Fortitude Gold Corp

Good morning, ladies and gentlemen, and welcome to the Fortitude Gold second quarter 2022 conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Mr. Jason Reed, CEO, and Sir, Madam, the floor is yours.

Thank you. Good morning everyone and thank you for joining Fortitude Gold Corp's 2022 second quarter conference call. Following my 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 historic. 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 the day, August 3, 2022. and 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 31st, 2021. 2022 Q2 financial and operational highlights include another successful quarter on several fronts, including 24 million net sales, $6.6 million net income, or 27 cents per share, $76.9 million working capital, $11.6 million mine gross profit, $646 total cash cost, and $733 total all-in sustaining cost. We are on target to meet our annual production goals, having produced 10,980 gold ounces during the quarter. We mined an average of 3.46 grams per ton gold grade while blending stockpiles of low and high grade ore processed during the quarter. Fortitude's substantial annual dividend paid monthly is providing an attractive 8% yield to shareholders, among the best yield available to investors in the gold mining equity. This separates Fortitude Gold As a junior gold producer, from most all other gold equity peers, by tapping into a pool of investment capital that is larger than the gold space itself, those are investors chasing dividends and yield. We continue to advance our Golden Mile property toward a development decision. Our latest drill program and results announced this morning intercepted additional high grade in the proximity of the proposed Phase I pits. and we await several more assays from offensive holes in that area. For those viewing this presentation online, you can see an image of the current pit shells and block model and see there is a lot of mineral outside the current Phase I pit shell, especially much deeper. The challenge for the first phase of the proposed pit is to pull as much of this mineral into the pit Phase I as possible with current and near-term drilling. As you can see, there will be a lot of minerals still outside the pit shell that will take extensive exploration time to delineate it and bring it into a possible future phase two pit. Because of this positive development of continued drill results and the need to have more drilling to chase the mineral upwards with tighter drill spacing so that it may be included in the phase one pit is our current objective. Therefore, we are moving back our cutoff date for drill results to be included in the proposed maiden reserve still targeted by year end or possibly early next year. The mineralization remains open on strike in depth and our task is to nail down an initial phase one pit shell that most efficiently encompasses and upgrades as much of the mineralized resource into a maiden reserve. We also plan at this time to make a official development decision at Golden Mile around the timeframe or in conjunction with the completed maiden reserve. We continue to push Golden Mile forward on a fast track basis and have locked in most capital expenditures at this point, signing build contracts and putting money down on equipment such as the conveyor stackers seen completed in the manufacturing yard last week in Arizona. Our office for the project was delivered this week and we expect to take possession of more equipment as it is completed. In addition, our first water well has intercepted substantial water, estimated at this time to be approximately 200 gallons per minute, which is likely sufficient to supply the operation. We will know more when the well is extensively tested as to its capacity. On another exciting note, we are receiving drill results from County Line's initial drill program. and have intercepted high-grade gold in nice widths. We look forward to updating shareholders with a drill result press release in the near future and ultimately running an initial analysis on the potential of County Line. To conclude, Fortitude Gold delivered another strong quarter on numerous fronts. We are on track to meet our annual production outlook at our Isabella Pearl mine as it continues to deliver strong cash flow. We continue to move our Golden Mile project forward toward a development decision and want to include recent drill results into the Maiden Reserve. Now a county line has high-grade gold drill results we look forward to sharing once they are all received and compiled. With that, I would like to thank everyone for their time today on this conference call. Operator, if you can please open up the lines to the call-in participants for a possible Q&A. And while we do that, I'm going to turn to two email questions that have come in. The first one is from Craig Cooper. The question is, does Fortitude price its gold sales on the paper price or the spot price? Could the recent premium increase or volatility between the paper contract and physical price affect your pricing going forward? Could you add some details on how your pricing is set? Thanks and congrats on a great quarter. Craig, thank you for the email question. And yes, once shipment is made to the refiner and a bill of lading is provided with shipping details, We price the counterparty using the then-spot price. Upon agreement, we lock in the price on approximately 95% to 98% of the ounces and receive a provisional payment within two working days. Final settlement of the remaining ounces based on final agreed assays occurs within the next few weeks. So the divergence between the paper and physical gold price is what it is. We get paid on the spot paper price. And the second email early question was from Paul Schultz. did you or not why is depreciation expense sequentially lower for 2022 q2 it's down about 10 from q1 and also versus 2020 first half down about 17 paul thank you for the question all production costs cash and non-cash initially flow through the inventory and upon sale inventory is relieved and these costs flow through the income statement on a sales basis These costs are transferred into inventory on an actual cost basis and relieved on an average cost basis. Our depreciation has been averaging between approximately $315 to $330 per ounce over the last 18 months. Depreciation expense in the income statement generally varies with ounces sold during the relevant period. I hope those answers suffice for both you gentlemen and thank you for the email questions. Operator, if there are any questions live, go ahead and open up the lines and we'll check on the web portal as well. I know we have some in there.

Okay. Ladies and gentlemen, the floor is open for questions. If you have any questions or comments via the phone lines, please press star 1 on your telephone keypad. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. And also, if you would like to ask a question via the webcast, please click on the Ask Question box on the left side of your screen, type your question in, and hit Submit. Please wait a moment while we poll for any questions. Okay, we have one come in from John Bear from Ascend. John, please ask your question.