Business context and reporting period
The filing is Contango ORE, Inc.’s unaudited Form 10-Q for the fiscal quarter ended March 31, 2021, covering the three and nine months ended that date. This is the company named in the filing; it does not identify the registrant as Contango Silver & Gold Inc. Contango is an Alaska exploration-stage company with a 30% interest in the Manh Choh joint venture, operated by Kinross, and wholly owned Alaska mineral claims. Neither Contango nor the joint venture had begun commercial mining or generated mineral-sale revenue.
Financial and operating highlights
| Metric | Quarter ended March 31, 2021 | Nine months ended March 31, 2021 |
|---|---|---|
| Revenue | None | None |
| Net income (loss) | $(4.51) million; $(0.73) per share | $25.72 million; $4.11 per share |
| Operating expenses | $2.26 million | $8.46 million |
| Loss from equity investment in joint venture | $2.49 million | $3.86 million |
| Cash used in operating activities | Not presented for the quarter | $6.40 million |
- The nine-month result includes a $39.64 million accounting gain on the sale of a joint-venture interest; it is not recurring operating profit. The quarter’s loss increased from $1.91 million in the prior-year quarter, while the nine-month result improved from a $6.69 million loss, principally because of that transaction gain.
- Quarterly general and administrative expense was $2.15 million versus $1.32 million a year earlier. Nine-month expense was $8.27 million versus $3.46 million, including approximately $3.0 million of transaction and legal costs, higher payroll, and executive bonuses.
- At March 31, cash was $26.24 million, compared with $3.01 million at June 30, 2020. Current assets were $26.85 million and current liabilities $1.20 million; total liabilities were $2.40 million, including a $1.20 million non-current royalty-reimbursement liability. The company reported no debt.
- Nine-month cash flow included $27.34 million provided by investing activities, largely reflecting $31.20 million cash proceeds from the joint-venture interest sale, and $2.29 million provided by financing activities, including net private-placement proceeds of $3.17 million. Cash increased by $23.23 million.
- Margins are not meaningful because the company had no revenue. The filing reports no material litigation and no off-balance-sheet arrangements.
Material changes and outlook
- In September 2020, Kinross acquired a 70% joint-venture interest and became manager and operator; Contango retained 30%. Contango received $32.4 million cash and shares that were subsequently canceled. The cash included a $1.2 million prepayment tied to potential silver-royalty obligations, refundable in specified circumstances.
- The joint venture approved an $18.0 million 2021 work program for drilling, engineering, environmental studies, feasibility work, exploration, community relations, and permitting preparation. Contango’s proportional share is approximately $5.4 million; it had funded about $2.5 million in calendar 2021 by March 31. The joint venture spent $2.8 million during the quarter.
- Contango planned an approximately $3.0 million 2021 exploration program on its wholly owned claims, including Triple Z, and further work at Eagle and Hona. It also staked the 52,920-acre Shamrock property during the quarter.
- Management said existing cash was expected to cover working-capital needs for the next 12 months, but also said it was likely to raise additional capital through equity issuance in the following six months. Failure to fund approved joint-venture budgets can dilute Contango’s 30% interest; management said it could elect not to fund a budget to preserve liquidity.
- The company described use of Kinross’s Fort Knox mill, about 250 highway miles away, as a potential way to reduce upfront capital needs, environmental footprint, development time, and execution risk. These are expectations, not a production decision: the filing states there are no known quantifiable mineral reserves and a feasibility study and formal permitting preparation remain underway.
Risks, contingencies, and unusual items
- The business has no recurring revenue and depends on cash reserves, financing, and joint-venture contributions. Exploration results, metal prices, permitting, weather, COVID-19-related delays, operating costs, and access to capital may affect plans and value.
- The joint venture’s cumulative losses exceeded Contango’s recorded investment; its investment balance was zero, with approximately $21.1 million of losses suspended for possible recognition against future earnings. Additional contributions are required to avoid dilution.
- Royal Gold holds a 28% net smelter returns royalty on silver produced from a defined area within the Tetlin Lease, as well as other royalties described in the filing. The $1.2 million reimbursement prepayment has repayment conditions.
- The company’s common stock trades on OTCQB and was described as thinly traded, averaging 452 shares per day in fiscal 2021 to date, which may amplify price movements.
- Management reported disclosure controls were effective as of March 31, 2021, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the filing identity and period: Contango ORE, Inc., fiscal quarter ended March 31, 2021.
- Check the terms, valuation assumptions, and noncash share consideration behind the $39.64 million gain; distinguish the gain from cash proceeds and recurring performance.
- Track remaining 2021 joint-venture and company exploration spending, future capital needs, and the risk of dilution if Contango does not fund its share.
- Review feasibility, permitting, reserve/resource disclosures, and any subsequent decision on development or use of the Fort Knox mill.
- Assess royalty obligations, including the 28% silver royalty and conditions governing the $1.2 million prepayment.