Contango Silver & Gold Inc. (CTGO) Earnings Call Transcript & Summary

And has the room is filling up, I'm just going to go ahead and get started. So I'll say good morning, good afternoon, good evening, depending on where in the world we're standing in from today. It looks like quite an international audience. So thanks, everyone, for joining us. I say we've got a very exciting event. Rick Van Nieuwenhuyse, President and CEO of Contango Ore; and Darwin Green, President and CEO of HighGold. Gentlemen, welcome. Thanks for joining me today.

Good to be here. Thank you, Sid for hosting this conference. I think we're both excited and I think you know Darwin. You know me from Contango. So appreciate everybody joining us today and to talk about our recent proposal to acquire HighGold and their exciting Johnson Creek project. Of course, we will be making forward-looking statements to draw your attention to our cautionary language here. And just want to start out by talking about Manh Choh quickly. We continue to mine ore at Manh Choh and stockpile it and transport it to the Fort Knox mill. Last I checked, there was over 100,000 tonnes of ore stockpile there and about 15,000 tons coming every week. So, we're still scheduled for production in the first -- second half of the year, but I think we're shooting for first color in July. So that kind of forms the backdrop because that will generate cash flow and allow us to advance not only more exploration at Manh Choh, Lucky Shot, and our hope is to do the same with the JT prospect project and on HighGold is. And obviously, we've got to get the transaction close. So -- with that, we now have a platform to have 3 mines in Alaska, looking at the prospect of having 3 mines as Manh Choh, very near-term production. Our Lucky Shot project, we've talked about a washing repeat of Manh Choh, except we own 100% of that one. And now Johnson Tract. And they're all high-quality projects, all in Alaska, which we -- I think we intermitting on this as well, but I think a great jurisdiction to work in. Yes, absolutely, and great lines of projects. Just start with a map that shows everything. The Rescar, Fort Knox mill, the Goldstar near the Yukon board there is the Manh Choh project, again, expecting to be in production shortly and generating very, very strong cash flows. Our Lucky Shot project we're get just a little bit north of acreage there, about 2 or 5 north of acreage. 100,000 ounces outline there. Again, good grades near infrastructure. And Darwin, why don't you go ahead and introduce Johnson Tract.

Yes. Well, a system that we've generated or defined over 1 million ounces gold equivalent at 9.4 grams per tonne gold equivalent. It's very well located right next to Tidewater. And it's very fast and a positive. That's really what differentiates it from the crowd. It's high-grade and fat, 40 meters true width. And we see a lot of opportunity to find a lot more.

So Darwin just went through the numbers. I mean it really is a spectacular deposit, not just from the grade, it rates great, but the true width is -- this is one of the things that really impresses me. And you want an ore body that will be as easy to mine as possible, and I think this fits that prescription very well. Obviously, the critical metals aspect of it is an interesting one to talk to in today's world.

Darwin, why don't you take this one on?

Yes. No, for sure. And I think it kind of sets the stage a little bit for why this transaction makes so much sense in terms of a business model we see that we've seen Contango execute perfectly with the Manh Choh project, where you have a high-grade deposit that can overcome the cost of shipping some distance to an existing mill facility. In that case, it's a joint venture with Kinross and it's going to the Fort Knox mine. This is exactly -- for anyone who's been following our story exactly what we've been talking about. We've kind of been independently pursuing the same opportunity. The beauty of being on tidewater is really the ocean's highway anywhere. There are several hungry mills in sort of Alaska on the coast and Northern BC, but there's also opportunities for their field in Asia. And it gives you a lot of optionality in terms of developing a project and end up leading to products that are a lot lower capital cost to build, have a lot smaller environmental footprint and fundamentally a lot quicker to reach the finish line, which I think is one of the key advantages of this business model.

I'll just add in one of the other opportunities in terms of who might process this or the smelters are another group. We have got grade and the smelters like flex. This is the kind of material that they like. So, I will just add that one too, it's not just existing mills, but the smelter groups as well.

Maybe I'll just start here. We think this is a win-win transaction. We're going to create a company that has exposure now to 1.6 million ounces of gold equivalent. That's a threefold increase from where Contango sits today, and it gives us -- we're very bullish on the gold market. I don't want to get distracted on macro issues, but it's clear that the gold market is -- the gold price is ahead of the equity valuation. So having more exposure to gold, I think, is the right thing, right move for Contango to make.

And then I'll let Darwin speak to the slide as well.

Yes. I mean, from my perspective, I think the business model makes a lot of sense. I think in a market where capital is hard to come by, it's a beautiful merit for you, you can get basically self-fund organically, the advancement in the development of projects. That really gives you a whole lot of strength, a lot more strength than most of the peers in the early-stage development space, and it's a beautiful pipeline of projects here. So increased ounce count, multiple projects and a great platform for growth. That's one of the things I like. And added to that, there's still a tremendous amount of exploration upside on this portfolio of properties.

Yes. Darwin and I are both fundamentally explores and your geologists at heart, and that's what drives all of our decision-making is driven by the geology, not by a spreadsheet or something. So I'm going to let you speak to this in the course.

Yes. No, for sure. I mean, it's -- obviously, when you look at these deals, there's an immediate upfront premium to shareholders, and this is speaking directly to the benefits of the HighGold shareholders. And going into this, we certainly have been strategically thinking for quite a while on the HighGold side, and it's -- we like this premium. We've been trading in the -- really over the last 6 months and were from $0.20 to $0.35. And this is a deal that's being done at $0.55. So we think there's a very immediate upside win for our shareholders. But that's really not what this is about. This is about forming a company that I think you get early participation in an emerging gold producer that I think is going to be leading the path in terms of high-grade gold. It's hard to beat. The project profile that I think this combined entity has. And again, that strength of having that cash flow to fund that development and advancement of those projects. It's got to be unique story. And I don't -- I just don't think you can get a big fit, right? Like if you look at strategically, there's a lot of deals done out there in the market. Some make some sense, some you really scratch your head on. This is one I think anyone can look at and see the strategic fit from a jurisdiction, from teams that know how to develop in Alaska from the profile of deposits themselves, the combined grade of now pushing over 1 million ounces. And fundamentally, all have the same opportunity for DSO-type development. Further, I think we've been in a market over the last 2 months, gold traded above 2,100. We're still not seeing a lot of inflows into the funds and that dilution risk that hangs out there, that perpetual overhang on the Junior Explorer that has a single asset. And you've got a huge discount because of that, whereas if you're a producer with cash flow, it's the opposite. And so I think this is a deal where it's 1 plus 1 equals 3 or 4. It's a win for HighGold shareholders. It's a win for Contango shareholders.

Yes. I would just add, the market doesn't always reward things. It's -- and I think that's the case here. There's been a lot of great work done by the HighGold team and advancing a project. And -- but the loan curve is accurate. It's an accurate fit and accurate description of what happens and particularly in tough markets. And there's no question that we've had a very tough market for the last several years. So -- as Darwin says, I think this is a 1 plus 1 is 3 story. So we're very excited to get this combination done.

One last point on that, Rick there, too, is I think the exposure to the US market, the NYC American listing is actually the age advantages, particularly for American-based assets. And I think when the gold bull run does come, I am a believer that will have entity happen. I mean, there's not that many equity issuers on the NYSE that are in the gold space and the junior market, and you're going to get, I think, an outsized increase in share price as a response to that funneling of those dollars when that venture happens.

Yes, that's a great point, and we certainly see a lot more liquidity in the US markets than we are seeing in Canada. And the Russell 2000 exposure certainly adds to that liquidity. I won't go through this in any detail. It's a plan of arrangement. We've talked about the premium and the Board going forward. Really pleased to have Darwin on the Board when this is all said and done. Obviously, we do want shareholder votes support. So we want to explain why this is a really good deal for both companies. Darwin, over to you.

Yes. I mean this is -- obviously, I love this project. Yes, there's not very many assets that carry these kind of attributes. It's a rare combination of grade and thickness. We've talked about it before, but it really is something you unique because that translates directly to lower cost mining, simpler mining, very, very attractive and rare combination to have -- it is polymetallic. So one of the questions you asked is what about the metallurgy, and that's something we spent a fair bit of time on this project really significantly derisking the project. So we have the metallurgy, it's good, good recoveries, the high-grade concentrates that will be in demand. Social license, another big question. We are on native core land, Alaska a regional late Portlands and we selected specifically termining and they're going to receive direct economic benefits. And I do think in this modern era, the U.S. is a great place to be in the State of Alaska particular is great place to be.

This is awesome looking core.

Some duty intersections for sure. There's more of it out there. There's no doubt.

Yes. This is -- people ask why do you like this project. Well, this is why we like this project, it's a great high-quality asset and grades, but over good thicknesses. And as Darwin says, you've got 40 meters of this kind of look and stuff, that's pretty awesome to mine.

Maybe explain who series being why they're important.

Yes. So Series are partner on the property. They actually have the landowners, the middle rights owners here. Siri is an Alaska regional native corporation. They're one of 12 land-based native corporation regional native corporations in Alaska. And Alaska is, it's got a really unique way that it settled in Digital's land claims incredibly progressive. It was done about 50 years ago. And I think it's the model system anywhere globe, to be honest. And so what happen out of that for those that don't know, basically, they created these 4 profit corporate entities, these large regional corporations. They were then able to select lands with natural resource potential. And then we can stewards of those lands to develop them, and they become quite good business entities in the process and some of Alaska's biggest deposits and mines are actually currently being developed on native corp lands. So, great grit to work with, a very sophisticated group, wonderful relationship there. They will get royalties from this project if it goes in production.

I'll just comment a little bit here that I used to work for Anaconda back in the late '70s and '80s and Series 4 partnership with Anaconda and it was out of that joint venture partnership that deposits like Johnson Tract were found. So my history here goes that goes back a ways too, and we got a fairly know the people at Siri, know the deposit well. My background in lasted a lot of Alaska Native Corporations leadership. So I think the good work and high goals done, we'll just build on that. Do you want me to talk to this one, Rick?

Yes, go ahead. Yes. Yes. Just kind of more of a location at. We are -- Alaska is well endowed with minerals. So a lot of them are not close to infrastructure. We consider the ocean infrastructure because it's a highway to anywhere in terms of marine transportation, where recently close to Anchorage and other communities on the Canine peninsula, I mean in this workflow close enough of hand, but we're not right close to any particular community. So kind of that perfect distance. The history here is quite interesting, right? The native park selected their labs and you'll see we surrounded by a part, but that part was created after the land selection occurred and Siri and other native corps were willing participants in that process and in fact, relinquished quite a bit of land to help its creation, but really on the strict and sole provision that they'd be able to mine here. The only reason they selected this land was its mining potential. And so in addition to the land, they haven't eased and right written to federal law for a port and road. So the core asset is sitting down, like the deposit is sitting on that darker-colored portion of the property there. But it's a huge amount of regional land north and south that covers similar geology that's been underexplored that we like as well.

And there's a nice view of the deposit. It's just behind the hill the mountain there is deep country, but you can see where the camp and the airstrip is located. The next real step in developing the project is the access road over to the proposed portal site and work -- that is work that's underway to get that first permitted and then get underground and drill the heck out of this thing for -- to develop a mine plan. Darwin, any other comments on this?

Yes. Just basically, lots of flight around to work with here and the deposit is actually sitting -- it's been drilled to the depth of the valley floor. It's a bit counterintuitive for most people to think you'd actually go up to your deposit. But the tunnel we're looking at going in, the ramp exploration ramp, we'll get into the bottom of the deposit. And I think the next slide might speak to that.

Yes, you see the 3 dimensional view here in the location of the deposit [indiscernible] long tunnel. That mountain behind is the one that we're seeing in the photo there from overlooking camp in the air script. And so the mountain goes up and the drill holes have to go deeper, and that gets expensive and to bolster just exploration and for infill drilling. So that really is the next step here. And Darwin and his team have progressed the permitting on that to -- is moving along, but that is really the next step here. And this is just more of a longitudinal view that shows the decline access point, as Darwin says, you're about the valley floor. That makes for easier amount of water to deal with. And -- but you can see the exploration upside here is significant. But it requires a lot of capital to get that underground development in. It can be used for exploration, but also obviously can use as a main haulage tunnel designed appropriately, and that certainly would be the plan -- and we don't have an exact number, but it's probably in the range of $25 million to get that infrastructure in place to be able to talk about how you develop a mine plan around this. I don't know, Darwin, if you have any other comments?

No, I think you did a good lot of job of capturing it. But you can see the benefits there starting at the bottom of mining your way up as well. The ore passes to drop your ore down. Most of that deposits all sit in one big chunk. It's very attractive that way. But there is a lot more to be found at depth. Some of it's in display deeper down in the idiosyncratic challenging to drill from surface. So the ramp makes all the -- onto the world of the stage in the project development.

And I will definitely let you speak to this one.

Okay. Yes. I mean, I think for us -- and Rick and I know you've tracked this project for a long time. It's -- there's very clear regional exploration upside. In addition to Johnson Tract, we've already discovered a second system called the Ellison, it's clones the Northeast, where we have some very spectacular numbers and we followed up on it, and it's growing. It hasn't grown quite at the pace of JT yet, but it defined clearly that there's opportunity for multiple deposits and style mineralization. JT is clearly present or the conditions that were present to allow its formation are more light spread on the property. And so last summer, we flew for the first time on regional survey. It's an MT survey and we did some pretty sophisticated processing with that. And what it did is it kind of was a one-to-one detect of the areas that we knew we had mineralization. And then there were a lot of areas in between those known areas of mineralization that we're under covered under gravel or in the valley floor and we saw very comparable looking anomaly. So we see a lot of opportunity for future growth here. Separate in addition to that and sort of as you go to the north or 2 bull's-eye targets, it's hard to get an appreciation for scale here. We're about 12 kilometers long as the main trend of epithermal to mineralization. But we think to the north, we have the big, big systems that are intrusive driven based on multiple layers of data. So it's kind of a unique project in that we've established critical amounts, we think, on that deposit itself and ready to get underground and pursue that advanced exploration phase, but this is this regional exploration upside as well. And this all requires capital, and I think merging a company together like this allows one to do both at the same time.

I'll just add, it's definitely a district, an early developing district of scale. And when you look at our land lease and the Manh Choh project and the exploration upside that's available there on private land owned by atrium, our Lucky Shot, we control the lion's share of the Willow Creek district. District has produced over 1 million ounces of alluvial gold, and we have demonstrated high grades of low potential money there. This adds a nice solid third leg of the stool as far as district exploration goes. I think we'll wrap it up there and turn it over to a Q&A period.

Awesome. Thank you very much, gentlemen. Now there are tons and tons of great audience questions. So I'm going to keep in mind to just a couple, just things that we can run through before we jump to those audience questions. I'm going to start, Rick, with you. What made HighGold the most attractive acquisition of all the deniers available? And almost as importantly, why was now the right time?

Yes. Well, I think not just being the right comment. We're on the cost of generating cash flow. We have a very high degree of confidence that, that go forward is going to take place, and we're going to make -- start to get money coming in the other direction. So cash flow for a junior company is I don't say it's king. I think grade is king, but cash flow is queen. And in terms of why HighGold versus other things, it meets our 3 criteria that we've been talking about for looking for opportunities. It's not great. It's got infrastructure. As Darwin just said, it's on the water. So -- and most importantly, for a junior company, in my opinion, is the ability to permit something. So you have to have a simple, relatively simple project, an open pit in the bottom of a big river valley is not a simple project. We're mining -- this project would be mining above you. Eventually, you may find more stuff deeper, but -- and you can worry about what the permitting and all the other things that need to get done for that. But to start off with, it's a relatively simple project to permit not access down to the port which is hardwired with siri and then a tunnel into the mountain where ore body is above you and it's the fat GCOR body. It can't get better than that.

Here you go. Darwin, on the flip side, with a significant deposit and existing exploration upside, what made you and your team decide that now is the right time to do a transaction?

Yes, good question. I mean it's -- I think, as Rick touched a little earlier, a little bit of this on curve challenge in the space, and we're a little bit different because I think we can shorten that dramatically as part of our business model. But we've put a lot of work to get to critical size threshold and Rick dropped the number of, say, $25 million to get underground or something big bills to come to really move this forward. And the reality is the market is going to keep you down. It's going to hold you down and it knows you need to raise that money. And it's going to really going to give you a huge discount to the NAV of your project and where it should be. And so for us, we -- we've been thinking strategically for a while about the path forward. You don't want to language and just be kind of hand to medically financing and we did actually look and evaluate quite a number of different strategic alternatives. And this was a very, very obvious fit. Like I don't think we can get a better fit in terms of great profile of assets, business model, jurisdiction, Rick's got a tremendous amount of history in the state, ensuring we're kind of moving the project in a hands that we trust and are going to move forward that are a good fit with Siri Alaska in general were critically important to us. So yes, we've got a great premium off a baseline right now, but it's really about, to me, this timing was the right timing to get in with Rick as they're about to re-rate as they become a producer and it's we're at the front of a good gold market. And I think a story that people can get behind where you get early participation of an emerging new gold producer with an awesome profile of gold deposits.

Great. And in the same -- adjacent to that, in your esteem, why do you think HighGold shareholders should maintain or grow their position at this time?

Well, a lot of the same reasons. I mean I think it is a pretty unique business opportunity right here that's been presented, right? I think in my view, in the space, there's not a lot of other peers that kind of have this kind of a business model. And I think to be able to get in on it early, as we are prior to Contango actually hitting full gold production here and sort of build a growing company around this. And I think there's more of these kinds of opportunities. I'm going to stay on as a director. I'm really committed to the story that I want to see it be a success. And I'm certainly not selling it to that. I think it's a great opportunity for shareholders. If guys want to want to do something else, that's fine. But I actually think this is a very, very unique growth story that's a very compelling investment opportunity for share.

Great. And actually speaking of your business model, I know there's a lot of investors in the room who are not typically in attendance of Contango events. I was looking enough to talk to you a few weeks ago about the Contango business model. I'd love to hear your perspective on how this acquisition is simpatico with that model.

Yes. So when we -- when Contango discovered Manh Choh, it's a great deposit. It's -- but it's not huge. It's not a 10 million ounce of other. It's 1 million ounces, but it's great, great. And so when we had the decision to make we advance this ourselves or do we partner. And it was clear that partnering with Kinross who had an existing mill, underutilized mill and you have good rates so you can afford to transport it. And that's a key part of any of this whole business model. We're not going to go after 1 grammars that are out in the middle of nowhere. They just -- those are going to sit there for a while. But this -- it saves capital, it saves permitting timeline. It reduces your overall environmental footprint, including things like greenhouse gas measurements that people are paying attention -- investors are paying attention to you now when they decide what do I want to invest in. Those are all part of why this model makes a lot of sense, especially for Alaska, where we don't have a lot of infrastructure. So if you've got to permit a project with infrastructure, and I know this like really well, it's going to take you a long time. It's going to be a long, slow painful process and the market will not stay with you. It just won't. So -- and Darwin mentioned this, this is what's unique about -- HighGold's asset at JT. It's next to the water. Water is your infrastructure. Yes, you got to find somewhere to go processes, but look, we made $50 million or I should say Kinross made $50 million of no modifications to accommodate the Manh Choh ore. So -- but that's a lot less Daconian and building a new $600 million mill with a tailings facility that who knows how long that would take to permit, so...

So in about like the like -- for Johnson Tract, the way leading vision it is being processed offsite, even your waste rock is going back underground for backfill. So who doesn't like a mine. It's an underground mine where at the end of the day, you plug the portal and you walk away, and there's really no long-term environmental legacy issues that should be attractive to everyone. The world needs the metals. And these are the kind of mines that I think are a great solution to moving forward. And for the capital markets, for the investors, you're not hung out for 10 years wait for stuff to come online. You can actually get these things into a timeline that will maybe bring investors back to our space because in my view, that's one of the fundamental things that's going to kill the appetite for our business. It just takes too long and people -- it's capital structure.

Sure. One way I wanted to talk about, and this is I can cover some of the audience questions as well, certainly not all of them, but some of them. And this will -- will it be really for both of you. I'll start with Rick. I guess does represent another project in Alaska and Contango's portfolio. Look at your perspective on why this jurisdiction is such a sweet spot and your steam and for you personally.

Well, I grew up in Alaska. So I know it really well. I've worked up there a long period of time. I've also worked all over the world. So I do have an appreciation for how things work elsewhere. And that is one of the things that I really appreciate about Alaska, things work well there. The regulatory environment, the regulatory people in Alaska, they understand mines. They know what it takes to permit a mine and they know how to do it so that it's done right. And that's something I don't think that the world appreciates or that we're often -- we -- the US government is off investing in projects in Africa, well, we don't do it right in Africa. I will guarantee you that. So -- and it probably is easier. But when you look at a mine like Red Dog in the partnership between Tech and Nanota has developed over a 30-year period. And what that mine has done for the Northwest Borough region, it's -- first of all, it's not Northwest Borough, its self-governing. That's a native driven governance process. So that's ESG to at -- that's what ESG is supposed to be about. So I think it's high time. I want to get distracted on our government, but that's -- investors need to start realizing that, that if they're truly interested in ESG principles, they need -- those are the metrics they need to really start paying attention to. I'll get off my so far.

No, we put it right up for you, Rick.

Yes. I think one of the things jurisdictionally, when you do have the level of experience that both Rick and I do in Alaska, it does give you an advantage to understand what will work and what will not work or certainly what has much better odds. There are certain areas that are going to be tougher than just are there are certain areas that are going to be less tough. And this -- the native corp side of things, I mean, it really is a model for the world. It's very unique to Rick's point, and it's a tremendous advantage. And anybody spent any time around the Alaska state government or just generally the people of Alaska ask because they can do a state, they're not looking for and out let's get out there and get it done. So we like it. I like it a lot.

Awesome. One last question out of me before I jump to the audience. So just one last one, guys. Curious, just in detail and as specific as possible, what's up next for the Johnson Tract projects? Like what should investors be looking for in the coming months?

Yes. So and I'll ask Darwin to comment on this as well to fill in the gaps there. But generally, it's infill-drill to known deposit. We want to move this thing, execute our model as quickly as we can. And the next step is permitting and infill drilling and say, on the surface. And so -- there's some surface infill work to do. That's where they can get done this summer. The underground work has to wait to get the permits to get the access over there and the plan for the waste rock and all those things. So maybe Darwin, maybe you can fill in the gaps or add...

Yes. Yes. I mean we've been very busy doing the borrowing stuff for a little while, which is great stuff to do it in a crappy market, getting a love for it anyways. But there are things that are fundamental derisk in value-add, I think, and then probably helps lead to transactions like this. It means the starting point now is not starting from now and waiting 2 years to get your permit to get underground, your permit to get rover. Literally weeks away from having the road permit Rick was talking about on broad to get us to the portal. We did a lot of work last year to ourselves up to initiate permitting the underground exploration that should be initiated in the last half of this year. We're expecting a lot of the team to stay together here. So there's going to be continuity on the project and with our contractors and be able to move this forward. It's a nice merge that way as well, I think, for the company in terms of personnel and complementary skill sets. But yes, those are big pieces and continue to work on switscoping and engineering is what we've been working on the background as well. And I'm sure Rick and team are going to carry on that and figuring out what's the best destination to be dropping our ore off that. I think there's several options out there, and it's very attractive ore. So there should be folks that are interesting.

I'll just say I'll add one comment to that. And I think I said this several times, we've talked in the past from that 8, 9 grams will displace 5 grams every day.

I mean I think if you put it very well, Rick, like looking at an show, it's a long ways to track it. They're tracking at about 240 miles, I think, and for Canadians in the audience of 400 kilometers. I think you described as you lose a gram for transportation. When you got a not 8-gram deposit, that's still not too bad, right, for an open pit at 8 grams, 7 grams. So it's grade does give you a lot of flexibility.

Awesome. I know there are tons of audience questions. So I'm going to try to get through as many as possible. Some where they're similar, I'll try to group them, but we'll just go through them mostly in order otherwise, just we can get through as many as possible. BW King, this is for Rick. You once mentioned a royalty angle to Contango. What's the view on that from this point?