Business Context and Reporting Period
Company: Contango ORE, Inc. (formerly Contango Mining Company)
Reporting Period: Fiscal year ended June 30, 2011
Business Overview: The Company is an exploration-stage entity based in Houston, Texas, focused on exploring for gold and rare earth elements (REE) in Alaska. It holds leasehold interests and unpatented mining claims totaling approximately 766,280 acres. The Company has no operating history prior to the contribution of assets from Contango Oil & Gas Company in November 2010 and has not yet generated any revenue from mineral sales.
Key Financial Metrics
| Metric | Fiscal Year 2011 | Fiscal Year 2010 |
|---|---|---|
| Revenue | $0 | $0 |
| Net Loss | $(2,854,164) | $(1,102,636) |
| Loss Per Share (Basic & Diluted) | $(1.82) | $(0.70) |
| Cash and Cash Equivalents (End of Period) | $2,395,100 | $0 |
| Total Assets | $3,557,144 | $1,242,154 |
| Total Liabilities | $644,764 | $511,156 |
| Shareholders' Equity | $2,912,380 | $730,998 |
| Exploration Expenses | $2,271,088 | $877,762 |
Liquidity: As of September 16, 2011, the Company held approximately $1.1 million in cash. The Company has no debt obligations but faces significant future capital requirements to sustain exploration.
Material Changes vs. Prior Period
- Increased Exploration Activity: Exploration expenses more than doubled from $0.9 million in 2010 to $2.3 million in 2011. This increase was driven by a comprehensive 2011 program including airborne magnetics/resistivity surveys ($550,000), soil sampling ($350,000), and core drilling ($275,000).
- Higher General & Administrative Costs: G&A expenses rose from $1,677 in 2010 to $150,810 in 2011, primarily due to costs associated with becoming a public entity (SEC filings, legal, and accounting fees).
- Stock-Based Compensation: The Company recognized $63,681 in stock-based compensation expense in 2011 related to restricted stock grants to officers, directors, and consultants, compared to none in 2010.
- Capital Injection: The Company received a significant cash contribution of $3.5 million from Contango Oil & Gas Company in late 2010, resulting in a cash balance of $2.4 million at year-end 2011, compared to zero in 2010.
Outlook, Risks, and Management Commentary
Outlook and Guidance: Management expects to invest approximately $800,000 in exploration costs for the remainder of 2011 to complete the current program and assay analysis. Future capital expenditures are contingent on the results of the 2011 exploration program, with results expected by December 2011. The Company anticipates needing additional funding for 2012 operations; without it, the Company may be required to cease operations.
Key Risks:
- Exploration Risk: The Company is in the early exploration stage with no proven or probable reserves. There is a high probability that exploration will not yield commercially viable deposits.
- Liquidity Risk: The Company has limited cash reserves and no revenue. Continued operations depend entirely on raising additional capital, which may not be available on acceptable terms.
- Operational Constraints: Exploration in Alaska is limited to May through October due to climate. The Company relies heavily on third-party consultants (Avalon Development Corporation) for technical expertise.
- Regulatory and Title Risk: Properties include unpatented mining claims subject to title challenges and complex federal/state regulations. The Tetlin Lease involves sovereign Native American tribal rights.
Unusual Items: The Company paid $225,000 to the Tetlin Village Council in 2011 to reduce future production royalties from a range of 2.0%-5.0% to 1.25%-4.25%.
Investor Verification Checklist
- Cash Runway: Verify if the remaining cash balance (approx. $1.1M as of Sept 2011) is sufficient to fund the projected $800,000 remainder of the 2011 program and G&A costs through 2012.
- Exploration Results: Monitor the release of assay results from the 2011 drilling program (expected by December 2011) to determine if further investment is warranted.
- Capital Raising Plans: Assess the Company's strategy for raising additional capital, as failure to do so could lead to dissolution.
- Property Title: Review the status of unpatented mining claims and the validity of the Tetlin Lease, given the risks associated with sovereign tribal lands and federal claims.
- Related Party Transactions: Note the significant reliance on Contango Oil & Gas Company for initial funding and shared management, as well as the royalty agreements with JEX and the Tetlin Village Council.