Business context and reporting period
Contango ORE, Inc. (NYSE American: CTGO) filed this Form 10-K for the fiscal year ended June 30, 2023—not a standalone 2022 fourth quarter. The company explores for gold and associated minerals in Alaska. Its principal asset is a 30% interest in the Peak Gold JV, whose Manh Choh project was under development; its other properties, including Lucky Shot, remained in exploration or development.
Manh Choh began mining activity, primarily waste pre-stripping and ore stockpiling, but had not begun commercial production. Ore is planned to be hauled to Kinross’s Fort Knox mill for processing. The company reported no revenue from mineral sales or operations.
Financial performance and position
| Metric | FY2023 / June 30, 2023 | FY2022 / June 30, 2022 |
|---|---|---|
| Revenue | None | None |
| Net loss | $39.7 million; $5.61 per share | $23.5 million; $3.49 per share |
| Operating expenses | $17.7 million | $19.6 million |
| Cash used in operating activities | $14.7 million | $13.9 million |
| Cash used in investing activities | $21.1 million | $15.4 million |
| Cash provided by financing activities | $24.4 million | $17.4 million |
| Cash and restricted cash | $11.9 million | $23.3 million |
| Total assets | $25.7 million | $37.3 million |
| Total liabilities | $30.4 million | $24.0 million |
| Debt, net of discounts and issuance costs | $25.5 million | $19.2 million |
With no sales, revenue-based margins are not meaningful. Current assets were $12.3 million versus current liabilities of $2.3 million. Stockholders’ equity was a deficit of $4.8 million. The filing does not report operating cash flow as a margin or provide a revenue-based profitability measure.
FY2023 exploration expense was $7.9 million, down from $8.5 million; general and administrative expense was $9.1 million, down from $10.3 million. The reported loss from the equity investment in Peak Gold was $21.1 million, compared with $3.7 million in FY2022. Stock-based compensation fell to $2.9 million from $4.0 million, and interest expense rose to $2.0 million from $0.3 million.
Material changes and project status
- The net loss widened by $16.2 million, principally alongside the larger reported Peak Gold investment loss and higher interest expense.
- Peak Gold’s 2023 budget called for approximately $180 million in cash contributions, of which Contango’s 30% share was about $54 million. The company reported funding $36.5 million by the filing date; failure to fund its share may dilute its JV interest.
- Manh Choh received key state approvals in May 2023, and the filing reported that major federal and state permits were in hand. Kinross expected commercial production in the second half of 2024, with a mine plan of two open pits over approximately 4.5 years.
- Manh Choh’s reported probable reserves were 997,000 ounces of gold and 1.719 million ounces of silver on a 100% JV basis; Contango’s attributable share was 299,000 ounces of gold and 516,000 ounces of silver. No proven reserves were reported. These estimates are not a guarantee of economic recovery.
- Lucky Shot had indicated resources of 105,000 ounces of gold and inferred resources of 25,000 ounces, on a 100% basis; it had no reported mineral reserves. All 29 holes in the 2022 program intersected the vein structure, but the filing does not present those results as reserves.
Funding, outlook, risks, and unusual items
- At June 30, 2023, Contango had $11.6 million in cash and had drawn $10 million under a senior secured facility of up to $70 million. The facility included $65 million committed as term loans and a $5 million uncommitted liquidity facility; $55 million of borrowing commitments remained unused at year-end, subject to conditions. It matures December 31, 2026, with quarterly repayments and interest based on SOFR plus a 6% margin before Manh Choh completion and 5% thereafter. The facility is secured by company and subsidiary assets, including the Peak Gold interest, with stated exclusions.
- The company also had a $20 million unsecured QRC convertible debenture, bearing 9% interest (7% cash and 2% in shares), with a May 2028 maturity and a $30.50 conversion price. Net debt carrying values differ from principal because of unamortized discounts and issuance costs.
- Management said it expected to maintain sufficient liquidity for the 12 months after the report date, relying in part on the credit facility and financing. The company warned that inability to raise funds could limit project spending or dilute its Peak Gold interest. It had an ATM authorization of up to $40 million and had received approximately $4.1 million net from ATM sales through June 30.
- After year-end, a July 2023 public offering of 1.6 million shares generated $28.3 million net. In August 2023, the company entered gold hedges for 124,600 ounces at a weighted average $2,025 per ounce, representing approximately 45% of its projected Manh Choh production interest, with deliveries scheduled from July 2024 through December 2026.
- Key risks include dependence on Kinross, which manages the JV and controls two of three management committee seats; dilution if Contango cannot meet cash calls; uncertain financing availability; gold-price, cost, weather, permitting, environmental, operational, title, and Tribal lease risks. The company had no recurring revenue and stated it may never become profitable. No dividends are anticipated.
- The filing reported no legal proceedings and no off-balance-sheet arrangements. The auditor issued an unmodified opinion on the financial statements and reported no critical audit matters. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal control effectiveness.
Important facts for investors to verify
- Whether the remaining Peak Gold cash calls were funded, whether any additional facility draws were completed, and whether Contango retained its 30% JV interest.
- Actual Manh Choh construction, pre-stripping, haulage, processing, and first-production timing versus the second-half 2024 expectation.
- How project costs, gold prices, and the facility’s covenants and repayment schedule affect liquidity; verify the gold hedge volumes, pricing, and production coverage.
- The basis and presentation of the $21.1 million FY2023 Peak Gold investment loss: the filing also says the company’s share of the JV’s FY2023 operating loss was $2.8 million and that its investment carrying value was zero.
- Whether Lucky Shot resource estimates, future drilling, and any contingent purchase-price milestones lead to economically viable reserves or production.