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Fortitude Gold: An OTC Stock With Uplisting Potential

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Investment Thesis

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

Data by YCharts

The company’s balance sheet holds no long-term debt, profit margins and resource utilization metrics are higher than the industry medians, and the monthly dividend is a cherry on top.

Data by YCharts

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

With a market cap of $158 million, a successful mining operation in progress, multiple projects underway, a pristine balance sheet, and a positive outlook for the company’s primary commodity, I suspect the management will be taking the same route and aiming toward a subsequent listing at the NYSE Amex, creating a buying opportunity, likely resulting in solid capital appreciation.

Company Overview

Fortitude Gold is a junior gold producer operating in Nevada. The company is a spin-off from Gold Resource Corp., spiraling in late 2020 and trading OTC since March 2021. Its management team has spent a decade managing GORO, garnering 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.

Fortitude Gold

Its Isabella Pearl Mine started 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 an open-pit high-grade reserve with 3.75 grams per ton of gold production at an average All-In Sustaining Cost (AISC) of $705 per ounce, compared to the $1,067 AISC global average.

Its Golden Mile and Mina Gold sites are currently in the delineation 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-party.

The proximity of the other mines is expected to let the company leverage the developed processing facilities functioning at the Isabella Pearl Mine property, reducing the manpower and capital requirements and creating other synergies.

In the Q1 earnings report, the company’s CEO Jason Reid iterated a positive outlook for its subsequent years based on its successful recent transition from open-pit phase one waste rock removal to open-pit phase two mining.

Operations now have access to high-grade pearl zone ore for the next three years with a mine plan that is scheduled to move substantially less waste rock each subsequent year, resulting in lower expected mining costs and greater free cash flow. This strong future cash flow is expected to replenish our already strong cash treasury as we allocated cash to fund our second mine build located on the Golden Mile property. This approach should enable us to build our second mine without shareholder dilution, add to mine life longevity, continue to explore our portfolio of properties, pay taxes as a profitable company, and distribute substantial dividends to shareholders with an attractive industry-leading yield.

The Golden Mile project is especially important for the company as the Isabella Pearl Mine deposit was estimated at 4 ½ years at an average gold production run rate of 40,000 ounces a year, after the initial twelve-month production ramp-up, and in case of deposit depletion, the Golden Mile will act as a subsequent successor.

FTCO Investor Presentation

Gold Market

Gold prices are up about 1.5% in the past 1 year and a little under 3% YTD to around $1,850 per ounce, outperforming the market and enduring high volatility throughout the year in the backdrop of the Russia-Ukraine conflict. The commodity prices have been under pressure since they hit an all-time high price of over $2,050 in March and subsequently started slipping down in mid-April from about $1,980 an ounce.

Trading Economics

Global gold consumption is primarily divided into 3 classes; 50% in jewelry, 40% in investments, and 10% in industry. With high inflationary pressures and looming threats of a recession, gold offers an attractive investment opportunity, especially with Goldman Sachs (GS) forecasting a year-end price tag of at least over $2,300. GS predicts that gold demand by central banks will reach high levels as they shift reserves into gold because of strong diversification and geopolitical reasons.


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


Pristine Balance Sheet & Profitability

FTCO sports a debt-free balance sheet with almost a quarter of its market cap (~$160 million) held in cash and cash equivalents (~$36.3 million) and half of its market cap in current assets (~$80 million). With a current ratio of over 18 and a quick ratio of over 8, the company’s liquidity is well in check with no material cash burn rate. The strong balance sheet has earned the company an Altman Z score of over 12.5, testifying to the company’s strong financial stability.


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

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Similarly, its ROE, ROTC, and ROTA also materially exceed the industry medians, speaking to the management’s ability of optimal resource utilization, generating higher revenue per dollar of investment.

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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. Comparatively, the industry medians are 13.32, 0.12, 1.26, 1.85, and 8.75, respectively. If FTCO’s metrics recalibrate to industry medians, the price tag shows an average of $6.93 and a median of $7.8, indicating an upside potential.

However, given that the company’s share price is highly dependent on the gold demand and prices, this should not be taken at face value for setting a price target but rather as a fair value or an entry point. Given that the company is performing exceptionally well and boasts an upside in case of an uplisting, the price tag appears justified.

Moreover, the company prides itself on its high-yielding monthly dividend distributions of around 7%, in line with its cash flow yield of 7.5%. Even though the company’s free cash flow yield to dividend yield ratio of 1.13% appears to be lower than its peers, its liquid assets are more than enough to cover the dividends, especially as dividend distributions are one of its core strategic functions.


One of the risks I see in my thesis is that a major upside factor in the stock is predicated on the company’s potential uplisting. Still, if the company is not uplisted for any reason whatsoever, a major upside will be lost.

The second, and a more significant, risk that the company faces is if there’s a production lag between the depletion of the Isabella Pearl Mine and the initiation of the Green Mile project. If the Isabella Pearl mine turned out to have lower than expected levels of resources or the Green Mile project got delayed due to any reason, the resulting loss of revenue is likely to be pervasive.

Additionally, in the case of a bear market for its prime commodity, gold, the topline growth will be severely hindered because of a lack of diversity in its revenue-generating portfolio. It may even result in a net loss. This may also significantly affect its cash-generating ability, weighing down the dividend distributions and leading to a possible dividend cut.

Being a micro-cap company with limited resources, the above risks will be highly detrimental to the company’s stock price. Despite the strong upside potential in the shares, investors must accustom themselves to all the adverse possibilities to protect their investments. Microcap companies are inherently risky and are usually avoided by risk-averse investors.


Fortitude Gold Corp’s story appears to be a familiar one because of its management’s prior experience with GORO. The company has had a strong start with its 100% owned properties that have led to solid margins due to a lower than industry AISC. The management’s experience in producing good returns against shareholder investments is a good sign for potential investors and especially holds good prospects in the case of an uplisting to the NYSE Amex.

I am bullish on the gold market despite the recent downtrend and the volatility surrounding the stock, which will aid in rallying FTCO’s price. The sustainable high yield and prospects of solid capital appreciation with a possible uplisting make me rate this stock as a buy.

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