Business Context and Reporting Period
Company: Contango ORE, Inc. (formerly Contango Silver & Gold Inc. in metadata, but filing identifies as Contango ORE, Inc.)
Reporting Period: Quarterly Report (Form 10-Q) for the three and six months ended December 31, 2010.
Status: Exploration Stage Company.
Overview: The Company is a Houston-based entity formed in September 2010 to explore for gold and rare earth elements in Alaska. On November 29, 2010, it received assets and $3.5 million in cash from Contango Oil & Gas Company in exchange for approximately 1.6 million shares of common stock. The Company holds interests in approximately 759,800 acres in Alaska, including the Tetlin Lease (647,000 acres) and various unpatented mining claims.
Key Financial Metrics
| Metric | Six Months Ended Dec 31, 2010 | Three Months Ended Dec 31, 2010 | Period from Inception to Dec 31, 2010 |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Net Loss | $(1,158,365) | $(296,237) | $(2,261,001) |
| Loss Per Share (Basic & Diluted) | $(0.74) | $(0.19) | $(1.44) |
| Cash and Cash Equivalents (Ending) | $3,500,064 | $3,500,064 | $3,500,064 |
| Total Assets | $4,602,727 | $4,602,727 | $4,602,727 |
| Total Liabilities | $67,326 | $67,326 | $67,326 |
| Shareholders' Equity | $4,535,401 | $4,535,401 | $4,535,401 |
| Net Cash Used in Operating Activities | $(1,450,574) | N/A | $(2,275,322) |
| Net Cash Provided by Financing Activities | $4,950,638 | N/A | $6,784,272 |
Debt and Liquidity: The Company has no long-term debt. Current liabilities consist of accounts payable ($22,609) and accrued liabilities ($44,717). Liquidity is currently supported by the $3.5 million cash contribution received in November 2010.
Material Changes vs. Prior Period
- Revenue: No revenue was generated in the current or prior periods as the Company is in the exploration stage.
- Expenses: Total expenses for the six months ended Dec 31, 2010, were $1,158,365, a significant increase from $267,435 in the same period in 2009. This increase is primarily due to higher exploration expenses ($925,462 vs. $186,444) and general and administrative expenses ($77,886 vs. $1,677), the latter driven by costs associated with the Form 10 registration and stock issuance.
- Cash Position: Cash increased from $0 at June 30, 2010, to $3,500,064 at December 31, 2010, following the capital contribution from Contango Oil & Gas Company.
- Assets: Total assets grew from $1,242,154 to $4,602,727, reflecting the cash infusion and the capitalization of mineral property interests ($1,008,886).
Guidance, Outlook, and Risks
Outlook and Capital Budget: Management plans to invest approximately $2.75 million in the next twelve months for exploratory drilling. The 2011 program is budgeted at $2.25 million for gold exploration (airborne magnetics and drilling) and $0.5 million for rare earth element reconnaissance. The Company expects to incur losses until commercial production is achieved, if ever.
Management Commentary: The Company relies heavily on its consultant, Avalon Development Corporation, for geological services. Exploration is restricted to May through October due to Alaska's climate. No proven or probable reserves have been identified.
Risks and Contingencies:
- Exploration Risk: High probability of failure to find commercially viable deposits; mineral exploration is speculative.
- Liquidity Risk: Future operations depend on raising additional capital; no loan facilities currently exist.
- Operational Risk: Dependence on third-party consultants (Avalon and JEX) and remote location constraints.
- Regulatory Risk: Complex environmental regulations and potential title defects in unpatented mining claims.
- Market Risk: Exposure to volatile gold and rare earth element prices.
Investor Verification Checklist
- Capital Sufficiency: Verify if the $3.5 million cash balance is sufficient to fund the $2.75 million 2011 budget plus ongoing G&A expenses without immediate dilution.
- Exploration Results: Review upcoming 2011 drilling results to assess the viability of the Tetlin Lease and REE properties.
- Consultant Dependency: Confirm the status of the Professional Services Agreement with Avalon Development Corporation and the lack of a written agreement with JEX.
- Property Title: Investigate the status of title examinations for the unpatented mining claims and the Tetlin Lease to ensure no legal impediments to future mining.
- Going Concern: Assess the timeline for potential additional equity offerings given the lack of revenue and high burn rate.