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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 June 30, 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 July 31, 2023, the registrant had 24,084,542 outstanding shares of common stock.

TABLE OF CONTENTS

    

    

Page

Part I

Financial Information

Item 1.

Financial Statements

1

Condensed Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022

1

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022 (Unaudited)

2

Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2023 and 2022 (Unaudited)

3

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 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

12

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

19

Item 4.

Controls and Procedures

19

Part II

Other Information

Item 1.

Legal Proceedings

19

Item 1A.

Risk Factors

19

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

19

Item 4.

Mine Safety Disclosures

19

Item 5.

Other Information

20

Item 6.

Exhibits

21

Signatures

22

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

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

June 30, 

December 31, 

    

2023

    

2022

(Unaudited)

  

ASSETS

  

  

Current assets:

  

  

Cash and cash equivalents

$

46,913

$

45,054

Gold and silver rounds/bullion

225

Inventories

 

50,709

 

47,155

Prepaid taxes

966

710

Prepaid expenses and other current assets

 

1,261

 

730

Total current assets

 

100,074

 

93,649

Property, plant and mine development, net

 

28,618

 

30,581

Operating lease assets, net

 

2,078

 

3,826

Deferred tax assets

2,300

1,282

Other non-current assets

 

341

 

1,818

Total assets

$

133,411

$

131,156

LIABILITIES AND SHAREHOLDERS' EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

3,619

$

2,524

Operating lease liabilities, current

 

2,078

 

3,826

Mining taxes payable

 

1,512

 

1,857

Other current liabilities

 

947

 

1,324

Total current liabilities

 

8,156

 

9,531

Asset retirement obligations

 

6,102

 

5,863

Other non-current liabilities

 

 

3

Total liabilities

 

14,258

 

15,397

Shareholders' equity:

 

  

 

  

Preferred stock - $0.01 par value, 20,000,000 shares authorized and nil outstanding at June 30, 2023 and December 31, 2022

 

 

Common stock - $0.01 par value, 200,000,000 shares authorized and 24,084,542 shares outstanding at June 30, 2023 and 24,024,542 shares outstanding at December 31, 2022

 

241

 

240

Additional paid-in capital

 

103,893

 

103,731

Retained earnings

 

15,019

 

11,788

Total shareholders' equity

 

119,153

 

115,759

Total liabilities and shareholders' equity

$

133,411

$

131,156

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

1

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

    

Three months ended

Six months ended

June 30, 

June 30, 

    

2023

    

2022

    

2023

    

2022

Sales, net

$

19,219

$

23,993

$

40,759

$

39,354

Mine cost of sales:

 

  

 

  

 

  

 

  

Production costs

 

5,020

 

8,189

 

10,673

 

13,970

Depreciation and amortization

 

2,905

 

4,155

 

6,384

 

6,933

Reclamation and remediation

 

68

 

76

 

140

 

123

Total mine cost of sales

 

7,993

 

12,420

 

17,197

 

21,026

Mine gross profit

 

11,226

 

11,573

 

23,562

 

18,328

Costs and expenses:

 

  

 

  

 

  

 

  

General and administrative expenses

 

1,087

 

1,094

 

2,146

 

2,274

Exploration expenses

 

6,061

 

2,426

 

9,749

 

4,940

Other (income) expense, net

 

(434)

 

65

 

(761)

 

82

Total costs and expenses

 

6,714

 

3,585

 

11,134

 

7,296

Income before income and mining taxes

 

4,512

 

7,988

 

12,428

 

11,032

Mining and income tax expense

 

908

 

1,423

 

2,456

 

1,849

Net income

$

3,604

$

6,565

$

9,972

$

9,183

Net income per common share:

 

  

 

  

 

  

 

  

Basic

$

0.15

$

0.27

$

0.41

$

0.38

Diluted

$

0.15

$

0.27

$

0.41

$

0.38

Weighted average shares outstanding:

 

  

 

  

 

  

 

  

Basic

24,084,542

24,024,542

24,074,312

24,010,061

Diluted

 

24,225,953

 

24,207,185

 

24,219,270

 

24,204,660

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

2

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

     

Three Months Ended June 30, 2023 and 2022

Par

Number of

Value of

Total

Common

Common

Additional Paid-

Retained

Shareholders'

     

Shares

     

Shares

     

in Capital

     

Earnings

     

Equity

Balance, March 31, 2022

24,024,542

$

240

$

103,586

$

8,370

$

112,196

Stock-based compensation

50

 

 

50

Dividends

 

(2,883)

 

(2,883)

Net income

6,565

6,565

Balance, June 30, 2022

24,024,542

$

240

$

103,636

$

12,052

$

115,928

Balance, March 31, 2023

24,084,542

$

241

$

103,839

$

15,269

$

119,349

Stock-based compensation

 

 

54

 

 

54

Dividends

 

 

 

(3,854)

 

(3,854)

Net income

 

 

 

3,604

 

3,604

Balance, June 30, 2023

24,084,542

$

241

$

103,893

$

15,019

$

119,153

     

Six Months Ended June 30, 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

 

 

97

 

 

97

Dividends

(5,763)

(5,763)

Stock options exercised

63,334

63

63

Net income

9,183

9,183

Balance, June 30, 2022

24,024,542

$

240

$

103,636

$

12,052

$

115,928

Balance, December 31, 2022

24,024,542

$

240

$

103,731

$

11,788

$

115,759

Stock-based compensation

 

 

103

 

 

103

Dividends

 

 

 

(6,741)

 

(6,741)

Stock options exercised

60,000

1

59

60

Net income

 

 

 

9,972

 

9,972

Balance, June 30, 2023

24,084,542

$

241

$

103,893

$

15,019

$

119,153

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

3

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

Six months ended

June 30, 

    

2023

    

2022

Cash flows from operating activities:

 

  

 

  

Net income

$

9,972

$

9,183

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

 

  

 

  

Depreciation and amortization

 

6,430

 

7,011

Stock-based compensation

103

97

Deferred taxes

(1,018)

(650)

Reclamation and remediation accretion

140

123

Other operating adjustments

 

(58)

 

(29)

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable

 

 

(1,572)

Inventories

 

(2,167)

 

(1,068)

Prepaid expenses and other current assets

 

(531)

 

1,087

Other non-current assets

 

 

(31)

Accounts payable and other accrued liabilities

 

519

 

176

Income and mining taxes payable

 

(601)

 

194

Net cash provided by operating activities

 

12,789

 

14,521

Cash flows from investing activities:

 

  

 

  

Capital expenditures

 

(3,974)

 

(8,052)

Other investing activities

(239)

Net cash used in investing activities

 

(4,213)

 

(8,052)

Cash flows from financing activities:

 

  

 

  

Dividends paid

(6,741)

(5,763)

Proceeds from exercise of stock options

60

63

Repayment of loans payable

 

(30)

 

(43)

Repayment of capital leases

 

(6)

 

(13)

Net cash used in financing activities

 

(6,717)

 

(5,756)

Net increase in cash and cash equivalents

 

1,859

 

713

Cash and cash equivalents at beginning of period

 

45,054

 

40,017

Cash and cash equivalents at end of period

$

46,913

$

40,730

Supplemental Cash Flow Information

 

  

 

  

Income and mining taxes paid

$

4,074

$

2,339

Non-cash investing and financing activities:

 

  

 

  

Change in capital expenditures in accounts payable

$

231

$

322

Change in estimate for asset retirement costs

$

$

517

Right-of-Use assets acquired through operating lease

$

$

3,899

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

4

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.

Certain items in the prior period’s Condensed Consolidated Financial Statements have been reclassified to conform to the current presentation.

2. Revenue

The following table presents the Company’s net sales:

    

Three months ended

    

Six months ended

June 30, 

June 30, 

    

2023

    

2022

    

2023

    

2022

(in thousands)

(in thousands)

Sales, net

  

  

  

  

Gold sales

$

19,308

$

24,107

$

40,896

$

39,560

Less: Refining charges

 

(89)

 

(114)

 

(137)

 

(206)

Total sales, net

$

19,219

$

23,993

$

40,759

$

39,354

3. Gold and Silver Rounds/Bullion

The Company periodically purchases gold and silver rounds/bullion on the open market for investment purposes.

At June 30, 2023, the Company’s holdings of rounds/bullion, using quoted market prices, consisted of the following:

June 30, 

2023

Ounces

Per Ounce

Amount

(in thousands)

Silver

10,000

$

22.47

$

225

Total holdings

$

225

5

As of June 30, 2023, the Company did not have any holdings of gold rounds/bullion. The Company did not have any holdings of rounds/bullion at December 31, 2022.

4. Inventories

On June 30, 2023 and December 31, 2022, current inventories consisted of the following:

    

June 30, 

    

December 31, 

    

2023

    

2022

    

(in thousands)

Stockpiles

$

5,698

$

5,832

Leach pad

 

44,502

 

40,786

Doré

 

 

32

Subtotal - product inventories

 

50,200

 

46,650

Materials and supplies

 

509

 

505

Total

$

50,709

$

47,155

In addition to the inventories above, as of June 30, 2023 and December 31, 2022, the Company has nil and $1.5 million, respectively, of low-grade ore stockpile inventory included in other non-current assets.

5. 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 $0.9 million and $1.4 million for the three months ended June 30, 2023 and 2022, respectively.  The Company recorded income and mining tax expense of $2.5 million and $1.8 million for the six months ended June 30, 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 June 30, 2023 and December 31, 2022, thus no valuation allowance was determined to be necessary.

As of June 30, 2023, the Company believes that it has no liability for uncertain tax positions.

6. Prepaid Expenses and Other Current Assets

At June 30, 2023 and December 31, 2022, prepaid expenses and other current assets consisted of the following:

    

June 30, 

    

December 31, 

    

2023

    

2022

    

(in thousands)

Contractor advances

$

81

$

273

Prepaid insurance

557

309

Interest receivable

 

370

 

85

Other current assets

 

253

 

63

Total

$

1,261

$

730

6

7. Property, Plant and Mine Development, net

At June 30, 2023 and December 31, 2022, property, plant and mine development consisted of the following:

    

June 30, 

    

December 31, 

    

2023

    

2022

    

(in thousands)

Asset retirement costs

$

5,171

$

5,171

Construction-in-progress

 

13,064

 

9,522

Furniture and office equipment

 

631

 

590

Leach pad and ponds

 

3,732

 

3,732

Land

 

38

 

25

Light vehicles and other mobile equipment

 

558

 

544

Machinery and equipment

 

16,271

 

15,698

Process facilities and infrastructure

 

8,863

 

8,856

Mineral interests and mineral rights

 

18,953

 

18,953

Mine development

 

24,365

 

24,365

Software and licenses

 

105

 

105

Subtotal (1)

 

91,751

 

87,561

Accumulated depreciation and amortization

 

(63,133)

 

(56,980)

Total

$

28,618

$

30,581

(1)Includes capital expenditures in accounts payable of $0.8 million and $0.6 million at June 30, 2023 and December 31, 2022, respectively.

For the three months ended June 30, 2023 and 2022, the Company recorded depreciation and amortization expense of $2.9 million and $4.2 million, respectively. For the six months ended June 30, 2023 and 2022, the Company recorded depreciation and amortization expense of $6.4 million and $7.0 million, respectively.

8. Other Current Liabilities

At June 30, 2023 and December 31, 2022, other current liabilities consisted of the following:

    

June 30, 

    

December 31, 

    

2023

    

2022

    

(in thousands)

Accrued royalty payments

$

560

$

547

Accrued property and excise taxes

 

367

 

721

Other accrued expenses

20

56

Total

$

947

$

1,324

7

9. Asset Retirement Obligation

The following table presents the changes in the Company’s asset retirement obligation for the six months ended June 30, 2023 and year ended December 31, 2022:

    

June 30, 

    

December 31, 

    

2023

    

2022

    

(in thousands)

Asset retirement obligation – balance at beginning of period

$

5,863

$

4,725

Changes in estimate

 

 

789

Payments

(18)

(47)

Accretion

 

257

 

396

Asset retirement obligation – balance at end of period

$

6,102

$

5,863

As of June 30, 2023, the Company had a $12.5 million off-balance sheet arrangement for a surety bond. This bond is offset by a $6.1 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 offset 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%.

10. 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 11 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 June 30, 2023, total estimated contractual payments remaining, excluding embedded lease payments, are $2.1 million for the year ended December 31, 2023.

11. 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 June 30, 2023 is 0.50 years.

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 June 30, 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,

8

and interest vary immaterially from forecasted amounts due to variable conditions at the mine. During the three and six months ended June 30, 2023, the Company capitalized variable lease costs of $0.9 million and $1.9 million, respectively, to Inventory. During the three and six months ended June 30, 2022, the Company capitalized variable lease costs of $0.9 million and $2.7 million, respectively, to Inventory.

Maturities of operating lease liabilities as of June 30, 2023 are as follows (in thousands)

Year Ending December 31:

    

    

2023

$

2,126

Thereafter

 

Total lease payments

 

2,126

Less imputed interest

 

(48)

Present value of minimum payments

 

2,078

Less: current portion

 

(2,078)

Long-term portion of minimum payments

$

Supplemental cash flow information related to the Company’s operating lease is as follows for the six months ended June 30, 2023 and 2022:

    

Six months ended

June 30, 

    

2023

    

2022

    

(in thousands)

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

  

  

Operating cash flows from operating leases

$

1,858

$

2,660

11. Other (Income) Expense, Net

For the three and six months ended June 30, 2023 and 2022, other (income) expense, net consisted of the following:

    

Three months ended

Six months ended

June 30, 

June 30, 

    

2023

    

2022

2023

    

2022

    

(in thousands)

(in thousands)

Interest (income) expense

$

(469)

$

27

$

(831)

$

44

Charitable contributions

36

41

73

42

Unrealized loss from gold and silver rounds/bullion, net (1)

14

14

Other income

(15)

(3)

(17)

(4)

Total

$

(434)

$

65

$

(761)

$

82

(1)Gains and losses due to changes in fair value are non-cash in nature until such time that they are realized through cash transactions. For additional information regarding the Company’s fair value measurements and investments, please see Note 14.

13. 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.

9

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 June 30, 2023 and 2022, potentially dilutive securities representing 66,000 shares and 60,000 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

Six months ended

June 30, 

June 30, 

    

2023

    

2022

2023

    

2022

Net income (in thousands)

$

3,604

$

6,565

$

9,972

$

9,183

Basic weighted average shares of common stock outstanding

24,084,542

24,024,542

24,074,312

24,010,061

Diluted effect of share-based awards

141,411

182,643

144,958

194,599

Diluted weighted average common shares outstanding

24,225,953

24,207,185

24,219,270

24,204,660

Net income per share:

Basic

$

0.15

$

0.27

$

0.41

$

0.38

Diluted

$

0.15

$

0.27

$

0.41

$

0.38

14. 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 June 30, 2023 and December 31, 2022:

    

June 30, 

December 31, 

    

2023

    

2022

    

Input Hierarchy Level

    

(in thousands)

    

Cash and cash equivalents

$

46,913

$

45,054

Level 1

Gold and silver rounds/bullion

225

Level 1

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. Gold and silver rounds/bullion consist of precious metals used for investment purposes which are valued using quoted market prices. Please see Note 3 for additional information.

10

Gains and losses related to changes in the fair value of these financial instruments were included in the Company’s Condensed Consolidated Statements of Operations as shown in the following table:

Three months ended

Six months ended

June 30, 

June 30, 

2023

    

2022

2023

    

2022

Statement of Operations Classification

(in thousands)

Unrealized gold and silver rounds/bullion loss, net

$

14

$

$

14

$

Other (income) expense, net

15. 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 and six month ended June 30, 2023, the Company granted RSUs of 36,000 to employeesThe RSU’s vest over a period of three years and were issued with a weighted average fair value of $7 per share. No RSUs were granted during the three and six months ended June 30, 2022.

During the six months ended June 30, 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 June 30, 2022. No options were issued during the three and six months ended June 30, 2023.

 During the six months ended June 30, 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. No stock options were exercised during the three months ended June 30, 2023. During the six months ended June 30, 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. No stock options were exercised during the three months ended June 30, 2022.

Stock-based compensation is included in general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations. For the three and six months ended June 30, 2023 the Company recorded $0.05 million and $0.1 million, respectively, of stock-based compensation. For the three and six months ended June 30, 2022 the Company recorded $0.05 million and $0.1 million, respectively, of stock-based compensation.  

16. Shareholders’ Equity

During the three and six months ended June 30, 2023 the Company declared and paid dividends of $3.9 million or $0.16 per share and $6.7 million or $0.28 per share, respectively. During the three and six months ended June 30, 2022, the Company declared and paid dividends of $2.9 million or $0.12 per share and $5.8 million or $0.24 per share, respectively.

See Note 15 for information concerning shares and options granted pursuant to the Company's Equity Incentive Plan.

11

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 and six months ended June 30, 2023 and 2022. It also analyzes our financial condition at June 30, 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.

Second Quarter 2023 Financial Results and Highlights

$19.2 million net sales
$3.6 million net income or $0.15 per share
$46.9 million cash balance on June 30, 2023
9,684 gold ounces produced
3.36 grams per tonne average gold grade mined
$91.9 million working capital at June 30, 2023
$11.2 million mine gross profit
$6.1 million exploration expenditures
$527 total cash cost after by-product credits per gold ounce sold
$680 per ounce total all-in sustaining cost
$3.9 million dividends paid
$0.04 special dividend

12

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

    

    

Three months ended June 30, 

Six months ended June 30, 

    

2023

    

2022

    

2023

    

2022

Ore mined

 

  

 

  

 

  

 

  

Ore (tonnes)

 

112,834

 

123,810

 

219,309

 

377,653

Gold grade (g/t)

 

3.36

 

3.46

 

3.71

 

2.59

Low-grade stockpile

 

  

 

  

 

  

 

  

Ore (tonnes)

 

 

11,011

 

61,854

 

34,501

Gold grade (g/t)

 

 

0.42

 

0.47

 

0.43

Waste (tonnes)

 

312,614

 

241,500

 

530,741

 

1,494,024

Metal production (before payable metal deductions)(1)

 

  

 

  

 

  

 

  

Gold (ozs.)

 

9,684

 

10,980

 

21,171

 

20,855

Silver (ozs.)

 

13,611

 

16,027

 

31,260

 

32,550

(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 June 30, 

Six months ended June 30, 

    

2023

    

2022

    

2023

    

2022

Metal sold

  

  

  

  

Gold (ozs.)

9,702

 

12,851

21,131

 

21,148

Silver (ozs.)

13,464

 

18,780

30,944

 

32,708

Average metal prices realized (1)

  

 

  

  

 

  

Gold ($per oz.)

1,990

 

1,876

1,935

 

1,871

Silver ($per oz.)

24.46

 

23.04

23.42

 

23.34

Precious metal gold equivalent ounces sold

Gold Ounces

9,702

12,851

21,131

21,148

Gold Equivalent Ounces from Silver

165

231

375

408

9,867

13,082

21,506

21,556

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

$

561

$

680

$

546

$

706

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

$

527

$

646

$

512

$

670

Total all-in sustaining cost per gold ounce sold

$

680

$

733

$

625

$

778

(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.

13

During the three months ended June 30, 2023 and 2022, we produced 9,684 and 10,980 ounces of gold, respectively. The lower production is primarily due to higher utilization of the low-grade stockpile for blending of ore placed on the pad. Cash cost after by-product credit decreased due to lower mining costs due to higher utilization of the low-grade stockpile.

During the six months ended June 30, 2023 and 2022, we produced 21,171 and 20,855 ounces of gold, respectively. The higher production is primarily due to higher-grade ore mined and placed on the pad during the period. Cash cost after by-product credit decreased due to lower mining costs due to less waste mining.

Consolidated Results of Operations – Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Sales, net. For the three months ended June 30, 2023, consolidated sales, net were $19.2 million as compared to $24.0 million for the same period in 2022. The decrease is attributable to a 25% decrease in sales volumes due to decreased production, offset by a 6% increase in average sales price.

Mine gross profit. For the three months ended June 30, 2023, we recorded $11.2 million mine gross profit did not materially change compared to $11.6 million mine gross profit for the same period in 2022.

General and administrative. For the three months ended June 30, 2023, general and administrative expenses of $1.1 million did not materially change from $1.1 million in the same period in 2022.

Exploration expenses. For the three months ending June 30, 2023, property exploration expenses totaled $6.1 million as compared to $2.4 million for the same period of 2022. The increase was largely due to increased drilling at the County Line and Golden Mile properties and the completion of two additional monitoring wells at the Golden Mile property.

 Other (income) expense, net. For the three months ending June 30, 2023, other income totaled $0.4 million as compared to other expense of $0.1 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 June 30, 2023, income and mining tax expense was $0.9 million as compared to $1.4 million for the same period in 2022. The decrease is the result of our lower income before income and mining taxes and decreased Nevada net proceeds of minerals tax due to lower metal sales.  See Note 5 to the Condensed Consolidated Financial Statements.

 

Net income. For the three months ended June 30, 2023, we recorded net income of $3.6 million as compared to $6.6 million in the corresponding period for 2022. The decrease is due to the changes in our consolidated results of operations, as discussed above

Consolidated Results of Operations – Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Sales, net. For the six months ended June 30, 2023, consolidated sales, net were $40.8 million as compared to $39.4 million for the same period in 2022. The increase is attributable to a 3% increase in average sales price.

Mine gross profit. For the six months ended June 30, 2023, we recorded $23.6 million mine gross profit compared to $18.3 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 six months ended June 30, 2023, general and administrative expenses of $2.1 million did not materially change from $2.3 million in the same period in 2022.

Exploration expenses. For the six months ending June 30, 2023, property exploration expenses totaled $9.7 million as compared to $4.9 million for the same period of 2022. The increase was largely due to increased drilling, as well as  increased geotechnical and metallurgical studies at the County Line property. Drilling also increased at the Golden Mile property, as well as the completion of three additional monitoring wells.

14

 Other (income) expense, net. For the six months ending June 30, 2023, other income totaled $0.8 million as compared to other expense of $0.1 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 six months ended June 30, 2023, income and mining tax expense was $2.5 million as compared to $1.8 million for the same period in 2022. The increase is the result of our higher income before income and mining taxes.  See Note 5 to the Condensed Consolidated Financial Statements.

 

Net income. For the six months ended June 30, 2023, we recorded net income of $10.0 million as compared to $9.2 million