Contango ORE, Inc. — Form 10-Q Summary
Issuer and period: The filing is for Contango ORE, Inc., an exploration-stage company, and covers the three and six months ended December 31, 2013. This is fiscal Q2 2014, not 2013 Q2. The requested company name, Contango Silver & Gold Inc., does not match the issuer named in the filing.
Business context
The company explores for gold and associated minerals, principally on its Tetlin Lease in Alaska; it also holds limited rare-earth-element claims. It had no mineral-sales revenue and no proven or probable reserves. Its principal exploration target is the Chief Danny prospect, including the Peak Zone. Management describes exploration as high risk and says commercial viability remains undetermined.
Financial performance and position
| Metric | Three months ended Dec. 31, 2013 | Six months ended Dec. 31, 2013 | Comparable 2012 period |
|---|---|---|---|
| Revenue | None | None | None |
| Total expenses / net loss | $1.61 million | $7.79 million | $1.16 million / $5.40 million |
| Loss per share, basic and diluted | $0.43 | $2.07 | $0.46 / $2.17 |
| Exploration expense | $0.99 million | $6.52 million | $0.46 million / $4.20 million |
- Six-month operating cash use was $8.65 million, compared with $6.03 million a year earlier. Investing cash flow was zero for the period; financing cash flow was also zero.
- Cash fell to $4.38 million at December 31, 2013 from $13.03 million at June 30, 2013. Current assets were $4.53 million and current liabilities were $0.15 million, giving working capital of approximately $4.38 million.
- Total assets were $5.96 million and shareholders’ equity was $5.82 million. Current liabilities consisted primarily of accounts payable; the filing reports no outstanding debt at period-end.
- There were no operating margins to report because the company had no revenue. Stock-based compensation was $0.79 million for the six-month period.
Changes, outlook and risks
- Six-month net loss rose about 44% year over year, primarily as exploration expense increased with the larger 2013 summer work program. For the December quarter, exploration expense more than doubled year over year. General and administrative expense also increased, which management attributed mainly to Tetlin community, road and infrastructure spending.
- The 2013 program included 69 core holes totaling 14,349 meters; the company reported spending approximately $8.9 million on the program. Drilling returned variable gold, silver and copper intercepts, but the filing cautions that reported intervals are drill lengths, true widths are unknown, and no commercial reserves have been established.
- Management said additional funding would be needed to continue exploration beyond 2013. Without financing, the company could cease operations, dissolve, or be forced to sell assets on unfavorable terms. It did not provide a specific exploration budget or financing commitment for the next period.
- On January 23, 2014, after quarter-end, the company retained Petrie Partners to evaluate strategic alternatives, including a possible sale. Fees include a $100,000 retainer and a success fee of 2.5% of transaction consideration, subject to the engagement terms.
- Key risks include exploration failure, declining gold prices, financing availability, Alaska weather and access constraints, permitting and environmental requirements, reliance on Avalon for technical work, and risks associated with the Tetlin tribal lease and unpatented claims. The company disclosed no material legal proceedings and no material off-balance-sheet arrangements.
- The Tetlin Lease work commitment was reported satisfied through 2018 by excess prior exploration spending. Production royalties would apply if commercial production occurs; no production is currently reported.
Most important facts to verify
- Confirm the issuer and reporting period: the filing is for Contango ORE, Inc., for the six months ended December 31, 2013.
- Verify the company’s post-quarter-end cash position, expected exploration spending and ability to fund operations; period-end cash was $4.38 million after $8.65 million of six-month operating cash use.
- Review subsequent disclosures on Petrie’s strategic review and any sale, joint venture, financing or restructuring outcome.
- Assess complete drill data and technical disclosures, including true widths, continuity, metallurgy, permitting and whether any reserve estimate has been established.
- Check outstanding warrants and options, potential dilution, and the rights plan’s effect on a change-of-control transaction.