The management team and board of US-based miner Fortitude Gold have a distinct past life under NYSE-listed Gold Resource Corp – a well established gold and silver producer with operations in Oaxaca, Mexico. This nucleus of industry veterans guided Gold Resource through a decade of production and profitability, with over US$1 billion in revenue generated even during the depths of one of the deepest bear markets the mining industry has experienced. “Early on at Gold Resource we didn’t have many capital expenditures year-over-year, we had a tight capital structure and a great margin. What that enabled us to do is pay substantial dividends,” explains Gold Resource’s former CEO and president Jason Reid, who currently fulfils the same roles for Fortitude. In fact, Gold Resource returned over $116 million in dividends to shareholders over a 10-year period – a substantial amount for a gold miner not yet into the intermediate producer space. “Our IPO came out at $1 per share and several years later we hit a high of $30 with our business strategy. During that time, we fielded shareholder calls that had never touched a mining company in their life; they were chasing dividends and yield. We outran our peers and created tremendous shareholder value. At that point, the lightbulb went on for us as we tapped into a successful business strategy that very few do in the mining industry.”
However, the team’s vast ambitions were soon to be bashed by a brutal bear market that tore the entire space down. Unlike many of its peers, Gold Resource survived the downturn and continued to reward its shareholders with regular monthly dividend payments. When the market returned to growth post-2016, the team identified an opportunity to do it all again in a Tier 1 jurisdiction.
“We completed about a year of due diligence before we made the final decision to spin out our Nevada mining unit, which we believed would create greater shareholder value as a standalone company, along with diversification in terms of jurisdiction, as all of the other assets were in Mexico.”
“In December 2020, we spun off the Nevada mining unit to shareholders. We did that with the core purpose of walking that same successful path we walked early on with Gold Resource but in a separate company, Fortitude Gold.” Only this time, they will be working exclusively in a jurisdiction that has just been ranked as the most attractive region in the world for mining investors.
Simply the best
The Fraser Institute’s Annual Survey of Mining Companies is regarded as the most comprehensive report on government policies, regulations and tax regimes that either attract or discourage mining investors, so for Nevada to come out on top in 2020 was just further confirmation of what Reid and co already knew.
“Mining friendly jurisdictions are becoming increasingly scarce around the globe, and so having a mining unit in a premier mining jurisdiction tells investors that we are in a safe place. That’s very important nowadays, with increasing talk of nationalisation of mines around the world.”
Fortitude Gold’s Nevada mining unit is comprised of a series of high-grade gold properties all within a 30-mile radius in the Walker Lane Mineral Belt. Fortitude’s flagship project is the aptly named Isabella Pearl mine, which consists of two primary areas of mineralisation. The Isabella area outcrops at the surface at 1 gram per tonne (g/t) gold, but the firm is chasing gold grades between 3-5 g/t deep in the Pearl.
To put this in perspective, many miners in Nevada chase 0.5 g/t gold deposits and can still operate mines profitably with that grade. So, the 2 g/t average gold grade at Isabella Pearl is really exciting and very profitable, according to Reid.
The deposit has even exceeded expectations after Fortitude hit pockets of 10 g/t, a pocket of 30 g/t and a pocket of 100 g/t (that’s almost three ounces!) in the last two benches of the Phase 1 pit.
“In a world awash with 0.5 grams per tonne mines, where companies have to make up for the low grade by moving a tremendous number of tonnes at a significant cost and with near perfect precision, we’re experiencing a grade situation that has exceeded our expectations to the upside and has required us to increase our production outlook [to 40-45,000 ounces of gold] for the year.”
In just 10 months from project ground-breaking, Fortitude built a fully operational process facility at the Isabella Pearl complex and produced first gold. The facility is set to become the beating heart of Fortitude’s integrated network of deposits in the region.
This synergistic approach will allow for equipment and resource sharing between the five projects, along with individual heap leach facilities taking gold to carbon and then trucking that carbon to the central process facility at Isabella Pearl for final gold dore production.
The company believes that this approach will substantially decrease permit timing, decrease project capital costs and decrease construction timeframes on future open pit heap leach operations.
One of the most advanced projects outside of the flagship is Golden Mile – a district scale property with two areas of known mineralisation and drill highlights including 36.6 metres at 10.26 g/t from 15.2 metres downhole.
“Golden Mile has had a history of miners working on it, which we love, because I think the average deposit isn’t discovered until four or five mining companies have been on a property. We get to leverage the 200+ holes that were in the ground from previous activity.
“We have two rigs currently operating at Golden Mile for infill and step out drilling to come up with our maiden resource. We hope to complete that by year-end. The goal is to move Golden Mile forward to make a production decision ASAP.”
Fortitude’s current cluster of assets were identified and collated in about a four-and-a-half year spell during the depths of the previous bear market, when most groups were looking to sell, not acquire, properties. This proactive countercyclical approach allowed the company to gain a property pole position in the highly prospective Walker Lane Trend, which is now a much more contested space, in line with the elevation of the gold price over the last 18 months.
“It’s a totally different environment now demonstrated by the fact that I have other junior and major mining companies moving into my backyard,” Reid reveals. “We would be hard pressed to put together a property portfolio like we have now if we were trying to in this competitive market.”
“We stayed true to our criteria for acquisitions of high-grade properties with district-sized land positions. We see tremendous potential in our assets, for which everything revolves around high-grade.” This is evident in that all five Fortitude properties have surface or near surface high-grade gold.
A golden future
Looking forward, Reid is extremely confident that Fortitude can continue to execute on its strategy to grow organically, remain debt-free and distribute substantial dividends, provided that the gold price remains at these healthy levels.
At the current gold price of around $1,800 per once, the company’s margins are such that it was able to put $13 million in the bank thus far in the second quarter of 2021 and increase its monthly dividend by 16.7% to $0.035 per common share, or $0.42 annually. Today the company’s yield on its share price is delivering close to 6% to shareholders.
“Even if gold pulls back a bit, we can continue to put cash in the treasury and pay our substantial dividend. We are positioned to outrun all of our peers, as a function of our ability to transcend being just a gold equity and tap into that pool of capital much larger than the gold space itself. A pool of capital with investors that chase dividends and yield. Those investors are driving our stock price right now.”
These shareholders are currently invested in Fortitude through the OTCQB ‘venture’ market for US stocks, on which the company holds an incredibly tight share structure of under 24 million shares outstanding. The tight capital structure allows Fortitude to leverage its margin and distribute substantial dividends. Dividends counter the gold investment criticism that gold has no yield.
When quizzed on a potential dual listing on the Toronto Stock Exchange (TSX) – the number one market for mining issuers worldwide and one with strong links to US investors – Reid stresses that an additional listing would have to be in conjunction with a relevant deal.
“We considered a TSX listing previously but eventually decided against it as we are a US-based company. Having said that, we would consider a possible dual listing if for some reason Fortitude needed access to capital, but it would have to be the right fit and there would need to be an accretive reason.”