Contango ORE, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The filing is by Contango ORE, Inc. (NYSE American: CTGO), an Alaska-focused gold exploration and development company; it has not yet generated revenue from mineral sales. The company holds a 30% interest in the Peak Gold JV, which is developing the Manh Choh project.
Key financial metrics
| Metric | Q1 2024 / March 31, 2024 | Comparable period / December 31, 2023 |
|---|---|---|
| Revenue | No mineral-sales revenue | No mineral-sales revenue |
| Net loss | $20.5 million; $2.14 per diluted share | Q1 2023: $7.9 million; $1.09 per diluted share |
| Operating expenses | $2.7 million | Q1 2023: $2.4 million |
| Operating cash flow | $(4.4) million | Q1 2023: $(3.0) million |
| Cash and restricted cash | $7.9 million, including $7.6 million cash | December 31, 2023: $15.7 million |
| Total assets | $66.2 million | December 31, 2023: $58.6 million |
| Total liabilities | $100.2 million | December 31, 2023: $73.1 million |
| Debt | $57.1 million net carrying value; $21.7 million current | December 31, 2023: $44.7 million net; $7.9 million current |
| Stockholders’ equity | $(34.0) million | December 31, 2023: $(14.5) million |
No revenue-based margin is meaningful because the company has no mineral-sales revenue. The $20.5 million quarterly loss includes a $15.6 million noncash mark-to-market loss on gold derivatives and $2.0 million of interest expense. The derivative contracts had a $39.0 million net liability at quarter-end. Interest expense was $0.4 million in Q1 2023.
Material changes and operating update
- Net loss rose from $7.9 million to $20.5 million, primarily reflecting the derivative loss and higher interest expense. General and administrative expense increased to $2.5 million from $2.0 million, attributed mainly to a Manh Choh surety-bond requirement and higher audit and legal fees. Exploration expense declined to $0.1 million from $0.3 million.
- Cash used in operations increased to $4.4 million from $3.0 million. Investing cash outflow was $15.5 million, including $15.45 million invested in Peak Gold JV. Financing provided $12.0 million, including $12.5 million of debt proceeds, partially offset by debt issuance costs.
- Manh Choh had begun ore mining and stockpiling, and ore transport to Fort Knox had commenced and was ramping up. Management reported construction and mill modifications on plan and expected first production in early Q3 2024; elsewhere the filing describes production as expected in the second half of 2024.
- The company funded $15.45 million of Peak Gold JV cash calls in the quarter and had funded $62.7 million of the approved 2023–2024 calls by March 31. Its 30% share of the approved budgets is approximately $74.4 million.
Liquidity, debt, outlook, and risks
Management said cash on hand and $22.5 million of remaining Facility availability should be sufficient to reach Manh Choh production. It also stated that distributions from Peak Gold JV are believed probable, but are not guaranteed, and that liquidity should cover working-capital needs, including approximately $29.9 million of Facility repayment obligations over the next twelve months. The company cautions that failure to meet current debt obligations could trigger default and acceleration. It was in compliance with required debt covenants or had obtained lender waivers or consents as of March 31.
- The secured Facility had $42.5 million drawn, with a $70 million maximum facility size, and matures December 31, 2026. Its effective interest rate was 11.47% at quarter-end. The company reported $7.9 million scheduled for repayment in 2024 and $29.0 million by July 31, 2025.
- The $20 million unsecured convertible debenture bears 9% interest, with 7% payable in cash and 2% in shares, and matures May 26, 2028. It is convertible at $30.50 per share.
- Gold hedges cover 124,600 ounces at a weighted-average $2,025 per ounce, with deliveries scheduled from July 2024 through December 2026. They represent about 45% of the company’s projected attributable production. The contracts are not hedge-accounted, so fair-value changes flow through earnings; the filing also identifies cross-default and potential collateralization provisions.
- Failure to fund Peak Gold JV cash calls may dilute the company’s interest. Management says future refinancing or additional financing is uncertain; further equity issuance could dilute shareholders. The company has $34.6 million remaining under its at-the-market equity program.
- A lawsuit by the Committee for Safe Communities seeks injunctive relief concerning the Manh Choh ore-haul plan. The injunction motion and motions for judgment on the pleadings and to stay discovery remained pending.
- After quarter-end, Contango agreed to acquire HighGold Mining for stock, implying approximately $37 million of equity value; existing Contango shareholders are expected to own about 85% of the combined company. It also agreed to acquire Avidian Gold Alaska for $2.4 million initially, plus up to $1.0 million contingent consideration. Both transactions were expected to close in July 2024 and remained subject to conditions.
The company reported no material changes to risk factors from its prior transition report. It also reported effective disclosure controls and procedures and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether Manh Choh achieves first production on the stated early-Q3/second-half 2024 timetable, and whether hauling, milling, commissioning, and operating costs remain on plan.
- Whether Peak Gold JV makes distributions in time to support liquidity and scheduled debt service, and whether Contango can fund future cash calls without dilution.
- The cash impact and settlement terms of the $39.0 million derivative liability, including the effect of fixed-price hedges if gold prices move materially.
- Debt repayment capacity, covenant compliance, and the availability and terms of any additional financing.
- Developments in the ore-haul litigation and the closing, financing, and dilution effects of the HighGold and Avidian acquisitions.