Filing summary
Period and entity: The supplied filing is Contango ORE, Inc.’s Form 10-Q for the quarter ended March 31, 2020, not a 2019 Q3 filing. The company name in the request, Contango Silver & Gold Inc., also differs from the registrant named in the filing. The filing presents three- and nine-month comparisons with the periods ended March 31, 2019.
Business context
Contango ORE is an exploration-stage company whose principal asset is a 60% interest in Peak Gold, LLC, a joint venture with Royal Gold, which owns the other 40% and manages the venture. The venture explores for gold and associated minerals in Alaska across approximately 858,400 acres. Neither the company nor the joint venture had begun commercial production or generated mineral-sales revenue. The filing says there are no known quantifiable mineral reserves.
Financial performance and position
| Metric | Three months ended March 31, 2020 | Three months ended March 31, 2019 | Nine months ended March 31, 2020 | Nine months ended March 31, 2019 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| General and administrative expense | $1.32 million | $1.07 million | $3.46 million | $3.17 million |
| Loss from equity investment in Peak Gold | $0.60 million | $0.42 million | $3.30 million | $3.21 million |
| Net loss | $1.91 million | $1.44 million | $6.69 million | $6.21 million |
| Basic and diluted loss per share | $0.29 | $0.23 | $1.04 | $0.99 |
Cash flow: For the nine months ended March 31, 2020, operating cash use was $1.23 million, investing cash use was $3.30 million (capital contributions to Peak Gold), and financing cash use was $0.48 million for shares withheld for employee tax obligations. Cash decreased by $5.01 million, from $8.60 million at June 30, 2019 to $3.59 million.
Liquidity and debt: At March 31, 2020, current assets were $3.85 million, including $3.59 million of cash; current liabilities were $0.18 million. Total assets were $3.85 million and shareholders’ equity was $3.66 million. The company reported no borrowings. No operating margins are meaningful because the company had no revenue.
Material changes versus the comparable period
- Quarterly net loss increased to $1.91 million from $1.44 million; nine-month net loss increased to $6.69 million from $6.21 million.
- Quarterly G&A expense increased to $1.32 million from $1.07 million; nine-month G&A increased to $3.46 million from $3.17 million. Stock-based compensation accounted for $0.86 million of quarterly and $2.49 million of nine-month 2020 expense.
- Cash at March 31, 2020 was $3.59 million, down from $8.60 million at June 30, 2019. The comparative cash-flow statement reports $9.78 million at March 31, 2019.
- The company granted its new CEO 75,000 restricted shares and options for 100,000 shares, exercisable at $14.50, with vesting over two years. Shares withheld for employee taxes resulted in $0.48 million of treasury stock and financing cash outflow.
Outlook, commentary and risks
- COVID-19 led the joint venture to approve a $1.8 million 2020 care-and-maintenance budget and postpone new exploration until conditions permit. Contango’s stated share is approximately $1.1 million. Management said liquidity was sufficient for working capital needs over the next 12 months under that budget.
- Management said a larger exploration budget, absent a strategic transaction, would likely require additional capital. The company indicated it may raise equity within six months; financing is not assured and could dilute shareholders. Failure to fund its pro rata share of joint-venture budgets could dilute its 60% interest.
- The company continued evaluating strategic options with advisers. A joint sale process with Royal Gold ended without a definitive change-of-control transaction.
- Exploration results are uncertain, there are no established commercial reserves, and management does not expect mineral-sales revenue in the foreseeable future. Other cited risks include COVID-19 disruption, permitting and regulatory requirements, weather, metal-price volatility, financing availability, and thin trading in the company’s OTCQB-listed shares.
- Contingencies include potential change-of-control retention payments totaling $1.5 million, subject to specified conditions, and lease and royalty obligations. No material legal proceedings were reported. Disclosure controls were assessed as effective at March 31, 2020.
Important facts to verify
- Confirm the intended issuer and reporting period: the filing is for Contango ORE, Inc. and the quarter ended March 31, 2020, despite the request metadata.
- Reconcile the filing’s descriptions of Contango’s cumulative cash contributions to Peak Gold: one note reports approximately $11.4 million contributed, while other sections describe approximately $10.0 million in cash plus $1.4 million in contributed property.
- Confirm the scope and status of the $1.8 million 2020 joint-venture budget: the filing describes an approved care-and-maintenance budget but elsewhere says a final 2020 exploration budget had not been approved.
- Assess whether cash and any new financing will support future joint-venture calls without dilution, and monitor the timing and impact of restarting exploration.
- Review the company’s mineral-resource and permitting disclosures; the filing states that no quantifiable mineral reserves are known and that the reported drill intercept lengths are not true widths.