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Fortitude Gold Corp - Quarter Report: 2023 March (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

or

     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from                      to                    

Commission File Number: 333-249533

Fortitude Gold Corporation

(Exact name of registrant as specified in its charter)

Colorado

85-2602691

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

2886 Carriage Manor Point

Colorado Springs, CO 80906

(Address of Principal Executive Offices)

(719) 717 9825

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading symbol

Name of Exchange on which registered

N/A

N/A

N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  

As of May 5, 2023, the registrant had 24,084,542 outstanding shares of common stock.

Table of Contents

TABLE OF CONTENTS

    

    

Page

Part I

Financial Information

Item 1.

Financial Statements

1

Condensed Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022

1

Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 (Unaudited)

2

Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2023 and 2022 (Unaudited)

3

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (Unaudited)

4

Notes to Condensed Consolidated Financial Statements (Unaudited)

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

11

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

17

Item 4.

Controls and Procedures

17

Part II

Other Information

Item 1.

Legal Proceedings

18

Item 1A.

Risk Factors

18

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

18

Item 4.

Mine Safety Disclosures

18

Item 5.

Other Information

18

Item 6.

Exhibits

19

Signatures

20

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PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

FORTITUDE GOLD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. Dollars in thousands, except per share data)

March 31, 

December 31, 

    

2023

    

2022

(Unaudited)

  

ASSETS

  

  

Current assets:

  

  

Cash and cash equivalents

$

52,267

$

45,054

Inventories

 

47,132

 

47,155

Prepaid taxes

710

Prepaid expenses and other current assets

 

568

 

730

Total current assets

 

99,967

 

93,649

Property, plant and mine development, net

 

28,715

 

30,581

Operating lease assets, net

 

2,981

 

3,826

Deferred tax assets

1,730

1,282

Other non-current assets

 

1,821

 

1,818

Total assets

$

135,214

$

131,156

LIABILITIES AND SHAREHOLDERS' EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

2,724

$

2,524

Operating lease liabilities, current

 

2,981

 

3,826

Income taxes payable

501

Mining taxes payable

 

2,482

 

1,857

Other current liabilities

 

1,195

 

1,324

Total current liabilities

 

9,883

 

9,531

Asset retirement obligations

 

5,982

 

5,863

Other non-current liabilities

 

 

3

Total liabilities

 

15,865

 

15,397

Shareholders' equity:

 

  

 

  

Preferred stock - $0.01 par value, 20,000,000 shares authorized and nil outstanding at March 31, 2023 and December 31, 2022

 

 

Common stock - $0.01 par value, 200,000,000 shares authorized and 24,084,542 shares outstanding at March 31, 2023 and 24,024,542 shares outstanding at December 31, 2022

 

241

 

240

Additional paid-in capital

 

103,839

 

103,731

Retained earnings

 

15,269

 

11,788

Total shareholders' equity

 

119,349

 

115,759

Total liabilities and shareholders' equity

$

135,214

$

131,156

The accompanying notes are an integral part of these condensed consolidated financial statements.

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FORTITUDE GOLD CORPORATION
Condensed Consolidated Statements of Operations
(U.S. Dollars in thousands, except per share data)
(Unaudited)

Three months ended

March 31, 

    

2023

    

2022

Sales, net

$

21,540

$

15,361

Mine cost of sales:

 

  

 

  

Production costs

 

5,653

 

5,781

Depreciation and amortization

 

3,479

 

2,778

Reclamation and remediation

 

72

 

47

Total mine cost of sales

 

9,204

 

8,606

Mine gross profit

 

12,336

 

6,755

Costs and expenses:

 

  

 

  

General and administrative expenses

 

1,059

 

1,180

Exploration expenses

 

3,688

 

2,514

Other (income) expense, net

 

(327)

 

17

Total costs and expenses

 

4,420

 

3,711

Income before income and mining taxes

 

7,916

 

3,044

Mining and income tax expense

 

1,548

 

426

Net income

$

6,368

$

2,618

Net income per common share:

 

  

 

  

Basic

$

0.26

$

0.11

Diluted

$

0.26

$

0.11

Weighted average shares outstanding:

 

  

 

  

Basic

24,063,853

23,995,254

Diluted

 

24,208,676

 

24,197,423

The accompanying notes are an integral part of these condensed consolidated financial statements.

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FORTITUDE GOLD CORPORATION
Condensed Consolidated Statements of Shareholders’ Equity
(U.S. Dollars in thousands)
(Unaudited)

     

Three Months Ended March 31, 2023 and 2022

Par

Number of

Value of

Total

Common

Common

Additional Paid-

Retained

Shareholders'

     

Shares

     

Shares

     

in Capital

     

Earnings

     

Equity

Balance, December 31, 2021

23,961,208

$

240

$

103,476

$

8,632

$

112,348

Stock-based compensation

 

 

47

 

 

47

Dividends

(2,880)

(2,880)

Stock options exercised

63,334

63

63

Net income

2,618

2,618

Balance, March 31, 2022

24,024,542

$

240

$

103,586

$

8,370

$

112,196

Balance, December 31, 2022

24,024,542

$

240

$

103,731

$

11,788

$

115,759

Stock-based compensation

 

 

49

 

 

49

Dividends

 

 

 

(2,887)

 

(2,887)

Stock options exercised

60,000

1

59

60

Net income

 

 

 

6,368

 

6,368

Balance, March 31, 2023

24,084,542

$

241

$

103,839

$

15,269

$

119,349

The accompanying notes are an integral part of these condensed consolidated financial statements.

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FORTITUDE GOLD CORPORATION
Condensed Consolidated Statements of Cash Flows
(U.S. Dollars in thousands)
(Unaudited)

Three months ended

March 31, 

    

2023

    

2022

Cash flows from operating activities:

 

  

 

  

Net income

$

6,368

$

2,618

Adjustments to reconcile net income to net cash from operating activities:

 

  

 

  

Depreciation and amortization

 

3,502

 

2,816

Stock-based compensation

49

47

Deferred taxes

(448)

(217)

Reclamation and remediation accretion

72

47

Other operating adjustments

 

3

 

(18)

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable

 

 

220

Inventories

 

(310)

 

(2,945)

Prepaid expenses and other current assets

 

162

 

1,540

Other non-current assets

 

(3)

 

(16)

Accounts payable and other accrued liabilities

 

45

 

(122)

Income and mining taxes payable

 

1,836

 

100

Net cash provided by operating activities

 

11,276

 

4,070

Cash flows from investing activities:

 

  

 

  

Capital expenditures

 

(1,211)

 

(4,938)

Net cash used in investing activities

 

(1,211)

 

(4,938)

Cash flows from financing activities:

 

  

 

  

Dividends paid

(2,887)

(2,880)

Proceeds from exercise of stock options

60

63

Repayment of loans payable

 

(22)

 

(21)

Repayment of capital leases

 

(3)

 

(6)

Net cash used in financing activities

 

(2,852)

 

(2,844)

Net increase (decrease) in cash and cash equivalents

 

7,213

 

(3,712)

Cash and cash equivalents at beginning of period

 

45,054

 

40,017

Cash and cash equivalents at end of period

$

52,267

$

36,305

Supplemental Cash Flow Information

 

  

 

  

Income and mining taxes paid

$

160

$

542

Non-cash investing and financing activities:

 

  

 

  

Change in capital expenditures in accounts payable

$

48

$

(86)

Change in estimate for asset retirement costs

$

$

314

Right-of-Use assets acquired through operating lease

$

$

1,100

The accompanying notes are an integral part of these condensed consolidated financial statements.

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FORTITUDE GOLD CORPORATION
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, unless otherwise stated)
(Unaudited)

1. Basis of Presentation of Financial Statements

These interim Condensed Consolidated Financial Statements (“interim financial statements”) of Fortitude Gold Corporation and its subsidiaries (collectively, the “Company”) are unaudited and have been prepared in accordance with the rules of the Securities and Exchange Commission for interim statements. Certain information and footnote disclosures required by United States Generally Accepted Accounting Principles (“U.S. GAAP”) have been condensed or omitted as permitted by such rules, although the Company believes that the disclosures included are adequate to make the information presented not misleading. The interim financial statements included herein are expressed in United States dollars. In the opinion of management, all adjustments (all of which are of a normal recurring nature) and disclosures necessary for a fair presentation of these interim financial statements have been included. The results reported in these interim financial statements are not necessarily indicative of the results that may be reported for the entire year. These interim financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2022 included in the Company’s annual report on Form 10-K. The year-end balance sheet data were derived from the audited financial statements. Unless otherwise noted, there have been no material changes to the footnotes from those accompanying the audited consolidated financial statements contained in the Company’s annual report on Form 10-K. All intercompany accounts and transactions have been eliminated in consolidation.

2. Revenue

The following table presents the Company’s net sales:

    

Three months ended

March 31, 

    

2023

    

2022

(in thousands)

Sales, net

  

  

Gold sales

$

21,588

$

15,453

Less: Refining charges

 

(48)

 

(92)

Total sales, net

$

21,540

$

15,361

3. Inventories

On March 31, 2023 and December 31, 2022, current inventories consisted of the following:

    

March 31, 

    

December 31, 

    

2023

    

2022

    

(in thousands)

Stockpiles

$

4,885

$

5,832

Leach pad

 

41,735

 

40,786

Doré

 

51

 

32

Subtotal - product inventories

 

46,671

 

46,650

Materials and supplies

 

461

 

505

Total

$

47,132

$

47,155

In addition to the inventories above, as of March 31, 2023 and December 31, 2022, the Company has $1.5 million of low-grade ore stockpile inventory included in other non-current assets.

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4. Income Taxes

The Company accounts for income taxes in accordance with the provisions of ASC 740, “Income Taxes” (“ASC 740”), on a tax jurisdictional basis.  The Company files a consolidated U.S. income tax return and at the federal level its income and losses are taxed at 21%.  In addition, a 5% Net Proceeds of Minerals tax applies to the Company’s operations in Nevada, and such tax is recorded as an income tax.  The Company recorded income and mining tax expense of $1.5 million and $0.4 million for the three months ended March 31, 2023 and 2022, respectively.  In accordance with ASC 740, the interim provision for taxes was calculated by using the annual effective tax rate.  This rate is applied to the year-to-date income before income and mining taxes to determine the income tax expense for the period.

The Company evaluates the evidence available to determine whether a valuation allowance is required on the deferred tax assets. The Company determined that its deferred tax assets were “more likely than not” to be realized as of March 31, 2023 and December 31, 2022, thus no valuation allowance was determined to be necessary.

As of March 31, 2023, the Company believes that is has no liability for uncertain tax positions.

5. Prepaid Expenses and Other Current Assets

At March 31, 2023 and December 31, 2022, prepaid expenses and other current assets consisted of the following:

    

March 31, 

    

December 31, 

    

2023

    

2022

    

(in thousands)

Contractor advances

$

120

$

273

Prepaid insurance

48

309

Other current assets

 

400

 

148

Total

$

568

$

730

6. Property, Plant and Mine Development, net

At March 31, 2023 and December 31, 2022, property, plant and mine development consisted of the following:

    

March 31, 

    

December 31, 

    

2023

    

2022

    

(in thousands)

Asset retirement costs

$

5,171

$

5,171

Construction-in-progress

 

10,727

 

9,522

Furniture and office equipment

 

618

 

590

Leach pad and ponds

 

3,732

 

3,732

Land

 

25

 

25

Light vehicles and other mobile equipment

 

544

 

544

Machinery and equipment

 

15,711

 

15,698

Process facilities and infrastructure

 

8,856

 

8,856

Mineral interests and mineral rights

 

18,953

 

18,953

Mine development

 

24,365

 

24,365

Software and licenses

 

105

 

105

Subtotal (1)

 

88,807

 

87,561

Accumulated depreciation and amortization

 

(60,092)

 

(56,980)

Total

$

28,715

$

30,581

(1)Includes capital expenditures in accounts payable of $0.6 million at March 31, 2023 and December 31, 2022.

For the three months ended March 31, 2023 and 2022, the Company recorded depreciation and amortization expense of $3.5 million and $2.8 million, respectively.

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7. Other Current Liabilities

At March 31, 2023 and December 31, 2022, other current liabilities consisted of the following:

    

March 31, 

    

December 31, 

    

2023

    

2022

    

(in thousands)

Accrued royalty payments

$

627

$

547

Accrued property and excise taxes

 

537

 

721

Other accrued expenses

31

56

Total

$

1,195

$

1,324

8. Asset Retirement Obligation

The following table presents the changes in the Company’s asset retirement obligation for the three months ended March 31, 2023 and year ended December 31, 2022:

    

March 31, 

    

December 31, 

    

2023

    

2022

    

(in thousands)

Asset retirement obligation – balance at beginning of period

$

5,863

$

4,725

Changes in estimate

 

 

789

Payments

(9)

(47)

Accretion

 

128

 

396

Asset retirement obligation – balance at end of period

$

5,982

$

5,863

As of March 31, 2023, the Company had a $12.5 million off-balance sheet arrangement for a surety bond. This bond is off-set by a $6.0 million asset retirement obligation for future reclamation at the Company’s Isabella Pearl Mine. As of December 31, 2022, the Company had a $12.5 million off-balance sheet arrangement for a surety bond. This bond was off-set by a $5.9 million asset retirement obligation for future reclamation at the Company’s Isabella Pearl Mine. The Company’s asset retirement obligations were discounted using a credit adjusted risk-free rate of 11%.

9. Commitments and Contingencies

The Company has a Contract Mining Agreement with a mining contractor relating to mining activities at its Isabella Pearl Mine. Included in this Agreement is an embedded lease for the mining equipment for which the Company has recognized a right-of-use asset and corresponding operating lease liability. Please see Note 10 for more information. In addition to the embedded lease payments, the Company pays the contract miner operational costs in the normal course of business. These costs represent the remaining future contractual payments for the Contract Mining Agreement over its term. The contractual payments are determined by rates within the Contract Mining Agreement, estimated tonnes moved and bank cubic yards for drilling and blasting. As of March 31, 2023, total estimated contractual payments remaining, excluding embedded lease payments, are $2.8 million for the year ended December 31, 2023.

10. Leases

Operating Leases

Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases as incurred over the lease term. The Company accounts for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) separately from the non-lease components (e.g., common-area maintenance costs).

The depreciable life of assets is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The weighted average remaining lease term for the Company’s operating leases as of March 31, 2023 is 0.75 years.

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The discount rate implicit within the Company’s leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate for the Company’s leases is determined based on the lease term adjusted for impacts of collateral. The weighted average discount rate used to measure the Company’s operating lease liabilities as of March 31, 2023 was 7.48%.

There are no material residual value guarantees and no restrictions or covenants imposed by the Company’s leases.

The Company has an embedded lease in its Contract Mining Agreement. In November 2022, the Company extended the Contract Mining Agreement for a twelve-month term resulting in the recognition of a $3.8 million right-of-use asset and corresponding $3.8 million operating lease liability. The Company’s lease payments for its mining equipment embedded lease are determined by tonnage hauled. This embedded lease is within a Contract Mining Agreement entered into for the mining activities at the Company’s Isabella Pearl Mine. The payments, amortization of the right-of-use asset, and interest vary immaterially from forecasted amounts due to variable conditions at the mine. During the three months ended March 31, 2023 and 2022, the Company capitalized variable lease costs of $0.9 million and $1.7 million, respectively, to Inventory.

Maturities of operating lease liabilities as of March 31, 2023 are as follows (in thousands)

Year Ending December 31:

    

    

2023

$

3,075

Thereafter

 

Total lease payments

 

3,075

Less imputed interest

 

(94)

Present value of minimum payments

 

2,981

Less: current portion

 

(2,981)

Long-term portion of minimum payments

$

Supplemental cash flow information related to the Company’s operating lease is as follows for the three months ended March 31, 2023 and 2022:

    

Three months ended

March 31, 

    

2023

    

2022

    

(in thousands)

Cash paid for amounts included in the measurement of lease liabilities:

  

  

Operating cash flows from operating leases

$

909

$

1,749

11. Other (Income) Expense, Net

For the three months ended March 31, 2023 and 2022, other (income) expense, net consisted of the following:

Three months ended

March 31, 

2023

    

2022

(in thousands)

Interest (income) expense

$

(362)

$

16

Charitable contributions

37

2

Other income

(2)

(1)

Total

$

(327)

$

17

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12. Net Income per Common Share

Basic earnings per common share is calculated based on the weighted average number of common shares outstanding for the period. Diluted earnings per common share is calculated based on the assumption that stock options and other dilutive securities outstanding, which have an exercise price less than the average market price of the Company’s common shares during the period, would have been exercised on the later of the beginning of the period or the date granted and that the funds obtained from the exercise were used to purchase common shares at the average market price during the period.

The effect of the Company’s dilutive securities is calculated using the treasury stock method and only those instruments that result in a reduction in net income per common share are included in the calculation. As of March 31, 2023 and 2022, potentially dilutive securities representing 60,000 shares and 100,000 shares, respectively, of common stock were excluded from the computation of diluted earnings per share because their effect would have been antidilutive.

Basic and diluted net income per common share is calculated as follows:

Three months ended

March 31, 

2023

    

2022

Net income (in thousands)

$

6,368

$

2,618

Basic weighted average shares of common stock outstanding

24,063,853

23,995,254

Diluted effect of share-based awards

144,823

202,169

Diluted weighted average common shares outstanding

24,208,676

24,197,423

Net income per share:

Basic

$

0.26

$

0.11

Diluted

$

0.26

$

0.11

13. Fair Value Measurement

Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2

Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

As required by accounting guidance, assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables set forth certain of the Company’s assets measured at fair value by level within the fair value hierarchy as of March 31, 2023 and December 31, 2022:

    

March 31, 

December 31, 

    

2023

    

2022

    

Input Hierarchy Level

    

(in thousands)

    

Cash and cash equivalents

$

52,267

$

45,054

Level 1

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The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Cash and cash equivalents consist primarily of cash deposits with an original maturity of 3 months or less and are valued at cost, which approximates fair value.

14. Stock-Based Compensation

The Fortitude Gold Corporation 2020 Equity Incentive Plan (the “Incentive Plan”) allows for the issuance of up to 5 million shares of common stock in the form of incentive and non-qualified stock options, stock appreciation rights, restricted stock units (“RSUs”), stock grants, and stock units. The Company utilizes this Incentive Plan to attract, retain and incentivize staff.

During the three months ended March 31, 2022, the Company issued options to purchase 30,000 shares of its common stock to employees. The options vest over a period of three years.  The Company used the Black-Scholes option valuation model to value the options with the following weighted average assumptions: stock price of $7.06, expected term of 3.5 years, risk free rate of 2.06%, expected volatility of 75.87%, and an assumed dividend rate of 7.25%.  No options were issued during the three months ended March 31, 2023.

 During the three months ended March 31, 2023, stock options to purchase an aggregate of 60,000 of the Company’s common stock were exercised at a weighted average exercise price of $1.00 per share. During the three months ended March 31, 2022, stock options to purchase an aggregate of 63,334 of the Company’s common stock were exercised at a weighted average exercise price of $1.00 per share.

Stock-based compensation is included in general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations. For the three months ended March 31, 2023 and 2022, the Company recorded $0.05 million of stock-based compensation.  

15. Shareholders’ Equity

During the three months ended March 31, 2023 and 2022, the Company declared and paid dividends of $2.9 million or $0.12 per share.

See Note 14 for information concerning shares and options granted pursuant to the Company's Equity Incentive Plan.

16. Subsequent Event

On May 8, 2023, the Company declared a special shareholder dividend of $0.04 per share to be paid on May 31, 2023.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 under the ticker symbol "FRTT". Subsequently the symbol was changed to “FTCO”. Our common stock was subsequently up listed to the OTCQB on March 5, 2021.

The following discussion summarizes our results of operations for the three ended March 31, 2023 and 2022. It also analyzes our financial condition at March 31, 2023. 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, 2022 contained in our annual report on Form 10-K for the year ended December 31, 2022.

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.

First Quarter 2023 Financial Results and Highlights

$21.5 million net sales
$6.4 million net income or $0.26 per share
$52.3 million cash balance on March 31, 2023
11,487 gold ounces produced
3.83 grams per tonne average gold grade mined
$90.1 million working capital at March 31, 2023
$12.3 million mine gross profit
$499 total cash cost after by-product credits per gold ounce sold
$578 per ounce total all-in sustaining cost
$2.9 million dividends paid

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

    

    

Three months ended March 31, 

    

2023

    

2022

    

Ore mined

 

  

 

  

 

Ore (tonnes)

 

106,475

 

253,843

 

Gold grade (g/t)

 

3.83

 

2.16

 

Low-grade stockpile

 

  

 

  

 

Ore (tonnes)

 

2,118

 

23,490

 

Gold grade (g/t)

 

0.46

 

0.44

 

Waste (tonnes)

 

218,127

 

1,252,524

 

Metal production (before payable metal deductions)(1)

 

  

 

  

 

Gold (ozs.)

 

11,487

 

9,875

 

Silver (ozs.)

 

17,649

 

16,523

 

(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.

    

Three months ended March 31, 

    

2023

    

2022

Metal sold

  

  

Gold (ozs.)

11,429

 

8,297

Silver (ozs.)

17,480

 

13,928

Average metal prices realized (1)

  

 

  

Gold ($per oz.)

1,889

 

1,863

Silver ($per oz.)

22.72

 

23.76

Precious metal gold equivalent ounces sold

Gold Ounces

11,429

8,297

Gold Equivalent Ounces from Silver

210

178

11,639

8,475

Total cash cost before by-product credits per gold ounce sold

$

534

$

748

Total cash cost after by-product credits per gold ounce sold

$

499

$

708

Total all-in sustaining cost per gold ounce sold

$

578

$

848

(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.

During the three months ended March 31, 2023 and 2022, we produced 11,487 and 9,875 ounces of gold, respectively. The higher production is primarily due to higher-grade ore mined and lower utilization of the low-grade stockpile for blending of ore on the pad. Cash cost after by-product credit decreased due to lower mining costs due to less waste mining.

Consolidated Results of Operations – Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Sales, net. For the three months ended March 31, 2023, consolidated sales, net were $21.5 million as compared to $15.4 million for the same period in 2022. The increase is attributable to a 38% increase in sales volumes due to increased production, as well as a 1% increase is average sales price.

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Mine gross profit. For the three months ended March 31, 2023, we recorded $12.3 million mine gross profit compared to $6.8 million mine gross profit for the same period in 2022. The increase is primarily attributable to higher sales and lower cash cost after by-product credit per ounce sold, as discussed above.

General and administrative. For the three months ended March 31, 2023, general and administrative expenses of $1.1 million did not materially change from the same period in 2022.

Exploration expenses. For the three months ending March 31, 2023, property exploration expenses totaled $3.7 million as compared to $2.5 million for the same period of 2022. The increase was largely due to increased geotechnical and metallurgical studies at the County Line property and the completion of the monitoring well at the Golden Mile property.

 Other (income) expense, net. For the three months ending March 31, 2023, other income totaled $0.3 million as compared to other expense of $0.02 million for the same period of 2022. The change is due to an increase in interest income in 2023.

Income and mining tax expense. For the three months ended March 31, 2023, income and mining tax expense was $1.5 million as compared to $0.4 million for the same period in 2022. The increase is the result of our higher income before income and mining taxes and increased Nevada net proceeds of minerals tax due to higher metal sales.  See Note 4 to the Condensed Consolidated Financial Statements.

 

Net income. For the three months ended March 31, 2023 we recorded net income of $6.4 million as compared to $2.6 million in the corresponding period for 2022. The increase is due to the changes in our consolidated results of operations, as discussed above

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 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.

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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):

Three months ended March 31, 

2023

    

2022

Total cash cost after by-product credits

$

5,701

$

5,873

Treatment and refining charges

  

(48)

(92)

Depreciation and amortization

  

3,479

2,778

Reclamation and remediation

72

47

Total consolidated mine cost of sales

$

9,204

$

8,606


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):

Three months ended March 31, 

    

2023

    

2022

Total cash cost before by-product credits (1)

$

6,098

$

6,204

By-product credits (2)

  

(397)

(331)

Total cash cost after by-product credits

$

5,701

$

5,873

Sustaining capital expenditures

113

938

Sustaining exploration expenses

790

227

Total all-in sustaining cost

$

6,604

$

7,038

Gold ounces sold

  

11,429

8,297

Total cash cost before by-product credits per gold ounce sold

$

534

$

748

By-product credits per gold ounce sold (2)

(35)

(40)

Total cash cost after by-product credits per gold ounce sold

499

708

Other sustaining expenditures per gold ounce sold (3)

79

140

Total all-in sustaining cost per gold ounce sold

$

578

$

848

(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.

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The following tables summarize our by-product revenue and by-product credit gold ounce sold (in thousands):

Three months ended March 31, 

    

2023

    

2022

By-product credits by dollar value:

  

Silver sales

$

397

$

331

Total sales from by-products

$

397

$

331

Three months ended March 31, 

    

2023

    

2022

By-product credits per gold ounce sold:

  

Silver sales

$

35

$

40

Total by-product credits per gold ounce sold

$

35

$

40

Liquidity and Capital Resources

As of March 31, 2023, we had a cash position of $52.3 million compared to $45.1 million at December 31, 2022. The increase is primarily due to increased cash from operations.

 

As of March 31, 2023, we had working capital of $90.1 million compared to $84.1 million at December 31, 2022. 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 March 31, 2023, 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 provided by operating activities for the three months ended March 31, 2023 was $11.3 million, compared to $4.1 million for three months ended March 31, 2022. The increase is primarily due to higher net income and changes in inventory.

Net cash used in investing activities for the three months ended March 31, 2023 was $1.2 million compared to $4.9 million during the same period in 2022. The decrease is primarily due to less capital expenditures.

Net cash used in financing activities for the three months ended March 31, 2023 of $2.9 million did not materially change compared to $2.8 million for the same period in 2022.

Development and Exploration Activities

Isabella Pearl Mine: During the first quarter, our open-pit, heap leach operations at the Isabella Pearl Mine continued.  The revised S-K 1300 Technical Report Summary for the Isabella Pearl Mine was released in late February 2023. Exploration activities during the quarter included 42 reverse circulation (“RC”) drill holes totaling 6,040 meters.  These holes were drilled in the Scarlet and Twin Hills areas that are to the northwest of the Isabella Pearl mine. The focus of these exploration drilling programs was on identifying areas with oxide extractable gold. Also, our geologists continued reviewing and interpreting data from other areas of interest along the Isabella Pearl mineralized trend, such as the Wildhorse and Nevada Juneau targets.

County Line property: Environmental Assessment (“EA”) permit preparation continued with the goal to submit the EA to regulatory authorities during the second quarter of 2023. Building on the momentum of 2022, an S-K 1300 Technical Report Summary that included a maiden resource was published for the County Line property in February 2023. Based on this initial model, studies were undertaken for pit optimization.  Several drilling programs commenced during the first quarter that included the completion of 47 RC exploration holes totaling 6,736 meters, six geotechnical core holes totaling 752 meters, and six large diameter core drilling for metallurgical studies that totaled 115 meters. A hydrogeological desktop study was also completed on the County Line pit in March to locate an optimal location for a water monitoring well and a production well.

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Golden Mile property: Environmental Assessment permit preparation continued with the goal to submit the EA to regulatory authorities by mid-2023. Focus during the quarter included the development of a more in depth understanding of the mineralized body with an updated geologic model of both vertical and horizontal mineralized structures. Studies included the commencement of a spectral analytical program on the chips from the RC drill holes. Interpretation of the data collected from this spectral study commenced in March. Also, an additional water monitoring well was drilled and installed and phase one open pit optimization continued.  

East Camp Douglas property: Desktop evaluations focused on assessing the gold-bearing silicified volcanic rocks of the lithocap target area. The next phase of RC drill hole planning was completed, and a drilling Notice of Intent that allows drilling to commence, was approved in April 2023 by the Bureau of Land Management.

Ripper property: Compilation and interpretation of the 2022 field work and geochemical results from the Ripper property were finalized in the first quarter of 2023. A drilling application with the Bureau of Land Management was completed in the quarter ended March 31, 2023, and environmental studies are currently underway.

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 avoided 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,” 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.

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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, 2022, and the following:

The Biden administration’s current and future stance on resource permitting and development
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
Global pandemics such as COVID-19 and governmental responses designed to control the pandemic
Changes in the worldwide price for gold and/or silver
Volatility in the equities markets
Adverse results from our exploration or production efforts
Producing at rates lower than those targeted
Political and regulatory risks
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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Smaller Reporting Companies are not required to provide the information required by this item.

Item 4. Controls and Procedures

Disclosure Controls and Procedures 

As required by Rule 15d-15 under the 1934 Act, as of March 31, 2023, 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 March 31, 2023.

 

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

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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 March 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Smaller Reporting Companies are not required to provide the information for this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 4. Mine Safety Disclosures

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Quarterly Report.

Item 5. Other Information

None.

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Item 6. Exhibits

The following exhibits are filed or furnished herewith.

Exhibit Number

    

Description

3.1

Articles of Incorporation (1)

3.2

Bylaws of the Company (1)

4.1.1

Equity Incentive Plan (1)

4.1.2

Form of Stock Option Award Agreement (1)

4.1.3

Form of RSU Award Agreement (1)

4.2

Shareholder Rights Agreement (1)

10.1

Separation Agreement (1)

10.2

Management Service Agreement (1)

10.3

Reserved

10.4

Contract Mining Agreement (1)

10.5

Employment Agreement with Jason D. Reid (2)

10.6

Employment Agreement with Gregory A. Patterson (2)

10.7

Employment Agreement with Barry D. Devlin (2)

10.8

Employment Agreement with John A. Labate (2)

14

Code of Ethics (1)

21

Subsidiaries (3)

31.1*

Certification of Chief Executive Officer Pursuant to Rule 13a-15(e) or Rule 15d-15(e)

31.2*

Certification of Chief Financial Officer Pursuant to Rule 13a-15(e) or Rule 15d-15(e) 

32*

Certification of Chief Executive Officer and Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350

95*

Mine Safety Disclosures

101*

Financial statements from the Quarterly Report on Form 10-Q of Fortitude Gold Corporation for the three  months ended March 31, 2023, formatted in inline XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Changes in Shareholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) the Notes to the Condensed Consolidated Financial Statements.

104

Cover Page Interactive Data File (embedded within the XBRL document)

(1)   Incorporated by reference to the same exhibit filed with the Company's registration statement on Form S-1 (File No. 333-249533).

(2) Incorporated by reference to same exhibit filed with the Company's 8-K report dated March 1, 2021 (File No. 333-249533).

(3) Incorporated by reference to same exhibit filed with the Company's 10-K/A report dated December 15, 2022 (File No. 333-249533).

*Filed with this Quarterly Report on Form 10-Q.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 8, 2023.

FORTITUDE GOLD CORPORATION

By:

/s/ Jason D. Reid

Name:

Jason D. Reid

Title:

Chief Executive Officer and President

By:

/s/ John A. Labate

Name:

John A. Labate

Title:

Chief Financial Officer

20