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

All right. Well, folks are getting in the room pretty quick. I'll say good morning and good afternoon depending on where you're logging in from today. Really do appreciate all of you joining us for our corporate update and Q&A session from Contango Ore related to this morning's press release regarding a $24 million cash distribution. It feels good to say that number out loud, don't get to see very often. And the completion of 2025's first campaign. I'm joined today, of course, by the company's President and CEO, Rick Van Nieuwenhuyse; and CFO, Mike Clark. Gentlemen, thank you for joining.

Romeo, good to see you again. Mike, hello from across the pond.

Good morning.

Here's how today is going to work. So I'm first going to throw it to Rick for a quick rundown of today's news. Then I'll pose questions to both the speakers on the line today. After that, we're going to take some questions from the audience here live in the room. This one's going to be a bit shorter event than we're typically used to. Be probably ending right at the half-hour, so will try to get to as many questions as I can. Please feel free to ask anything. But if I don't get to you today, I'll make sure that the questions get to the Contango team so they can get back to you as soon as possible. Today's event is also being recorded and will be available very shortly today on both 6ix.com and also our YouTube channel. But that's it for me. I'm going to throw it to Rick for a quick intro before I jump in with some questions.

Yes. So just -- thanks, Romeo. And just to everybody, thanks for joining us. I'm in Zurich, Switzerland for the European Gold Forum here. We've got a 3-day conference and it'll be a busy 3 days. I think I've got about 38 meetings lined up. So looking forward to updating everyone. Yes, we put out a press release this morning. As Romeo said, kind of distribution from the Peak Gold joint venture of $24 million. Always good to get money into the bank. We basically delivered more tons to the mill at Fort Knox than planned, and so produced about $19,500 (sic) [ 19,500 ounces ] of gold for our account, with our 30% of Manh Choh production. We haven't quite sold all of that. Mike can probably give you some more details on that. So part of that distribution was something that -- so I'll tell you, the first half of the gold sales, but we've got more gold sales to come from this first campaign. It is a first campaign. Basically they run for about a month. There'll be 4 campaigns running this year. They're in the middle of each quarter. So the February one, obviously, lasted a little longer because we, again, we delivered more tons. So another campaign will be in May, and then August and then November. So we're on track to produce 60,000 ounces of gold. We're actually ahead of schedule, if you will, for the year. And we've guided to a $1,625 gold price. We don't have any cost related to this first campaign as of yet. Probably will have those in early May. But we're just kind of going with our 60,000 ounces of production for our share of Manh Choh production, and at an all-in sustaining cost of about $1,625. So with that, I'll say we'll open this up, Romeo, to questions. I know there's probably a lot of questions out there. We've got a pretty full audience. So let's go ahead and get started.

Awesome. Yes. So I've got some, a lot of them based on investor questions that came in on e-mail in advance. So if you don't mind, I'm just going to jump into a bunch of them right off the bat. The first campaign of 2025 exceeded original guidance with approximately 19,500 ounces of gold, for Contango's 30% share. Curious, and I assume other people are too, what operational improvements or new strategies contributed to this kind of outperformance?

Well, so basically, it's tons and grade. So we -- the mine plan had us delivering 275,000 tons of gold at about 0.22 ounces per ton. And we ended up delivering about 50,000 tons more, just a bit shy of 50,000 tons more than the $275,000 -- 275,000-ton plan. Grade was a little slightly lower than planned, by like a 1/3 decimal, so not very much lower, but a little bit lower. And then recoveries were a little better than plan, again, just a little small percent better level of recovery. So all in all, the plan was roughly to produce 15,000 ounces 4 times a year. And the first batch out being larger, produced more gold, and we got roughly the same grade and roughly slightly better recovery. But basically, this time is about -- mostly about tons, delivering more tons, which is a good thing to start out the year delivering more tons than planned, especially during the winter months when you can get snow conditions, storm conditions, what have you, that maybe reduce the amount of truckloads a day you can get up between the mill and the -- between the mine and the mill. And I -- so I think that's the basic, straightforward answer. More tons.

No. I appreciate that. It makes sense to me. As I understand that there is still gold unsold, is that correct, as of right now?

Yes. So I'll let -- Mike sells all our gold, he makes all our money, so I'll let him answer this one.

Yes. No. So as of the day -- well, as of Friday, we'd sold about 13,000 ounces out of the 19,000. I have sold some more this morning on the final shipment for the quarter. But there's still about another, I think it would be about 7,000 ounces that should -- that weren't included as of the date of the release.

Okay. Cool. Yes, good to know. Just generally in the same vein, with cash distributions now expected to increase to $80 million, which I think I'm allowed to swear on this platform, is a s*** ton of money, how does that stronger cash position benefit shareholders? What will change going forward?

Well, maybe I'll answer first and let Mike again answer more like a CFO. Basically, our first -- and we said this many times before, our first order of business is pay down the debt, deliver into the hedges. So that's definitely what we're guiding to do, and we've said we're going to deliver about 70% of the gold produced this year into the hedges. And in 30% would then be exposed to stock price. So there's -- we make about $400 an ounce on our gold delivered into the hedge price, which is at $2,025. And again, our all-in sustaining guidance right now is $1,625. That hasn't changed. So the delta there is $400. So we don't lose money selling gold into the hedges. I know I've said that many, many times and -- but I'll say it again, we make money. And obviously, in a $3,000 gold, or it's maybe $3,025 gold, we make about a $1,400 margin on 30% of the ounces. So yes, $80 million is a lot of money and we're -- the objective is to -- obviously, $80 million is going to allow us to pay down the debt significantly this year. I'll let Mike get the -- give you the numbers of what we're projecting. And delivering the gold to make the 80,000 -- $80 million of money means we're going to reduce our hedge book roughly in half. So right now, we've got 86,000 ounces of gold hedged. And by the end of the year, with our planned production, we'll deliver about half of that, we'll reduce that outstanding debt. Mike, do you want to?

Yes. I guess the only thing I'd add to that is the $80 million is kind of pre-hedged. So we get that cash flow from the people at JV, and then we have to sell our hedges and deliver into them and also sell it spot. So the way I would look at it is you've got $80 million of free cash flow coming from the JV and then you're going to have about a $33 million realized hedge loss on deliveries. And so everything after that is kind of free cash flow from operations for the year. The only other item kind of, as Rick said, the $9 million as part of this $24 million came in early March. And that really related to 2024 excess cash, which has kind of added to what we weren't projecting necessarily in our budget. And so that's kind of given us the ability to kind of focus on cash management and timing of paying down principal repayments in advance to save on interest and just give us a little more flexibility in what we want to do, make sure we have plenty of cushion [ to account for the year ].

Makes sense to me. One thing I noticed in the press release is it mentioned ongoing incremental improvements in both ore haul and processing at Fort Knox. I'm curious if you can just share some sort of specific examples about these improvements and what they mean for campaign results going forward.

Yes. So one of the -- there were 3 main areas that -- where we reduced the effectiveness of the truck haul in terms of tons of ore being delivered to the Fort Knox mill per truckload. And they were the bridge weight restriction. That's still in place. So I think, rough numbers, that was about 2 tons, 2.5 tons of -- for the restriction in terms of tons of ore in the truck. The other one, or one of the other ones, was moisture content of the rock. And being in the wintertime, whatever water was in the stockpile at the time -- at that time is still in the stockpile because it's still frozen. So that's counted as moisture content, if you will. And then the third -- and that was another couple of tons of extra weight that wasn't included in the feasibility study. Because everything we're always comparing to at that time is always back to the feasibility study plan. Because that feasibility study was the plan. And then the third thing was ice and snow buildup on the trailers that wasn't anticipated in the feasibility study. And that was another 2, 2.5 tons of rock -- of ice and snow. I think all of us were a bit surprised that traders picked up that much ice and snow, but that's the fact, is that they do. And so there's one that that's probably the area that we've had the most success and incremental improvement right now, is just knocking the ice and snow off the truck before it gets on the highway. Most of the accumulation takes place on the road between the mine site and the highway. The highways are generally kept very clear. Obviously, if it's a snowstorm, if it's a bad snowstorm, they don't drive the trucks. They just take a break for a few hours or half a day or whatever it is until the snowstorm passes and the roads are plowed. So that's, I'd say, that's one of the incremental improvements that has been realized. As I said, the moisture content, water has already been stockpiled over the winter. It's frozen, the moisture is in there, you're not getting it out until spring time. And then the bridge weight restriction is still in place. And the good news on the bridge weight restriction is that the federal DOT and the state department of transportation, they did -- the federal government did approve the state transportation plan, which included money now to fix the bridges. So that money has been allocated and the plan is to start fixing the bridges this year. As I understand from the press release that the DOT gave a month or so ago, the bridges won't be completed until next year. We'll see an increase in the amount of -- in the bridge weight restriction. But the good news is it eventually gets repaired and we'll get that weight back.

That's great. I also wanted to ask -- we touched on it, but I want to talk about gold recovery rates. You averaged 93.5% during the first campaign, you're slightly above plan. But curious what contributes to that rate increase, so people get it.

Yes. So basically, it's getting the recipe right. And the main part of the recipe -- so is oxide versus sulfide ore. And the sweet spot in terms of recovery is to have a 2:1 ratio, 2 oxide, 1 sulfide. And with the current setup of the mill, that's what they aim towards. And they've obviously dialed it in pretty well. At the stockpiles at Manh Choh, you have high-grade oxide, low-grade oxide, high-grade sulfide low-grade oxide. And you want to do a blend to target a grade, and the grade is around 0.2. And so if you dial it in right, you kind of optimize the recovery factor. Now as we get deeper and deeper in the ore body, we'll see more and more sulfide, and there are plans to add oxygen into the mixture, which is part of the recipe, if you will, to help improve gold recoveries. And again, this is not a refractory ore, so I don't want anybody to misunderstand what I'm saying, that the oxygen, or air sparging in oxygen, just help float the bubbles and get the mixture and get the cyanide attracted to the gold. When you think about how gold is actually recovered using cyanide, it is a bit alchemy to make this stuff work. And so therefore, it is a bit of a recipe.

Sure. No, we need a bit of wizardry in life for sure, I appreciate it. I've got one question from an investor that I'm just going to ask really verbatim, if you don't mind. Somebody wrote in to ask if you can address the hedge position loss and how that gets cleared up. And he says, he understands the hedge and why it was needed, but he's wondering if the loss is offset by a gain as we get closer to full delivery.

Yes. So I'll answer and then I'll ask Mike to again answer more like a CFO. So there is no loss when we deliver into a hedge. Our all-in sustaining costs, as we just talked about, are $1,650 -- or sorry, $1,625. That's our guidance for this year. Last year our all-in sustaining costs were just over $1,200. So the Kinross guidance to us for the current year mine plan is $1,625. So if the cost is $1,625 and we deliver into the hedge and we receive $2,025, $2,025, that's a $400 gain. We've not lost anything. The unrealized loss that we -- that's talked about from an accounting perspective is on the rest of the gold that you haven't delivered yet, you have a commitment to deliver that gold into the hedge. And if you don't, you've got to go buy it. And obviously, if you got to buy it at $3,000 or $3,100 gold, it's going to cost you a lot of money. A s*** ton, is the expression you used. So again, we don't lose money delivering gold into the hedges. We make less money, we make $400, as opposed to the spot price that Mike just sold gold out the other day, which is -- or, I guess, this morning, was closer to $3,100, so which is more than a $1,400 margin. So again, we do not lose money delivering gold into the hedges. Mike, do you want to...

Yes. I guess I agree with what you said, Rick. I think just looking at it from the financial statement perspective, looking at the 2024 results, we ended up with a, I think, about a $55 million hedge liability on the books. And what that's comprised of is you do a kind of a mark-to-market on those undelivered ounces that are outstanding at the end of the year. But then if you look at the income statement, you have 2 components to that loss. You have a realized loss and you have an unrealized loss. So as you deliver ounces into the hedges, you're effectively moving things from unrealized loss to a realized loss. And so at the end of the year, we had $20 million going to realized losses, which relates to the hedge deliveries that we went into. And then there was $35 million that's related to all the outstanding hedges that haven't been delivered into. So as we continue to deliver this year, you're going to see a higher realized loss versus unrealized loss. Does that kind of makes sense or did I say realized too many times?

I'll just add in there that the only way we lose money on the hedges is if we don't deliver the gold. As long as we're delivering gold on plan, and right now we're delivering more gold than plan, so that's good, but as long as we deliver the gold to the plan and deliver into the hedges, which, Mike, they total what about 45,000 ounces or?

It's about 45,000 ounces we'll be delivering into this year. And we're already kind of -- we've already chewed through our April hedge book, and we're going to -- starting -- today, we sold everything in spot. But starting on the next week's shipments and then the following ones, we'll be kind of going back to delivering into the next, July hedges. So we're getting ahead of those and it's just part of the plan to bring these down as quickly as possible.

Awesome. Being ahead is always good. Another one just pretty much straight from an investor. At current pace, when roughly do you expect current cash assets will exceed debt and hedge liabilities? Just roughly.

That is definitely a Mike question.

To the numbers man.

Thinking about just -- I don't have -- I don't actually have that kind of forecast in front of me. But I guess I would say, based on our plan to pay down the debt by $37.5 million this year, followed by 45,000 ounces of hedges, which is effectively half of our hedge position, I would expect you would be in that position by the end of this year. But I'd have to do more work on that and get back to that person who asked that question.

All good. Yes, like I said to the folks in the room, I'll send the transcript. Curious, can you explain the -- or reference the $9 million in additional profits from 2024? Why were those paid so late?

Maybe again I'll start and Mike can follow up. Basically when we sold all the gold from the last campaign of 2024, which was in November, it takes about -- if you run the mill for 4 weeks, it takes almost another 4 weeks to get all the gold out of the mill because it goes into the carbon circuit and that just -- it circulates around, it just takes time. And so part of it is that gold didn't actually get sold until 2025. And also, I'd say that going into the winter months, I think the Peak Gold management said, okay, well, we better -- we've got the money in the bank, let's keep it here until we know we don't need it. Again, operating in the wintertime, stuff happens and you might get delays. If you have a lot of winter storms, you might get a few delays here and there. So I think that's the sort of the prudent management of Peak Gold joint venture's money to do, operate that way. And I'd say by the time March rolled around, they said, we don't need the $9 million anymore or your $9 million anymore.

I got a political question, so hoping...

Mike, you want to explain that like a CFO would explain it?

No. Well, the only thing I would say is from their perspective, it's easier to hold back the money than coming up short and have to go back to us and ask us to write them a check. And I think we prefer that too. So that's kind of just how we ended up there.

No. I appreciate it very much. Like I said, jumping into a politics question next. So beware before we jump into it. But as I was perusing the executive orders list recently, and I saw that there was one prioritizing permitting for critical metals related mining projects. Just curious if any of Contango's current project suite potentially qualify for that executive order.

Yes. Actually, Johnson Tract fits really nicely into that. In fact, all -- gold is now included in the critical metals list, which is interesting. But aside from that, Johnson Tract has a significant amount of zinc and copper and silver, all of which have traditionally been critical metals. So as you know, we are in the process of permitting Johnson Tract. And so having an administration that very demonstrably and very vocally is saying, hey, we support mining and we need to speed up the permitting process for critical mines that can produce critical metals, it certainly is a breath of fresh air compared to what we had under the Biden administration where they would say we need critical metals, but then any time there was a project that was producing critical metals, they'd find some excuse to put it on the sideline. So yes, look, I mean, it's not -- we're not bypassing any standards or doing any sort of in-runs here. This is -- most of the permitting we're doing with respect to Johnson Tract is state permitting. But we do have a number of federal permitting agencies that we'll interact with. U.S. Army Corps of Engineers, they control and permit everything that has to do with the wetlands. In Alaska, we have a fair bit of wetlands. And then a few other agencies as well as from the federal government as well as the state government. So again, having a federal administration that is supportive of mining I think will just help smooth the process and actually get to the endgame of actually getting your permits in an expeditious manner.

Awesome. So one thing I wanted to ask about while we're on actually Johnson Tract, what's up next for that project? Are we still anticipating a PEA in the next several weeks? Generally, what can investors expect from that?

Yes, good follow-on question. Yes, PEA has taken a little longer than we would have liked. We want to do a thorough job and so we've been spending a lot of time with our contractor to make sure we put the things in there that are -- that make a lot of sense, and that there's a few things that engineering companies always say, "Oh, you should try looking at this" and "You should try looking at that." And we're like, well, let's get more data before we start going down that path. So short answer is, we -- by the end of this month, it will be done. I think it's going to be a good, strong, robust PEA. It's a good grade deposit. I've always said this, it's one of the nicest underground mines I think you'll see with 40-meter wide stopes. I mean these are -- it's a very healthy ore body. I mean this is a thick, massive orebody, and good grade. And where we're putting in the tunnel is right in the heart of the higher grade, the 20 gram. There's kind of a core zone here that runs about 20 grams per ton. That's gold equivalent. Again, it's a gold, silver, copper, zinc mine -- or will be gold, silver, copper, zinc mine. So I'm really excited to see this thing, the PEA come out. I think, again, we'll see a project that I think is going to be similar in terms of the economics than we have seen at Manh Choh. It's an underground mine, Manh Choh, is open pit. But they're similar size, they're similar grade. And I think we're going to see some good economics on this thing.

Great. I got one question that I haven't asked in a while, so I thought I'd look for an update on it. Any update on the pending lawsuits against the company?

Short answer is not technically. I think we're -- we expect to see some movement here. The case is scheduled in court in August. And so that's fast approaching. And I think we're just -- we feel very confident that this is a bit of a nuisance lawsuit, to use my non-legal terminology. The outstanding legal question before the judge is that we're -- the truck transfer program is a public nuisance. So I don't know how driving legal trucks with legal loads with legal drivers is any more of a public nuisance than any other driver out there. So that's my opinion. We'll let this play out in the courts. But I'm confident we'll be in a good place here.

Sure. Sounds good. I got one, just generally your thoughts, because every morning you wake up, you see gold at a new all-time high. What really is your thoughts on why the gold price just keeps going up? And where do you think it might settle?

I mean, look, central banks continue to buy. I think the other dynamic -- and that's been happening for the last several years. They've really kind of increased the amount of gold that they purchase. And it's not all central banks. I mean, look, it's China, Russia, India, Turkey and Iran. So that's definitely been a big push. I think more recently, we've seen the ETF, the gold related ETFs, also purchasing gold. And for the last several years, they've been net sellers of gold. So that's sort of an added momentum, if you will, to gold purchases. And I was speaking specifically of the ones that actually buy physical gold. That takes that gold off the market. Not the ones that just play with paper gold. Because that's like a $1 trillion business, of trading paper. Obviously, what they call it, the Trump, what's being referred to as the Trump trade or is it Trump tariff trades, I mean there's a lot of uncertainty out there about how all that's playing out. And so that may be sort of another added scoop of uncertainty. It's interesting that Bank of America, which is a big, conservative American bank, came out with their guidance for next year gold price of $3,500 an ounce. Goldman Sachs was a little a little more conservative and came out with $3,300. So again, this is an average gold price for -- I think by the end of the year was what they said. Now at the same time, I'm starting to see articles that are like, oh, jeez, gold price has gone up and up and up and up. And up doesn't go on forever, and they're predicting a, not a crash, but a reset, that's -- things go up and then they reset to 30% down or whatever. So you're actually starting to see both. And it's interesting, today in a high gold price, a bunch of [ the spots ] are red. Yes. So there's just -- it's -- there's definitely -- shorts are making bets against gold and against gold mining companies. I'll bring back the hedge word, I hate talking about it sometimes. But the whole purpose of a hedge [indiscernible] so, well, some of these guys who were talking about a 30% correction in the gold price, well, that would put you down somewhere south of $2,000, $1,800 gold or something like that. We're protected. We've protected that downside. And again, we're not losing money selling gold at $2,025, we're just not making as much money. And if the shorts are right on the -- or the analysts are right that the gold price is going to correct by 30%, 35%, then we're covered.

There you go. In the same vein of making money, I did see on X the artist formerly known as Twitter, from a series of robots that track insider bias, that you made another big purchase of Contango shares yourself. So I got 2 questions for you there. Did the robots lie to me? They sometimes do, it's hard to tell with these AI bots that run through the sites. But if not, can you give us some details on your personal buying?

No, I actually -- I did buy, I think it was 10,000 shares. And I'm actually planning to buy some more when Mike lifts the blackout here. We usually put a blackout around any press release we have out. So I think we are incredibly undervalued at $10 a share. And so yes, I plan -- I bought shares and I plan to buy some more shares.

Great. I got one question from the audience, I know there's a bunch, and like I said, I will get this whole transcript for the team so you will be getting back to from the near future. But somebody asked, do you think the markets attaching negative value to Johnson Tract, considering cash flow is robust, stock is cheap compared to those cash flows, they end it with, what gives, Rick? What do you think is going on?

I mean, look, the company has to build for the future. And I think with Manh Choh, we've demonstrated that the DSO model works so long as you have the 3 main criteria, which is that you've got good grade, you can get things permitted, and things that are on private land are a lot easier to permit than things that are on federal land, as an example. All of our projects are on private land. So we tick -- all 3 projects tick that box. And then from a standpoint of -- from a permitting -- permitting just the mine, again, we're not building mills and tailings facilities and things like that. So permitting just the mine, if you're above the water table, it's a heck of a lot easier to permit a mine. It's just -- you're just not interacting with groundwater. So at Lucky Shot, the mine is above the water table. The only time we have water in the mine is when it's raining or when there's -- all the snow is melting, which is springtime. Once that's out of the system, the water -- and it's very good water quality. I mean it's the other part of water, is there's the amount of water and then the water quality. Lucky Shot is in a granodiorite, it's literally tombstone, it's really good-quality water. We put it into some settling ponds and any turbidity settles out, and then you can release it because it's good quality. Johnson Tract, kind of the same scenario, it's above the water table, the ore bodies above you. And we're purposely putting that tunnel in a post-mineral intrusive rock. It's a day site. It's a little different geologically than the granodiorite. But chemically and from a water quality standpoint, it's the same. It's just -- it doesn't have any bad stuff in it. So we can just build an infiltration system and let the water run out of the mine. You settle it out so you're not putting any turbidity and even in the groundwater. So those are the things that make things simple for a mine to be permitted and also makes us able to operate. And those are the ingredients. So I think we've got 3 great projects. We're making more money than planned. So we're going to plan to do something with that. I'm not sure exactly what that's going to be. We're going to be. We want to see what our all-in sustaining costs are going to be for the first campaign. Mike will have those out to you in our Q1 release in early May. If we're on track, then all the numbers that we've been talking about are good numbers and backed up by good accounting methodology. And that means we'll be making about $80 million of free cash flow, gold price stays around about 30 million -- or $3,000 an ounce. And we'll have some extra money to do other things besides pay bankers out. We'll end the year in a good spot. Mike, you want to add anything to that?

No, no, I think it's good.

Awesome. Well, we're now already 5 minutes late. I apologize, fellows, for keeping longer than I expected. I know there are some questions, a lot of them are just straight math questions that I will send directly to Mike afterwards so he can tackle them. But thank you both so much for this update and everybody for joining us in the room today. Hope you guys have a wonderful evening for you, Rick, and the rest of your day for you, Mike.

Thanks.

Thank you very much.

Talk soon. Have a great day.

You too.