Fortitude Gold is a small gold mining firm that was separated from Gold Resource Corporation and turned into a public company in December 2021.
They operate in Nevada, a region well known for being welcoming to the mining industry, and focus on extracting high-grade gold using open pit heap leach methods.
Source: Investor Presentation
It owns six properties, all located within a 30-mile radius and situated in the productive Walker Lane Mineral Belt.
It should be noted that their shares are traded in the OTC market, meaning that FTCO is not listed on major stock exchanges.
On May 7th, 2024, Fortitude Gold posted its Q1 results. For the quarter, revenue came in at $8.2 million, 62% lower compared to last year. The decline in revenue was driven by a 65% drop in ounces of gold sold.
However, a 19% increase in ounces of silver sold, combined with 10% higher gold and 2% higher silver prices, slightly offset this setback.
The company recorded a mine gross profit of $4.2 million compared to $12.3 million last year due to lower net sales. On a per-share basis, net income/loss was $0.00, compared to $0.26 last year.
Growth Prospects
Fortitude Gold’s future growth prospects are difficult to predict, as fluctuations in the price of gold can significantly affect the company’s results.
Fortitude Gold’s outlook has been clouded as it awaits permits from regulatory agencies to mine deeper in the Isabella Pearl deposit.
Source: Investor Presentation
FTCO is also waiting for permit approval to build its County Line project.
Therefore, FTCO stock is a high-risk, high-reward situation. On one hand, rising gold prices and improved operating processes can significantly enhance the company’s financial performance amid higher profit margins.
On the other hand, declining gold prices and rising expenses, could negatively affect profitability.
For this reason, we have lowered this year’s estimate, as well as our previous medium-term assumptions. We therefore expect no EPS growth over the next five years from 2024 levels.
Competitive Advantages
Fortitude Gold’s edge in the industry lies in the expertise of its management team and its history of creating significant value for shareholders.
Before the spin-off from Gold Resource Corporation, they had generated over $1 billion in revenue there, maintained profitability for ten consecutive years, and distributed over $116 million in dividends to shareholders.
Furthermore, Fortitude Gold’s properties have high-grade ore and surface deposits, which results in low-cost operations compared to their competitors.
The company’s financial position is also quite strong, with $130.2 million in total assets against just $12.4 million in total liabilities, resulting in a strong equity value of $117.8 million.
Although the company’s future performance is partially linked to gold prices, FTCO’s low operating costs and solid balance sheet could help to mitigate the negative effects during an economic downturn.
Dividend Analysis
Fortitude Gold’s dividend policy is to pay out as much cash to shareholders as soon as possible while still taking into account the need for capital for operations, reinvestment for growth, and taxes.
The leadership team is of the opinion that this attribute will make the company stand out from its mining competitors in the eyes of investors, preventing shares from trading at a discount, which is common in the industry.
Based on expected 2024 EPS of $0.55 and the current annualized dividend of $0.48 per share, FTCO has a 2024 dividend payout ratio of approximately 87%.
We consider Fortitude Gold’s current payouts relatively secure. However, the dividend could be cut during a prolonged, unfavorable environment for the commodity producer.
Fortitude Gold Corporation might be appealing for income investors looking for a gold stock that provides consistent and high dividends.
The stock has one of the highest yields in the industry, and payouts could remain covered, especially near the current gold price levels.
However, it is worth noting that the company’s future profits will be closely tied to the fluctuations in gold prices, as well as a certain level of regulatory risk. Therefore, the high dividend should be viewed with caution.
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