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

Analyst. So good morning or good afternoon, depending on where in the world you're signing in from today. And thanks, as always, for joining us. Today, I'm pleased to have on Rick Van Nieuwenhuyse, Contango Ore's CEO; and Mike Clark, the company's CFO, to discuss this morning's press release. Gentlemen, how are you today?

Good and well.

Good morning.

Awesome. So here's how today is going to work. I'm first going to throw it to Rick for a quick kind of state of the union based on this morning's news. Then I'm going to jump back on and go through a few questions, including some that came in advance via e-mail. But then I'm going to get into questions from the live chat. This is an interactive event. Please feel free to enter questions for Rick and Mike at any point during today's event using the chat on the bottom right of your screen. We'll get to as many as we can. But if for whatever reason, we don't get your question today, I'll make sure that the team gets them so that they can respond to you just via e-mail or call soon and soon thereafter. Last piece of housekeeping is today's event is being recorded and will be available for replay this afternoon, very likely by 2 or 3 in the afternoon Eastern time. It will come right in your inbox. And at that point, you can share it. It will be up on both YouTube and events 6ix. But without further ado, I'll throw it to Rick to get started.

Thank you, Romeo, and thank you to 6ix for hosting our webinar today. Yes, important press release out. Obviously, it's taken us a little longer to get this out than we really wanted to, but we have come to an arrangement with our lenders on rescheduling the hedge delivery dates and the debt repayment schedule. So a lot of this, obviously, is really the job of the CFO. So you'll be hearing a lot from Mike today. He'll probably answer most of the questions, and I'll probably chime in here and there. But -- so without any further delay, Romeo, why don't you go ahead and start with the questions.

Awesome. So I got a quick number, and Mike, this is going to be a bit of a grilling for you as Rick foreshadowed. Sorry, I'm going to hit you with a bunch. And then we have some that came in over e-mail in advance too. I will get to those and then jump into the chat. So first, originally, distributions were around 50 million from the JV. Do you see any change in coming from that?

Yes. No, the original distributions were forecasted by Kinross were based on a $2,500 gold price. So with gold currently about $2,900, we would expect those distributions to increase. Typically, at the end of each campaign after a couple of weeks, Kinross will go through their forecasting and budgets to come up with what the actual distribution will be. So I would expect we should find that out in the end of March, the first campaign of this year.

Great. End of March. I appreciate that. One clarification, just from reading it. Before, Contango is exposed to 40% spot prices and now only exposed to 30% spot prices. Can you explain what the dynamics are there?

Yes. It's a combination of a few things. The 40% was always kind of based on the feasibility study, which was -- which, at the time, had higher production in 2025 than what we're currently budgeting. In addition to that, you have -- we actually produced more in 2024 which kind of took away from a lot -- more growth that would have produced in 2025. And so we actually, we're only about 50% hedged in 2024. And then with the kind of the extended kind of overhaul plan, you'll just see kind of the production stretched out over a longer period of time. So life of mine, it doesn't change much. But for the next 2 years, we're going to be about 30% unhedged -- or 30% unhedged. And then in 2027, when we paid this off and deliver those last ounces, it comes out to about 80% unhedged that year and then unhedged thereafter.

So it's really just kind of moved, like it's...

Yes. It shifted over slightly.

That makes sense. And what do the lenders charge you for this restructure?

There's no charge to make the amendment. So it's just a matter of resculpting everything to make it work. So no change in the interest charge.

Great. Okay. And -- it was a tough question, obviously answer just the best of your ability. Do you anticipate having to do an equity raise in the near future?

No. The way this was resculpted and recontoured, however you want to word it. It was -- based on current gold prices and forecasted costs, we anticipate -- we should have enough money to make all the principal repayments and deliver the hedges without having a big equity raise.

Great. Other one -- that is just from my perspective. So forgive to tell me, but why did this -- why this took so long?

I guess I'll start with this. Rick might have his opinions. But I think the main reason this took so long is, first of all, we extended beyond the original maturity date, which requires a certain level of due diligence be conducted by the lenders to get it through their risk departments when you go beyond that date. And then having this happen over Christmas and then having the cost go up slightly on the tolling and processing that we announced at the end of Christmas, there was a bunch of factors that came into play. Then you throw on having 2 sets of lenders and just another -- it's just another set of parties to go through. And then the due diligence from a third-party engineer that required about a month of work or a little more than that. Just all those factors just ended up taking the better part of the 2 months. And then finally, documenting is -- you think it would be simple to stretch, to change your principal repayments and your hedges slightly. There's still a fair amount of documenting to be done and thought to go into it just to make sure you're not going offside with your covenants or anything like that, which we're in compliance on, but that took a little more than we anticipated. And originally, our goal was the end of January, and we're 2 weeks into February. So it could have been worse, but we finally got there. Rick, anything to add to that?

Yes, I'd just say working with 2 bankers, they don't -- they're not 100% aligned on everything so that you -- the one is a Dutch bank, one's an Australian bank. So they just do things differently. That certainly was part of the factor, and it's probably something we didn't really anticipate because we kind of view it as one aspect of debt of repayment and delivering to the hedges. So definitely took longer than we all anticipated. But I think very happy with the result we have. It does basically just spread the hedge delivery out over another 6 months essentially, but we're -- as Mike pointed out, we're -- in 2027, which is a very strong year for gold production, we're only 80% unhedged. Early -- only 20% hedged, I guess, I want to say it that way.

That makes sense. And I've got one big question for what this means for this year. Is this restructure going to allow you to do any work this year on Lucky Shot and Johnson Tract, just so we got a bit more info there?

I'll start on this. But currently, the way we've forecasted and budget is we put -- we've allocated a couple of million bucks to go towards permitting at Johnson Tract. And that's the primary focus right now. So that's all that's currently allocated. Rick, do you want to add anything to that?

I'll jump in because I think the important next step at Johnson Tract, specifically, is permitting. And so as you know, last year, we permitted the road. We received the 404 permit to construct the road between camp and the future portal site, so we can get underground and do the proper exploration and feasibility level work to get -- to evaluate the ore body from underground. Again, we do anticipate that this will be an underground mine. But the other set of work that has to be done on permitting is permitting a road down to the coast and permitting of our landing site. Very good news there is that CIRI received their easements for both the road easement and what's called the port easement at the end of the year. And so now that allows us to go through the formal permitting process. We're getting a programmatic agreement in place, which kind of is a document that just so outlines how the permitting will proceed, how the planning stage, the execution stays and then goes all the way through closures. So it's a very comprehensive document. That's being finalized. And then once that's finalized, we can initiate the formal part of permitting. Again, both the road access down the coast and the barge landing site. Lucky Shot is already fully permitted. So the next big step we want to take on both projects -- and this is given the cash flows that we're anticipating. The next big step we want to take is let's find a home. 2, where to process these 2 grade ore bodies. So we're going to -- we are spending a fair bit of time on that, which isn't -- doesn't cost a lot of money, frankly, but it's a lot of conversations with existing facilities, that with either as is or with some modifications, can accommodate both ore bodies. So that's going to be the focus for the year, that and permitting, as we just discussed.

Great. I appreciate that. There's one question from the chat that I'll throw in here before I get some of the e-mailed ones. Mike, it's definitely for you, and let me know if you need to drag up some docks, let me know, but it's -- what are expected total cash flows to Contango from Manh Choh for 2025 through to 2028? And as additional details, are the cash flows net of taxes and debt amortization? And he says you can use $2,500 or $2,900 spot price to clarify which assumption. I'm putting you to work here, Mike.

I don't have all those numbers in front of me. So basically, what we have right now is we have our detailed mine plan from Kinross for 2025, which is what we're using. Outside of that, all we really have is kind of feasibility study level kind of work. And so for 2025, we published that we -- the distributions were currently scheduled to be about -- or sorry, $50 million. I think they'll be higher at current prices, assuming they stay there. Those are pretax numbers, and that number does not include kind of your hedge loss that you -- when you're delivering these hedges. So there's going to be $20 million to $25 million there, probably going to the hedge loss. But from a tax perspective, we do have losses. And so currently, we're not forecasting any major taxes in for the next couple of years. Now we're still working through that, and it's not as straightforward as just saying we have this many losses we can offset because there's rules on how you apply it, and there's actually only 80% of your losses, you can actually apply to your income in the year. So there's always potential for small tax bills at the end of the year. But we're structured in a way that can hopefully offset that with other costs in the company. And we're working on that right now, and it's not something I have answers to. Going forward, we did talk -- we've talked about what we expect our free cash flows to be in '27 and '28 in the press release, which is pretty high level and based on $2,500 of gold. And I think that was -- I think it was $80 million and $70 million for the 2 years. And a lot of that just has to do with the fact that mining costs came way down in those years. And then for 2026, there wasn't too much free cash flow, basically because a lot of the money is going towards the principal and the hedges. So I don't know if I've answered your question clearly, if I missed anything. Rick, do you want to jump in?

Yes. No, I think that kind of covers it. I mean the big cash flows are going to come in the latter years, when you've already mined a lot of the material and you're basically just transporting it. So that's just a consequence of the overall mine plan and that's fairly typical for a mine that has a 5-year mine life.

Sure. And Chris, I'll deliver your question exactly as written to the Contango team. So if there are any follow-ups, I can get back to you, but I think that did mostly answer the question.

The one thing I'll add, Romeo, is in '27 and '28, we will probably have exhausted our losses at that point. So you could start assuming some taxes. But again, if you're spending money on the other projects that we have, then those costs will go against it. But until we get there, we just don't have those answers.

Right. That makes total sense. One question that came in over e-mail said that they mentioned Kinross reporting had positive comments about exploration at Manh Choh. I would love to know, if you can comment on that or if you have any related information?

Sorry, I missed the question. We had some background noise here.

All good. This is about Kinross comments about exploration at Manh Choh. I just want to know, if you have any related information?

Yes. No, we don't really have any, I'd say, significant results to report from the 2024 drill program. A lot of that work was spent -- a lot of that effort was spent on, I'd say, target generation in the rest of the property. There was some drilling done, but it was kind of very targeted, a few holes here, a few holes there. On existing targets, what I would say, sort of a long strike and down dip. We certainly think that's where the effort needs to focus. Again, short mine life. So let's extend it by a year or 2 by doing some work between the pits. There's some interesting areas as we've all talked about in the past, the 2 North zone and Main Zone dip towards each other. So what's in the middle. And then, of course, as in any ore body, just incremental growth along strike and down dip is where we think the focus ought to be. So we'll have our joint venture meeting here in the -- I think in March is typically when we have it to discuss the drill program for the year -- the exploration drill program for the year. So hopefully, we'll be able to update people once we have that set.

Awesome. Appreciate that. One question, this is -- it's about the bridge. And somebody wrote in asking, with the Trump admin, can you appeal to get the bridge weight increased?

Yes. Sorry, you came in really broken there. Romeo, can you repeat the question?

Yes, all good. Somebody just wrote in a note that with the new Trump administration, is there a potential to appeal to get the bridge weight increased?

Yes, actually, I don't expect it to be an appeal at all, but because [ abbot ] the very end of the year, the Alaska State Department of Transportation and the federal government DOT actually came to an alignment on accepting the -- what they call the STIP plan, state transportation plan. So with that, the money now is allocated to do the repair work on the Chena Flood Plain Bridge. And so they'll undertake that over the next couple of years. That should result in eventually a total lifting of the weight reduction that was put in place. I also understand that because they now have an end date on when the bridge will get repaired, that they'll be doing another evaluation step and saying, okay, now we know that bridges can be repaired by such and such a date. That's part of the calculus that goes into determining whether there should be bridge weight restrictions at all. So it's a dynamic process. It would have been nice to have had those -- that budget approved last September or whenever, but that wasn't in the cards. And it just to make sure it's clear, we're not magically going to get another 10 tonnes on the trucks. It's -- we're going to have small incremental improvements from the bridge weight, if their bridge weight restrictions come off. We'll have -- there were other factors that went into the overall sort of net efficiency of the truck transport, how many tons of actual ore were being transported, not of ice and snow and mud. So we'll make incremental improvements there just by -- in the winter time, knock in the ice and snow off as frequently as you can. Same in the summertime with the mud, they have a wash station that they'll set up before the trucks get on the highway. Most of the ice and snow and mud get picked up on the road between the mine site and the highway. Once you're on the highway, it's -- you're generally -- you're going to -- there's a snowstorm, obviously, you're going to pick up ice and snow before that's cleared off. But that's -- the Department of Transportation's job is to clear the highway of ice and snow. So those are the mitigating steps that will take place that we can control, trying to knock the ice and snow off before you get on the highway and then the wash station to clean the mud off. The other -- so those are incremental, not quite 2 tonnes a piece, but they're kind of in the 1 to 2.5, 3 tonnes each of those. And then the other one is moisture content. And obviously, in the winter time, there's no water water, so it's all frozen. So the steps that will take place this summer is to get proper drainage around the stockpile area and around the bottom part of the pit. [Technical Difficulty].

I think we lost Rick for a second.

Reduce the amount of moisture that you're picking up. So all those are small incremental steps that you typically do with any mining operation. You find out what the issues are and then you figure out a plan to address them. And in our case, a lot of the costs are related to the transportation. So the mining is actually going pretty smoothly and pretty much on budget and on schedule. So the focus is on this -- on the overall transportation by making that efficient and cost effective.

I appreciate that update. And Lucien and Paul from the chat, I think that should cover your questions, too. Let me know if you have anything specific. Eden asked just kind of a corollary to that. What impact, if any occurs, when the bridge is being repaired? So will there be reduced haulage rates if the bridge traffic has slowed or closed for periods of time during repairs?

Not anticipating anything. Obviously, traffic will slow down, but that's Alaska. All along the highway, that is pretty typical. What you see, you've got a good 4-month of construction season -- 4, 5 months of construction season. So Alaska highways are -- Alaska -- and people who drive the Alaska highways are used to that. And that was part of the original when we had the original feasibility plan in terms of how many trucks a day and how -- there was -- that was factored in that their road repairs are ongoing. And like I say, it's cost in Alaska. We've got a 4-, 5-month period to fix the roads, and so that's pretty typical. I'll also say that we are -- and I think I've talked about this before, there's a self-imposed cap of 60 trucks a day, and we're maintaining that. We're not trying to go above that. That's -- so that -- the effort is really into making -- getting as close to the 50 tonne limit that we can with working out these efficiencies. And obviously, the bridge rate restriction is part of that. So if they relook at the math and relook at the calculus and say, okay, well, we don't need to have that extra bridge weight restriction, then we can take that off. And keep in mind, because there already were bridge weight restrictions in place, this was a further bridge weight restriction that was placed last fall.

Sure. It's helpful for people to remember. One question in the chat. Christian just asks, discuss short position. It's a little baffling, so I think we did get a question in e-mail about it as well. So why would you just could speak of and about your shorters?

Well, love to hate on the shorters. Obviously, they're betting against the company. And I'd love to squeeze the hell out of them. I think last year was a successful year in terms of gold production. We produced more gold than we said we would. We guided towards between 30 and 35. You take the midpoint, 32.50, and we produce 42. So almost 10,000 ounces more than scheduled and planned. So the bridge weight restrictions and the other incremental, I'll call them, ore tonne losses, we're -- compared to the feasibility study, we're definitely a hit. I personally think it was an overreaction. I chose to buy shares on that reset price. I think the short side went wrong. I think we've got a good mine plan. Kinross is a good operator. They've been in Alaska for 25 years. We hear all the they're shutting the road down, they're going to take the bridge out or there's no other way to get there. None of that's true. And this is one of the main arterial highways to get everything into Alaska. I'm not talking about food and fuel. So there's no way that, that road is going to get shut down. It's a very important highway for Alaska. And I think as long as we're operating in -- under the -- under legal loads and legal truck drivers and all that, I think we're in good shape. Mike, I don't know, if you have anything to add there?

No, no, I think that was good. Nothing to add.

Mike, one for you, just last towards the topic there. I apologize, I missed it. TB just wants to know how much cash in the bank right now for Contango?

Cash in the bank, we just made a principal repayment at the end of January for about $14 million. I think we finished the year around $20 million. So I think our cash today is a little over $3.5 million today. And so this is probably the tighter part of the year, but we expect our distribution at the end of March, which we'll get our cash higher up there. And I think our first 3 batches -- our first 3 campaigns are much bigger than the fourth campaign for this year. So the majority of the distributions are going to be front-end loaded.

Great. Christian from the chat asks, what's the timing for production at Johnson Tract in the best and bad case scenario?

Yes. I mean it's obviously a bit early to get too predictive here. We have a -- I'll say this. We have a 5-year plan. I think we're still on target for a 5-year plan to get this into production. Next steps, as we've discussed, I'd say our twofold permitting effort on the easement, the road easement and the port -- what we envision as a barge site easement. With the easements in place now from -- with CIRI and that's -- those are easements from the federal government to CIRI for the right of ways to construct a road and to build a barge landing site. So that's really the -- on the one side, it's all about permitting right now to stay on track. And then I think the other important thing is, as I mentioned earlier, let's find a mill that can process this ore. And if they can process this ore and [ John ] and Lucky Shot as well, and that's kind of a double win. There are some mills out there like that. So we're having those discussions now. And that -- those 2 things will be the focus for this year 2025.

Great. PDX stock guy from the chat asks -- it's got kind of 2 questions, but I'll turn it as one. Yes, is the main priority to pay down debt? And if debt is paid off early, can we float the spot gold price?

Yes. I'll take a stab at that. But 2 priorities: deliver into the hedges and pay the debt off. And no, so the answer to the question is no, paying off the debt doesn't free you up for spot price gold. The delivery of the hedges does that. Mike, do you want to clarify that maybe?

Yes. No, I think you answered it well. Yes, our objective is to make our payments. And if there's -- if we outperform what our current forecasts are from a cost perspective or a production perspective, which we kind of hope we do, we'll look to pay things off earlier as much as possible. And I think -- and if it goes back to where we were on the original plan and delivering all that into 2026 and being done by the end of that year, then great, we'll do that.

Awesome. A couple of questions from Dr. John in the chat -- great screen name, by the way. Any hope for stock price improvement? So what's going to turn the stock, around basically the thrust of this question.

Yes. I mean, I think getting rid of the shorts will help squeeze the shorts. And I think one piece of information that can help with that is putting value on Johnson Tract. I don't think we get a lot of value for Johnson Tract. It is a fantastic ore body. It's good grade. As an ore body goes, it's a simple ore body from a mining standpoint, for an underground mine. And we are finalizing the PEA, hoping to have that out in March. I'm hoping for -- I'm not hoping for -- I know we're going to get a good result, but it's just you got to do the work and we want to do a good quality PEA that really captures how you will go about mining this using a, I'll call it, a third-party mill, an existing mill somewhere else. That's the plan. That's the evaluation work that we want to do. And I think you'll see that this is a very, very valuable ore body in that -- it really supports that the model we have, we call our hybrid royalty model using a direct shipping or approach really makes sense for a junior miner. I mean it's a tough business trying to get things permitted. And so, if you can reduce the permitting load by not building a mill in a tailings facility, that certainly will help. And I think will be a huge value add including -- even including the cost to get -- transport the ore to the mill and for whatever the cost of the mill is going to be, whether it's a toll arrangement or whether you acquire the mill or whatever. So those are -- we're looking at all those scenarios, but I think you'll see that both Lucky Shot and Johnson Tract fit really well into this model and will be huge value adds for the shareholders.

Awesome. CW from the chat asks, have any royalty payments to the Tetlin tribe been made from Manh Choh?

Yes. Short answer is yes. They're made on a per batch basis.

And those are paid out of the joint venture.

Great. A couple of questions at the end here from Christian. Just generally, how does the new Trump regime help Contango? Generally, is it positive for the company?

Yes, it's on permitting. I mean, obviously, if you've got a federal government that views mining as a value-add for society, then that's a positive. I don't think we had that with the previous administration. Especially in Alaska, I mean we had -- I think it was 82 specific executive orders that were targeted at shutting down resource development in Alaska. So yes, it's a breath of fresh air, having an administration that actually sees the value that mining can contribute to society. And this includes meeting the objectives of a zero carbon energy and transportation future. I mean, you can't get there without mining. I think some folks in the previous regime understood that, but not enough to actually make a difference. As I said, there are 82 executive orders specifically shutting down Alaska mining and energy. So that's a big change. I'm hoping that with an alignment in Congress with the Senate and the House and the executive all focused on permitting reform that they can actually get through permitting reform done, I think that will be a huge positive for all things permitting. And that -- it's not just mining, it's about permitting windmills and solar plants and nuclear power plants, all the things that we need to meet the future energy demands and the future demands on metals. As a result of that, the increased energy demand. I mean you can't look at this equation and not get there without a lot of mining. And if you want a domestic supply chain or control of your domestic -- from a domestic side, from the whole supply chain, otherwise, you just got to recolonialize Africa and be done with it.

One question from the chat, this one is on strategy. Have you given any thought to spinning out advanced projects as a new Spinco?

Yes, actually, we -- I don't think spinning out Lucky Shot or Johnson Tract, which would be the 2 that I consider advanced projects. We do look at our early-stage assets and we kind of think they don't really fit anymore with the approach that we're taking with using a DSO and the hybrid royalty model approach. So that's something I think we'll be working on. I'd say it's not the first priority and that continue to advance the Johnson Tract permitting is certainly first priority in terms of our advanced projects. But that is something that we are taking a look at. Now I'll just take this opportunity to say there's a lot of ways to skin the cat in the sense that we can demonstrate that Johnson Tract is a very viable project and -- with a high-end BV. We can have a discussion to acquire a mill or we can have a discussion to have former joint venture to develop it. So I think there's a lot of things on the table that we can take a look at here that don't require a huge amount of outflow of cash. So don't -- I would just caution investors and shareholders not to assume that we're going to go pay a bunch of cash to go buy a mill. And we're not going to -- we're not just going to hand over the keys to Johnson Tract. It's -- the NPV of the project will demonstrate that it's very viable, and that will set a milestone for that value.

Awesome. I appreciate the insight into strategy, I think it's always helpful. Mike, it looks like the last question is for you. Devin asks, what is the company's current debt level?

Current debt level. Our debt is currently at $38 million. So that includes our last principle repayment at the end of January. And then I consider our hedges kind of in a way. And so we ended up actually buying out our January 31 hedges in December when gold was down at $2,600. So we bought those -- those 16,000 ounces out early, which I think generated a little over $3 million to us overall as an overall benefit. And so we bought those out in December, which kind of formed part of the whole formula with the restructure. But -- so that brings our ounces -- our gold ounces that are hedged to just over 86,000 ounces. So those are the 2 items related facility, and then we have about $20 million convert with Queen's Road Capital that matures in 2028.

And we've got one last comment from Dr. John on the chat, hate those shorts. There you go. Gentlemen, thank you so much. I think that's great. And there are a lot of really good questions. I think we got to them all, but I will send the full transcript over. So just in case we missed anything, please do reach out, and we'll make sure that the Contango team gets back as soon as possible. But Rick, I'll throw it to you for a final word before we jump to the end.

Yes. Thanks, Romeo. And again, thanks, 6ix, for hosting this webinar, and our investors for tuning in. Yes, I think, obviously, it's a bit of a reset with the adjusted mine plan, but we're delivering the same amount of gold over a longer period of time. And thank our lenders for working with us to accommodate that at no cost. I think that's a big win. And we'll focus on advancing the Johnson Tract permitting and looking for a mill to process both our Lucky Shot and Johnson Tract ores over the course of the year here, and look forward to reporting and updating shareholders on that. And let's go squeeze the shorts.

There you go. Rick, Mike, thanks so much for today. Looking forward to seeing the next news that's up.

Thanks.

Thanks.

Have a good day.