Business context and reporting period
This filing is Contango ORE, Inc.’s Form 10-Q for the quarter ended December 31, 2015 (the second quarter of its fiscal year ending June 30, 2016). The supplied company metadata says “Contango Silver & Gold Inc.”; the filing itself identifies the registrant as Contango ORE, Inc. The company is an Alaska mineral exploration-stage business, with its Tetlin properties held through Peak Gold, LLC, a joint venture managed by Royal Gold. Neither the company nor the joint venture had begun commercial mining or generated mineral revenue. The filing reports no proven or probable mineral reserves.
Financial results and position
| Metric | Three months ended Dec. 31, 2015 | Six months ended Dec. 31, 2015 | Comparable 2014 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Total expenses | $318,158 | $768,650 | $661,250 and $1,698,420, respectively |
| Net loss | $318,158 | $768,650 | $661,250 and $1,698,420, respectively |
| Basic and diluted loss per share | $0.08 | $0.20 | $0.17 and $0.45, respectively |
| Operating cash flow | $499,293 used in the six-month period | $1,319,013 used |
There are no meaningful operating margins given the absence of revenue. The company’s reported six-month loss does not include the joint venture’s full exploration loss: equity-method losses reduced the company’s investment carrying value to zero, and approximately $5.4 million of excess losses were suspended for possible recognition against future joint venture earnings.
At December 31, cash was $1.448 million, total current assets were $1.559 million, and working capital was approximately $1.510 million. Current liabilities were $49,069; the balance sheet reports no debt. Total assets were $1.559 million and shareholders’ equity was $1.510 million. Cash decreased $499,293 during the six months, from $1.947 million at June 30, 2015. Stock-based compensation was $367,220 for the six-month period.
Changes versus prior comparable periods
- For the quarter, net loss narrowed to $318,158 from $661,250; for the six months, it narrowed to $768,650 from $1.698 million. Lower general and administrative costs, including fewer transaction-related legal and professional fees, were the principal stated reason.
- Company-recorded exploration expense was zero in both 2015 periods, versus $113,911 for the prior-year quarter and $214,500 for the prior-year six months. Since the January 2015 joint venture closing, Peak Gold incurs exploration costs; the company’s share is reflected through equity-method accounting, subject to its zero investment basis.
- Six-month operating cash use fell to $499,293 from $1.319 million. Cash at period-end was $1.448 million, down from $2.129 million at December 31, 2014.
- Royal Gold contributed $1.4 million to Peak Gold during the quarter and earned a 2.8% economic interest; Contango reported a 97.2% interest at December 31, 2015. Royal Gold’s full earn-in option could reach 40% for cumulative contributions of up to $30 million by October 31, 2018.
Outlook, management commentary, risks and unusual items
- The 2015 exploration program completed 61 holes totaling 14,059 meters, with reported aggregate program costs of approximately $6.8 million. Phase II drilling was completed in October. Results included notable intercepts, such as 68.47 meters at 5.457 g/t gold at Peak West and 23.04 meters at 19.859 g/t gold at North Peak; reported intervals are drill lengths, and true widths are unknown.
- The filing provides no formal production, revenue, earnings, or cash-flow guidance. Management said mineral revenue was not expected in the foreseeable future and that continued viability depends on exploration success and access to funding.
- Royal Gold’s future contributions are optional, not guaranteed. The company warns that if Royal Gold does not continue funding, Contango may have limited resources for exploration; later joint venture funding needs could dilute Contango’s interest if it cannot contribute its share.
- Key risks include exploration failure and lack of reserves, gold-price volatility, remote Alaska access and weather, permitting and environmental requirements, title and tribal-sovereignty issues, dependence on Royal Gold’s technical and managerial capabilities, and potential future financing and dilution. The joint venture also has production royalty obligations and annual claim rentals; the Tetlin work commitment is reported as satisfied through 2018.
- The company stated it had no material legal proceedings and no off-balance-sheet arrangements. Management said disclosure controls were effective and that enhancements remediated a previously reported material weakness concerning accounting for the joint venture’s formation.
Important facts for investors to verify
- Confirm the issuer and period: the filing is for Contango ORE, Inc., quarter ended December 31, 2015, despite the different company name and “2015 Q2” wording in the request metadata.
- Verify the company’s available liquidity and expected cash needs, including whether Royal Gold makes further optional contributions and the consequences if it does not.
- Review the equity-method accounting and suspended joint venture losses: the investment is carried at zero, while approximately $5.4 million of losses are suspended.
- Assess the significance and continuity of reported drill results independently; the filing states there are no proven or probable reserves and true widths of reported intercepts are unknown.
- Reconcile the filing’s share-count figures: the cover reports 3,948,540 shares outstanding at December 31, while a later Part II disclosure states 3,948,950; the cover reports 3,958,540 shares at February 4, 2016.