Business Context and Reporting Period
Company: Contango ORE, Inc. (CORE)
Reporting Period: Quarter and nine months ended March 31, 2011
Status: Exploration-stage company formed in September 2010. The company was created to explore for gold and rare earth elements in Alaska. It operates with no commercial production or revenue to date. The financial statements include the operations of its predecessor, Contango Mining Company, from its inception on October 15, 2009.
Key Financial Metrics
| Metric | Three Months Ended Mar 31, 2011 | Nine Months Ended Mar 31, 2011 | Balance Sheet (Mar 31, 2011) |
|---|---|---|---|
| Revenue | $0 | $0 | N/A |
| Net Loss | $(140,394) | $(1,298,759) | N/A |
| Cash and Equivalents | N/A | N/A | $3,227,991 |
| Total Assets | N/A | N/A | $4,438,257 |
| Total Liabilities | N/A | N/A | $6,861 |
| Shareholders' Equity | N/A | N/A | $4,431,396 |
| Cash Flow from Operations | N/A | $(1,722,647) | N/A |
| Cash Flow from Financing | N/A | $4,950,638 | N/A |
Capital Structure: 1,566,467 shares of common stock outstanding. No debt obligations reported.
Material Changes vs. Prior Period
- Exploration Expenses: Increased significantly to $940,601 for the nine months ended March 31, 2011, compared to $428,340 in the prior year period. This reflects intensified exploration activities.
- General and Administrative Expenses: Rose to $125,345 for the nine-month period from $1,677 in the prior year, primarily due to costs associated with becoming a public entity (Form 10 filing, legal, and accounting fees).
- Liquidity: Cash balance increased from $0 at June 30, 2010, to $3.2 million at March 31, 2011, driven by a $3.5 million cash contribution from Contango Oil & Gas Company and additional shareholder contributions.
- Stock-Based Compensation: Recognized $48,519 in expense for the nine months ended March 31, 2011, related to restricted stock grants made in December 2010. No such expense was recorded in the comparable prior period.
Outlook, Risks, and Management Commentary
Outlook and Capital Needs: Management anticipates requiring approximately $2.75 million for the 2011 exploration program (including $2.25 million for gold exploration and $0.5 million for rare earth elements). The company expects to exhaust its current cash reserves following the 2011 program and will need to raise additional capital through equity offerings or debt to continue operations.
Key Risks:
- Exploration Risk: No proven or probable reserves exist. The probability of finding economically viable mineral deposits is described as "extremely remote."
- Liquidity Risk: The company has no revenue and relies entirely on external financing. Failure to secure funding could force a cessation of operations.
- Operational Dependence: The company relies heavily on third-party consultants (Avalon Development Corporation for exploration and JEX for property acquisition) and has no in-house technical mining staff.
- Market Risk: Future profitability is dependent on volatile commodity prices for gold and rare earth elements.
- Regulatory and Title Risk: Properties include unpatented mining claims and a lease with a Native American tribe, introducing complexities regarding title validity and sovereign immunity.
Investor Verification Checklist
- Verify the status of the $2.75 million capital budget for the 2011 exploration program and the timeline for potential dilution from future equity raises.
- Confirm the specific results of the 2010 exploration program (910 samples with measurable gold) and the planned scope of the 2011 airborne and drilling operations.
- Review the terms of the Tetlin Lease, specifically the 3-5% production royalty obligation to the Native Village of Tetlin and the $350,000 annual exploration expenditure requirement.
- Assess the validity and title status of the unpatented mining claims (18,560 acres for gold; 100,800 acres for rare earths) and any potential conflicts with third parties.
- Monitor the vesting schedule and valuation of restricted stock awards granted to officers, directors, and consultants.