Filing summary
Period and entity: This is Contango ORE, Inc.’s Form 10-Q for the quarter and nine months ended March 31, 2014, filed May 13, 2014. This differs from the request metadata’s “2013 Q3” and “Contango Silver & Gold Inc.” The company describes itself as an exploration-stage Alaska minerals company.
Business context
The company had no mineral sales or operating revenue. Its primary focus was gold and associated minerals exploration at the Tetlin property in Alaska; it also held limited rare-earth-element claims. It reported approximately 768,357 acres under control at March 31, 2014. The filing states that it had no proven or probable reserves and that exploration does not establish economic viability.
Financial performance and position
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | None | None |
| Net loss, 2014 | $679,524 | $8,471,985 |
| Net loss, 2013 comparable period | $501,033 | $5,899,240 |
| Loss per share, 2014 | $0.18 | $2.24 |
| Exploration expense, 2014 | $214,598 | $6,734,888 |
- Nine-month cash used in operations was $9.09 million, compared with $5.65 million in the prior-year period. Investing cash flow was zero for the period; financing provided no cash.
- Cash fell to $3.94 million at March 31, 2014 from $13.03 million at June 30, 2013. Total assets were $5.47 million and shareholders’ equity was $5.33 million.
- Current liabilities were $142,821, comprising accounts payable and accrued liabilities. The balance sheet reports no debt; the company had no short-term borrowings outstanding.
- Margins are not meaningful because the company had no revenue. Exploration costs are expensed as incurred. Nine-month exploration expense increased from $4.45 million to $6.73 million, principally reflecting the larger 2013 summer program.
Material changes and notable items
- Nine-month net loss increased by approximately $2.57 million year over year. General and administrative expense rose to $907,530 from $464,124, including community and infrastructure spending and a $100,000 retainer for Petrie Partners.
- The company completed a substantial 2013 exploration program, including 14,349 meters of drilling in 69 holes at the Tetlin project, and reported encouraging but variable drill intercepts. These results are exploration data, not a reserve estimate or proof of commercial viability.
- In January 2014, the company retained Petrie Partners to review strategic alternatives, including a sale, merger, joint venture, or other business combination. No specific transaction had been selected and there was no defined timetable. The engagement includes a $100,000 retainer and a success fee of 2.5% of transaction consideration.
- Shares outstanding were 3,805,539 at March 31, 2014, versus 3,750,394 at June 30, 2013. The filing also reports 1,692,666 outstanding options and warrants, excluded from diluted loss per share as anti-dilutive.
Outlook, risks and contingencies
- Management said additional funding would be needed to continue exploration and warned that inability to obtain financing could require the company to cease operations, dissolve, or sell property on unfavorable terms. No formal production or earnings guidance is provided; management does not expect mineral-sales revenue in the foreseeable future.
- Key risks include the speculative nature of exploration, absence of reserves and revenue, declining gold prices, limited cash, Alaska weather and access constraints, permitting and environmental requirements, property-title and tribal lease issues, and dependence on Avalon Development for technical and field services.
- The Tetlin lease carries annual advance minimum royalties of approximately $75,000, adjusted for inflation, and production royalties if commercial production begins. The company reported that exploration spending had already satisfied the lease’s work commitments through July 2018. Additional production royalties are payable to JEX if covered properties enter production.
- Management reported no material legal proceedings or known contingencies expected to materially affect financial position or operations. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Available cash and expected exploration spending, including whether the strategic review produces financing or a transaction before cash is depleted.
- Whether ongoing technical work converts drill results into a credible resource or reserve estimate, and the assumptions behind any economic assessment.
- Terms, status, and potential fees or conflicts associated with a strategic transaction and the Petrie engagement.
- Current property acreage, lease and claim standing, royalty obligations, permitting requirements, and reliance on Avalon and related parties.
- Potential dilution from outstanding warrants, options, and restricted shares, and the effect of the shareholder rights plan on potential transactions.