditures |
| ● | $527 total cash cost after by-product credits per gold ounce sold |
| ● | $680 per ounce total all-in sustaining cost |
| ● | $3.9 million dividends paid |
| ● | $0.04 special dividend |
12
Operating Data: The following tables summarize certain information about our operations at our Isabella Pearl Mine for the periods indicated:
|
| |||||||
Three months ended June 30, | Six months ended June 30, | |||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |
Ore mined |
|
|
|
|
|
|
|
|
Ore (tonnes) |
| 112,834 |
| 123,810 |
| 219,309 |
| 377,653 |
Gold grade (g/t) |
| 3.36 |
| 3.46 |
| 3.71 |
| 2.59 |
Low-grade stockpile |
|
|
|
|
|
|
|
|
Ore (tonnes) |
| — |
| 11,011 |
| 61,854 |
| 34,501 |
Gold grade (g/t) |
| — |
| 0.42 |
| 0.47 |
| 0.43 |
Waste (tonnes) |
| 312,614 |
| 241,500 |
| 530,741 |
| 1,494,024 |
Metal production (before payable metal deductions)(1) |
|
|
|
|
|
|
|
|
Gold (ozs.) |
| 9,684 |
| 10,980 |
| 21,171 |
| 20,855 |
Silver (ozs.) |
| 13,611 |
| 16,027 |
| 31,260 |
| 32,550 |
| (1) | The difference between what we report as “metal production” and “metal sold” is attributable to the difference between the quantities of metals contained in the doré we produce versus the portion of those metals actually paid for according to the terms of our sales contracts. Differences can also arise from inventory changes incidental to shipping schedules, or variances in ore grades and recoveries which impact the amounts of metals contained in doré produced and sold. |
|
| |||||||||||
Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Metal sold |
|
|
|
| ||||||||
Gold (ozs.) | 9,702 |
| 12,851 | 21,131 |
| 21,148 | ||||||
Silver (ozs.) | 13,464 |
| 18,780 | 30,944 |
| 32,708 | ||||||
Average metal prices realized (1) |
|
|
|
|
|
| ||||||
Gold ($per oz.) | 1,990 |
| 1,876 | 1,935 |
| 1,871 | ||||||
Silver ($per oz.) | 24.46 |
| 23.04 | 23.42 |
| 23.34 | ||||||
Precious metal gold equivalent ounces sold | ||||||||||||
Gold Ounces | 9,702 | 12,851 | 21,131 | 21,148 | ||||||||
Gold Equivalent Ounces from Silver | 165 | 231 | 375 | 408 | ||||||||
9,867 | 13,082 | 21,506 | 21,556 | |||||||||
Total cash cost before by-product credits per gold ounce sold | $ | 561 | $ | 680 | $ | 546 | $ | 706 | ||||
Total cash cost after by-product credits per gold ounce sold | $ | 527 | $ | 646 | $ | 512 | $ | 670 | ||||
Total all-in sustaining cost per gold ounce sold | $ | 680 | $ | 733 | $ | 625 | $ | 778 | ||||
| (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. |
13
During the three months ended June 30, 2023 and 2022, we produced 9,684 and 10,980 ounces of gold, respectively. The lower production is primarily due to higher utilization of the low-grade stockpile for blending of ore placed on the pad. Cash cost after by-product credit decreased due to lower mining costs due to higher utilization of the low-grade stockpile.
During the six months ended June 30, 2023 and 2022, we produced 21,171 and 20,855 ounces of gold, respectively. The higher production is primarily due to higher-grade ore mined and placed on the pad during the period. Cash cost after by-product credit decreased due to lower mining costs due to less waste mining.
Consolidated Results of Operations – Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022
Sales, net. For the three months ended June 30, 2023, consolidated sales, net were $19.2 million as compared to $24.0 million for the same period in 2022. The decrease is attributable to a 25% decrease in sales volumes due to decreased production, offset by a 6% increase in average sales price.
Mine gross profit. For the three months ended June 30, 2023, we recorded $11.2 million mine gross profit did not materially change compared to $11.6 million mine gross profit for the same period in 2022.
General and administrative. For the three months ended June 30, 2023, general and administrative expenses of $1.1 million did not materially change from $1.1 million in the same period in 2022.
Exploration expenses. For the three months ending June 30, 2023, property exploration expenses totaled $6.1 million as compared to $2.4 million for the same period of 2022. The increase was largely due to increased drilling at the County Line and Golden Mile properties and the completion of two additional monitoring wells at the Golden Mile property.
Other (income) expense, net. For the three months ending June 30, 2023, other income totaled $0.4 million as compared to other expense of $0.1 million for the same period of 2022. The change is due to an increase in interest income in 2023.
Income and mining tax expense. For the three months ended June 30, 2023, income and mining tax expense was $0.9 million as compared to $1.4 million for the same period in 2022. The decrease is the result of our lower income before income and mining taxes and decreased Nevada net proceeds of minerals tax due to lower metal sales. See Note 5 to the Condensed Consolidated Financial Statements.
Net income. For the three months ended June 30, 2023, we recorded net income of $3.6 million as compared to $6.6 million in the corresponding period for 2022. The decrease is due to the changes in our consolidated results of operations, as discussed above.
Consolidated Results of Operations – Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022
Sales, net. For the six months ended June 30, 2023, consolidated sales, net were $40.8 million as compared to $39.4 million for the same period in 2022. The increase is attributable to a 3% increase in average sales price.
Mine gross profit. For the six months ended June 30, 2023, we recorded $23.6 million mine gross profit compared to $18.3 million mine gross profit for the same period in 2022. The increase is primarily attributable to higher sales and lower cash cost after by-product credit per ounce sold, as discussed above.
General and administrative. For the six months ended June 30, 2023, general and administrative expenses of $2.1 million did not materially change from $2.3 million in the same period in 2022.
Exploration expenses. For the six months ending June 30, 2023, property exploration expenses totaled $9.7 million as compared to $4.9 million for the same period of 2022. The increase was largely due to increased drilling, as well as increased geotechnical and metallurgical studies at the County Line property. Drilling also increased at the Golden Mile property, as well as the completion of three additional monitoring wells.
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Other (income) expense, net. For the six months ending June 30, 2023, other income totaled $0.8 million as compared to other expense of $0.1 million for the same period of 2022. The change is due to an increase in interest income in 2023.
Income and mining tax expense. For the six months ended June 30, 2023, income and mining tax expense was $2.5 million as compared to $1.8 million for the same period in 2022. The increase is the result of our higher income before income and mining taxes. See Note 5 to the Condensed Consolidated Financial Statements.
Net income. For the six months ended June 30, 2023, we recorded net income of $10.0 million as compared to $9.2 million in the corresponding period for 2022. The increase is due to the changes in our consolidated results of operations, as discussed above.
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 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, crushing and conveying 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 gold ounces sold for the periods presented.
15
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 (in thousands):
Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2023 |
| 2022 | 2023 |
| 2022 | ||||||
(in thousands) | ||||||||||||
Total cash cost after by-product credits | $ | 5,109 | $ | 8,303 | $ | 10,810 | $ | 14,176 | ||||
Treatment and refining charges |
| (89) | (114) |
| (137) | (206) | ||||||
Depreciation and amortization |
| 2,905 | 4,155 |
| 6,384 | 6,933 | ||||||
Reclamation and remediation | 68 | 76 | 140 | 123 | ||||||||
Total consolidated mine cost of sales | $ | 7,993 | $ | 12,420 | $ | 17,197 | $ | 21,026 | ||||
The following table presents the non-GAAP measures of total cash cost and AISC:
Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2023 |
| 2022 | 2023 |
| 2022 | ||||||
(in thousands, except ounces sold and cost per precious metal gold equivalent ounce sold) | ||||||||||||
Total cash cost before by-product credits (1) | $ | 5,439 | $ | 8,735 | $ | 11,537 | $ | 14,939 | ||||
By-product credits (2) |
| (330) | (432) |
| (727) | (763) | ||||||
Total cash cost after by-product credits | $ | 5,109 | $ | 8,303 | $ | 10,810 | $ | 14,176 | ||||
Sustaining capital expenditures | 509 | 1,025 | 621 | 1,963 | ||||||||
Sustaining exploration expenses | 974 | 95 | 1,764 | 322 | ||||||||
Total all-in sustaining cost | $ | 6,592 | $ | 9,423 | $ | 13,195 | $ | 16,461 | ||||
Gold ounces sold |
| 9,702 | 12,851 |
| 21,131 | 21,148 | ||||||
Total cash cost before by-product credits per gold ounce sold | $ | 561 | $ | 680 | $ | 546 | $ | 706 | ||||
By-product credits per gold ounce sold (2) | (34) | (34) | (34) | (36) | ||||||||
Total cash cost after by-product credits per gold ounce sold | 527 | 646 | 512 | 670 | ||||||||
Other sustaining expenditures per gold ounce sold (3) | 153 | 87 | 113 | 108 | ||||||||
Total all-in sustaining cost per gold ounce sold | $ | 680 | $ | 733 | $ | 625 | $ | 778 | ||||
| (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 gold ounce sold (in thousands):
Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
By-product credits by dollar value: |
|
| ||||||||||
Silver sales | $ | 330 | $ | 432 | $ | 727 | $ | 763 | ||||
Total sales from by-products | $ | 330 | $ | 432 | $ | 727 | $ | 763 | ||||
Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
By-product credits per gold ounce sold: |
|
| ||||||||||
Silver sales | $ | 34 | $ | 34 | $ | 34 | $ | 36 | ||||
Total by-product credits per gold ounce sold | $ | 34 | $ | 34 | $ | 34 | $ | 36 | ||||
16
Liquidity and Capital Resources
As of June 30, 2023, we had a cash position of $46.9 million compared to $45.1 million at December 31, 2022. The increase is primarily due to increased cash from operations.
As of June 30, 2023, we had working capital of $91.9 million compared to $84.1 million at December 31, 2022. 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, 2023, 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, 2023 was $12.8 million, compared to $14.5 million for six months ended June 30, 2022. The decrease is primarily due changes in inventory and deferred taxes.
Net cash used in investing activities for the six months ended June 30, 2023 was $4.2 million compared to $8.1 million during the same period in 2022. The decrease is primarily due to less capital expenditures for the Golden Mile project.
Net cash used in financing activities for the six months ended June 30, 2023 of $6.7 million compared to $5.8 million for the same period in 2022. The increase is primarily due to higher shareholder dividends due to special dividend paid in May 2023.
Development and Exploration Activities
Isabella Pearl Mine: During the second quarter, operations continued at the Isabella Pearl Mine open-pit and heap leach operations. Exploration reverse circulation (“RC”) drilling continued in the Plan of Operation footprint of the Isabella Pearl Mine, Scarlet area, and Twin Hills area that are to the northwest of the Isabella Pearl Mine. These drilling programs completed 66 RC holes that totaled 6,821 meters. The focus of these exploration drilling programs was on identifying areas with oxide extractable gold.
County Line property: The County Line Project Plan of Operations and Nevada Reclamation Permit Application was submitted in May 2023 to the U.S. Department of the Interior Bureau of Land Management (“BLM”) and State of Nevada Department of Conservation and Natural Resources Division of Environmental Protection. RC drilling continued in the second quarter to further delineate gold mineralization at the County Line main pit along with mine plan optimization and to test the East Zone pit that included 86 holes, totaling 7,065 meters. In addition, the metallurgical and geotechnical core programs continued that resulted in 12 additional holes being completed that totaled 683 meters. The hydrogeology program advanced with drilling of two holes that will be used for water monitoring.
Golden Mile property: Environmental Assessment permit preparation continued with the goal to submit the Plan of Operations to regulatory authorities in 2023. Additional studies advanced in the second quarter include interpretation of the spectral analytical program results from the RC drill hole chip samples, an independent assessment by a third-party consultant to review sampling, and completion of a seven-hole core program that totaled 825 meters. This core program was designed to further constrain structural and lithological controls associated with gold mineralization. Two additional water monitoring wells were drilled to further assist with planning the proposed phase one open pit.
East Camp Douglas property: Approval of the next phase of RC hole drilling in the Lithocap target area by the Bureau of Land Management, was granted in April 2023. Road building and pad construction are underway; drilling is scheduled for the third quarter. The first phase of a comprehensive surface mapping and sampling program was completed in the northern portion of the East Camp Douglas property. Results from this surface mapping program were used to design a drilling campaign and a Notice of Intent (“NOI”) to drill is in progress for submission to the BLM. Pending approval of this NOI application, drilling is scheduled to commence in the third quarter.
Ripper property: Compilation and interpretation of the 2022 field work and geochemical results from the Ripper property were finalized in the first quarter of 2023. A drilling application with the Bureau of Land Management was completed in the quarter ended June 30, 2023, and environmental studies are currently underway.
17
Accounting Developments
Recently issued accounting pronouncements have been evaluated and do not presently impact our financial statements and supplemental data.
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:
| ● | statements about our future exploration, permitting, production, development, and plans for development of our properties |
| ● | statements concerning the benefits that we expect will result from our business activities and certain transactions that we contemplate or have completed, such as receipt of proceeds, decreased expenses and avoided expenses and expenditures |
| ● | statements of our expectations, beliefs, future plans and strategies, our targets, exploration activities, anticipated developments and other matters that are not historical facts |
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, 2022, and the following:
| ● | The Biden administration’s current and future stance on resource permitting and development |
| ● | Inflationary pressures and supply chain disruptions, with particular consideration on the outlook for increased costs specific to labor, materials, consumables and fuel and energy on operations |
| ● | Global pandemics such as COVID-19 and governmental responses designed to control the pandemic |
| ● | 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 |
| ● | Technological innovations by competitors or in competing technologies |
18
| ● | Cybersecurity threats |
| ● | Investor perception of our industry or our prospects |
| ● | Lawsuits |
| ● | 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 15d-15 under the 1934 Act, as of June 30, 2023, 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, 2023.
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, 2023, 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
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.
19
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, 2023, 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).
(3) Incorporated by reference to same exhibit filed with the Company's 10-K/A report dated December 15, 2022 (File No. 333-249533).
*Filed with this Quarterly Report on Form 10-Q.
21
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 1, 2023.
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 | |
22