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Investment thesis

Fortitude Gold Corp (OTCQB:FTCO) is an over-the-counter (OTC) stock that has generated price returns of approximately 18.5% over the previous 52 weeks, but total returns have reached nearly 29%, significantly outpacing the market, in part because of its high yield.

Data by YCharts

The company’s balance sheet contains no long-term debt, profit margins and resource utilization metrics are above industry medians, and the monthly dividend is icing on the cake.

Data by YCharts

The company’s management previously managed Gold Resource Corp. (GORO), which traded on the OTC market and operated under a similar profile to FTCO, later listed on NYSE Amex in 2010.

With a market capitalization of $158 million, a successful mining operation underway, multiple projects underway, a clean balance sheet and a positive outlook for the company’s core product, I suspect that management will take the same route and aim for a subsequent quotation. on the NYSE Amex, creating a buying opportunity, likely leading to strong capital appreciation.

Company presentation

Fortitude Gold is a junior gold producer operating in Nevada. The company is a spin-off of Gold Resource Corp., spiraling at the end of 2020 and trading over-the-counter since March 2021. Its management team has spent a decade managing GORO, earning investor confidence that would otherwise have been lost on a new setup. The Company owns five high-grade gold properties in the Walker Lane mineral belt.

FTCO Gold Mines in Nevada

golden strength

Its Isabella Pearl mine began commercial production in 2020 and produced 46,500 ounces of gold in 2021, expecting to produce 36,000 to 40,000 ounces in 2022. The mine is a high-grade open pit reserve with 3.75 grams per tonne of gold production at an average All-In Sustaining Cost (AISC) of $705 per ounce, compared to the global AISC average of $1,067.

Its Golden Mile and Mina Gold sites are currently in the scoping phase, with Golden Mile being prepared for productivity later in the decade. At the same time, the East Camp Douglas and County Line properties are in the exploration phase with positive historical results by third parties.

The proximity to other mines should allow the company to take advantage of the developed processing facilities operating on the Isabella Pearl mine property, reducing labor and capital requirements and creating further synergies.

In the first quarter earnings report, company CEO Jason Reid outlined a positive outlook for the coming years based on its recent successful transition from phase one waste rock mining to open pit mining. to phase two of surface mining.

Operations now have access to high-grade pearl zone ore for the next three years with a mining plan that is expected to move significantly less waste rock each subsequent year, resulting in lower projected mining costs and increased mining costs. free cash flow. This strong future cash flow should replenish our already strong cash position as we allocate cash to fund the construction of our second mine located on the Golden Mile property. This approach should allow us to build our second mine without shareholder dilution, increase mine life, continue to explore our portfolio of properties, pay taxes as a profitable business and distribute dividends. to shareholders with an attractive return, the best in the industry.

The Golden Mile project is particularly important to the company, as the Isabella Pearl Mine deposit was estimated to be 4.5 years old at an average gold production rate of 40,000 ounces per year, following the initial ramp-up of production of twelve months, and in the event of the exhaustion of the deposits, the Golden Mile will act as a later successor.

Isabella Pearl Mine and Golden Mile Mine Production

FTCO Investor Presentation

gold market

Gold prices have risen around 1.5% over the past year and just under 3% since the start of the year to around $1,850 an ounce, outperforming the market and enduring high volatility throughout the year in the context of the Russian-Ukrainian conflict. Commodity prices have been under pressure since hitting a record high above $2,050 in March and then began to decline in mid-April from around $1,980 an ounce.

YTD Gold Price - May 2022

Trade economy

World gold consumption is mainly divided into 3 classes; 50% in jewelry, 40% in investments and 10% in industry. With inflationary pressures high and recession looming, gold offers an attractive investment opportunity, especially with Goldman Sachs (GS) forecasting a year-end price of at least over $2,300. GS predicts that central bank demand for gold will reach high levels as they turn their reserves into gold due to high diversification and geopolitical reasons.

Factors Affecting Gold Prices


A recession has always occurred within two years of an inverted yield curve, and gold prices have a habit of taking an upward trajectory during a recession, signaling a bullish trend for years to come.

a chart showing the slope of the US yield curve and US recessions


Impeccable balance sheet and profitability

FTCO sports a debt-free balance sheet with nearly a quarter of its market capitalization (~$160 million) held in cash and cash equivalents (~$36.3 million) and half of its market capitalization in current assets. term (~$80 million). With a current ratio above 18 and a quick ratio above 8, the company’s liquidity is well under control without a significant cash consumption rate. The strong balance sheet has earned the company an Altman Z score of over 12.5, a testament to the firm’s solid financial stability.

FTCO Q1 2022 cash burn rate


In terms of profitability, FTCO outperforms the competition in terms of profitability due to its low AISC. The company’s gross margin of 65.5%, net profit margin of 23.5%, EBITDA margin of 56% and FCF margin of 12% are more than double the industry median.

FTCO Profitability Summary

Looking for Alpha

Likewise, its ROE, ROTC and ROTA also significantly exceed industry medians, a testament to management’s ability to make optimal use of resources, generating higher revenue per dollar invested.

FTCO management efficiency ratio

Looking for Alpha


FTCO has somewhat mixed valuation metrics with a PE of 8.88, PEG of 0.19, PS of 2.08, PB of 1.42, and PCF of 7.47. By comparison, the industry medians are 13.32, 0.12, 1.26, 1.85, and 8.75, respectively. If the FTCO metrics recalibrate to the industry medians, the price points to an average of $6.93 and a median of $7.8, indicating upside potential.

However, since the company’s share price is highly dependent on gold demand and prices, this should not be taken at face value to set a price target, but rather as a fair value or an entry point. Given that the business is performing exceptionally well and has an advantage if it gets listed, the price seems justified.

Additionally, the company prides itself on its high-yield monthly dividend distributions of around 7%, in line with its cash yield of 7.5%. Even though the ratio of free cash flow yield to dividend yield of 1.13% appears to be lower than that of its peers, its liquid assets are more than sufficient to cover dividends, especially since dividend distributions are one of its key strategic functions.


One of the risks I see in my thesis is that a major driver of the stock’s upside is the company’s potential going public. Yet, if the company is not outperformed for whatever reason, a major advantage will be lost.

The second, more significant risk the company faces is if there is a production lag between the depletion of the Isabella Pearl mine and the start of the Green Mile project. Should the Isabella Pearl mine prove to have lower resource levels than expected or should the Green Mile project be delayed for any reason, the resulting loss of revenue would likely be widespread.

Additionally, in the event of a bear market for its primary commodity, gold, revenue growth will be severely hampered due to a lack of diversity in its revenue-generating portfolio. It may even result in a net loss. It can also significantly affect its ability to generate cash, increasing dividend distributions and leading to a possible reduction in dividends.

Being a micro-cap company with limited resources, the above risks will be very detrimental to the company’s share price. Despite the high upside potential of stocks, investors need to get used to all adverse possibilities to protect their investments. Microcap companies are inherently risky and are generally avoided by risk averse investors.


Fortitude Gold Corp’s history seems familiar due to its management’s previous experience with GORO. The company got off to a good start with its 100% owned properties generating strong margins due to a lower AISC than the industry. Management’s experience in producing good returns in relation to shareholders’ investments is a good sign for potential investors and especially offers good prospects in the case of an uplisting on the NYSE Amex.

I’m bullish on the gold market despite the recent downtrend and volatility surrounding the stock, which will help rally FTCO’s price. The sustained high yield and prospects for strong capital appreciation with an eventual stock market rally make me consider this stock a buy.