Business Overview and History Contango ORE, Inc. (CTGO) is a NYSE American-listed company that engages in the exploration and development of gold and associated minerals in Alaska. The company has built a diversified portfolio of projects, including its flagship Manh Choh project, the Johnson Tract deposit, and the Lucky Shot property, all strategically located in the mineral-rich state of Alaska.

Contango ORE was formed on September 1, 2010, as a Delaware corporation with the purpose of exploring and developing gold and associated minerals in Alaska. The company's journey began with the acquisition of the Tetlin Lease, which covers approximately 675,000 acres of land for exploration and development. In January 2015, Contango's wholly-owned subsidiary CORE Alaska, LLC and a subsidiary of Royal Gold, Inc. formed Peak Gold, LLC, a joint venture to explore and develop the Manh Choh project.

A significant milestone occurred in September 2020 when CORE Alaska sold a 30% membership interest in the Peak Gold JV to KG Mining Alaska, Inc., an indirect wholly-owned subsidiary of Kinross Gold Corporation. This transaction, along with Kinross's concurrent acquisition of Royal Gold's 40% interest, was referred to as the "Kinross Transactions." Following these transactions, CORE Alaska retained a 30% membership interest in the Peak Gold JV, with Kinross owning the remaining 70% and serving as the manager and operator.

The company faced financial challenges in its early years, reporting net losses from 2020 through 2023 as it focused on exploration and development activities. However, 2021 marked a turning point when Contango reported its first profitable year, earning $23.9 million in net income, primarily from the gain on the sale of its business. Despite this success, the company returned to net losses in 2022 and 2023 as it continued to invest in the Peak Gold JV and its other exploration properties in Alaska.

Contango has continued to expand its portfolio through strategic acquisitions. The company acquired the Johnson Tract project from CIRI Native Corporation and the Lucky Shot project from Alaska Hardrock Inc. More recently, Contango completed the acquisitions of HighGold Mining Inc. and Avidian Gold Alaska Inc. in 2024, further solidifying its position in the Alaskan mining sector.

Financial Performance Contango ORE's financial performance has been marked by significant investments in its project development activities. As the company transitions from an exploration-focused entity to a producer, its financial statements reflect the capital-intensive nature of its operations.

For the nine months ended September 30, 2024, Contango reported a net loss of $48.76 million, or $4.67 per basic and diluted share. This loss was primarily driven by non-cash expenses related to derivative contracts and increased interest costs associated with the company's secured credit facility. However, the commencement of gold production at the Manh Choh project in 2024 has begun to generate cash inflows, with Contango receiving $31.5 million in distributions from the Peak Gold JV as of the third quarter of 2024.

Financials Contango's balance sheet as of September 30, 2024, shows total assets of $158.33 million, including $36.17 million in cash and $67.54 million in its investment in the Peak Gold JV. The company's total debt stood at $73.86 million, with a current portion of $34.90 million. Contango's working capital position was $37.48 million, providing the company with the financial flexibility to continue advancing its development projects.

For the fiscal year ended June 30, 2023, Contango reported no revenue and a net loss of $39,741,300. The company's operating cash flow (OCF) and free cash flow (FCF) for the same period were both negative $14,678,571.

In the most recent quarter ended September 30, 2024, Contango reported: - Revenue: $0 - Net loss: $9,712,416,000 - Operating Cash Flow (OCF): $10,645,937,143 - Free Cash Flow (FCF): $10,645,944,310

The significant net loss in Q3 2024 was primarily attributed to a non-cash unrealized loss of $22.94 million on Contango's derivative contracts, as gold prices increased compared to the contracted hedge prices. However, the company received a $19.5 million cash distribution from the Peak Gold JV related to gold production, which led to strong operating and free cash flow in the quarter.

Year-over-year growth comparisons are not applicable as Contango did not report revenue in the prior year quarter. The company operates exclusively in the United States, so there is no breakdown of performance by geographic markets.

Liquidity The company's liquidity position has improved with the commencement of gold production at the Manh Choh project. The distributions received from the Peak Gold JV, along with the working capital position, provide Contango with the necessary funds to support its ongoing operations and development activities. However, the company may need to seek additional financing or rely on future cash flows from operations to fund its long-term growth plans and debt obligations.

As of September 30, 2024, Contango's liquidity metrics were as follows: - Debt/Equity ratio: -7.228690158087591 - Cash: $36.17 million - Available credit line: Contango has a $70 million secured credit facility, of which $65 million is committed. As of September 30, 2024, the company had drawn $60 million on the facility. - Current ratio: 0.4657652955791823 - Quick ratio: 0.4657652955791823

Operational Highlights The cornerstone of Contango's portfolio is the Manh Choh project, which commenced gold production in July 2024. The company's 30% share of gold production from the first two campaigns totaled approximately 30,000 ounces, with an additional 8,500 ounces expected from the third campaign, bringing the total 2024 production to around 38,500 ounces. Contango has hedged approximately 42% of its share of Manh Choh's projected gold production over the first 2.5 years of operations, locking in a realized price of $2,025 per ounce.

In addition to the Manh Choh project, Contango's recent acquisition of HighGold Mining has added the high-grade Johnson Tract project to its development pipeline. The Johnson Tract deposit contains an Indicated Resource of 3.49 million tonnes grading 9.39 grams per tonne gold equivalent, with significant exploration upside. Contango has commenced a surface drilling program at Johnson Tract to upgrade resources and gather data to support a future production decision.

The company's third key asset, the Lucky Shot property, remains in the exploration and development stage, with Contango planning a surface and underground drilling program for 2025 to advance the project.

Contango's wholly-owned subsidiary, JT Mining Inc., leases the mineral rights to approximately 21,000 acres for the Johnson Tract Project, located near tidewater southwest of Anchorage, Alaska. In the third quarter of 2024, the company commenced a 3,000-meter surface drilling campaign at the Johnson Tract Project.

The Lucky Shot Property, leased by Contango's wholly-owned subsidiary, Contango Lucky Shot Alaska, LLC, covers approximately 8,600 acres in the Willow Mining District north of Anchorage, Alaska. The Lucky Shot project remains in care and maintenance as the company plans a surface and underground drilling program for 2025.

Through its wholly-owned subsidiaries, Contango separately owns the mineral rights to approximately 145,280 acres of State of Alaska mining claims for exploration, including the EagleHona, Triple Z, Shamrock, and Willow properties.

Risks and Challenges As Contango navigates its transition to a gold producer, the company faces several risks and challenges:

1. Execution risk: Contango's ability to successfully ramp up production at the Manh Choh project and advance its development-stage assets, such as Johnson Tract and Lucky Shot, is crucial to its long-term success.

2. Commodity price volatility: As a gold-focused company, Contango's financial performance is susceptible to fluctuations in gold prices, which can impact revenue and profitability.

3. Permitting and regulatory hurdles: Obtaining the necessary permits and approvals for its exploration and development activities in Alaska is an ongoing challenge that could delay or impact Contango's project timelines.

4. Acquisition integration: The successful integration of HighGold Mining and the Johnson Tract project into Contango's portfolio will be important to realize the anticipated benefits of the acquisition.

5. Financing and capital requirements: Contango's capital-intensive projects require ongoing access to financing, which could be impacted by market conditions or the company's ability to generate sufficient cash flow from operations.

Outlook and Conclusion Contango ORE is positioning itself as a diversified Alaskan gold exploration and development company. The commencement of gold production at the Manh Choh project, the addition of the high-grade Johnson Tract deposit, and the company's strategic focus on low-impact, direct-shipping ore (DSO) developments provide a solid foundation for Contango's future growth.

As Contango navigates the challenges of project execution, commodity price volatility, and regulatory hurdles, the company's management team is focused on maximizing the value of its asset portfolio and delivering long-term shareholder value. With a strengthened balance sheet and a diversified project pipeline, Contango ORE is poised to capitalize on the favorable gold market environment and emerge as a significant player in the Alaskan mining industry.

The company's strategy revolves around advancing high-quality, high-grade projects using a "direct ship ore" model, which aims to reduce environmental footprint and permitting timelines by transporting ore to existing, permitted processing facilities. This approach, combined with its portfolio of promising assets, positions Contango well for future growth in the competitive mining sector.

As of the most recent reporting period, there have been no reported scandals, short seller reports, or CEO departures that could significantly impact the company's operations or market perception. Contango continues to focus on executing its business plan and advancing its project portfolio in Alaska.