Contango ORE, Inc. — Form 10-K Summary
Period: Fiscal year ended June 30, 2014, filed August 27, 2014. The filing identifies the registrant as Contango ORE, Inc.; it does not match the request’s company name, Contango Silver & Gold Inc. This is an annual report, not a filing specifically for calendar Q4 2013.
Business context
Contango ORE is an Alaska-focused mineral exploration company with no producing mines and no revenue from mineral sales. Its principal asset is the Tetlin Lease, covering approximately 675,000 acres; total property holdings were approximately 768,357 acres at year-end. The company reported no quantifiable mineral reserves. Exploration is concentrated on the Chief Danny prospect, including the Peak Zone.
Financial performance and position
| Metric | FY2014 | FY2013 |
|---|---|---|
| Revenue from mineral sales | None | None |
| Net loss | $9.20 million | $10.03 million |
| Loss per share, basic and diluted | $2.43 | $3.54 |
| Exploration expense | $7.00 million | $8.07 million |
| General and administrative expense | $1.21 million | $0.66 million |
| Cash used in operating activities | $9.58 million | $8.57 million |
| Cash and cash equivalents at year-end | $3.45 million | $13.03 million |
| Total assets | $4.98 million | $14.56 million |
| Current liabilities | $0.19 million | $1.75 million |
The company recorded no income tax benefit or provision. With no revenue, operating margins are not meaningful. Year-end shareholders’ equity was $4.79 million, down from $12.81 million. There was no outstanding debt reported at June 30, 2014; the former $1.0 million revolving credit facility had expired in 2012 after borrowings were repaid.
Changes versus prior year
- Net loss narrowed by about 8%, mainly as exploration expense fell approximately $1.07 million following minimal 2014 summer exploration.
- Operating cash outflow increased by about $1.01 million despite the lower net loss, and cash declined $9.58 million during the year. The company raised no financing in FY2014.
- General and administrative expense increased from $0.66 million to $1.21 million, attributed to community spending, professional fees and office rent.
- Outstanding common shares rose from 3,750,394 to 3,805,539, primarily reflecting vesting of restricted shares.
Outlook, commentary and risks
- Management said further financing is needed for significant exploration and that the company may have to cease operations, dissolve or sell assets if it cannot obtain funding or pursue a strategic alternative. As of August 26, 2014, cash was approximately $3.3 million, which management said was insufficient for significant exploration.
- The company retained Petrie Partners in January 2014 to evaluate strategic alternatives, including a possible sale. The review was ongoing, with no agreement reached. Petrie received a $100,000 retainer and may receive a transaction success fee.
- During the 2014 summer season, exploration was minimal. FY2014 exploration expense was approximately $7.0 million, versus $8.1 million in FY2013. The prior-year program included 69 core holes and 47,079 feet of drilling; management reported selected gold, silver and copper intercepts but cautioned that intercept lengths are not true widths and do not establish economic reserves.
- The company decided to abandon its 3,440 acres of federal rare-earth claims effective September 1, 2014, reducing annual rental commitments by approximately $24,080. It had already abandoned certain Alaska rare-earth claims in 2012.
- Material risks include exploration failure, lack of reserves or revenue, limited liquidity and access to capital, volatile gold prices, remote Alaska conditions, permitting and environmental requirements, title and tribal lease enforcement risks, and dependence on consultant Avalon. The company also disclosed a shareholder rights plan and thinly traded stock.
- The Tetlin Lease carries advance minimum royalties of about $75,000 annually, credited against future production royalties, and production royalties of 1.25% to 4.25% after purchased reductions. JEX is entitled to a 3% royalty on original properties and 2% on qualifying later-acquired properties.
Most important facts to verify
- Whether the strategic review resulted in a sale, joint venture, financing or other transaction after the filing date.
- Current cash, cash burn and funding runway, including financing needs for planned exploration.
- Updated exploration results and whether any independent resource or reserve estimate has been established; none was reported here.
- Status of Tetlin permits, lease renewal rights, exploration-spending credits and tribal/community arrangements.
- Fully diluted share count, including outstanding options and warrants, and the effect of any future financing or transaction.