This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: 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.
spk02: 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.
spk00: 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.
spk03: Thank you. Good morning, Jason. Good morning, John. How are you? I'm doing fine. I noticed that your silver recovery was rather significantly higher both year over year and quarter over quarter. And I was wondering whether or not that was something that was anticipated based on core results a few years ago as you were exploring on Isabella Pearl. And is that something that you anticipate will continue, that high rate of recovery for a for silver as the grade of gold does diminish, which has been expected?
spk02: No, great question, John. When we did the initial metallurgical test work or had third parties do it, all signs pointed that we were not going to recover much of the silver. So we didn't include it in any of our analysis or numbers and just figured anything we recovered would be to the upside. So to recover any silver, in my opinion, is just great, above and beyond our expectations. Now, having said that, and what you're referring to, could this continue? Sure. But there's really no way we can really put our arms around or quantify, so we'll just let it happen as it happens. But it is showing that silver's coming off the pad, which is great. Now, at Golden Mile, the test work there shows we actually can get better silver recovery. So, will likely include that silver recovery in any analysis we do. On economics as such, as opposed to Isabella Pearl, we didn't, just because the test work. But that also speaks to metallurgical test work in a lab is limited. There's a real world when you're actually producing and you're off a heap leach pad that's basically a living, breathing entity of itself and can be modified by heavy rainstorms, etc. That's the real world. And so in the end of the day, you do all the tests you can. And, you know, you're left to the real world. And at least fortunately, we're experiencing real world where we're pulling off silver. And that's just extra for us, in my opinion. So good question, John.
spk03: Yeah, very good. Okay. Good luck. Looking forward to further releases on all your projects. Thanks, John. Yep. Take care.
spk00: Thank you. Your next question is coming from Lawrence Danny, who's a private investor. Lawrence, please ask your question.
spk01: Good morning, Jason, and thanks for all your hard work. So I kind of have a twofold question. One is, what is your current cash position? And two, you had mentioned in a previous conference call about deploying some cash to purchase equipment. to lock in prices on the Golden Mile. How's that coming along?
spk02: Sure. Okay, thanks, Lawrence. Yeah, our current cash position is $40 million. It's up from the previous quarter. And to put some context in that it's up while we hit our exploration, but very aggressively over 2 million, I think 2.9 million. And it's also up to 40 million having paid the dividend. And it's also 40 million having deployed, you know, 3 million ish into golden mile. So, uh, we are deploying capital into the golden mile CapEx. Uh, you know, we've signed most all material agreements, locked in the prices. And for those who are maybe scratching their head saying, why are you doing this? We are trying to combat the absolutely rampant inflation environment we're in. And for anybody who's in any kind of construction, they know when suppliers won't put a bid out for longer than a week because they don't know where their prices are going. It makes it incredibly difficult to to forecast and lock down CapEx. So what we've decided to do is lock it all in as much as we could, and that's what we've done. So we're deploying our capital as such. But I think it's terrific that we're able to execute our objective of paying dividends, putting cash, increasing cash in the bank, all while we're picking away at Golden Mile. And I expect that trend to continue. So good question, and do you have any other follow-up questions?
spk01: No, but thank you. That makes perfect sense.
spk02: Perfect. Thanks, Lawrence. Okay, I'm going to get to a couple of the questions. We'll come back to if there's any on the phone, but I'm going to get to a couple of these because they're piling up. This is from Ray Lieb. Does the Golden Mile resource remain open along Strike and Depth? Has there been any exploration drilling completed beyond the Golden Mile? For those on the conference call, the webcast, hopefully you can see the slide I've put up, which is slide five. And on this slide, you're going to see a pit shell, a dark gray black pit shell. There's two of them, a smaller one and a larger one. And notice all this mineral that's outside. This is not only pretty extensive, on strike, but also depth. We've hit some really high grade down to the bottom left of this image. We don't know the extent of this mineralization yet, so we're starting to step out a bit on it. It's going to take a while to really get our hands on, you know, handle on what we have here, but we're remaining focused as to pulling as much of this mineral resource into the pit as possible. So to answer your question and be very clear, is it open along strike and depth? Yes, it is. And I get very excited when I look at that image that's on the screen that in the bottom left, you get into some of those higher grade blocks that are yellows and oranges, and that's open. We don't know how big that's going to get, let alone other areas. So it's very exciting for me that this is open on strike and depth and that It's going to take a while. You know, it'll be a first phase one. That'll just launch us. But I fully expect over time we'll pull a lot of this into a phase two. But it's going to take a lot of time and a lot of drilling. And your second question is, have any other exploration drilling completed beyond the Golden Mile property? If you're referring to our other properties, yes. And I just referenced we just started or just had our maiden exploration program at County Line. And we hit some excellent grade over there with really good results. intercepts some of it's really shallow some of it's deep so i get excited about that too uh that that is a very exciting situation because in that situation at this point we wouldn't plan to build anything there we would just move forward to try to if there's an economic deposit there mine it and truck it to isabella pearl so as far as exploration on other properties we still target golden uh east camp douglas that's in the queue to be drilled this year I mean, we're getting aggressive as we can be on the exploration. We have the money and it's just a function of getting the drills and the crews, which continue to be a struggle, but we're getting it done. So hopefully that answers your question. Uh, the next question, um, let's see. So it's by Ray as well. Does the Isabella program continue to surprise on the upside? Yes, it does. Uh, you know, this, this is an excellent, excellent deposit. We're very fortunate to have launched with this deposit and, uh, I can't say enough good about it. Operator, if there's any phone questions, let's go ahead and take another one of those, and then we may bounce back to these. We have a lot of questions in this queue.
spk00: Okay, yeah, we have one more come in from John Bear from Ascend. John?
spk03: Yep, thank you. Thank you very much. Just to follow up, my understanding was you probably were hoping to have three rigs working. How many do you have at Golden Mile right now as opposed to other properties?
spk02: We had two there for quite a while. There is a situation where one of the drill rig masks broke and they had to send it away to get fixed, and it should be back as soon as they get it fixed. But there was a brief time when we had three drills. We'll probably run with two. For a while, we have signed with another drill contractor. But, look, if it was easy to get drills, we'd have three probably easily. But it's just difficult. And they're in demand. And I think we're doing pretty well to have two running pretty much all the time. Again, outside of the one breaking down, which is a temporary thing. So, yeah, that's where we are. The struggle is real trying to get new drills and crews, but we're overcoming and we're exploring, and you've seen that in the financials. We deployed a lot of capital, and we're seeing that return, I think, in the Golden Mile, and you guys are going to see really soon County Line, and it is exciting as can be. So it's working, and then I'm really excited to drill – I mean, that, to me, has always been home run potential. It's going to take a long time. There's going to be a lot of targets. We don't expect all those targets to hit, but all it takes is one, and that could be a big, big one. And we've already hit mineral over there, so we're just going to chase it. And so, yeah, as far as exploration, I think we're firing on all cylinders, given the environment. Okay, yeah.
spk03: And so do you have two operating right now at Golden Mile or one at Golden Mile, one at –
spk02: There was one. Yeah, there was two at Golden Mile. And the focus, we were going to send one to the trend at Isabella Pearl, but with these new fence of drill results, and why wouldn't we try to pull these intercepts that are excellent, which are on the margins of the existing proposed shell? Why wouldn't we try to pull that in? We need to pull that in. That'd be great because then we'll possibly be more efficient in our initial mining of this. So we focus with two drills, one broke, uh, one, one drill is there now. Um, the one is being fixed. So that's where we are. Yeah.
spk03: And any, and any issues with, um, with your, your claims? I mean, as this, as this thing opens up at depth and along strike, uh, I imagine I don't have the outline of your property outline or lease outline, as it were.
spk02: We're good. We have staked tremendous claims that actually go all the way up to the northwest to our Mina Gold property, and it connects them. So previous operators have identified another area of mineralization on the Golden Mile property. to the northwest. We haven't even really looked at that. We've looked at their data. We know there's mineral over there, but I'm hoping that'll be a satellite pit ultimately for Golden Mile. But first things first, we've got to stay focused. But then it runs trend all the way up to Mina, which previous operators have drilled. We drilled on the patented ground. It has great mineral, and it's running off the patented ground, so we need to move forward to drill off, chase it off of that. But We have a district-sized land position here.
spk03: Yep. That's what I recalled, but just wanted to confirm. Perfect. Thanks a lot.
spk02: Good luck.
spk03: Thanks, John.
spk02: Looking forward. Okay. Take care. Okay. We have a lot of questions that have come in this queue. I'll try to get – I'm not going to be able to get to them all. Greg Nelson, good job, guys, regarding move to OTC from OTC to the New York Stock Exchange. Do we currently meet listing criteria? Could you elaborate on timing? Thank you. Yeah, great question. I believe we do meet most all criteria. And it's just a function of timing and when it makes the best sense to move. I don't think we want to move just to move. And I'm not going to throw any company under the bus, but I've watched another company just move up to the New York Stock Exchange from the OTC, and it didn't do anything for their stock. And, in fact, they're down. So I think we want a catalyst. Whether that catalyst is Golden Mile or a major discovery somewhere or what, that's one of the things we're looking at, or maybe not. But, yeah, ultimately, when and if we uplist, it will be the New York Stock Exchange. It won't be to the NASDAQ. So we're comfortable with the New York Stock Exchange. We know the guys there worked with them. We like them. I mean, that'll be our ultimate home, I believe. Timing, I can't give you a timing on that. The next question from Peter Pedroli, any progress on the Nevada Energy Grid project? Great question, Peter. It should be done by now, in my opinion. But NV Energy is a really big organization, and there was some issue of our property sits right on the border between two NV Energy domains, if you will, and We thought it was going to be the more local NV Energy that services Reno, et cetera, but we're right on the border, and we actually got pushed into the Vegas. So we don't have much priority over there, and that was pretty disappointing. Having said all that, we have some good progress recently. We've met with NV Energy. They have the latest is they were going to put this out to bids for just several different contractors, but they looked at this and said, no, we're going to do it. with our in-house, which is great because it should be faster. And they're looking at, you know, yesterday I was reviewing maps and polehole locations. So it is moving forward, albeit much slower than I would have liked, but it'll be great when we move over to the grid power. We're going to end up, I think, saving quite a bit of money. Great question. Okay, next one, Robert Miller. Share price seems deeply undervalued. Would you consider a share buyback with one to two million shares cashed? Robert, great question. We talk about it. I have a lot of shareholders who push and say, why don't you do a buyback? Why don't you do a buyback? It's possible, but I think our focus right now is if we have extra cash, we want to give it to you guys in cash dividends as opposed to a buyback. I can argue both sides of this, but one of the criticisms is you guys aren't liquid enough. You don't trade enough shares. So buying them back is going to make it that much tougher, tighten up the float even more, so to speak. But there's pros, too. So don't write it off. It's possible. But, yeah, right now, I think our shareholders are very happy with the dividends. Okay, the next question from Dave Levine. Can you provide any insight into the drill results of Gold Mile versus those of Isabella Pearl? They're similar. At a similar point in respect of processes. Thank you. No good question, Dave. Very similar processes. In fact, at Golden Mile, we're going to do the exact same thing, except for we're not going to build at ADR. So it'll be far less costly at Golden Mile because we're not having to take the construction time and capex needed at Golden Mile. But we're going to take the gold to carbon phase. And then in this situation, we're going to truck the carbon to the Isabella Pearl, which has a operating permitted ADR plan from which to then take that on to the door A. So very much the same processes. The variations will just be tonnage. There'll be more tonnage pushed through at Golden Mile. But Golden Mile is still excellent grade, and it's all good. You know, there are I think at this point, I apologize if I didn't get to your question, but we're already pushing half hour here. Feel free to reach out to Greg or myself via email. And if we didn't get to your question, I apologize. There's just going to be too many for today. And thanks for all the support. We appreciate it. And with that, we'll conclude the conference call.
spk00: Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
Disclaimer