Business context and reporting period
The filing is Contango ORE, Inc.’s Form 10-Q for the quarter ended September 30, 2017—the first quarter of its fiscal year ending June 30, 2018. This differs from the request metadata naming Contango Silver & Gold Inc. The company is an Alaska-focused mineral exploration company; it has no commercial mining or mineral sales and conducts its exploration principally through Peak Gold, LLC, a joint venture managed by Royal Gold.
Financial performance and position
| Metric | Quarter ended September 30, 2017 | Comparable 2016 quarter / prior date |
|---|---|---|
| Revenue | None from mineral sales or operations | None |
| General and administrative expense | $668,636 | $955,650 |
| Net loss | $668,636 | $955,650 |
| Loss per share, basic and diluted | $0.14 | $0.24 |
| Operating cash used | $246,881 | $113,923 |
| Cash at quarter-end | $4,944,868 | $5,191,749 at June 30, 2017 |
| Current liabilities | $135,683 | $137,419 at June 30, 2017 |
| Total assets / shareholders’ equity | $5,114,906 / $4,979,223 | $5,367,540 / $5,230,121 at June 30, 2017 |
The company reported no debt on its balance sheet; liabilities consisted of accounts payable and accrued liabilities. Margins are not meaningful because there was no revenue. Stock-based compensation of $417,738 was a significant noncash expense. The company’s $668,636 reported loss excludes Peak Gold losses beyond the carrying value of its equity-method investment, which was zero; approximately $21.9 million of cumulative excess losses were suspended. Peak Gold’s reported loss for the quarter was approximately $3.36 million, of which the company’s share was approximately $2.2 million.
Material changes and exploration
- Compared with the 2016 quarter, company net loss fell about 30%, while operating cash use increased. G&A expense fell from $955,650 to $668,636, in part as stock-based compensation decreased from $628,344 to $417,738.
- Royal Gold had contributed approximately $27.2 million to Peak Gold by September 30, 2017, earning a 35.8% interest; Contango held 64.2%. Royal Gold’s contributions included $4.2 million during the quarter. The joint venture’s exploration spending is not recorded as the company’s direct operating expense.
- Peak Gold completed its 2017 Phase III drilling program in October. The program covered 16 holes totaling 2,966 meters; assays were pending for 10 holes as of the filing. The filing also reports promising exploration intercepts, but drill lengths are not true widths and no quantifiable mineral reserves have been established.
Outlook, risks and unusual items
Management said it did not expect mineral-sales revenue in the foreseeable future and believed available cash would cover working capital needs for the next 12 months. Subsequent to quarter-end, the company raised approximately $10.0 million net in an October 23 private placement of 553,672 shares at $19 per share. It also disclosed that 83,333 warrants had been exercised by the filing date for approximately $0.8 million. Proceeds were intended for working capital and future joint-venture funding.
Royal Gold’s earn-in option permits contributions up to $30 million through October 31, 2018; it had funded $27.2 million. Thereafter, joint-venture costs are generally funded in proportion to ownership. If Contango cannot fund its share of approved programs, its interest may be diluted. The company cautioned that exploration may not establish economically viable deposits, future financing may be unavailable or dilutive, and development could require capital exceeding $1 billion. Other material risks include commodity-price volatility, Alaska weather and operating conditions, permitting and regulatory requirements, title uncertainty, and the possibility Royal Gold does not make further contributions.
The Tetlin Lease carries advance minimum royalties and potential production royalties; state claim rentals for the 2017–2018 assessment year were $155,505. The filing reports no material legal proceedings or off-balance-sheet arrangements. Management concluded disclosure controls were effective as of September 30, 2017.
Important facts for investors to verify
- Confirm the issuer and period: the filing is for Contango ORE, Inc. and the quarter ended September 30, 2017, not a filing labeled Contango Silver & Gold or calendar Q1.
- Track cash burn against management’s 12-month liquidity assessment, including the timing and use of post-quarter financing proceeds.
- Verify outstanding shares and potential dilution after the October private placement and warrant exercises; the filing gives 5,602,023 shares outstanding as of November 8, 2017.
- Monitor Royal Gold’s remaining earn-in contributions, the transition to pro-rata funding, and the risk of Contango’s joint-venture interest being diluted.
- Review outstanding assays and subsequent exploration disclosures; intercepts are not reserve estimates, and the filing establishes no quantifiable commercial reserves.