Contango ORE, Inc. — Form 10-K Summary
Reporting-period note: The supplied filing is Contango ORE, Inc.’s annual report for the fiscal year ended June 30, 2012, filed September 11, 2012. This differs from the request metadata’s “2011 Q4” and company name “Contango Silver & Gold Inc.”
Business context and reporting period
Contango ORE is an Alaska-focused mineral exploration-stage company, not a producing miner. It explores for gold and associated minerals and rare earth elements (REEs), controlling approximately 794,280 acres through a Tetlin tribal lease and state and federal mining claims. It had no mineral-sale revenue and no proven or probable reserves. Exploration is seasonal, generally limited to May–October.
Financial performance and position
| Metric | FY ended June 30, 2012 | FY ended June 30, 2011 |
|---|---|---|
| Revenue | None | None |
| Net loss | $4.26 million | $2.85 million |
| Loss per share, basic and diluted | $2.35 | $1.82 |
| Exploration expense | $3.50 million | $2.27 million |
| Claim rentals and minimum royalties | $198,797 | $281,418 |
| General and administrative expense | $337,229 | $150,810 |
| Net cash used in operating activities | $2.91 million | $2.48 million |
| Cash at year-end | $7.77 million | $2.40 million |
| Total assets | $9.14 million | $3.56 million |
| Current liabilities | $1.80 million | $644,764 |
| Shareholders’ equity | $7.34 million | $2.91 million |
Margins are not meaningful because the company had no revenue. FY2012 financing included a private placement of 882,500 shares at $10 each, generating approximately $8.8 million gross and $8.43 million net. The company repaid $500,000 borrowed under a related-party revolving credit note, plus $14,917 interest; no amount was outstanding at June 30, 2012. The $1.0 million facility bore 10% interest and was available for re-borrowing through December 31, 2012. No other debt balance is disclosed in the supplied financial statements.
Material changes versus prior year
- Net loss increased by about 49%, principally as exploration spending rose; exploration expense increased about 54%.
- Cash increased by $5.37 million, mainly reflecting the equity offering, while operating cash use also rose.
- General and administrative expense more than doubled, which management attributed to legal, accounting, professional-service, reporting and control costs as the business expanded.
- Claim rentals and minimum royalties declined, mainly due to lower minimum labor costs.
- Shares outstanding rose from 1,566,467 to 2,480,269 following the offering. The company reported 2,480,269 shares outstanding at September 7, 2012.
Outlook, management commentary and risks
- The company budgeted approximately $6.75 million for its 2012 exploration program: $3.6 million for Chief Danny, $2.75 million for gold exploration leads, and $400,000 for REE exploration and claim rentals. It reported spending approximately $4.3 million of that budget as of August 31, 2012.
- Chief Danny was the most advanced gold target, but drilling had not established a resource. Reported 2011 drill intercepts included selected mineralized intervals; several holes returned no significant grade-thickness. 2012 assay results were pending in the filing’s stated updates.
- Management said additional funding would be needed after the 2012 program. If exploration disappoints or financing is unavailable, the company may cease operations, dissolve, or sell assets. It does not expect mineral-sale revenue in the foreseeable future.
- The company considered abandoning four state REE claim groups effective December 1, 2012, to focus resources on its remaining claims and gold properties.
- Material risks include exploration failure, financing needs, remote Alaska access and weather, permitting and environmental obligations, uncertain claim title, dependence on Avalon for technical work, and reliance on a small, part-time staff. Tetlin tribal sovereign-immunity and lease-enforcement issues are also disclosed.
- In August 2012, Chairman and CEO Kenneth Peak took a medical leave of absence for up to six months; Brad Juneau became President and Acting CEO. Juneau also manages JEX, which holds royalty interests and provides services to the company.
- No legal proceedings were reported. Management concluded disclosure controls and internal control over financial reporting were effective as of June 30, 2012; the auditor did not provide an internal-control attestation. The independent auditor gave an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether subsequent exploration and assay results support economically viable mineralization; no reserves or quantified resources were established in this filing.
- Cash available after completion of the 2012 program, actual spending against the $6.75 million budget, and terms and availability of any new financing.
- Whether the planned abandonment of REE claims occurred and the resulting acreage, rental obligations and exploration priorities.
- Current share count, potential dilution from outstanding and subsequently granted awards, and related-party interests, including JEX royalties and the Contango credit facility.
- Permitting, environmental, title and Tetlin Lease obligations, including royalties, annual minimum payments and exploration commitments.