Filing summary
Entity and period: The supplied filing is Contango ORE, Inc.’s Form 10-Q, not a filing under the name Contango Silver & Gold Inc. It covers the three months ended September 30, 2018, Contango ORE’s fiscal first quarter of fiscal 2019; the comparison is the three months ended September 30, 2017.
Business context and reporting period
Contango ORE is an exploration-stage company focused on Alaska gold and associated minerals through Peak Gold, LLC, its joint venture with Royal Gold. The venture controls approximately 849,800 acres. Neither the company nor the venture had begun commercial mining or generated mineral-sale revenue. The company held a 60% venture interest; Royal Gold held 40% and managed operations.
Financial results and liquidity
| Metric | Three months ended September 30, 2018 | Comparable 2017 period |
|---|---|---|
| Revenue | None | None |
| General and administrative expense | $993,433 | $679,785 |
| Loss from equity investment in Peak Gold | $1,950,000 | None |
| Net loss | $2,885,400 | $668,636 |
| Basic and diluted loss per share | $0.47 | $0.14 |
| Net cash used in operating activities | $185,820 | $246,881 |
- Cash was $11.675 million at September 30, 2018, down $2.136 million from June 30, 2018. Current assets were $11.841 million and current liabilities $271,260; derived working capital was approximately $11.570 million.
- Investing cash use was $1.950 million, representing the company’s contribution to Peak Gold. The filing reports no debt.
- Stock-based compensation was $745,068, versus $417,738 a year earlier. The company reported no operating margins because it had no revenue.
- The company’s investment carrying value in Peak Gold was zero, as its share of accumulated venture losses exceeded its recorded investment. It recognized $1.950 million of equity-method loss in the quarter; additional losses are suspended under its accounting policy.
Material changes versus the prior comparable period
- Net loss increased to $2.885 million from $669,000, principally reflecting the $1.950 million Peak Gold equity-method loss and higher general and administrative expense.
- General and administrative expense rose about 46%, while interest income increased to $58,033 from $11,149.
- Operating cash use fell to $186,000 from $247,000, but total cash declined by $2.136 million after the $1.950 million joint-venture contribution.
- Royal Gold had completed the funding needed to earn its 40% joint-venture interest in April 2018. Thereafter, both parties were to fund approved budgets in proportion to their ownership interests.
Outlook, commentary, risks, and unusual items
- The approved 2018 exploration budget was $10.7 million; the company’s share was approximately $6.1 million. The filing says about $9.2 million had been spent by September 30 and the 2018 program was completed in October. Management intended to fund its full share and believed company cash was sufficient for working capital for the next 12 months.
- Exploration and engineering work supported a Preliminary Economic Assessment completed in September. Metallurgical tests indicated Main Peak material responded to direct cyanidation. These are exploratory-stage developments, not proof of commercial reserves: the filing states there were no known quantifiable mineral reserves.
- The company warned that it may need additional financing to fund exploration and retain its 60% interest. Failure to fund its share of approved programs can dilute its interest; capital costs for a large mine could exceed $1 billion. The company did not expect mineral-sale revenue in the foreseeable future and gave no production or earnings guidance.
- Key risks include exploration and permitting uncertainty, commodity-price volatility, weather and operating delays, future financing availability, dilution, and potential royalty obligations. Production royalties include Tetlin Tribal Council royalties currently ranging from 1.25% to 4.25% and Royal Gold royalties of 2% or 3% on specified properties if commercial production occurs.
- The common stock was thinly traded on OTCQB, with reported average daily volume of 528 shares in fiscal 2018. The Rights Plan was amended to lower the triggering ownership threshold to 15% and extended through December 19, 2019.
- Subsequent event: on November 12, 2018, the company granted 155,000 restricted shares, vesting in January 2021. Management reported effective disclosure controls and no material change in internal control over financial reporting; no material legal proceedings were reported.
Important facts for investors to verify
- Confirm the issuer and period: this is Contango ORE’s Form 10-Q for the quarter ended September 30, 2018, despite the different company name and period in the request metadata.
- Review the September Preliminary Economic Assessment, including its assumptions, estimated economics, and any subsequent technical disclosures; the filing does not establish proven reserves or commercial viability.
- Track actual company contributions to approved joint-venture budgets, remaining cash, future financing needs, and the risk of dilution if the company cannot fund its proportionate share.
- Reconcile the reported $1.950 million equity-method loss and zero investment carrying value with Peak Gold’s financial statements and the company’s disclosed suspended losses.
- Verify the subsequent restricted-stock grant, outstanding share count, Rights Plan terms, and potential royalty and lease obligations.