Fortitude Gold (OTCQB:FTCO) is not your traditional mining company. It is both a producer of gold, an explorer for gold, and is focussed on paying its shareholders a material monthly dividend – currently over a 7% yield. Importantly, Fortitudes valuable assets are solely in Nevada, the premier mining district on the planet.
Fortitude Gold is very much a pure gold revenue play, with the added value of having zero debt on its balance sheet and a high and a consistent yield profile. Any upside to the gold price in a high inflationary environment is going to be icing on the cake. There is also the prospect for further exploration at additional 100% owned projects in the immediate vicinity in Nevada.
Fortitude is a well-kept secret among seasoned mining investors. It is run by CEO Jason Reid who comes from a widely respect mining family and moved to acquire Fortitude Gold’s Isabella Pearl resource in 2016. This was during a bear market for precious metals.
Reid has assembled a seasoned management team at Fortitude that between them have many decades of gold production under their belts, most recently at the previous company they ran, Gold Resource Corporation (NYSE:GORO) – including 10 consecutive years of profitability – and generated over a billion dollars in revenue. They also previously distributed over $116m in cash dividends to shareholders during their tenure there.
The team includes many previous members of the Gold Resource Corp, out of which Fortitude Gold was spun at the end of 2020. Reid himself was previously CEO of Gold Resource Corp, and served on the board for 14 years ahead of the spin out of Fortitude Gold. He was part of the management team that took Gold Resource Corp from a private exploration stage company to an NYSE listed dividend paying metals producer with a 10 year profitability history and over a billion dollars in revenue generated.
Reid was also the pioneer at GRC of the first cash to physical gold and silver dividend program, allowing shareholders to take delivery in precious metals.
Core asset: Isabella Pearl
Heap leach uses cyanide technology to recover the gold. Crushed ore is placed onto a plastic lined pad and cyanide is dripped through the ‘heap’ of ore, recovering the gold as it percolates through to the plastic liner. The ‘pregnant’ cyanide liquid collects in a pond to the side of the heap-leach and the gold is recovered from the cyanide solution by further processing.
This is a far simpler process than using capital-intensive ore concentrators, mills or roasters and often leads to more stable production and lower operating costs.
The mine was put into operation for only $32m. Gold ounces are produced from the mine at a low cost of approx. $605 per ounce. That makes the mine an extremely profitable operation, hence the lack of debt on Fortitude’s books and the consistent dividend yield.
Isabella Pearl first yielded gold in April 2019, which was just over 10 months from project ground breaking. Its proven and probable reserves included 2,247,400 tonnes grading 3.05 grams per tonne (g/t) gold and 18 g/t silver, equating to 220,100 gold ounces and 1,310,700 silver ounces.
The total mine life of the Isabella Pearl deposit was estimated at over four years at an average of approximately 40,000 ounce per year gold production run rate, after the initial 12-18 month production ramp up. Forecast production beyond 2022 is a steady 40,000 ounces for gold per annum to 2025, and further if the company brings its Golden Mile property resources online.
Fortitude says significant exploration upside exists for additional open-pit discoveries on the more than 10km property trend running northwest from the Isabella Pearl deposit.
We should also mention the exceptionally high grade of the gold at Isabella Peal at over 3 g/t, which is well above the quality from other US open pit mines like Pinson, Golden Sunlight or Haile.
Cash on hand
Fortitude reported its Q1 results in May 2022, which included $15.4m in net sales and $2.6m in net income. It produced 9,875 ounces of gold over the period and maintained its 2022 production outlook. It ended March 2022 with $36.3m in cash on hand.
This is typical of the operation and indeed Reid’s style of managing mining businesses. Investors like the fact the company is profitable, paying cash monthly dividends and has no debt on its books.
In addition to the 100% owned Isabella Pearl mineralised trend, Fortitude also owns 100% interest in five other prospective gold properties with surface and or near surface gold present, including the Golden Mile project and the East Camp Douglas project. Both projects are within 30km of Isabella Pearl and are an exciting part of Fortitude’s Nevada exploration work.
Golden Mile, which is located roughly 45 miles SE of Isabella Pearl, has seen some initial exploration and yielded 10.26 g/t Au (36.6m from 15.2m). It has an indicated high grade gold resource of 2.16m tonnes at 1.13 g/t and an inferred resource of 2.4m tonnes at 1.10 g/t. This deposit is open on strike and at depth and Fortitude is currently already working on its operations plan for the site and targeting a near term development decision.
The East Camp Douglas property is located on Nevada’s Walker Lane mineral belt. It covers 5,600 acres of 289 unpatented claims and 16 patented claims. Fortitude reckons the property has numerous untested gold targets with open pit heap leach potential.
Two other prospects are also under investigation, all within a 30- mile radius, which means further discoveries can leverage the existing cap ex Fortitude has made – e.g. shared ADR process plant and production facilities. Fortitudes synergistic mining unit approach targets minimizing capital spends on projects, should shorten the permit timeframes (not having to permit an ADR plant at each site) as well as expedite project construction.
It’s worth noting that the largest heap leach operation in the world, Round Mountain, is located approximately 100 km to the east of the Fortitude tenements. Round Mountain poured its 15 millionth ounce of gold in 2018 and is still a prolific producer today. The Walker Lane Mineral belt is an interesting area to explore for gold, particularly at a time of elevated inflation. But Fortitude Gold also rewards its shareholders with substantial monthly dividends while they wait!