Contango ORE, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2011 (fiscal 2012 first quarter). The filing identifies the registrant as Contango ORE, Inc.; the request metadata names Contango Silver & Gold Inc., so the entity should be verified.
Business context
Contango ORE was an exploration-stage company exploring Alaska properties for gold and associated minerals and rare earth elements (REEs). It held interests covering approximately 766,280 acres. It had no mineral production or revenue and reported no proven or probable reserves.
Financial performance and position
| Metric | Quarter ended September 30, 2011 | Prior-year quarter / comparison |
|---|---|---|
| Revenue | None | None; the company had not generated revenue |
| Net loss | $1.650 million | $862,128; loss increased about 91% |
| Loss per share | $1.05 | $0.55 |
| Exploration expense | $1.415 million | $729,904 |
| Operating cash used | $1.143 million | $1.147 million |
| Cash and cash equivalents | $1.102 million at September 30 | $2.395 million at June 30, 2011 |
| Total assets | $2.485 million | $3.557 million at June 30, 2011 |
| Current liabilities | $1.123 million | $644,764 at June 30, 2011 |
There were no revenues or gross profit, so revenue margins are not applicable. The company reported no debt at September 30. Cash declined by $1.293 million during the quarter; investing cash use was $150,000. Accounts payable rose to $1.081 million, while shareholders’ equity fell to $1.362 million. No income tax provision or benefit was recorded.
Material changes and exploration
- Quarterly net loss increased from the year-ago period, principally as exploration spending rose with the 2011 summer field program. Delay rentals and minimum royalties were $84,138 versus $38,524; stock-based compensation was $77,522 versus none; general and administrative expense was $73,450 versus $40,250.
- Gold exploration included airborne geophysical work, 1,218 soil samples, and 8,057 feet drilled in 11 core holes at Chief Danny. Assay results for three holes remained pending as of November 11, 2011.
- REE exploration on federal claims produced preliminary indications of concentrations above 1,000 ppm at Salmon Bay and Stone Rock; final results were pending. Further work on state REE acreage was subject to funding.
- The company paid $150,000 in July 2011 to reduce the Tetlin royalty by 0.50%; together with the June payment, $225,000 had been paid to reduce it by 0.75%. The resulting royalty range was 1.25%–4.25%.
Outlook, liquidity, and risks
Management expected to spend approximately $0.8 million through the remainder of calendar 2011 on the summer exploration program. The 2012 program depended on the 2011 results, expected by year-end, and on securing additional capital. Management said additional funding would be required within 12 months to continue exploration and that financing availability and terms were uncertain.
As a subsequent event, on November 10, 2011 the company entered into a $1.0 million revolving credit line with Contango Oil & Gas Company, a related party sharing executive officers. It bears 10% interest, matures December 31, 2012, and had no borrowings as of November 11. Covenants limit additional indebtedness and liens. The company also prepaid a $75,000 minimum royalty due in July 2012.
Key risks include exploration failure, the absence of reserves and revenue, possible inability to obtain funding or continue operations, Alaska’s seasonal and remote operating conditions, reliance on Avalon and other outside expertise, permitting and environmental obligations, mineral-price volatility, title uncertainty on unpatented claims, and risks in enforcing contractual rights with a sovereign Native American tribe. Management stated disclosure controls were effective as of September 30, 2011.
Important facts for investors to verify
- Confirm the registrant’s identity: the filing is for Contango ORE, Inc., not the company name in the request metadata.
- Review final assay results from the 2011 drilling and REE work, and whether they support further exploration.
- Assess the company’s near-term cash needs, outstanding payables, and availability and terms of additional financing, including use of the related-party credit line.
- Verify property rights, lease and claim obligations, royalty terms, permits, and the potential costs of future exploration.
- Note that the filing cautions that quarterly results are not necessarily indicative of full-year results.