Fortitude Gold Corp

Good day, everyone, and welcome to the Fortitude Gold 2022 year-end conference call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Jason Reed. Sir, the floor is yours.

Thank you. Good morning, everyone, and thank you for joining Fortitude Gold Corp's 2022 year-end conference call. Following my comments in the associated 11-page presentation for those who joined us 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, March 1, 2023, and we undertake no obligation to publicly update any of those 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, 2022. Portitude Gold has a long list of strengths, including being one of the lowest cost gold producers in the space with high margins, an ultra-tight capital structure, no long-term debt, a strong treasury, and with excellent exploration potential on our significant Nevada property portfolio. An attractive investment thesis on these merits alone as a gold equity. But Fortitude was specifically designed and engineered to create shareholder value by transcending being just a gold equity by having a second valuation metric of an attractive dividend yield. Fortitude's substantial dividend currently at 48 cents annually and paid monthly is providing an attractive 7.5% yield to shareholders. This is the same slide for those joining in the presentation that we presented after Fortitude began publicly trading, and we have worked to increase the dividend up to 48 cents as this goal. We could increase the dividend today, but we want to make sure we have enough capital to build the next mines we target building. This dividend approach separates Fortitude as a junior gold producer promotes all other gold equity peers by tapping into a pool of investment capital that is larger than the gold space itself. That pool of investment capital chases dividends and yield. This unique business model translated to Fortitude Gold regularly outperforming our peers, as was the case again in 2022 and thus far in 2023. The last 12 months have been difficult for the mining industry. Over that timeframe, our peers in the GDXJ, or Junior Gold Miners Index, were down over 21%. The majors in the GDX Gold Miner Index were down over 20%. Physical gold, noted here on the slide as GLD ETF, as a proxy for the physical gold price, was down 3.6%. Fortitude Gold beat our peers who were down double digits, as well as physical gold, with just a small 1.2% decrease. Fortitude Gold's unique business model outperformed our peers in 2022 and continues to do so in 2023. Production results for the quarter were not only in line with our 2022 production outlook range, but our year-end production total exceeded our high-end 2022 target by 3%, with 41,231 gold ounces produced. 2022 highlights and financial results include net income of $14.7 million, or 61 cents per share, 74.4 million net sales, 11.5 million paid to shareholders in cash dividends, 35.4 million mine gross profit, a very low 725 all-in sustaining cash cost, and we paid 3.3 million in income tax and mining taxes. We have also deployed and invested over $10 million to date toward the CapEx for Golden Mile. We deployed $11.6 million toward exploration, which resulted in terrific drill results, intercepting high-grade surface and near-surface gold on every property we drilled in 2022. We achieved all this while growing our cash balance by $5 million to $45.1 million. 2022 was another great year. During the 2022 production year, we mined an average gold grade of 3.71 grams per ton from the Isabella Pearl Mine. Operationally, we blended this high-grade gold with low-grade stockpiles as part of the overall mine plan. Our 2022 production of 41,231 gold ounces exceeded our high-end 2022 production outlook. We again target a range of 36,000 to 40,000 gold ounces in 2023. We also estimate approximately 52,000 recoverable ounces were on the heap leach pad at year end. This, coupled with approximately 50,000 gold ounces to be mined in 2023, pushes the Isabella Pearl production profile out into 2025. In addition, at the end of 2022, we had a small window of time from which to drill deeper in the Isabella Pearl pit at elevations below the permitted pit bottom. We intercepted additional mineral blocks of oxide and transitional oxide mineral amicable to cyanide leaching. Oxide intercepts included 3.05 meters grading 15.15 grams per ton gold within 21.34 meters grading 7.21 grams per ton gold and 18.29 meters grading 3.72 grams per ton gold. While a small amount of this mineral made it into the resource, the ultimate recoverable gold ounces in elevations below the permitted pit bottom won't be fully known until it's actually mined and the transitional ore blocks are pH tested for heap leach amicability and inclusion. We are working to modify our existing open pit permit depth to mine deeper by several more benches so we can pull this mineral into production, further extending the Isabella Pearl mine life. We deployed 11.5 million in exploration during 2022, which is 115% more spend year over year. Our exploration efforts paid off with numerous exciting drill results on several of our properties. Excellent county line drill results launched the property into a race with Golden Mile for pole position for our next operating mine. County line drilling delivered a maiden resource of approximately 37,000 gold ounces indicated and even more inferred mineralization on top of that. While the grade is excellent at close to one gram per ton, Low grades in portions of the block model brought down higher grade zones that were in excess of two grams per ton gold. We believe there's an opportunity to not only add ounces, but possibly improve grade with further drilling of this mineral that remains open on both strike and depth. We are currently drilling the main open pit area at County Line, looking for possible mineral extensions and additional gold ounces. Equally as exciting, we identified public information from a past operator at County Line on the east zone open pit, east of the main county line pit. References were made to leaving half the mineral in the ground when they walked away due to timing business issues and low metal prices at that time in history. We sampled blasted rock in the bottom of the east zone pit at two grams per ton gold. We are now planning a drill program at the east pit as well to quantify the potential of this opportunity. We look to not only add to the property's gold resource, but pull as much gold as possible into an initial mine plan and are moving forward with permit preparations. Due to County Line's proximity to our Isabella Pearl processing facility, County Line is being approached as an aggregate mining operation followed by transporting crushed material to Isabella Pearl for processing and DORE production. This should keep mine build costs to a minimum and expedite permit timing. Because of these and other factors, County Line is likely to become a mine sooner than Golden Mile. At Golden Mile, we are keeping our foot on the gas and are finalizing remaining permit requirements and targeting an updated Phase I EA permit submission by the end of Q1 or early Q2. We continue to intercept very high-grade gold at Golden Mile with recently released intercepts including three meters of over 30 grams per ton gold within 24 meters of over six grams per ton gold. As we noted in the most recent Golden Mile press release, drilling to date has shed light on an expanded geologic model whereby the mineralization may situate in more horizontal strata as opposed to only vertical vein and fault structures. While we believe we have enough mineral blocks defined for a phase one starter pit, we need additional drilling programs to test the open spaces and extensions of the new geologic model with the goal to pull more ore blocks into subsequent open pit phases. Most all equipment and materials have been purchased or committed for Golden Mile, totaling more than now 10 million spent to date. We are currently in the process of drilling monitoring wells for a phase one open pit as we move this property forward. Equipment and materials purchased to date includes a modular processing plant that takes gold to the carbon phase, crushing and stacking equipment, modular offices, heap leach pad liner, operational rolling stock like loader and dozer, among other equipment and materials that have been purchased. Much of it has been or is expected to be delivered soon. Exploration drilling at East Camp Douglas delivered numerous gold intercepts within our huge litho cap target. It is such a large area and target, had we not hit any mineral in our first several drill campaigns, I would not have been deterred, but we have been fortunate to have hit mineral in both our first and second drill campaigns while we were primarily just looking to understand the geologic structures in this unique target. Intercepts include 4.5 meters grading 5.24 grams per ton gold within 15.2 meters grading 1.87 grams per ton gold. Like County Line and Golden Mile, we plan to continue to drill East Camp lithotarget hard in 2023. In addition to the exciting lithocap target, we also have high-grade gold veins at East Camp's north end, and we are looking at possibly drilling those vein targets in 2023 as well. Alternating the drill back and forth between the East Camp's lithocap target and the northern vein target could be very beneficial and very exciting. Assuming availability of both drill rigs and the NOI exploration permits, Alternating back and forth between these targets while we receive and digest the prior drill campaign's assay results could speed up the advancement of both these targets. During 2022, our mapping and surface sampling of high-grade gold at a Ripper property was a success and warrants a maiden drill campaign targeted at this point for late 2023. We are also very focused in our prioritizing exploration of our Isabella Pearl trend as NOI exploration permits and rig availability allow. We are excited to begin drilling the next targets along the extensive mineralized corridor northwest from our Isabella Pearl mine. With our stellar portfolio of 100% owned properties and another $10 to $12 million drill budget in the queue for 2023, I expect another year of exciting drill results on our properties. As we look forward into 2023 and beyond, we have a clear vision of our goals to include continued mining at the Isabella Pearl, and permit approval to mine deeper for additional ounces. We are working very hard at potentially bringing online two additional gold mines in the coming years. We also plan to explore our exceptional portfolio of exploration properties with the end goal of being a long-term gold producer in Nevada. A unique gold producer that, in addition to producing gold at a profit, also continues to distribute significant cash dividends to our shareholders. We provide both gold exposure and yield and are financially solid while positioned for continued success. To conclude, 2022 was a great year, and we look to 2023 as being another exceptional year for fellow shareholders of Fortitude Gold Corporation. We thank you for your continued support. With that, I would like to thank everybody for their time today on this call. And before we open up the live Q&A with the operator, I do have several email questions that came in much earlier, and I'll start with those. The first one is from Gary Ride, who asked the question, how much more capex for Golden Mile? We now are approaching about $10 million of spend toward Golden Mile, which is great. Of an estimated approximately 28 million capex spend. So we are well on our way to biting off the capex with our cash flow. So with the cash on hand, and with what we expect to make in 2023. I expect us to generate a lot of cash in 2023. I believe we can build gold a mile with cash and no dilution to shareholders. The same holds true for County Line, and especially since the capex should be very low at County Line. The next question is a write-in question from Bob Schwering. Let's see, he's got a couple of them. The first one is 9 million CapEx spent today. I think I just addressed that. I'll skip that question. Number two, we are waiting on permits. Which ones? For Golden Mile, the big permit you turn in is called the EA, and we're working really hard to finalize that and try to get it in by the end of this quarter or early next quarter. That is the more comprehensive big package of permits that we seek. Now, we are not building an ADR. plant at Golden Mile. And that was the portion of the permitting that took the longest for Isabella Pearl. So we expect that to shorten the permit timing. So I would say, to be very conservative, the building that project should be less than a year, especially since the process is being built modularly, tested offsite modularly, and it'll just be hauled in and ready to go. The largest build for Golden Mile is the heat bleach pad. That'll be the largest. project. But to put all that in perspective, we broke ground at Isabella Pearl and produced gold in 10 months, building an ADR. So we're not building an ADR. So because of that, I think we will, again, to be very conservative, less than a year. But why couldn't we beat our 10-month target? I don't know. Maybe we can. We'll see. Okay. And then one last question from Bob. It's, Is current life of mine oxide still estimated at mid-2025? The answer is yes. And can additional benches extend it? The answer is yes. Okay, operator, if you have any live questions, let's take a few of those.

Certainly. At this time, we'll be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset, if you're listening on speakerphone, to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Please hold while you poll for questions.