Contango Announces Earnings for Quarter Ended March 31, 2024

Rhea-AI Summary

Contango (NYSE American: CTGO) announced a net loss of $20.5 million for Q1 2024, translating to a loss of $2.14 per share. This loss includes a $15.6 million non-cash expense from mark-to-market derivative contracts on forward gold prices.

The company experienced increased interest costs from its secured credit facility, partially balanced by reduced losses from its equity in the Peak Gold JV. Contango's 30% owned Manh Choh project remains on track for production in early Q3 2024, with ongoing mining and transportation activities.

Updates include a $15.5 million investment in the Peak Gold JV and an upcoming acquisition of HighGold Mining Inc. valued at $37 million, expected to close in July 2024.

Positive

• Manh Choh project on track for production in early Q3 2024.
• $15.5 million investment in Peak Gold JV.
• Mill modifications and site preparations at Fort Knox progressing well.
• Upcoming acquisition of HighGold Mining Inc. valued at $37 million.
• Current production timeline and budget for Manh Choh project on schedule.

Negative

• Net loss increased to $20.5 million compared to $7.9 million in Q1 2023.
• Loss of $2.14 per share compared to $1.09 per share in Q1 2023.
• $15.6 million non-cash expense due to mark-to-market derivative contracts.
• Increased interest costs on secured credit facility.

Insights

Financial Analyst

Contango ORE Inc.'s earnings report reveals a significant net loss of $20.5 million for the quarter ended March 31, 2024, compared to a net loss of $7.9 million in the same period the previous year. The primary reason for this increase is the loss on mark-to-market derivative contracts amounting to $15.6 million. This reflects the volatility and inherent risks associated with hedging strategies, particularly in the context of fluctuating gold prices. Most notably, these derivative contracts are an essential aspect of managing financial risk but can also lead to substantial non-cash expenses if market conditions shift unpredictably.

From a financial perspective, while the hedging loss is noteworthy, it is a non-cash expense, meaning it does not impact cash flow directly. However, it does affect the company's earnings per share (EPS), leading to a diluted EPS loss of $2.14, compared to $1.09 in the prior year.

Additionally, the increase in interest costs due to funds drawn from its secured credit facility is another factor contributing to the net loss. This signals that the company is leveraging debt to finance its operations and projects, which, while potentially lucrative, also increases financial risk and interest obligations moving forward.

Investors should note that the upcoming production in Q3 2024 from the Manh Choh project could be a catalyst for revenue generation, potentially offsetting these losses in the future. However, the current financial state suggests caution as it highlights the cost of development and hedging strategies.

Rating: 0 (Neutral)

Market Research Analyst

The upcoming acquisition of HighGold Mining Inc. by Contango ORE Inc. is a strategic move aimed at expansion and diversification. The acquisition deal, valued at approximately $37 million, involves an exchange of shares, which dilutes the current shareholders' equity to some extent (approximately 85% post-acquisition). This strategy, if executed well, could enhance Contango's asset base and potential for revenue from HighGold’s mining projects.

The acquisition implies a consolidation in the mining sector, potentially providing Contango with access to HighGold's exploration assets and projects. This could offer synergistic benefits and improved operational efficiency. However, it's also important to consider the risks associated with integration and the potential operational challenges that can arise post-merger.

Moreover, the timing of the acquisition aligns with Contango's anticipated production from the Manh Choh project. If both ventures progress as planned, Contango could witness substantial growth and enhanced market positioning. Nevertheless, investors should be aware of the inherent risks in acquisitions, including integration costs and cultural alignment, which could impact financial performance in the short term.

Rating: 1 (Positive)

FAIRBANKS, Alaska--(BUSINESS WIRE)-- Contango ORE, Inc. (“Contango” or the “Company”) (NYSE American: CTGO) announced today it filed its Form 10-Q for the quarter ended March 31, 2024 with the Securities and Exchange Commission.

The Company reported a net loss of $20.5 million or a loss of $2.14 per basic and diluted share for the three month period ended March 31, 2024, which includes a non-cash expense of $15.6 million related to a loss on mark-to-market derivative contracts, calculated based on a forward gold price compared to the contracted hedge price. This compares to a net loss of $7.9 million or a loss of $1.09 per basic and diluted share for the three month period ended March 31, 2023. The primary reason for the increase in net loss in the 2024 period is due to the Company entering into derivative gold hedging contracts with its lenders in the second half of 2023. Furthermore, the Company incurred increased interest costs related to the funds drawn down on its secured credit facility in the 2024 period. These were partially offset by a reduction in the loss on the Company’s equity investment in the Peak Gold JV, which relates to pre-production costs for development and construction at the Company’s 30% interest in the Manh Choh project being operated by an indirect subsidiary of Kinross Gold Corporation (‘Kinross”).

During and subsequent to the three month period ended March 31, 2024, the Company has the following updates:

• The Company’s 30% owned Manh Choh project, operated by Kinross, is on track for first production in early Q3 2024. Ore and waste mining are ongoing with the full mining fleet now in operation as planned. Following several months of orientation runs, transportation of ore to Fort Knox, where the ore will be processed, continues to ramp up with all contracted trucks received, the majority of the drivers onboarded, and trailer manufacturing now complete;

• At Fort Knox, mill modifications and site preparation remain on plan, including the completion of the ore delivery road and tie-ins for the pebble recycle conveyor. Building construction is advancing well, along with interior piping and electrical works; and

• The Company invested a further $15.5 million to the Peak Gold JV during this reporting period for expenditures at the Manh Choh project. Construction to date remains on schedule and on budget with production anticipated in early Q3 2024.

• On May 1, 2024, the Company entered into a definitive arrangement agreement (the “Arrangement Agreement”) with HighGold Mining Inc. (“HighGold”), pursuant to which the Company intends to acquire 100% of the outstanding equity interests of HighGold (the “HighGold Acquisition”). Under the terms of the Arrangement Agreement, each HighGold share of common stock will be exchanged for 0.019 shares of Contango common stock (the “Exchange Ratio”). The Exchange Ratio implies total consideration of approximately $0.40 per HighGold share and total HighGold equity value of approximately $37 million. Upon completion of the HighGold Acquisition, existing Contango shareholders will own approximately 85% and HighGold shareholders will own approximately 15% of the combined company. Closing of the HighGold Acquisition is subject to customary closing conditions and is expected to occur in July 2024.

ABOUT CONTANGO

Contango is a NYSE American listed company that engages in exploration for gold and associated minerals in Alaska. Contango holds a 30% interest in the Peak Gold JV, which leases approximately 675,000 acres of land for exploration and development on the Manh Choh project, with the remaining 70% owned by an indirect subsidiary of Kinross, operator of the Peak Gold JV. The Company also has a lease on the Lucky Shot project from the underlying owner, Alaska Hardrock Inc. and through its subsidiary has 100% ownership of approximately 8,600 acres of peripheral State of Alaska mining claims. Contango also owns a 100% interest in an additional approximately 145,000 acres of State of Alaska mining claims through its wholly owned subsidiary, which gives Contango the exclusive right to explore and develop minerals on these lands. Additional information can be found on our web page at www.contangoore.com.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements regarding Contango that are intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995, based on Contango’s current expectations and includes statements regarding future results of operations, quality and nature of the asset base, the assumptions upon which estimates are based and other expectations, beliefs, plans, objectives, assumptions, strategies or statements about future events or performance (often, but not always, using words such as “expects”, “projects”, “anticipates”, “plans”, “estimates”, “potential”, “possible”, “probable”, or “intends”, or stating that certain actions, events or results “may”, “will”, “should”, or “could” be taken, occur or be achieved). Forward-looking statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those, reflected in the statements. These risks include, but are not limited to: the risks of the exploration and the mining industry (for example, operational risks in exploring for, developing mineral reserves; risks and uncertainties involving geology; the speculative nature of the mining industry; the uncertainty of estimates and projections relating to future production, costs and expenses; the volatility of natural resources prices, including prices of gold and associated minerals; the existence and extent of commercially exploitable minerals in properties acquired by Contango or the Peak Gold JV; ability to realize the anticipated benefits of the Peak Gold JV; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; the interpretation of exploration results and the estimation of mineral resources; the loss of key employees or consultants; health, safety and environmental risks and risks related to weather and other natural disasters); uncertainties as to the availability and cost of financing; Contango’s inability to retain or maintain its relative ownership interest in the Peak Gold JV; inability to realize expected value from acquisitions; inability of our management team to execute its plans to meet its goals; the extent of disruptions caused by an outbreak of disease, such as the COVID-19 pandemic; and the possibility that government policies may change, political developments may occur or governmental approvals may be delayed or withheld, including as a result of presidential and congressional elections in the U.S. or the inability to obtain mining permits. Additional information on these and other factors which could affect Contango’s exploration program or financial results are included in Contango’s other reports on file with the U.S. Securities and Exchange Commission. Investors are cautioned that any forward-looking statements are not guarantees of future performance and actual results or developments may differ materially from the projections in the forward-looking statements. Forward-looking statements are based on the estimates and opinions of management at the time the statements are made. Contango does not assume any obligation to update forward-looking statements should circumstances or management’s estimates or opinions change.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240514755060/en/

Contango ORE, Inc.

Rick Van Nieuwenhuyse

(907) 888-4273

www.contangoore.com

Source: Contango ORE, Inc.

FAQ

What were Contango's earnings for Q1 2024?

Contango reported a net loss of $20.5 million for Q1 2024, equating to a loss of $2.14 per share.

Why did Contango report a higher net loss in Q1 2024 compared to Q1 2023?

The increased net loss is primarily due to a $15.6 million non-cash expense from derivative contracts and higher interest costs from the secured credit facility.

What is the status of Contango's Manh Choh project?

The Manh Choh project is on track for production in early Q3 2024, with ongoing ore and waste mining activities.

How much did Contango invest in the Peak Gold JV during Q1 2024?

Contango invested an additional $15.5 million in the Peak Gold JV during Q1 2024.

When is the expected closing date for Contango's acquisition of HighGold Mining Inc.?

The acquisition is expected to close in July 2024.

What is the value of Contango's acquisition of HighGold Mining Inc.?

The acquisition is valued at approximately $37 million.