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)
September 30, | December 31, | |||||
| 2022 |
| 2021 | |||
(Unaudited) |
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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 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 | Nine months ended | |||||||||||
September 30, | September 30, | ||||||||||||
| 2022 |
| 2021 |
| 2022 |
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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 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 September 30, 2022 and 2021 | |||||||||||||
Par | Retained | |||||||||||||
Number of | Value of | Earnings | Total | |||||||||||
Common | Common | Additional Paid- | (Accumulated | Shareholders' | ||||||||||
| Shares |
| Shares |
| in Capital |
| Deficit) |
| Equity | |||||
Balance, June 30, 2021 | | $ | | $ | | $ | | $ | | |||||
Stock-based compensation | — | $ | — | $ | |
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Dividends | — | — | — |
| ( |
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Net income | — | — | — | | | |||||||||
Balance, September 30, 2021 | | $ | | $ | | $ | | $ | | |||||
Balance, June 30, 2022 | | $ | | $ | | $ | | $ | | |||||
Stock-based compensation | — |
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Dividends | — |
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Net income | — |
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Balance, September 30, 2022 | | $ | | $ | | $ | | $ | | |||||
| Nine Months Ended September 30, 2022 and 2021 | |||||||||||||
Par | Retained | |||||||||||||
Number of | Value of | Earnings | Total | |||||||||||
Common | Common | Additional Paid- | (Accumulated | Shareholders' | ||||||||||
| Shares |
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| Deficit) |
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Balance, December 31, 2020 | | $ | | $ | | $ | ( | $ | | |||||
Stock-based compensation | |
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Issuance of shares under private placement | |
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Dividends | — | — | — | ( | ( | |||||||||
Net income | — | — | — | | | |||||||||
Balance, September 30, 2021 | | $ | | $ | | $ | | $ | | |||||
Balance, December 31, 2021 | | $ | | $ | | $ | | $ | | |||||
Stock-based compensation | — |
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Dividends | — |
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Stock options exercised | | — | | — | | |||||||||
Net income | — |
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Balance, September 30, 2022 | | $ | | $ | | $ | | $ | | |||||
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)
Nine months ended | ||||||
September 30, | ||||||
| 2022 |
| 2021 | |||
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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Net cash used in investing activities |
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Cash flows from financing activities: |
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Dividends paid | ( | ( | ||||
Issuance of common stock | — | | ||||
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 | $ | | $ | | ||
Equipment purchased under finance lease | $ | — | $ | | ||
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, 2021 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. Related Party Transactions
On December 31, 2020, the Company was spun-off from Gold Resource Corporation (“GRC”). In connection with the spin-off, the Company entered into a Management Services Agreement (“MSA” or “Agreement”) with GRC that governed the relationship of the parties following the spin-off. The MSA provided that the Company received 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 received certain administrative services related to information technology, accounting and financial advisory services, legal and compliance support and investor relations and shareholder communication services. The agreed upon charges for services rendered were 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 could be cancelled upon
3. Revenue
The following table presents the Company’s net sales:
| Three months ended |
| Nine months ended | |||||||||
September 30, | September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
(in thousands) | (in thousands) | |||||||||||
Sales, net |
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Gold sales | $ | | $ | | $ | | $ | | ||||
Less: Refining charges |
| ( |
| ( |
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Total sales, net | $ | | $ | | $ | | $ | | ||||
5
4. Inventories
On September 30, 2022 and December 31, 2021, current inventories consisted of the following:
| September 30, |
| December 31, | |||
| 2022 |
| 2021 | |||
| (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 September 30, 2022 and December 31, 2021, 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 September 30, 2022 and December 31, 2021, thus
As of September 30, 2022, the Company believes that is has
6. Prepaid Expenses and Other Current Assets
At September 30, 2022 and December 31, 2021, prepaid expenses and other current assets consisted of the following:
| September 30, |
| December 31, | |||
| 2022 |
| 2021 | |||
| (in thousands) | |||||
Contractor advances | $ | | $ | | ||
Prepaid insurance | | | ||||
Other current assets |
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Total | $ | | $ | | ||
6
7. Property, Plant and Mine Development, net
At September 30, 2022 and December 31, 2021, property, plant and mine development consisted of the following:
| September 30, |
| December 31, | |||
| 2022 |
| 2021 | |||
| (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 September 30, 2022 and 2021, the Company recorded depreciation and amortization expense of $
8. Other Current Liabilities
At September 30, 2022 and December 31, 2021, other current liabilities consisted of the following:
| September 30, |
| December 31, | |||
| 2022 |
| 2021 | |||
| (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 nine months ended September 30, 2022 and year ended December 31, 2021:
| September 30, |
| December 31, | |||
| 2022 |
| 2021 | |||
| (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 September 30, 2022, 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 September 30, 2022, 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 September 30, 2022 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 September 30, 2022 was
There are
The Company has an embedded lease in its Contract Mining Agreement which was renewed for a
8
a $
Maturities of operating lease liabilities as of September 30, 2022 are as follows (in thousands)
Year Ending December 31: |
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2022 | $ | | |
Thereafter |
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Total lease payments |
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Less imputed interest |
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Present value of minimum payments |
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Less: current portion |
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Long-term portion of minimum payments | $ | — |
Supplemental cash flow information related to the Company’s operating lease is as follows for the nine months ended September 30, 2022 and 2021:
| Nine months ended | |||||
September 30, | ||||||
| 2022 |
| 2021 | |||
| (in thousands) | |||||
Cash paid for amounts included in the measurement of lease liabilities: |
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Operating cash flows from operating leases | $ | | $ | | ||
12. Other Expense, Net
For the three and nine months ended September 30, 2022 and 2021, other expense, net consisted of the following:
| Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | ||||||||||||
| 2022 |
| 2021 | 2022 |
| 2021 | |||||||
| (in thousands) | (in thousands) | |||||||||||
Interest expense | $ | | $ | | $ | | $ | | |||||
Charitable contributions | | | | | |||||||||
Other income | ( | ( | ( | ( | |||||||||
Total | $ | | $ | | $ | | $ | | |||||
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.
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 September 30, 2022 and 2021, potentially dilutive securities representing
9
common stock were excluded from the computation of diluted earnings per share because their effect would have been antidilutive.
Basic and diluted net income per common share is calculated as follows:
| Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | ||||||||||||
| 2022 |
| 2021 | 2022 |
| 2021 | |||||||
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 September 30, 2022 and December 31, 2021:
| September 30, | December 31, | ||||||
| 2022 |
| 2021 |
| Input Hierarchy Level | |||
| (in thousands) |
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Cash and cash equivalents | $ | | $ | | Level 1 | |||
Accounts receivable |
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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.
10
15. Stock-Based Compensation
The Fortitude Gold Corporation 2020 Equity Incentive Plan (the “Incentive Plan”) allows for the issuance of up to
During the nine months ended September 30, 2021, in conjunction with its staffing process after the spin-off from GRC, the Company issued
During the nine months ended September 30, 2022, the Company issued options to purchase
During the nine months ended September 30, 2022, 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 nine months ended September 30, 2022, the Company recorded $
16. Shareholders’ Equity
On January 11, 2021, the Company completed a private placement sale of
During the three and nine months ended September 30, 2022, 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, CLMH 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.
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 nine months ended September 30, 2022 and 2021. It also analyzes our financial condition at September 30, 2022. 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, 2021 contained in our annual report on Form 10-K for the year ended December 31, 2021.
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.
Third Quarter 2022 Financial Results and Highlights
| ● | $16.1 million net sales |
| ● | $1.7 million net income or $0.07 per share |
| ● | $42.2 million cash balance on September 30, 2022 |
| ● | 9,500 gold ounces produced |
| ● | 5.69 grams per tonne average gold grade mined |
| ● | $82.6 million working capital at September 30, 2022 |
| ● | $7.4 million mine gross profit |
| ● | $613 total cash cost after by-product credits per gold ounce sold |
| ● | $687 per ounce total all-in sustaining cost |
| ● | $2.9 million dividends paid |
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Operating Data: The following tables summarize certain information about our operations at our Isabella Pearl Mine for the periods indicated:
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Three months ended September 30, | Nine months ended September 30, | |||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |
Ore mined |
|
|
|
|
|
|
|
|
Ore (tonnes) |
| 113,111 |
| 139,950 |
| 490,764 |
| 454,679 |
Gold grade (g/t) |
| 5.69 |
| 1.42 |
| 3.30 |
| 4.52 |
Low-grade stockpile |
|
|
|
|
|
|
|
|
Ore (tonnes) |
| — |
| 8,600 |
| 34,501 |
| 8,600 |
Gold grade (g/t) |
| — |
| 0.33 |
| 0.43 |
| 0.33 |
Waste (tonnes) |
| 202,201 |
| 1,838,027 |
| 1,696,225 |
| 4,894,937 |
Metal production (before payable metal deductions)(1) |
|
|
|
|
|
|
|
|
Gold (ozs.) |
| 9,500 |
| 11,478 |
| 30,355 |
| 37,593 |
Silver (ozs.) |
| 12,497 |
| 16,467 |
| 45,047 |
| 33,643 |
| (1) | The difference between what we report as “metal production” and “metal sold” is attributable to the difference between the quantities of metals contained in the doré we produce versus the portion of those metals actually paid for according to the terms of our sales contracts. Differences can also arise from inventory changes incidental to shipping schedules, or variances in ore grades and recoveries which impact the amounts of metals contained in doré produced and sold. |
|
| |||||||||||
Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Metal sold |
|
|
|
| ||||||||
Gold (ozs.) | 9,419 |
| 11,454 | 30,567 |
| 37,436 | ||||||
Silver (ozs.) | 12,111 |
| 16,330 | 44,819 |
| 33,171 | ||||||
Average metal prices realized (1) |
|
|
|
|
|
| ||||||
Gold ($per oz.) | 1,719 |
| 1,789 | 1,871 |
| 1,796 | ||||||
Silver ($per oz.) | 19.44 |
| 23.98 | 23.34 |
| 25.14 | ||||||
Precious metal gold equivalent ounces sold | ||||||||||||
Gold Ounces | 9,419 | 11,454 | 30,567 | 37,436 | ||||||||
Gold Equivalent Ounces from Silver | 137 | 219 | 559 | 464 | ||||||||
9,556 | 11,673 | 31,126 | 37,900 | |||||||||
Total cash cost before by-product credits per gold ounce sold | $ | 638 | $ | 658 | $ | 685 | $ | 596 | ||||
Total cash cost after by-product credits per gold ounce sold | $ | 613 | $ | 624 | $ | 652 | $ | 574 | ||||
Total all-in sustaining cost per gold ounce sold | $ | 687 | $ | 793 | $ | 749 | $ | 663 | ||||
| (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. |
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During the three months ended September 30, 2022 and 2021, we produced 9,500 and 11,478 ounces of gold. The lower production is primarily due to lower leach pad recoveries due to timing of material placed under leach and higher utilization of the low-grade stockpile for blending of ore on the pad. Cash cost after by-product credit decreased due to lower mining costs due to less waste mining, mostly offset by lower ounces sold.
During the nine months ended September 30, 2022 and 2021, we produced 30,355 and 37,593 ounces of gold. The lower production is primarily due to lower leach pad recoveries due to timing of material placed under leach and higher utilization of the low-grade stockpile for blending of ore on the pad. Cash cost after by-product credit increased primarily due lower ounces sold.
Consolidated Results of Operations – Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Sales, net. For the three months ended September 30, 2022, consolidated sales, net were $16.1 million as compared to $20.4 million for the same period in 2021. The decrease is attributable to lower sales volumes and lower average sales price. Third quarter 2022 gold sales volumes decreased 18% and the average realized price for gold decreased 4%, from the same period in 2021. Sales volumes decreased as a result of lower production, as discussed above.
Mine gross profit. For the three months ended September 30, 2022, we recorded $7.4 million mine gross profit compared to $9.6 million mine gross profit for the same period in 2021. The change is primarily attributable to lower sales, as discussed above.
General and administrative. For the three months ended September 30, 2022, general and administrative expenses totaled $1.6 million as compared to $1.4 million for the same period in 2021. The increase in 2022 was primarily the result of the Company being fully staffed as a post spin-off as a standalone entity.
Exploration expenses. For the three months ended September 30, 2022, property exploration expenses totaled $3.7 million as compared to $2.0 million for the same period of 2021. The increased exploration expense was the result of drilling at the Golden Mile and County Line properties to further define resources.
Other expense, net. For the three months ended September 30, 2022, other expense, net did not materially change from the same period in 2021.
Income and mining tax expense. For the three months ended September 30, 2022, income and mining tax expense was $0.2 million as compared to $1.5 million for the same period in 2021. The decrease is the result of our lower income before income and mining taxes and decreased Nevada net proceeds of minerals tax as a result of decreased metal sales. See Note 5 to the Condensed Consolidated Financial Statements.
Net income. For the three months ended September 30, 2022 we recorded net income of $1.7 million as compared to $4.6 million in the corresponding period for 2021. The decrease is due to the changes in our consolidated results of operations, as discussed above.
Consolidated Results of Operations – Nine months Ended September 30, 2022 Compared to Nine months Ended September 30, 2021
Sales, net. For the nine months ended September 30, 2022, consolidated sales, net were $55.5 million as compared to $67.0 million for the same period in 2021. The decrease is attributable to lower sales volumes, partially offset by higher average sales price. Third quarter 2022 gold sales volumes decreased 18%, while the average realized price for gold increased 4%, from the same period in 2021. Sales volumes decreased as a result of lower production, as discussed above.
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Mine gross profit. For the nine months ended September 30, 2022, we recorded $25.7 million mine gross profit compared to $33.7 million mine gross profit for the same period in 2021. The change is primarily attributable to lower sales, as discussed above.
General and administrative. For the nine months ended September 30, 2022, general and administrative expenses totaled $3.9 million as compared to $8.7 million for the same period in 2021. The decrease in 2022 was primarily the result of costs incurred in 2021 to fully staff the Company post spin-off as a standalone entity.
Exploration expenses. For the nine months ended September 30, 2022, property exploration expenses totaled $8.6 million as compared to $4.4 million for the same period of 2021. The increased exploration expense was the result of drilling at the Golden Mile and County Line properties to further define resources.
Other expense, net. For the nine months ended September 30, 2022, other expense, net did not materially change from the same period in 2021.
Income and mining tax expense. For the nine months ended September 30, 2022, income and mining tax expense was $2.1 million as compared to $5.1 million for the same period in 2021. The decrease is the result of our lower income before income and mining taxes and decreased Nevada net proceeds of minerals tax as a result of decreased metal sales. See Note 5 to the Condensed Consolidated Financial Statements.
Net income. For the nine months ended September 30, 2022 we recorded net income of $10.9 million as compared to $15.4 million in the corresponding period for 2021. The decrease 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.
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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.
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 September 30, | Nine months ended September 30, | |||||||||||
| 2022 |
| 2021 | 2022 |
| 2021 | ||||||
(in thousands) | ||||||||||||
Total cash cost after by-product credits | $ | 5,774 | $ | 7,144 | $ | 19,950 | $ | 21,461 | ||||
Treatment and refining charges |
| (71) | (69) |
| (277) | (242) | ||||||
Depreciation and amortization |
| 3,005 | 3,668 |
| 9,938 | 11,953 | ||||||
Reclamation and remediation | 60 | 40 | 183 | 116 | ||||||||
Total consolidated mine cost of sales | $ | 8,768 | $ | 10,783 | $ | 29,794 | $ | 33,288 | ||||
The following table presents the non-GAAP measures of total cash cost and AISC (in thousands, except ounces sold and cost per gold ounce sold):
Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2022 |
| 2021 | 2022 |
| 2021 | ||||||
(in thousands, except ounces sold and cost per precious metal gold equivalent ounce sold) | ||||||||||||
Total cash cost before by-product credits (1) | $ | 6,010 | $ | 7,536 | $ | 20,949 | $ | 22,295 | ||||
By-product credits (2) |
| (236) | (392) |
| (999) | (834) | ||||||
Total cash cost after by-product credits | $ | 5,774 | $ | 7,144 | $ | 19,950 | $ | 21,461 | ||||
Sustaining capital expenditures | 376 | 1,491 | 2,339 | 2,188 | ||||||||
Sustaining exploration expenses | 318 | 441 | 640 | 1,147 | ||||||||
Total all-in sustaining cost | $ | 6,468 | $ | 9,076 | $ | 22,929 | $ | 24,796 | ||||
Gold ounces sold |
| 9,419 | 11,454 |
| 30,567 | 37,436 | ||||||
Total cash cost before by-product credits per gold ounce sold | $ | 638 | $ | 658 | $ | 685 | $ | 596 | ||||
By-product credits per gold ounce sold (2) | (25) | (34) | (33) | (22) | ||||||||
Total cash cost after by-product credits per gold ounce sold | 613 | 624 | 652 | 574 | ||||||||
Other sustaining expenditures per gold ounce sold (3) | 74 | 169 | 97 | 89 | ||||||||
Total all-in sustaining cost per gold ounce sold | $ | 687 | $ | 793 | $ | 749 | $ | 663 | ||||
| (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. |
16
The following tables summarize our by-product revenue and by-product credit gold ounce sold (in thousands):
Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
(in thousands) | ||||||||||||
By-product credits by dollar value: |
|
| ||||||||||
Silver sales | $ | 236 | $ | 392 | $ | 999 | $ | 834 | ||||
Total sales from by-products | $ | 236 | $ | 392 | $ | 999 | $ | 834 | ||||
Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
By-product credits: |
|
| ||||||||||
Silver sales | $ | 25 | $ | 34 | $ | 33 | $ | 22 | ||||
Total by-product credits | $ | 25 | $ | 34 | $ | 33 | $ | 22 | ||||
Liquidity and Capital Resources
As of September 30, 2022, we had a cash position of $42.2 million compared to $40.0 million at December 31, 2021. The increase is primarily due to cash from operations which was offset by increased capital and exploration expenditures for the Golden Mile property.
As of September 30, 2022, we had working capital of $82.6 million compared to $76.0 million at December 31, 2021. 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 September 30, 2022, 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 nine months ended September 30, 2022 was $21.0 million, compared to $23.2 million for nine months ended September 30, 2021. The decrease is primarily due to lower net income which was partially offset by changes in accounts receivable and inventories.
Net cash used in investing activities for the nine months ended September 30, 2022 was $10.2 million compared to $1.8 million during the same period in 2021. The increase is primarily due to capital expenditures related to Golden Mile and capital expenditures at Isabella Pearl for a new water well and completion of the heap leach expansion.
Net cash used in financing activities for nine months ended September 30, 2022 was $8.7 million compared to $4.9 million for the same period in 2021. The net change is due to dividends paid for a full nine months in 2022, whereas in 2021, dividends began in April. Offsetting the dividend payments in 2021 was the cash received from the private sale of our common stock.
Development and Exploration Activities
Isabella Pearl Mine: During the third quarter, our open-pit, heap leach operations at the Isabella Pearl Mine continued. Exploration activities during the quarter included 10 reverse circulation (“RC”) drill holes totaling 956 meters. These holes were drilled from inside the Pearl open-pit to define limits of gold mineralization and transitional zone oxidation and to commence characterization of the deeper sulfide mineralization. Data review and field investigations along the Isabella Pearl mineralized trend continued during the third quarter. Fieldwork, mainly surface geological mapping and rock chip sampling, was conducted with the purpose of identifying targets for future drilling and expansion outside the current permitted mine plan.
Golden Mile property: During the third quarter, we continued Phase 2 Reverse Circulation (“RC”) drilling for primarily infill, step-down as well as step-out drill holes to test the depth and strike extent of the mineralization. During the quarter, we completed 22 RC holes totaling 4,647 meters. The results from this drilling are being incorporated into our geological model. We are targeting to update our resource estimate and potentially convert mineral resources to mineral reserves in late 2022 or early 2023. Additional fieldwork during the quarter included surface geological mapping and rock
17
chip sampling along the extensions of mineralized structures at Golden Mile. Engineering, base line and background studies are also on-going for our process facility layout, open-pit design, and infrastructure evaluations at Golden Mile. We continue to advance our hydrogeological and geotechnical understanding of the property. We also successfully completed a water well with potential capacity to be our primary production water resource at Golden Mile. During 2022, we will 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 project’s ADR process plant is being designed and engineered to take the gold to carbon stage and then haul the carbon for processing at our ADR plant at Isabella Pearl for final doré production.
County Line property: At our County Line property during the third quarter, we commenced Phase 2 RC drilling for primarily infill and step-out drill holes to test the extent of the gold mineralization. During the quarter, we completed 31 RC holes totaling 2,855 meters. This program is designed to evaluate the resource potential of the gold-bearing volcanic rocks remaining in the vicinity of the historic County Line open-pit. Additional fieldwork during the quarter included surface geological mapping and rock chip sampling along the extensions of mineralized structures at County Line.
East Camp Douglas property: During the third quarter, we commenced Phase 1 RC drilling at our East Camp Douglas property. During the quarter, we completed 2 RC holes totaling 169 meters. This program is designed to follow-up our exploration drill results reported in 2021 from the East Camp Douglas property’s lithocap target located at the southern end of the property. The objective of this program is to continue to evaluate the resource potential of the gold-bearing silicified volcanic rocks of the lithocap target area.
Ripper property: Exploration activities commenced on our Ripper property during the third quarter. Field activities during the quarter included detailed mapping and sampling of known gold mineralization at Ripper which occurs in a Triassic package of limestones, limestone collapse breccias, and mudstones of the Auld Lang Syne group. Detailed mapping and sampling continues at Ripper to expand on the significant gold mineralization at surface and a first drill program is targeted in 2023.
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:
| ● | 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 |
| ● | 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
18
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, 2021, 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 |
| ● | 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 13a-15 under the 1934 Act, as of September 30, 2022, 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 September 30, 2022.
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,
19
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 September 30, 2022, 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.
Item 5. Other Information
None.
20
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 nine months ended September 30, 2022, 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 report dated March 1, 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 November 1, 2022.
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