Contango ORE, Inc. — Form 10-Q Summary
Reporting period: The filing covers the three and nine months ended March 31, 2012 (fiscal 2012 third quarter), not 2011 Q3 as stated in the request metadata. The registrant named in the filing is Contango ORE, Inc. It is an exploration-stage company focused on gold and associated minerals and rare earth elements in Alaska.
Business context and financial condition
The company held approximately 794,280 acres of Alaska leases and claims. It had no mineral sales or other operating revenue and had not established proven or probable reserves. Exploration costs are expensed as incurred; acquired mineral interests of $1.01 million are capitalized.
| Metric | Three months ended March 31, 2012 | Nine months ended March 31, 2012 | Comparable 2011 period |
|---|---|---|---|
| Revenue | None | None | None |
| Net loss | $243,079 | $2,385,729 | $140,394; $1,298,759 |
| Basic and diluted loss per share | $0.15 | $1.49 | $0.09; $0.83 |
| Exploration expense | $37,558 | $1,736,695 | $24,236; $952,731 |
There are no revenue or profit margins to report. For the nine-month period, operating cash use was $2.35 million, versus $1.72 million in 2011; investing cash use was $150,000, versus none. Financing provided $8.43 million, mainly from the equity placement. Cash at March 31 was $8.33 million, up from $2.40 million at June 30, 2011. Total assets were $9.64 million and current liabilities were $478,000. The company had no outstanding borrowings at quarter-end after repaying $500,000 under its related-party credit line.
Changes and financing
- Nine-month net loss increased by approximately $1.09 million year over year, principally alongside higher exploration spending, delay rentals and minimum royalties, and stock-based compensation.
- On March 26, 2012, the company sold 882,500 shares at $10 per share in a private placement, raising approximately $8.8 million gross. Placement fees and expenses were approximately $0.4 million. The company repaid the $500,000 credit-line borrowing and accrued interest, and planned to use the remaining approximately $7.9 million for exploration and general corporate purposes.
- Shares outstanding rose to 2,480,269 at March 31 from 1,566,467 at June 30, 2011. The placement included 400,000 shares purchased by the chairman and CEO.
Outlook, exploration, risks and contingencies
- The 2012 Alaska exploration budget was approximately $6.75 million: $3.6 million for Chief Danny, $2.75 million for other gold leads, and $400,000 for rare-earth exploration. Management planned drilling and field work during Alaska’s May-to-October season.
- At Chief Danny, 2011 drilling returned selected mineralized intervals, including 21 feet at 7.40 grams per tonne gold in hole 7 and 4 feet at 4.94 grams per tonne gold in hole 2. Several holes did not return significant grade-thickness intervals. The filing cautions that the targets have no quantified mineral resources and none of the properties has proven or probable reserves.
- Management expected to need additional financing after the 2012 program. If exploration is unsuccessful and additional funding is unavailable, the company may have to cease operations, dissolve, or sell properties on unfavorable terms. The filing says no assurance can be given that financing will be available.
- Key risks include exploration failure, lack of revenue, dependence on Avalon Development and tribal consulting services, weather and remote access, permitting and environmental obligations, uncertain claim title, commodity-price volatility, competition, and reliance on future capital markets. The Tetlin Lease and other claims carry minimum payments, rentals and potential production royalties; a 3% royalty is also payable to Juneau Exploration LLC if properties enter commercial production.
- The Tetlin Lease requires annual exploration spending, but prior excess spending had satisfied the requirement through the period described. The annual advance minimum royalty increases from $50,000 to $75,000 beginning July 15, 2012. No material legal proceedings or off-balance-sheet arrangements were reported. Management stated disclosure controls were effective as of December 31, 2011.
Most important facts for investors to verify
- Confirm the reporting entity and period: the filing is Contango ORE, Inc.’s quarter ended March 31, 2012, notwithstanding the request’s company and period labels.
- Track cash burn against the $8.33 million quarter-end cash balance and the $6.75 million planned exploration budget, including spending after March 31.
- Review subsequent drilling, assay results, resource estimates, permitting progress, and whether any target advances toward an economically viable deposit; the filing reports no established reserves.
- Assess the timing, terms, and dilution of any financing needed after the 2012 exploration program, as well as related-party arrangements and the private placement registration rights.
- Confirm ongoing lease, claim, minimum royalty, rental, labor-payment, and production-royalty obligations and the status of property title and required permits.