Business Overview

Contango ORE, Inc. (CTGO) is an Alaska-based exploration and development company focused on gold and associated minerals. The company's primary assets include a 30% interest in the Peak Gold Joint Venture (Peak Gold JV), which is developing the Manh Choh gold project, as well as wholly-owned exploration properties in Alaska.

Contango ORE's business is centered around three key assets:

1. 30% Stake in Peak Gold JV: The company holds a 30% membership interest in the Peak Gold JV, which leases approximately 675,000 acres from the Tetlin Tribal Council and holds an additional 13,000 acres of State of Alaska mining claims. The Peak Gold JV is developing the Manh Choh gold project, which consists of the Main and North Manh Choh deposits. The remaining 70% interest in the Peak Gold JV is owned by KG Mining (Alaska), Inc., a subsidiary of Kinross Gold Corporation.

2. Lucky Shot Property: Contango's wholly-owned subsidiary, Contango Lucky Shot Alaska, LLC, leases the mineral rights to approximately 8,600 acres in the Willow Mining District of Alaska, which contains three former producing gold mines.

3. Minerals Property: Contango's wholly-owned subsidiary, Contango Minerals Alaska, LLC, owns the mineral rights to approximately 145,280 acres of State of Alaska mining claims for exploration, including the Eagle/Hona, Triple Z, Shamrock, and Willow properties.

Manh Choh Project Development

The Manh Choh project is the primary focus for Contango, as it represents the company's path to near-term production. In July 2022, Kinross announced that its board of directors had approved the development of the Manh Choh project. Construction is now well underway, with ore and waste mining commenced and the transportation of ore to the Fort Knox mill facility in Fairbanks, Alaska beginning. The company expects production to start in the second half of 2024.

The use of the existing Fort Knox mill is expected to significantly reduce the upfront capital requirements and timeline for the Manh Choh project, while also reducing the environmental footprint. The Peak Gold JV has entered into agreements with Black Gold Transport and Kiewit Mining Group to handle the ore transportation and on-site mining operations, respectively.

Exploration Activities

While the Manh Choh project is the primary focus, Contango continues to advance exploration on its other Alaskan properties. At the Lucky Shot Property, the company has been conducting underground rehabilitation and exploration drilling since late 2021. On the Shamrock and Eagle/Hona Properties, surface mapping and sampling programs were carried out in 2021.

Financials

Contango has not yet generated any revenue from mineral sales, as the company and the Peak Gold JV are still in the exploration and development stages. For the fiscal year ended December 31, 2023, Contango reported a net loss of $81.5 million and negative operating cash flow of $9.4 million. The company's free cash flow for the year was also negative at $9.4 million.

In the first quarter of 2024, Contango reported a net loss of $20.5 million, compared to a net loss of $7.9 million in the prior year period. The increased loss was primarily due to a $15.6 million unrealized loss on derivative contracts and higher general and administrative expenses. The company's operating cash flow in Q1 2024 was negative $4.4 million, compared to negative $3.0 million in Q1 2023.

Liquidity

As of March 31, 2024, Contango had $7.9 million in cash on hand. The company's primary cash needs going forward will be for capital calls from the Peak Gold JV to fund the Manh Choh project development, exploration of the company's other Alaskan properties, debt repayment, and general corporate expenses.

In May 2023, Contango entered into a $70 million senior secured credit facility, of which $42.5 million has been drawn as of March 31, 2024. The company also has a $20 million unsecured convertible debenture outstanding. While the company believes it has sufficient liquidity to reach production at Manh Choh, its ability to fund future operations and exploration will depend on its ability to secure additional financing.

Risks and Challenges

Contango faces several key risks and challenges, including:

1. Execution risk on the Manh Choh project: Any delays or cost overruns in the development of the Manh Choh project could significantly impact the company's financial position and timeline to production.

2. Reliance on the Peak Gold JV: As a 30% owner, Contango is dependent on the management and operations of the Peak Gold JV, which it does not control.

3. Exploration and development risks: There is no guarantee that Contango's exploration efforts on its other Alaskan properties will result in the discovery of commercially viable mineral deposits.

4. Commodity price volatility: Fluctuations in gold and other mineral prices could affect the economic viability of Contango's projects.

5. Regulatory and permitting risks: Obtaining and maintaining the necessary permits and approvals for mining operations in Alaska can be a complex and time-consuming process.

Outlook

Contango is poised for a transformative year in 2024 as the Manh Choh project moves towards first production. The company's 30% stake in this high-quality gold development project, combined with its portfolio of exploration assets, makes it an intriguing investment opportunity for those willing to take on the risks inherent in the mining industry. However, Contango's success will hinge on its ability to execute on the Manh Choh project and secure the necessary financing to fund its future operations and growth. Investors should closely monitor the company's progress in the coming quarters as it navigates this critical juncture.