Greetings. Welcome to the Fortitude Gold Q2 2023 conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Mr. Jason Reid, CEO of Fortitude Gold. You may begin.
Thank you. Good morning, everybody, and thank you for joining Fortitude Gold Corporation's 2023 Q2 conference call. Following my brief comments and associated presentation for those who joined online, we will have a brief question-and-answer period. Joining me on the call today for the Q&A portion will be Mr. John Labate, our Chief Financial Officer. Let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments.
Forward-looking statements in the earnings release that we issued yesterday, along with the comments on this call, are made only as of today, August 2, 2023. We undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of non-GAAP financial measures referred to in our remarks in our Form 10-K, filed with the SEC for the year ended December 31, 2022. The Q2 was another strong one. Positions us to achieve the high end of our annual production targets.
We achieved $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 ton average gold grade mined, $91.9 million working capital at June 30, 2023, $11.2 million mine gross profit, $527 total cash cost after byproduct credits per ounce gold sold, and $680 per ounce total all-in sustaining cost. $3.9 million dividends paid, which included a $0.04 special dividend.
Exploration spending was strong at $6 million, which resulted in great drill results like those just released, which included 10.67 meters, grading 5.39 grams per ton gold at County Line, along with geotechnical drilling for County Line mine planning and drilling for water monitoring and water wells for both County Line and Golden Mile. An extensive mapping and surface sampling program at the north end of East Camp returned extensive and widespread surface gold, grading in grams per ton as high as 36.6 grams, 20.2 grams, 12.9 grams, and 10.6 grams gold, with multiple samples returning grades in excess of 5 grams per ton gold.
We are moving forward with obtaining an exploration Notice of Intent to initiate our first drill program on these northeast claims after the near-term drill program at the southern lithocap target is complete, though we might switch that and do the north first. We await questions on our Plan of Operations submitted to the BLM for our County Line project and are positioning to turn in our Plan of Operations for our Golden Mile project in the near future. We continue to drill numerous targets on our Isabella Pearl trend, looking for additional mineralization, and have completed numerous mapping and sampling programs on most all our properties, generating additional drill targets to add to our list of future drill programs. Shareholders may also find interest in our growing physical metal bullion holding as part of our treasury diversification program.
We currently have silver bullion and plan to begin adding gold bullion as well. To conclude, Q2 2023 was another strong quarter, and we thank you for your continued support. With that, I would like to thank everyone for their time today on this conference call, and operator, if you can please open up the lines for a possible Q&A.
Certainly. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions.
Operator, I'll take our first question from the webcast that's come in, Lawrence Stroll wrote: "Thanks for the great work. When do you anticipate the last ore will be mined from the Isabella Pearl pit, and could you give more details on the East Camp drilling on the lithocap?" Lawrence, thanks for the question. As far as the Isabella Pearl pit, we're not 100% sure. If you've followed us, you know that we are going to go deeper than the original pit mine plan was. And the reason we're doing that is because the mineralization continues. It transitions into a sulfide ore that we can't process, but there's this transitional ore in which, if the pH is correct enough, we can actually process it....
We are working with the BLM and the regulators to mine several benches deeper than we originally planned. You know, we'll be doing that toward the end of next, this year or early next. We are also mining some ancillary mineral we're encountering in the Civic Cat, which is bordering the north side of the pit. We're actually, we're actually drilling and finding a few additional ounces. We're unsure yet whether that can be pulled into the mine plan or not. I guess, I don't have a specific answer on the date, because a lot of this will depend on how the mining deeper goes, as well as the periphery of the pit. You know, probably mid to end of next year is likely, we'll still be mining. We just don't know yet.
Thanks for the question on the Isabella Pearl. As for the East Camp drilling, we have scheduled a drill to go back to the lithocap, and we're really excited about that. Obviously, that's the home run potential for us. What's also transpired is that we have these high-grade veins to the north, in a separate area on the East Camp. Past operators of this property have drilled a lot of high grade up there. We spent a long time mapping, sampling, and we just announced, and I referred to those, some of that in my comments in the conference call, we just announced the some of the results. For those who are on the webcast, I encourage you to go look at the last slide that I left it on.
What you'll see, if you look at the meters involved, on this map, which is in the north part of the East Camp, you have over 1,000 meters of strike of this mineralization of high-grade surface samples. If you look at some of the assays on the north end, 8.7, 3.5, real high grade. If you look 1,000 meters to the south, 5.6, 12.9, 2.6, 4.9. and then a bunch of surface samples, I get surface samples in between. A thousand meters from north to south, and from east and west, it's over 500 meters. If we look at on the west, 36 grams, that's over an ounce gold at surface.
If we look 500 meters to the east, it's 20 grams gold. The historical drilling, in and of itself, very exciting. We're going to follow up on that. For us to go do this massive mapping and sampling program, really highlights that this is a very big, powerful system. This system is the same system, likely, that fed both this mineralization as well as the mineralization we found in the lithocap. What's transpired very recently, in fact, as early as just, our weekly Isabella Pearl and Golden Mile calls, we actually might bump the north drilling in front of the lithocap. For, for numerous reasons, but we're really excited to drill this north, and it might give us time to where if we drill this first, we go then take the drill straight over the lithocap.
Maybe we'll get some of these drill results back to where we could come back over here in a perfect world and drill it again. We'll see. This is very exciting, and, you know, I look at this and go, okay, wait a minute, 1,000 meters by over 500 meters with this kind of grade? Yeah, there, there could, there could be something here. Hopefully that answers your question, that we are going to be drilling the lithocap. It actually might get pushed to the second program, if you will, behind the North Veins, because I, I believe we expect to get our Notice of Intent from the regulators to drill that perhaps this week or early next, which puts us in the position to get the drill there first. Thanks, James, for the question.
We have several other questions that have come in. Next one, Mark Smith. Jason, what is the one or two things that are your biggest challenge right now? Mark, thanks for the question. The biggest challenge we have is the Biden administration. If you're an investor in Fortitude Gold, think about that, because it makes a difference on who you support in relation to who is mining friendly and who is anti-mining. The Biden administration is absolutely anti-mining. Many of you have probably noticed in our Q, the Biden administration is the first risk factor. That is undoubtedly our biggest challenge. I won't go into all the reasons why, but yeah, he's not a mining-friendly administration. Second challenge right now, I think, is probably just the overall market.
You know, we have a lot of inbound shareholder calls who are saying: Why isn't your share price higher, right? That's typical as a public company. When you look at our performance versus, for instance, our peers, year to date, January to to date, we're up 14%, whereas gold and the GDX and the GDXJ are up maybe 5% or 7%. We are, we are, we are exceeding our peers, yet there's a frustration with our shareholders as to, well, why isn't your share price higher? You know, there's only so much you can do to buck a trend. We're bucking the trend. We're doing better than our peers, but still, I think that's probably the biggest challenge, but that's part and parcel of the, being a public company. Yeah, those are the, probably the two biggest challenges.
I want to reiterate, the Biden administration is not a friendly administration to mining. Okay, the second, or there's another email from H.R. Goss, Goss Capital. Are there mills that could handle sulfides from Isabella Pearl? Do they have capacity? How far away? Thanks. There are. There's actually a small outfit that's trying to open up and, and get some sulfides as well. That's a, that's a tall order, tall ask, but we're primarily focused on oxides. We're obviously keeping an eye on the sulfides, and if it made sense to move forward with some different business plan, we would consider that. From my perspective, we just need to remain focused on the County Line and Golden Mile on, you know, expanding Isabella Pearl on the Isabella Pearl trend with additional potential oxides.
Now, you know, with, with East Camp and, you know, I expect some real exciting drilling coming from there, too. Early indications with bottle roll cyanide tests is that might be amicable to cyanide leaching as well. We'll do additional column tests early on, point being, you know, I appreciate your question, but we're, we're going to stay focused for the time being on oxides. The next question, Stephen Banker with Newmark. Do higher interest rates cause you to think differently about capital spend? No, because we don't borrow money. We have no debt. I don't expect to have any debt, so maybe it makes us think differently on if we were to finance a small piece of, you know, some equipment or whatnot.
No, I think we've actually paid off all our equipment or most all of it. No, but the overall economy makes us pause. For those who have followed us a while, we bought all the equipment we could buy to build Golden Mile, and I'm glad we did because now the inflation is just rampant. You know, the, the vendors wouldn't hold a price for more than two weeks. Well, how do you plan to build a mine when you can't nail down a cost? That has been a tremendous challenge for us. We went and just bought all the equipment with cash. We spent, I don't know, John can correct me if I'm wrong, but probably at least $11 million, maybe $12 million on Golden Mile already.
You know, not so much an interest rate focused question, but more just an economy and inflationary focus. Operator, are there any call-in questions?
Yes. Your first question from the phone line is coming from John Baer at Ascend Wealth Advisors.
Great. Thank you. Hey, John, how are you?
Hi, very good. Yourself, Jason?
I'm doing well.
Good, good. You just touched on CapEx, that you've spent pretty much, you bought all the equipment. That was one of my questions, is, assuming you get these permits done for Golden Mile and County Line and move forward on that and, and actually put it into operations, how much more equipment you might need to, to purchase? It sounds like you've pretty much got it covered. Is that, is that right?
For Golden Mile, yes. We bought, I, I don't know what percentage, but I have to think it's over 90%. I mean, we even bought the liner, for, for the heap. For Golden Mile, yeah, we purchased everything we could. For County Line, there's not a lot to buy because we're not putting a process there. We're going to leverage our existing infrastructure, Isabella Pearl's process. We're effectively going to be approaching County Line as mining an aggregate, just mining rock, crushing it, putting it in trucks and rolling it down the road. There will be a decision to be made as whether we buy another crusher, use one we have, rent one, what have you. But capital won't be huge for that in any form or fashion because we're not building a process.
Yeah, we're doing what we can to get out in front of inflation, because, you know, every day you wait, things just seem to go up in cost.
Right. Okay. Then, I know, how many active drill rigs do you have going on right now?
We have at least two.
I know.
We have at least 2. We've had 3 for a bit. It'd be great to keep 3 all the time. We try to. In an ideal world, we'd have 3, possibly 4.
Okay.
Yeah, but we have two right now. Yeah, we're, we're really excited in that we're finishing up a drill program on the trend of Isabella Pearl, and then we're going to move that drill up to East Camp. Since the NOI, as we've been told, is going to drop in any day, we're going to take it to the North Veins. You know, the, I want to, you know, for anybody who's like, "Why are you focused on the North Veins? You've been focused on the lithocap." We're excited about both of them. The lithocap is such a big target, it's going to take a long time to explore, and we're going to continue to do that. The North Veins have been drilled in the past, and then we've gone in and done this mapping. We understand it a lot better.
That's going to be some exciting stuff. Really excited about that drill program. You know, if we can secure 3 again, we'd go back to 3. We have the money. But that's where we are right now. We have at least 2.
Are you seeing any, with, with, the challenges, are you seeing any easing up on rig availability, drill availability?
Yeah.
That should hopefully go in your favor?
It kind of, it is in our favor.
Just secure couple extra, drills if you-
Yeah
choose to do that.
Yeah.
Okay.
Yeah.
That's great.
No, it's, it's definitely alleviated from what it was in the past, and, and we can, you know, the crews for a while there, you could get the drillers, but you couldn't get the crews. I'm lumping them both together that, that situation is easing a bit, so that's good.
Okay.
No, we're hitting, we're hitting the drill program hard, and that's what we want to be doing. That puts us in the position to get lucky, which is what it takes in this business, right?
Sure. Sure.
Anybody who tells you otherwise, be skeptical. But, you know, deploying $6 million and, is exciting to me. That's, that's where it's at. You know, you've seen some of the fruits of that with these recent drill results. You know, I'm, again, I'm very excited about, you know, all our drill programs, but it's going to be fun to go drill our maiden North Veins.
Yep.
Yeah.
That camp will be very interesting.
Yeah.
My last question is, sitting on a nice pile of cash, how is that deployed? In other words, what, what type of instruments is it spread around? You know, given the issues earlier this year with various banks and so forth, how, how are you, how are you positioned in that regards?
No, it's a great question. That's something that we focus on. Greg and John have done a really good job in leveraging our cash, and, you know, we're seeing $300,000-$400,000 worth of interest, sometimes a quarter, which is nice. So we've moved cash to three, around to three different banks. Yeah, we're just diversifying risk, so to speak, in case-
They're in short-term treasuries, is that... Or are you able to...
Yeah
kind of say where, how we're doing, how you're doing that?
Yes.
Okay.
Yeah, they are. You know, they vary in interest, but, you know, enough-.
Sure
to make a difference. You're seeing that, you've seen it last quarter, you've seen it this quarter. It's nice to have not only diversification, but also see, you know, a material amount coming in for interest. In the end of the day, be protected, because if the bank actually folded, you'd still hold something.
Right.
Whereas if it was just cash and the bank folded, you could potentially lose that. For all those reasons. You've also seen us start the diversification process with the physical bullion. This is just the beginning. We did this with the past company, want to do it here, and we like that diversification. Basically, putting our money where our mouth is to hold physical. If you need, you know, to build something, you can sell that and, you know, use it, but you also have some additional diversification. In an event where the economy shakes and gold, you know, everything tanks but gold, you've, you've hedged a bit, so to speak, and that you protected yourself by holding some physical.
For those, you know, all those reasons, we're, we're watching carefully because I'm not of the opinion that the economy is as healthy as this administration would lead one to believe. Nothing's been fixed, no debt's short, been shrunk, problems are blowing up, and yeah, the world could shake. I think it's good to have some diversification in various banks as well as physical gold.
Very good. Great.
Yeah.
Thanks for taking my questions.
Good luck going forward.
Yep.
Thank you.
Your next question is coming from Paul Kubala, a private investor.
Good morning. Good morning, sir. How are you doing?
Doing good.
... outstanding leadership on your behalf. I really like what I see. I, I, I want to focus on your cash position, and I'd like to ask you the question: How, how much cash would you consider to be enough to hold? What's your goal? Is it $50 million, $75 million? Your comfort zone going forward in the transition of, where we're mining at now and where we're going to next. What, what, what would you foresee as a, good number to hold as far as cash?
No, it's a great question, Paul. We don't have a hard and fast number because there's a lot of variability, if you will, on, on, on future production. We are going to... We're in an exciting time where we're going to be building two mines. We get a lot of questions of shareholders who aren't familiar with the mining space, and they're like, "Wait a minute, you have $46 million, and you want to pay dividends? You could pay a lot more." Yes, we can pay a lot more dividends, but we're choosing a conservative route not to. Because of the inflationary situation that I referred to earlier in my remarks, we're going to be building two mines.
Sure, we've done everything we can, I believe, to purchase, you know, the equipment at Golden Mile, we have some to buy at County Line. We still want to have a large war chest to build these mines, especially right now. Anybody in the construction industry, what have you, understand how difficult it is to build anything right now. That variability, what is the environment going to be when you're actually building it? You know, is inflation going to be worse? Probably. For all these reasons, we want to have as large a cash position. We are very comfortable with $46 million. We'd be comfortable if that dropped a bit. We allocate more to exploration, which may happen....
That's the kind of order of magnitude that we can build these mines with cash, without diluting shareholders. So those are the things we look at. We'd like to add to this cash position, don't get me wrong, and to some extent, we expect to do so. We're sitting in a really strong position, having deployed a lot of our cash to a future build at Golden Mile, having a lot of cash in our treasury. Yeah, so I don't have, like, a hard and fast number that I can say this amount, but we're feeling very comfortable right now. Yeah, we're, we're making money every day, so you know that we're gonna be in a strong position.
I have one more question for you. I think it's a great strategy, when you went with the special dividend last quarter. Are you gonna proceed forward with that approach, or? I got cut off earlier. I didn't hear if somebody asked that already.
No, nobody's asked that yet, Paul. You know, we're putting our money where our mouth is by giving the special dividend. There's so many moving parts that it, I don't want to nail us down to a ratio or a metric or anything. I used to do that with a past company, and there's too many moving parts, and it can bite you. What we say is we like to return as much cash back to shareholders as soon as possible, while balancing the needs of the operation, growth, exploration, paying taxes. I think we're doing all of that. You can't please everybody. Most people called and loved the special dividend. There were some that didn't. They said, "Oh, you should deploy the capital elsewhere." Everybody sits on a different side of the fence on the dividend.
Some, you know, most again, loved that special dividend. Is it, is it possible we'll do another special dividend? Absolutely, it's possible. We have 2 mines to build. I do not want people to forget that. You know, that takes precedent over a special dividend. We want to continue our instituted dividend, but sure, that's possible. I mean, we did it once. We could do it again. We clearly have the cash position to do it if we chose to. We also are just making sure we're positioning ourselves to build 2 mines in the very near future. We want to make sure that we have the cash to do that. I don't want to take us down to, you know, too tight of a cash position where it's concerning. Yeah, hopefully, that answers your question.
It's absolutely possible. We've done it now. We've proven to the market we can do it, and, you know, at some point in the future, we'll do it again. I can't give you timing on that or, you know... Again, I want to put that in the context of we're building two mines. It takes a lot of effort, takes a lot of money, and, yeah, that, that needs to be the focus. The instituted dividend is pretty nice. I mean, we're exceeding our peers, and, well, most of our peers don't pay a dividend, but we're exceeding even the majors in dividend for the gold space. I think we're doing well.
Keep up the good work, and a special thanks to the whole team.
Hey, thanks, Paul.
Okay, operator, before, there may be a couple other, phone call-in questions, but I have a couple questions that have come in. Okay, Chris Miller: Was the decrease in your treasury primarily due to exploration spending, and what contributed to the $100 increase in AISC?
Hi, Chris. Thanks for the question. Yeah, I want to put that question in the context of it's difficult to focus on one quarter over another quarter because there's so much going on. The long and short of the all-in sustaining is we had lower sales volumes. We had an exploration spend that was outsized at $6 million. We also replaced some equipment, a front-end loader, for instance. All those things came into pass to push the $100 increase. Having said that, our AISC number is great. Yeah, again, just I, I caution anybody to not just focus on a specific quarter and say, "Okay, well, that's exactly what's gonna happen going forward," et cetera, because there's too many variables, and I just mentioned these 3 big ones. Hopefully that answers your question.
Was the decrease in treasury primarily due to exploration spending? Yeah, we had $6 million, $6 million in exploration spend. That was it. Thanks, Chris. There's another one from Greg Nelson: What are the current estimates of silver in the existing leach pad? Good question, Greg. I don't know off the top of my head. We're focused on the gold. We don't, this metallurgy does not allow us to extract all the silver, so you know, we don't, we even use it as a byproduct credit. We don't really focus on that. Yeah, there's a lot of silver on that pad. Now, in the future, it's possible we could hit that really hard, with cyanide and pull a lot of that off. For the time being, yeah, we don't focus on silver. We're focused on gold. Good question.
I don't have an answer for you on that, Greg, but great question. It's gonna make me look into that. Okay, the next one, Gary Hayes: Do you have a rough timeline for the turn of Golden Mile and County Line once approvals are given? Another good question, Gary. As I think most know on this call, pushing really hard on, on Golden Mile, and then we had some great County Line results. County Line is a situation where we heard, we heard me say on this call, where we're not going to be building a lot there. When you're mining it as an aggregate, the permitting process should be vastly shorter because you don't have a process to look at for them to review.
You don't have a heap leach, you don't have an ADR, you don't have all these parts that take a long time with the permitting. That stepped in front of Golden Mile. I can't give you a hard and fast timeline because these are the regulators. Coming back to my earlier comments on the Biden administration, he won't staff the federal side, the BLM side, adequately, so they are way understaffed, and he loves that. That creates a big challenge for us, because when we hear from the BLM that they just, they don't, they can't get to stuff in a timely manner, and it, it's nothing against the people. They're great people, but they just. This administration won't staff that regulatory body adequately.
I can't give you a timeline on it, but we're optimistic that County Line will, permitting will go through quicker than any permit because that's effectively like an aggregate, which buys us some more time on Golden Mile. As far as Golden Mile, we are finalizing the Plan of Operations. My team just reviewed the final iteration this week even. We were talking about it earlier this week on a weekly call, that should be submitted here shortly, we'll get that in the queue as well. Coming back to your question, Russ, what timeline for turnup? I assume you mean ramp up or production. You know, we're, at County Line, it should be pretty quick because we don't have a...
You know, there'll be several months, three to six months max, of overburden, before we get into the bulk of the gold. Having said that, there's gold, high-grade gold in the bottom of the pit at County Line. We just had a bunch of channel samples in there, you know, helped us identify blocks of ore to take. We'll be putting ore from the go. We do have some waste removal at County Line before we get into the bulk of it. It's just a balance. Again, when we're not having to build a process there, we're, we're mining, crushing, trucking it down the road, putting it through an existing process, it should be as fast as anybody could build a mine. We'll be building that mine as fast as it can be done, I believe.
Golden Mile, we're not building an ADR there. We're taking gold to carbon and trucking the carbon to our current ADR plant, that should also help the permit timing. There's always some overburden removal, et cetera, to build. Golden Mile will be a little more extensive, there's gold right at the surface there, too, you know, that helps generate some cash. Hopefully, that generally answers your question, Gary. Thanks for the question. Another question from Terry Rose. What is the estimated timeframe for obtaining permits at County Line, et cetera? I, I think I kind of answered that in the last one. I don't, I can't give a hard and fast timeline. We're with County Line, we expect questions back from them any day.
You know, we'd like to get through the BLM so that then it gets kicked over to the NDEP, the Nevada Division of Environmental Protection, goes through the EA process. The Nevada Division of Environmental Protection, very pro-mining, good guys to work with. Don't see any issue there. Yeah, we, you know, we're optimistic we'll get these permits in a timely fashion as the builds happen, that we can overlay them, still be producing from Isabella Pearl as County Line comes on, and same with Golden Mile. Hopefully that answers the question. Operator, are there any additional questions for the call-in?
There are no further questions from the phone lines.
Okay, perfect. There's two more here. I'll try to get to everybody. two more write-ins. Okay, Dr. Benoy Benny. You already have enough to build the 2 mines. Yeah, we're moving forward to build these mines. We have the first year plus on each identified and moving forward. You know, we don't have the luxury nor the desire to wait around and take the normal course of a mining company that takes five to 10 years to do something. You know, we're moving stuff forward much quicker than the norm in this industry. Yeah, we have, you know, in my mind, these are both green-lighted. We're going. Obviously, we have some hurdles. We have to get the permits are the big ones. Yeah, thank you for the question.
The next one is from Joe von Meister. What will trucking costs add per ton to gold costs at County Line? Yeah, the trucking is 1 of our biggest costs, we're looking at ways to lower that, whether we become truckers or we, preferred method, have the local trucker increase his fleet and, you know, we're helping him. I don't, you know, necessarily, we will if we have to, but I don't want to become a trucking company. These are things we're working on right now, Joe, and yeah, that's 1 of the bigger costs, so we're really trying to fine-tune that for County Line. Having said that, we also don't have any, you know, CapEx, materially speaking, when compared to building a project from scratch.
When your mining is an aggregate and you're basically just crushing it, you don't have, you know, there's trade-offs. Yeah, that's what we're working on. I'm not going to give you a specific because we're trying to get that cost as low as possible. Yeah, that's a good question. That's one of the biggest costs. Okay, Greg Nelson, another question. This will be the last one. I think we've gone pretty long here today, so if I don't get to your question, call Greg or myself. We'll follow up with you. Estimated on gold ounces in the leach pad. Yeah, there's well over 40,000 ounces, probably pushing 50, if I had to estimate, on the leach pad right now. With that, let me conclude the call.
If I didn't get to your question, apologize again. Call Greg or myself. I think, first of all, thank you for all the questions. They were all really good questions. Thank you all for your continued support. Yeah, look forward to talking to you next quarter. Thank you very much.
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.