Contango ORE, Inc. — Form 10-Q Summary
Filing identity: The supplied filing is for Contango ORE, Inc., an exploration-stage company; it does not identify the registrant as Contango Silver & Gold Inc. The quarter and six-month periods ended December 31, 2012, in the company’s fiscal second quarter. Financial statements are unaudited.
Business context
The company explores in Alaska for gold, associated minerals and rare earth elements. It had no mineral sales or operating revenue and had not established proven or probable reserves. Its properties covered approximately 728,869 acres, including the Tetlin lease and state and federal claims. In December 2012, it abandoned 97,280 acres of state rare-earth claims, while adding gold claims earlier in the year.
Financial performance and position
| Metric | Three months ended Dec. 31, 2012 | Six months ended Dec. 31, 2012 | Comparable 2011 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Net loss | $1.16 million | $5.40 million | $0.49 million quarter; $2.14 million six months |
| Loss per share, basic and diluted | $0.46 | $2.17 | $0.31 quarter; $1.36 six months |
| Operating cash used | $6.03 million for six months | $2.52 million for six months |
Six-month exploration expense was $4.20 million, up from $1.70 million; general and administrative expense was $369,046, up from $145,394. Stock-based compensation totaled $965,848 for the six months, versus $150,258 in 2011. The company reported no revenue, so operating margins are not meaningful.
At December 31, cash was $1.53 million, down from $7.77 million at June 30. Current assets were $1.63 million and current liabilities $155,806. Shareholders’ equity was $2.90 million, compared with $7.34 million at June 30. There was no debt outstanding. The $1.0 million related-party revolving credit line expired December 31, 2012; it carried 10% interest when borrowed.
For the six months, investing activities used $200,000, principally for property acquisitions; financing provided no cash. The company reported total assets of $3.06 million and an accumulated exploration-stage deficit of $13.61 million.
Material changes and exploration update
- The 2012 summer program shifted resources toward the Chief Danny prospect after encouraging initial results. The company drilled 36,004 feet in 50 holes there, versus an original plan of 20,000 feet in 20–40 holes. It reported several high-grade gold and copper intercepts at the newly designated Peak Zone and mineralization extending about 1,700 feet along strike. These are exploration results, not established resources or reserves.
- Triple Z drilling totaled 6,642 feet in six holes; analytical results were pending. Work at several other gold leads was reduced or deferred as funds moved to Chief Danny. No additional rare-earth exploration was conducted in 2012.
- In December, the company paid $200,000 to remove a restriction that previously limited renewal of half the Tetlin lease acreage; it may now renew all 675,000 acres in 2018.
- The company adopted a shareholder rights plan in December, with rights generally triggered by a person or group reaching 15% ownership, subject to stated exceptions. The filing notes potential anti-takeover effects.
Outlook, risks and contingencies
Management planned to raise $12 million–$18 million in the following three months to finance the 2013 exploration program. A roughly $14 million program would include further Peak Zone and Chief Danny drilling, drilling at selected leads, geophysical surveys, reconnaissance work and baseline environmental studies. The program’s scope depended on funding. Management warned that raising less than $12 million would constrain exploration, and that obtaining no additional funding could require a joint venture, asset sale, reorganization or cessation of operations. No assurance was given that financing would be available on acceptable terms.
The company expected no mineral-sale revenue in the foreseeable future and stated that continued operations depended on raising capital. Key risks include exploration failure, lack of reserves, commodity-price volatility, Alaska weather and access constraints, permitting and environmental obligations, title and lease risks, dependence on Avalon and other key service providers, and competition. Tetlin lease and JEX production royalties would be payable if commercial production occurs; annual advance minimum royalties and claim rentals also apply. Management reported no material legal proceedings or known contingencies expected to materially affect financial position or results.
Brad Juneau became President and CEO in December following Kenneth Peak’s medical leave; the filing says Peak did not expect to return to full-time service. Management reported disclosure controls were effective as of December 31, 2012, with no material change in internal control over financial reporting during the period.
Important facts for investors to verify
- Confirm the issuer and filing period: this filing is for Contango ORE, Inc., for the quarter ended December 31, 2012.
- Track whether the company raised the targeted $12 million–$18 million and how much of the proposed exploration program was ultimately funded.
- Review complete assay results and subsequent technical disclosures for Peak Zone, Chief Danny and Triple Z; do not treat reported intercepts as mineral resources or reserves.
- Assess cash burn against available liquidity, given $1.53 million cash, no revenue and the expired credit line.
- Review dilution and governance implications of any capital raise, stock-based awards, related-party arrangements and the rights plan.