Fortitude Gold Corp: Form 10-Q for the period ended Jun 30, 2024

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 and subsequently up listed to the OTCQB on March 5, 2021 with a symbol change to “FTCO”.

The following discussion summarizes our results of operations for the three and six months ended June 30, 2024 and 2023. It also analyzes our financial condition at June 30, 2024. 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, 2023 contained in our annual report on Form 10-K for the year ended December 31, 2023.

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 2024 Financial Results and Highlights

• $9.6 million net sales
• $32.9 million cash balance on June 30, 2024
• 4,150 gold ounces produced
• $48.4 million working capital at June 30, 2024
• $4.8 million mine gross profit
• $4.3 million exploration expenditures
• $782 total cash cost after by-product credits per gold ounce sold
• $1,013 per ounce total all-in sustaining cost
• $2.9 million dividends paid

Operating Data: The following tables summarize certain information about our operations at our Isabella Pearl Mine for the periods indicated:

(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.

During the three months ended June 30, 2024 and 2023, we produced 4,150 and 9,684 ounces of gold, respectively. The decreased production in 2024 is primarily due to lower leach pad recoveries due to overall lower-grade ore mined. Mining and placement of ore on the heap leach pad continues to be limited to lower grade ore being mined from the Civit Cat area of the Isabella Pearl deposit and the utilization of the low-grade ore stockpile as we continue to await permit approval to mine deeper in the Pearl pit.

During the six months ended June 30, 2024 and 2023, we produced 8,133 and 21,171 ounces of gold, respectively. The decreased production in 2024 is primarily due to lower leach pad recoveries due to overall lower-grade ore mined. Mining and placement of ore on the heap leach pad continues to be limited to lower grade ore being mined from the Civit Cat area of the Isabella Pearl deposit and the utilization of the low-grade ore stockpile as we continue to await permit approval to mine deeper in the Pearl pit.

(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.

Cash cost after by-product credit increased due mainly to lower sales volumes.

Consolidated Results of Operations – Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Sales, net. For the three months ended June 30, 2024, consolidated sales, net were $9.6 million as compared to $19.2 million for the same period in 2023. The decrease is attributable to lower sales volumes, partially offset by higher average sales price. Second quarter 2024 gold sales volumes decreased 58%, while the average realized price for gold increased 18%, from the same period in 2023.

Lower sales volumes during the three months ended June 30, 2024 were the result of decreased production which was primarily due to lower leach pad recoveries due to overall lower-grade ore mined. Mining and placement of ore on the heap leach pad continues to be limited to lower grade ore being mined from the Civit Cat area of the Isabella Pearl deposit and the utilization of the low-grade ore stockpile as we continue to await permit approval to mine deeper in the Pearl pit.

Mine gross profit. For the three months ended June 30, 2024, we recorded $4.8 million mine gross profit compared to $11.2 million mine gross profit for the same period in 2023. The decrease is primarily attributable to lower sales, as discussed above, and increased cost per ounce due to lower-grade ore mined.

General and administrative. For the three months ended June 30, 2024, general and administrative expenses of $1.2 million did not materially change from $1.1 million in the same period in 2023.

Exploration expenses. For the three months ending June 30, 2024, property exploration expenses of $4.3 million as compared to $6.1 million for the same period of 2023. The decrease is primarily due to decreased drilling at the Golden Mile property. Exploration spending in 2024 primarily related to the East Camp Douglas, County Line and the Isabella Pearl trend Scarlet target properties.

Other income, net. For the three months ending June 30, 2024, other income totaled $0.5 million as compared to $0.4 million for the same period of 2023. The change is due to an increase in unrealized gains on our gold and silver bullion/rounds as a result of increasing gold and silver prices.

Income and mining tax expense. For the three months ended June 30, 2024, income and mining tax expense was $0.1 million as compared to $0.9 million for the same period in 2023. The decrease is the result of our lower income before income and mining taxes. See Note 5 to the Condensed Consolidated Financial Statements.

Net (loss) income. For the three months ended June 30, 2024, we recorded a net loss of $0.1 million as compared to net income of $3.6 million in the corresponding period for 2023. The decrease is due to lower sales volumes during the three months ended June 30, 2024 resulting from decreased production.

Consolidated Results of Operations – Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Sales, net. For the six months ended June 30, 2024, consolidated sales, net were $17.7 million as compared to $40.8 million for the same period in 2023. The decrease is attributable to lower sales volumes, partially offset by higher average sales price. For the six months ending June 30, 2024, gold sales volumes decreased 62% in 2024, while the average realized price for gold increased 14%, from the same period in 2023.

Lower sales volumes during the six months ended June 30, 2024 were the result of decreased production which was primarily due to lower leach pad recoveries due to overall lower-grade ore mined. Mining and placement of ore on the heap leach pad continues to be limited to lower grade ore being mined from the Civit Cat area of the Isabella Pearl deposit and the utilization of the low-grade ore stockpile as we continue to await permit approval to mine deeper in the Pearl pit.

Mine gross profit. For the six months ended June 30, 2024, we recorded $9.0 million mine gross profit compared to $23.6 million mine gross profit for the same period in 2023. The decrease is primarily attributable to lower sales, as discussed above, and increased cost per ounce due to lower-grade ore mined.

General and administrative. For the six months ended June 30, 2024, general and administrative expenses of $2.4 million compared to $2.1 million for the same period in 2023. The increase is primarily attributable to an increase in employee compensation, including stock-based compensation.

Exploration expenses. For the six months ending June 30, 2024, property exploration expenses were $7.9 million as compared to $9.7 million for the same period of 2023. The decrease is primarily due to decreased drilling at the Golden Mile property. Exploration spending in 2024 primarily related to the East Camp Douglas, County Line and the Isabella Pearl trend Scarlet target properties.

Other income, net. For the six months ending June 30, 2024, other income totaled $1.2 million as compared to $0.8 million for the same period of 2023. The change is due to an increase in unrealized gains on our gold and silver bullion/rounds as a result of increasing gold and silver prices and an increase in interest income.

Income and mining tax (benefit) expense. For the six months ended June 30, 2024, income and mining tax (benefit) was $18.0 thousand as compared to $2.5 million income and mining tax expense for the same period in 2023. The decrease is the result of our lower income before income and mining taxes. See Note 5 to the Condensed Consolidated Financial Statements.

Net (loss) income. For the six months ended June 30, 2024, we recorded a net loss of $0.1 million as compared to net income of $10.0 million in the corresponding period for 2023. The decrease is due to lower sales volumes during the six months ended June 30, 2024 resulting from decreased production.

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 World 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.

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)

(in thousands)

16

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)

(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)

(in thousands)

Liquidity and Capital Resources

As of June 30, 2024, we had a cash position of $32.9 million compared to $48.7 million at December 31, 2023. The change is primarily due to decreased cash from operations.

As of June 30, 2024, we had working capital of $48.4 million compared to $67.3 million at December 31, 2023. 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, 2024, 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 used in operating activities for the six months ended June 30, 2024 was $7.9 million, compared to $12.8 million net cash provided by operating activities for six months ended June 30, 2023. The decrease is primarily due to lower net income and changes in inventory, depreciation and amortization and accounts payable.

Net cash used in investing activities for the six months ended June 30, 2024 was $2.2 million compared to $4.2 million during the same period in 2023. The decrease is primarily due to less capital expenditures.

Net cash used in financing activities for the six months ended June 30, 2024 was $5.7 million compared to $6.7 million for the same period in 2023. The decrease is primarily attributable to lower dividends due to the 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 on pre-existing disturbance in the Scarlet area, which is located 700 meters northwest of the Isabella Pearl heap leach and process facility. The focus of this exploration drilling program was to identify areas with oxide extractable gold. Mapping and sampling programs continued in the Prospect Mountain area and Copper Cliffs areas, which are located directly to the north of Scarlet. Very Low Frequency Electromagnetic (“VLF-EM”) and ground magnetic geophysical surveys were completed over these areas to further target covered mineralized faults that may intersect at depth. Piezometer wells were also installed in the Scarlet North area to start collecting water level baseline information.

County Line property: RC and air track drilling continued in the second quarter to further delineate gold mineralization in and surrounding the East Pit, located 500 meters to the east of the County Line Pit. Seven sonic core holes were drilled on old waste dump piles around the County Line Pit to retrieve samples for environmental material characterization studies. In addition, VLF-EM and magnetic geophysical surveys were initiated over the East Pit area as well as to the south and east. The purpose of these surveys is to aid in further delineating the mineralized faults in the area and to identify additional drill targets. Following the completion and interpretation of these geophysical surveys, a modified Notice of Intent (“NOI”) is planned to be submitted later in 2024 to the U.S. Department of the Interior Bureau of Land Management (“BLM”) so that another drilling campaign can commence later in the year.

Golden Mile property: Technical studies were advanced and additional interpretation was completed on the Golden Mile property in the second quarter of 2024.

East Camp Douglas property: RC drilling continued in the northern portions of the property. RC drilling continued in the project’s northern White Rock Springs area, as was VLF-EM and magnetic geophysical surveys. Sampling and mapping campaigns advanced in the project’s southern Lithocap Area. Nine sonic core holes were drilled in the White Rock Springs area for a metallurgical program. Field work and pre-fieldwork preparations for biological and cultural resources were initiated in the second quarter. Biological and cultural resources are the main baseline studies required to establish the existing conditions for the pending Plan of Operations application and are the primary references to evaluate potential effects of the proposed exploration activities during analysis under the National Environmental Policy Act.

Dauntless property: Drilling commenced in the second quarter of 2024 and assisted with further understanding the extent of the structural corridor to the North, as well as the extension of mineralization directly to the east of the Weepah Pit. Shortwave Infrared Studies (“SWIR”) was completed on historic core and RC chips from the project collected during previous drill campaigns. A Leapfrog model was initiated for the Dauntless project.

Intrepid property: Surface sampling, RC drilling, and additional staking was completed in the second quarter of 2024. An NOI is being submitted to the BLM in 2024 to complete additional drilling to further assess gold mineralization that was identified in the second quarter.

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 prevented 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,” “proposes,” 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, 2023, and the following:

• The Biden/Harris administration’s stance on mining and mine development
• The BLM and Nevada Division of Environmental Protection staffing shortages and permit review timelines
• Changes in the worldwide price for gold and/or silver
• 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
• Government freezes on issuing resource permits
• Political and regulatory risks
• Untimely permit issuance
• Volatility in the equities markets
• Adverse results from our exploration or production efforts
• Producing at rates lower than those targeted
• Global pandemics such as COVID-19 and governmental responses designed to control the pandemic
• 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

Disclosure Controls and Procedures

As required by Rule 15d-15 under the 1934 Act, as of June 30, 2024, 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, 2024.

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, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.