Contango ORE, Inc. — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter and six months ended December 31, 2021 (Contango ORE’s fiscal 2022 second quarter), not a calendar 2021 second-quarter filing. The filing identifies the registrant as Contango ORE, Inc.; this differs from the company name in the request metadata.
Business context
Contango is an Alaska-focused mineral exploration company with a 30% interest in the Peak Gold JV, which is advancing the Manh Choh project; wholly owned Alaska Gold Torrent, LLC, which holds rights to the Lucky Shot property; and additional Alaska exploration claims. The company and its JV had not begun commercial mining and generated no revenue from mineral sales. The Peak Gold JV is managed and operated by Kinross.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2021 | Six months ended Dec. 31, 2021 |
|---|---|---|
| Revenue from mineral sales | None | None |
| Total expenses | $4.19 million | $7.26 million |
| Net loss | $4.88 million | $9.45 million |
| Loss per share, basic and diluted | $0.72 | $1.41 |
| Cash used in operating activities | $5.43 million for the six-month period | |
| Cash used in investing activities | $7.58 million for the six-month period |
At December 31, 2021, cash was $21.87 million and restricted cash was $0.23 million. Current assets were $23.73 million and current liabilities were $6.82 million, including a $6.25 million acquisition note payable. Total liabilities were $10.09 million. The filing reports no revenue or profit margins; margins are therefore not applicable. No material long-term borrowing balance is reported, but the company had a $1.85 million contingent consideration liability and a $1.20 million advance royalty reimbursement liability.
Material changes versus the prior comparable period
- Quarterly net loss increased to $4.88 million from $3.21 million in the prior-year quarter, mainly alongside increased exploration activity and higher stock-based compensation.
- Six-month results shifted from net income of $30.23 million in 2020 to a $9.45 million net loss in 2021. The prior-year period included a $39.64 million gain from the 2020 sale of a 30% Peak Gold JV interest; it was not recurring operating income.
- Six-month general and administrative expense declined to $4.77 million from $6.13 million, principally because the prior-year period included approximately $2.9 million of non-recurring Kinross transaction legal and advisory costs.
- Exploration expense rose substantially as the company began work on its wholly owned properties, including Eagle/Hona, Shamrock and Lucky Shot. The Lucky Shot acquisition also added property and equipment, liabilities and a current note payable.
- Cash declined by $13.35 million from June 30, 2021, while total assets increased to $37.36 million from $35.97 million, primarily reflecting the Lucky Shot acquisition.
Outlook, risks and unusual items
- The Peak Gold JV approved a $47.9 million 2022 program; Contango’s stated share is approximately $14.4 million. Work includes feasibility, permitting, environmental monitoring, engineering, early construction and exploration. Initial Manh Choh construction was planned for summer 2022, with a feasibility study expected in 2022.
- The JV had completed about 33,000 feet of 2021 drilling and submitted a wetlands dredge-and-fill permit package to the U.S. Army Corps of Engineers. The filing describes project schedules and plans as forward-looking.
- Contango planned Lucky Shot underground development and approximately 10,000 feet of drilling, targeting readiness to drill by late summer 2022. It also committed to spend $10 million on Lucky Shot exploration over 36 months after the August 2021 acquisition.
- The Lucky Shot purchase included $5.1 million cash and a $6.25 million note due February 28, 2022. The note could be settled in shares only if the stated offering and NYSE American listing conditions were met; otherwise it was payable in cash. The filing does not clearly state the subsequent settlement outcome. Additional milestone consideration could include up to $10 million cash and $8.75 million in shares, subject to resource or production thresholds.
- Management said existing liquidity was expected to cover working capital for the next 12 months, but also said it was likely to seek additional capital within six months. If Contango does not fund its proportionate share of approved JV budgets, its JV ownership may be diluted. The filing states management could elect not to fund a large budget to preserve liquidity.
- The company reported no known mineral reserves. The Manh Choh technical report disclosed measured and indicated resources, but resources are not reserves and do not demonstrate economic viability. Contango’s attributable measured and indicated resources were reported as 362,000 ounces of gold and 1.26 million ounces of silver; inferred resources were 35,000 ounces of gold and 208,000 ounces of silver.
- Key risks include exploration and permitting uncertainty, environmental and community opposition, commodity-price volatility, weather and operating delays, financing needs, possible dilution, and thin trading in the common stock. The filing reported no material legal proceedings, and management said disclosure controls were effective.
Important facts for investors to verify
- Whether the $6.25 million Lucky Shot note was repaid or converted by its February 28, 2022 maturity date, and the financing terms and dilution if converted.
- Cash use and funding needs against the approximately $14.4 million 2022 Peak Gold JV contribution and the $10 million Lucky Shot spending commitment.
- Feasibility-study results, updated resource and reserve estimates, permitting progress, and whether construction proceeded as planned; resource figures are not reserve estimates.
- Whether Contango raised additional capital, funded JV calls in full, or experienced dilution in its 30% Peak Gold JV interest.
- Potential Lucky Shot milestone payments and changes in the fair value of contingent consideration, which relies on management estimates.