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

We're in the world you're sending in from certainly a lot of time zones on today's call. So I do appreciate you joining us. I'm on today with Contango or to talk about the recent publishing of a technical report summary on the Johnson Track project with some pretty attractive economics. So I've got on today, CEO, Rick Van Nieuwenhuyse and CFO, Mike Clark. Gentlemen, how are are you today?

Don will Romeo, I'm in Cornwall England on a on a geo field trip and the hotel has terrible internet. So we have our StarLink out front. So if the Internet goes, hey, wire, we can blame you on Musk.

That was my plan. So that's perfect. Awesome. So here's how this is going to work just for the folks in the room. After my brief housekeeping here at the beginning. I'm going to throw out to Rick and Mike for a brief presentation. Then I've got some questions for them. But after that, this is totally an interactive event. So please use the chat at the bottom right of the screen. If we don't get to your question today, for whatever reason, running out of time, et cetera, I'll make sure the contango team gets the. I'll get back to you as soon as possible. We'll hope to get to as many as we can today. I'll say this event is also being recorded. should be available right in your inbox by the end of the day, Eastern Time. And from there, you can share it out as much as you like it will also be available on 6ix YouTube channel and 6ix.com. Without further ado that, I'll throw it to Eric and Mike for presentation.

Yes. Thanks, Romeo. We've got a few slides to go through here. Just really focusing today on the Johnson Track project. Hopefully, you saw the press release announcing the initial assessment, which is American for Canadian PEA, it's the same thing. If you go ahead, we're obviously making forward-looking statements here. And I think the next slide is on month, of course, seeing production. We are on track to produce about 60,000 ounces of gold this year. I think next week, we'll have a press release solid on our Q1 results, and Mike we'll probably have another event like this to talk about those results. But today, we're here to talk about Johnson Track and the initial assessment that was released just yesterday, I guess. So next slide is focusing on Johnson Track. Of course, located in lower Cook Inlet down right, not too far from the coast. And that's 1 of the things that's attractive about this project. As you know, Contango is focused on our direct shipping ore model, which means we'd like to focus on projects that are close to existing infrastructure and I'll ask you that, that means road, rail and water. And like our Montra project, which is next to the highway, the Alaska highway that means we can direct ship our high-grade ore running between 7 to 8 grams to the mill at Fort Knox. Our Johnson Track project is located about 20 miles from the water. So it's a good fit. As you can see, it's very good grade. And we have -- as the study has shown that it's got a very attractive, very robust project with a $225 million NPV and 30% IRR. So let's dive into it a bit more. The land, 1 of the other criteria we've talked about for our DSO model to work to work quickly, get mining projects into production quickly is the land ownership. The land here is owned by Cooking that regionally Inc. also known as CIRI, one of the more successful the Alaska native corporations. They had the right to select lands. They allowed the Lake Clark National Park to exist because that was their traditional land -- they allowed the settlement with the federal government was to allow the park to exist, but to allow the Johnson Track project area and the land to be needed to CIRI for mineral rights. And along with easements to the coast and a landing a port site or a barge loading site. So the next slide shows the the easements, the purple outlines are the 2 tracks of land that are patented land owned by CIRI. And then the white dash line dash lines are the access easements that have been issued. And then in the darker lines there that shows the potential port sites. We're doing more studies this year to determine the exact road alignment and also the exact location of the port site there on [indiscernible] channel. Next slide. just to get you oriented here, our camp in the foreground there, and then the Johnson Track deposit is located between those 2 mountains, and you can see they're very steep mountains -- in between the camp and the portal site there with the white triangle is the access road to connect the camp and the portal site. And this is, again, all in this recent initial study that we've -- initial assessment study that we've just published. The road there has been permitted and we're now in the process of permitting the proposed tunnel portals at the portal site there. The deposit Johnson Track is located between the 2 big mountains there, again, very steep. And the way to certainly the way to develop this project is to get -- put a tunnel in and get underneath it. And first step -- next step is really to get underneath and drill this out to a feasibility level. The next slide shows this in a sort of a 3D projection here. The multicolor blocks, those are the resource model, the block model for the resource. Based on the existing drilling from surface, and as I said, it is difficult to drill from surface. And you see where the proposed tunnel comes in right at the base of what is a known deposit, it's open at depth, it's open along strike. It's just that we can't drill very easily from the service based on the geometry of the steep mountains and the geometry and dip of the ore body. On the right there, you can see where the proposed tunnel is. It's basically about 1 kilometer long tunnel, which is a similar length to our lucky shot tunnel. So this is -- we're not trying to build a huge long 10-kilometer tunnel like that. This is pretty basic stuff. As you can see, the plan then would be to get the tunnel built and do the infill drilling to outline the ore body. And that really is the next main step from an exploration standpoint to get the ore body drilled to a density -- drill density that will allow us to complete a feasibility study, which is effectively just a mine plan because, again, we do not plan to build a mill or a tailings facility or a large power -- fixed power plant to run all that. We'll have the mobile power plant and basically be a very small footprint underground mine only. with the ore loaded in metal boxes that carry about 25 tons of ore per box, and then that would be transported by road down to the barge loading site, or will be loaded on a barge and then sent to a milling facility. Next slide, if you will, Romeo shows the ore body and the overall general mine plan. I'll point out, you can see where the ore body is. They're on the left. The red is our footwall fall, and it separates or from waste material. And you can see we refer to this as the dayside fault. It's in the hanging wall of the ore body, but the foot wall to our workings. We've taken this approach to develop the mine by putting all the workings, all the development workings in the hanging wall to the bayside fault. And the reason for that is that's an unmineralized post-mineral intrusion. So it has no sulfides in it. It's not going to generate acid is not going to result in any metal leaching because there you're not generating any assets. So it's a smart development plan. And basically, the way you're going to mine this is starting at the bottom and then mining upwards. If the ore body continues, obviously, we have to ramp -- we'd have to ramp down, but we're all of our development rock and development work will be in that post-mineral day site that is -- that, again, has no sulfides and then therefore, no potential for acid rock drainage and/or metal leaching. You can see the economics here. They're very robust. This is mostly a gold and silver mine with a significant amount of copper and zinc as byproduct. We tend to focus on the post-tax NPV 5 numbers, $225 million NPV with about a 30% IRR over a 7-year mine life. On average, you're producing about a little over 100,000 ounces of equivalent gold equivalent ounces at an average gold equivalent grade of 7.5 grams per tonne. Now that's -- that's a diluted mine grade. So that takes into account your stope development and dilution. As you noticed, the resource grade is 9.4%, but your migrate is 7.8%. So you're basically diluting the ore as a result of the mining method that you're using. Obviously, more infill drilling as we get underground when we do stope development, we may obviously be able to improve that. But right now, with an indicated and inferred model, the resulting mine plans is -- results in that roughly 2-gram dilution to the resource grade. You see the initial capital costs here are about $214 million. And that's -- I'll take some broad numbers here. It's roughly $50 million to put the infrastructure in place, which is the tunnel get the feasibility level drilling in place would also include the access road up to the portal site. In the initial cost, initial capital cost is included about $36 million of contingency. I think that's about 25%. And then your sustaining cost, which is continue the development of your different ramp levels as you mine from the bottom upwards towards the crown pillar at the top there, which is $61 million, and that includes a $12 million contingency. Our all-in sustaining costs of a really healthy $860 per gold equivalent ounce. And obviously, you're taking a credit then for the copper, the zinc and the silver that you're producing as coproducts in the overall mine plan. what I really love about this project and the approach is the payback period is not much over a year. So very, very significant economic metric in terms of putting in the $200 million of capital you're getting paid back in just a little over a year. That's the quality of a high-quality project or a consequence of a high-quality project. You can see the gold price sensitivity. We've chosen $2,200 as the base case. That's about where consensus is. Obviously, the gold price has been moving up pretty dramatically in the last year. So consensus also has been moving up, and obviously, it lags a bit the spot price by about $1,000. So we wanted to make sure that investors understood what the leverage to gold is here with regards to an calculus. And you can see the NPV at $3,000 gold is $400 million and at $4,000 gold is $600 million. So it's a very robust project and of course, what you always want to protect for is what's the downside looked like, and you can go all the way down to $1,800 and this still has, I think, about $140 million NPV. So it's a solid project a modest amount of capital -- initial capital to develop a modest amount of sustaining capital because you're letting gravity do most of the work here. You're mining starting at the bottom and mining up which also were always results in pretty good operating costs. I think the next slide gets into that with a couple of views of the ore body. You can see the kilometer half access tunnel there. And then basically, you're losing a series of spiral ramps starting at the bottom and then mining up as you mine the ore body from the bottom to the top. The the level plan layout there on the right side shows the internal spiral ramp and then your development access over to the fault, which is the day side pulp as shown in purple there. And in your mine sequencing, you're using, for the most part, and showed in green, is long-hole stopes. And so these are as an underground mining method is a pretty cheap way to mine underground. These are long stopes at your mining and right up next to the fault in orange is the cut and fill. That's obviously more expensive mining than the long haul. But I don't remember the exact percentages, but more than -- I think about 90% plus of the ore body is mined with using long-haul methods. And clearly, the ore body, as was shown in the previous slide or a couple of slides back, the ore body is open at depth. So once we get in -- and Romeo, maybe just back the slides up to block model, you can see the ore body has been drilled to a depth there, and that's obviously where we put the tunnel in. We've done that purposely and we want to be able to drill further down along the the plunge of the ore body. And then we really can't test the width of the ore body from the surface either because -- just because of the geometry. So we'll be able to see if it extends a long strike as well. Let's go ahead and go up a couple of slides and is that the last slide? I think that is the last slide. So I'll stop there. I mean there's a lot of statistics to talk about. And there's -- it's -- we're really pleased with the study. I think it -- it's a realistic plan. And I think our -- we're discounting this project over a 5-year period. We're we're going to try to work hard to see if we can get it done a little sooner than that. But I think that's a realistic time frame. And certainly from a from an independent study, we're pleased with discounting the net present value over a 5-year period. So I'll stop there, Romeo, and we'll open up for questions. I'm sure there will be quite a few.

Awesome. Yes, there's a good number in the chat already, but I've got my own first. So I appreciate your patience, folks in the chat. I won't be long. Just wanted to get through a couple of myself. I will ask -- so I don't usually see a payback period the short of 1.1 years undiscounted. So I'm curious how in your experience and perspective. How does Johnson Track compare to other mining projects in the sector? And what do you think contributed most to achieving those numbers?

Yes. Maybe -- I mean, basically, it gets down to grade and the long roll being able to use long-hole stoping is the principal mining method for an underground mine. It's obviously fairly selective because it is an underground mine, but you get sort of more of a bulk approach to mining. There are some parts of the ore body that we may even look at sublevel caving, which is an even more less expensive mining method and/or room and pillar. So those are other things you need more geotechnical information to really make those kind of -- those level of decisions. So we've kind of -- in the initial assessment here, we've just done a what you would typically use for your typical underground mine where you have thick mining with. Remember, the average width of this minus 40 of this mineralized body is 40 meters. So that makes for good long hole stopes. Now so it's grade is the most important thing. And then next is the thickness of the ore body. I will point out just a couple of things on that 1-year payback. I want to make sure investors understand how this is sort of drive it. It's based on when you start production, because it's the underground mine, you actually start mining almost 2 years ahead of that. So we call it minus -- your minus 2, you're starting your underground development work. And then your minus 1, you're you're doing your test mining and you're ramping up mining ore and delivering it to site. So your minus one, we're actually producing ore. And if we can move assuming that the other -- the rest of the infrastructure is in place in terms of the road access road down to the Bard site facility, then you can transport the ore to a mill. So -- that's -- I just want to make sure it's -- we're spending money well before we started actually mining more. So and that's just how that works for an underground mines. It's a little different than open pit.

I think that's helpful context for folks in the room. And I know gold is going to contribute approximately 70% of those projects revenue. And I know I saw the slide, the project's got really strong sensitivity to gold prices. So I'm curious -- you're using $2200 as the base case. What price range do you believe is realistic over the next 3 to 5 years? And how is this impacting your development time line?

Gold's been on a complete tear here. So it's -- I mean, there's all sorts of $4,000 or $5,000 predictions. I mean I think Goldman Sachs has a $4,000 target I think it's by the end of the year, I think maybe was a 1-year target, something like that. So we didn't want to publish an initial assessment that was out of date -- the day it was written. So I'll tell you, it's a bit difficult. So we convinced our QPs to go up to $4,000 just because gold is already between $3,000 and $3,500 -- and -- so I mean, obviously, we'll make a lot more money if gold prices are higher, but it's also the other metals that contribute as well. So I think we've chosen what I would call conservative long-term pricing that's based on consensus. And the consensus numbers are a whole bunch of different banks that say here's what we think the metal prices are going to be. And we just -- it's just an average. I think CIBC is the 1 who sort of has done that traditionally over the years, and it's kind of become the guide book, if you will. Now at higher gold price, do things happen faster? No. Do you still have to do all the work and there's a fair bit of work to do. And just to kind of go through it, the next steps we're doing is to permit the underground tunnel. That's the state of -- that's a mine operating permit. It is a mine. So technically, we have to meet all the criteria of a mining operation. So that's the permitting is the next step. Then once it's permitted, we build the tunnel access and then we just drilled the heck out of this thing. It takes a lot of drilling to define an underground resource. It's probably somewhere between 10,000 and 15,000 meters of drilling. Those 2 things cost rough numbers, about $50 million. So -- but that is included in the capital costs that are in there. So the $214 million of capital, roughly $50 million of that is getting the underground build. Now at that point, it's just you're doing exploration. So from a -- Mike is going to tell me I have to write that off because it's exploration. But the tunnel is going to be used for the main access point to remove the ore when we're ready to mine and develop the projects. So but in rough numbers, that's going to be $50 million off of the initial capital because it's basically already a sum cost at that point. I don't know if Mike has you want to say anything else about accounting?

No, no. I think you said most of it there. I don't think I have anything to add.

I got 1 -- so I know that base case of 2,200 gold but that 224.5 30.2% IRR, it's obviously compelling. I'm curious. And this reflects a question that's in the chat. Can you share just capital allocation strategy between Johnson Track and other exploration assets in your portfolio? How does it compete basically?

Yes. I mean, geez, if we had all the money in the world, we'd be doing more, but we don't. And so I would say our -- what continues to be our main focus is paying down the debt and delivering the hedges. Once we get rid of the hedges, we're generating somewhere in the neighborhood of $100 million of free cash flow a year with Mancha. So that's got to be the first order of business, frankly. Now what do we need to do? We need to permit Johnson Track that's permitting is not expensive. I mean I don't want to down pay how much -- but in terms of $200 million capital to build a project, spending $3 million or so on permitting is money well spent and -- but you can't do the rest of the work until you do the permitting. So that is the next step at Johnson Track. We'd love the year to drill program going at Lucky shot this year, and we're making an assessment of whether we feel comfortable doing that, but we haven't made that decision yet. So I'd say from a capital allocation standpoint, we're going to pay down debt and delivering the hedges and continue to permit the Johnson Track project. And -- but we love the gold price to go up and copper price to go up. That's all good stuff, but it doesn't make things happen faster.

Add to that, Romeo. Our debt is now as of today, down to $30 million with the ING in the quarter and our hedge balance is just below 75,000 ounces from 12,600 at July of last year. So we're making progress, and we're targeting trying to get all that kind of paid off by the end of next year.

Awesome. Mike, I got another 1 for you. The ASIC listed in the deck, stress very low at $860 per ounce. So just for me and everybody in the room, if you could remind us how that's calculated and kind of what's included.

It's basically all of your OpEx and your sustaining CapEx. And so what that you're mining and then you're trucking down to the barge side and then you're parsing down to the mill site and then trucking from the barge to the new mill and then the milling costs and then the G&A. So those costs are all in there, and those are roughly split about 50% for mining, 25% of that is for milling and then the other 25% is the G&A and the transportation. In addition to that, you have your sustaining capital. And so you have those amounts in there. Now the number here that they have -- everyone does their ASIC a little bit differently, but the ASIC they have here, we have -- the way we typically account for Manh Choh is we would also include royalties and mining production taxes. So if we actually added those in, that might add about another $100 to it, but yes, it's still well below $1,000, and that's how we would account for it in our financials going forward.

Appreciate that a helpful context for sure. One question I had is how long is that ramp-up period expected to take? I know you kind of got into this already rate, I think it's worthwhile to reiterate before declaring commercial production, -- is there a preproduction in that period? Does that include that $213 million? Just give us a bit of reiteration there.

Yes. So just -- so basically, we take the 5-year discounting window. The first 3 years are exploration. And then year minus -- I'm counting backwards so 543. -- your minus 2, you're putting your development work in. So again, you're mining, but you're not producing any ore. You're just putting all your development work in, again, in the unmineralized day site. Then your minus one, you're actually producing some ore and it's not a full year. So that's why -- I mean that's why it's -- we have a 7-year mine life because you're producing gold in year minus 1, year 0 being the start of production, commercial, the declaration of commercial production. But your minus one, you're actually producing more, your minus 2, you're actually mining, you're just not making any money or spending money. So that once you start commercial production, and it's a bit of a thumb suck from here. So it's an estimated time, but that first year of mining stope mining, is your -- what I would call your ramp-up year. And then you're saying, okay, I mean do 6 months of ramp-up and now I'm going to declare commercial production. And -- and that's basically is an accounting decision. And Mike can maybe give us more detail on that.

Yes. The 1 comment I'd add to that is that's when the ASIC calculation comes into play. It's once you make that production decision. It's not the sunk capital before that.

Great. One thing I know you went over already, so I don't need a long answer here, but why is that average grade change to 7.6 grams per tonne from that 9.4% in the resource?

Yes. So that's a good question. So when you do a resource block model, you're kind of have a tight frame around what the -- where the drilling will allow you to predict great or estimate great. When you go to a mining block, year in the long-haul stoping is a cheaper method of mining, but it's less selective. And so you get more dilution than say, compared to, say, cut and fill. If we went to sublevel caving as an example, you'd have even more evolution, but your mining costs are going to go down significantly. So it's a trade-off between tonnes and grade. And obviously, it's an economic decision as to whether you do cut and fill, whether you do long haul, where you do something like the sublevel caving. So I think once we get more geotechnical work and we get underground and really see how the rock behaves from a mining sense, we'll make some decisions whether we stick with long haul and whether -- or whether we look at something like [indiscernible], and it may not apply to the whole ore but you may only apply to parts of it. But those are kind of details that you need to to get with getting underground and really looking at the rock face to face, so to speak. All of this work, of course, is based on drilling to date, which is -- that's pretty typical of how you approach these projects. So -- but once we get underground, we'll be in the ore body once we drift over to it. So then we'll have a really good feel for that. But that is basically answer. It's basically just mine dilution.

That makes sense. One thing I want to talk about is the bizarre bear case for gold because I know you said the project still is a 140 NPV at $1,800 gold. So I don't think we're ever going to see that number again. But I'm curious if we do have a period of sustained lower commodity prices, what operational adjustments could you implement at Johnson Track?

Yes. So I mean, actually, 1 of the -- if you go to the recommendation section, 1 of the things in the recommendations is to look at ore sorting. And so I think actually regardless of whether -- we wouldn't necessarily wait until the gold price went down to look at that. But we're going to look at ore sorting because worsening basically is a modern method that used to do by hand, which is these are rocks I like and these are rock I don't like, and you literally used to hand sort them. We can do that with or orders now at an incredibly fast speed. So it is something we'll take a look at. And what the ore sorting is basically separating out based on a whole -- there's a whole variety of sensors that you can use to sort more. But depending on the character of the ore, you can decide if you want more sulfide or less sulfide and if that's carrying -- that's what's carrying the gold, then you can start pretty effectively. And what that does is it gives you the sort of pluses if you make more sorting work for you. One, you're reducing the amount of material that needs to be transported. So you're saving dollars on your transportation costs. And then Obviously, if you're upgrading your ore sorting the head grade at the mill you're processing, you're at is going to be higher. So your cost per tonne at the mill would be lower. So it is something we're definitely going to look at -- and -- but again, as you point out, it's a robust project all the way down to $1,800 gold. And so we'll -- this thing will generate a lot of cash flow.

I appreciate that. One thing, and this reflects a question that's in the chat. Jan van Morse, congratulation PA. But he asked how are you going to fund the CapEx. So what I'd add is, are we looking at equity debt? And are you planning to hedge this time around?

I'll let Mike talk about hedges. But -- so it will probably be a combination of equity and debt. And I'm going to be precise about equity. Again, so if we go through the time line here in the next 2 to 3 years, we'll be permitting and be setting ourselves up to go underground. When we go underground, we -- that's when we start spending the big dollars. And -- at that time, we'll be unhedged at Manh Choh and will be -- will pay back all the debt. So we'll be generating $100 million of free cash flow a year. Now we don't want to spend all our money at Johnson Track. So we might also look at entering into a debt facility to finance just throw out a number here half of it. And self-finance half of it in debt finance a portion of it. Now the difference to address the hedging question, and I'll let Mike weigh in on this as well. When we started a Mancha, we were a junior company, junior explorer that had no background, no lending history and not making any money. So what bank would loan to you, the only banks that loan to you are banks that will want to make sure that they're going to get their money back when they make a hedge. And so that's why the hedges are in place. Now we're a moneymaking operation. And again, once we pay the hedges -- deliver into the hedges and pay the debt off for generating a substantial amount of cash flow that the banks can look at and go, okay, we'll loan you $100 million because you're making $100 million a year. Mike?

Yes. Hedge is kind of a 5-letter word, I'm not a big fan of these days. I'll never say never. I guess you could always do a better hedging program and use callers or something if you needed to, but I guess I would -- I wouldn't want to be forced into it by lenders, but if the price is right and came up with a good program then yet nothing is off the table, but not something we're actively exploring now it's kind of early days.

Appreciate it. One thing I know you talked about during the presentation is that the underground exploration at Johnson Track. I'm curious what you think the upside could be there. I'm going to throw out kind of a crazy number, but is a doubling of the resource possible? Is that something you see as potential?

Yes, I don't know Romi, if you can go back to the slide deck and just show that block model again. But -- and I'll just speak why you're doing that. But yes, I mean the bottom and the long strike portion of this ore body is completely open because we just physically can't drill it from the surface. It's up along the fall of the day site fall up there, but the bottom is open and the sides are open. And in fact, there are a few other lenses that have been intersected adjacent to the main -- what's the main JT Johnson Track ore body there. So yes, there's lots of upside. I don't -- and you can see another thing I'll point out is on this slide, the yellow blocks are 3 grams, which is roughly the cutoff grade. In the pink and purple blocks, they're up 15, 25-gram per tonne. So that's close to an ounce per tonne rock, and it's completely open at depth. And so we just need to get underground and drill all this fan shot of holes that we have represented here to really understand how much more ore there's going to be and how deep it's going to go. The next thing I'll say is the style of mineralization here is it's a Brecha and it's a polymetallic breaches, so it's copper, zinc, gold and silver. This type of mineralization is related to a porphyry system. And so -- it's not above it, it's below us. We know that from the alteration pattern at the surface that were at very high level here in this porphyry system. So once we get underground, we can -- we get that silly mountain out of the way, we can drill deep holes from the underground and see what else is down there. So it's a very exciting exploration target. It is difficult to drill because of the terrain. But once we get underground, I think we're going to be -- I think we'll have an easy shot at increasing the size of the ore body. And obviously, we may find something substantially larger if we can tap into the porphyry source here.

Great. A couple of questions already covered, which is great. One thing I just want this reiterated, why did the expected mine life go from 10 to 7 years?

Good question, too. So I'm going to speculate a bit here that we said we have 1 million-ounce gold deposit, and we would expect it to process this at 100,000 ounces a year. So $100,000 divided by 10 equals 10 million. So a couple of things here. So when you -- I mentioned earlier that we're actually mining ore in year minus 1. So it's really 8 or 7.5%. The other reason is you don't mind the entire ore body here. It's -- you're only mining the parts of the ore that are better drilled and that you can substantiate where the grade is. And so you're definitely -- and that's where the upside is. And once we get underground, we're going to do all those drilling drill holes that you saw in the previous slide there. And I'm very confident we're going to get back to that 1 million ounces, and I think we'll probably easily exceed that.

I've already gone through ore sorting, but I will ask the transportation logistics for Johnson track, they involve barging and tracking to that offsite processing facility. Curious if you could run us through the tolling cost assumptions that you make.

Yes. So the assumption is a 25% premium on the milling cost. So -- and this is -- and then we talked with SRK about this, and this is a bit of an industry standard. I won't disclose what we're -- specifically what we're paying with regards to Monson in the Kinross Fort [indiscernible] because that's really under confidentiality. But I can say that this is a more conservative assumption than that. So I think it is a reasonable assumption for an initial assessment level assessment or study and obviously, we're -- one of the other things we're looking at is, okay, where are we going to process this ore? I'd say we're looking at 5 different opportunities. And they range from -- we've had some discussions of groups that say, we'll just send this stuff over to Asia and put it on a seagoing margin and send it to Asia. That's not something that we actually came up with. It was something that was -- that we were approached with. And I'm not sure I want to -- depending on where that is in Asia, I'm not sure I definitely want Contango to be in the middle of that. But if there's an international metal training company that likes that idea. We might just sell it to them and let them deal with it. The more traditional thing is to look at existing mills. And there's -- as I said, there's 4 other options for us to take a look at. We're having discussions with 4 other groups. And once you're on the water, you have a fair bit of mobility and barge costs are relatively inexpensive compared to, say, trucking. In the case of Mancha, we know what those metrics are pretty well because of all the tracking we're doing with that project. And we know the barging is simpler. And maybe just to cover it off, you'll notice in the study that we're placing the ore into metal boxes, and then these are contain about 25 tons of ore -- that would be trucked down to the bar side, loaded on the barge and the -- the reason we like this approach is you just load these boxes with a forklift. It's a big forklift, but to live 25 tons, but it does make for fairly easy logistics. And then the same when you're unloading it, and then when you get to the mill, you're just basically rotating the forklift rotates, and it just pumps it into a hopper. So very simple from a logistics standpoint. It's not like you're doing stockpiles and things, and we don't like the stockpile because you run into losing material and then dust control and all -- lots of other things that people worry about contaminant. So putting it in the sealed box is just kind of eliminates all that concern.

That makes sense. One thing just for folks who don't know, there was a 25% contingency applied to capital costs. I'm curious for your perspective, what areas of the project do you think have the greatest potential for optimizing as you kind of progress towards production?

Yes. I mean, that's a tough one. But transportation will obviously really be dependent on fuel cost. So that's a big 1 just to keep an eye on and I think underground mining costs are mostly related to employment and to wages. So a significant amount of capital is mine development. And so I think it's about half right plus half of the overall initial capital. And it's almost all of the sustaining capital. So Yes, labor costs are probably the other real one to kind of keep an eye on.

Great. I appreciate that. One quick question. I just have to ask as a Canadian, and I think other Canadians might be curious. Why was this framed as an independent assessment, not a PE.

Well, it was actually news to me that there was a new term called initial assessment. And so I learned something doing is because I always call them preliminary economic assessments. And -- so I'm trying to beat it into my brain, remember to call it an initial assessment. They're the same thing. SK 1300 is not exactly as it expects things between United States and Canada. It's not exactly a carbon copy, but it's pretty close, but there are a few differences. And 1 of the differences is in under 43-101, you have 45 days to file your document, I'll just call it. Under SK1300, you only have what 4 or 5 days, Mike?

4 business days from.

We're getting after it.

I appreciate that. And there's 1 question, last 1 of mine, but it mirrors one in the chat. So we'll take this is me going to the chat formally. And that's with that environmental considerations and closure costs of $30 million -- how are you approaching permitting and community engagement generally, just to ensure that this goes off timely?

Yes. So community engagement, first of all, it's sort of early and often is the philosophy would like to use. And one of the reasons -- I shouldn't say 1 of the reasons, but now we have an initial assessment document that shows here is what the plan is. We want to be able to talk with the communities. And I sort of break them into largely 2 communities. We have -- our partner is Cooking Regional Inc. Siri. It's an Alaska Native Corporation. They own the land. They have the rights to to mine the land. And so they're our business partner in this. And it's an Alaska Native Corporation and your shareholders are Alaska native. And so -- they're sort of, I'll call them a special class of stakeholder. And so for community engagement, we work through CIRI with our community engagement with Series shareholders. And -- there's a number of villages around Cook inlet. Obviously, a lot of series shareholders live in Anchorage, but they -- in fact, I was just in their office the other day and they showed me a math of where the Series shareholders live and they live all in the United States. And a lot of them obviously live in Alaska, too. So there will be a lot of engagement through Serin with -- in partnership with CIRI with the shareholders of CIRI. And then secondly and not -- or just separately, I guess, I should say, engagement with the other communities all around Cook Inlet. So Homer, Nikiski, Kenai, [indiscernible] those are communities that are adjacent on the other side of cookie, if you will. There's a few more traditional villages, CIRI shareholder villages on the west side. And as I said, we'll be engaging with them through CIRI. And so again, now that we have a study and plans that we can show people and say, this is the plan. We've got more work to do, and here's the work that we plan to do. We'll be doing a lot of community engagement with both Alaska native Series shareholders and other stakeholders in the region.

Great. from the chat asked, what's the plan on the tunnel? Will it be mine sized? Or will future enlargement be required? And what are the relative costs to the full-scale approach versus Smalla.

Yes, it's a good question. And you're best to especially when you know you've got an ore body, if we were a little more suspect on whether we have an ore body, we might just do a smaller exploration tunnel. But this will be a full-size tunnel. I think it's 4, my 5 meters, if I remember.

Great Dan from the chat now we already touched on it, but always worth reiterating. Has an existing mill for the or been identified somewhere near tidewater.

Yes. Yes. I can't say because I'm under CA.

Sorry, folks in the chat going through our sorting, we've been through some ESG. Jay Mary asks how thick is the fault? Like what's the competency of the day cycle?

Yes. So good technical question. It varies. It varies from very thin to like less than a meter to up to, I think, 5 meters is how wide it is. So -- and it's an [indiscernible]. And that's an important thing from a water management side. So Anaquaflud is a barrier to water. So which is another reason why we put our infrastructure on our development work in the in the day site, unmineralized dayside in the hanging wall to the fall because you don't have to worry about any of that water being contaminated because it's because the fault itself is an Aquacue. And obviously, that's something we'll be taking a hard look at when we do the feasibility study, mine plan is how we're going to mine this and keep the water separate. So that definitely will be -- I'm sure there'll be a lot of hydrology work being done on that just to -- so we can manage that. We know the water quality of the ore body is going to have -- it's mineralized, it's going to have -- and it does go into surface and see it's oxidizing and obviously, it's -- mother Nature is metal leaching now. That's how we find these things. They are anomalous metals on the surface. So -- but that will be an important part of managing the project, so -- and definitely be a focus of further studies.

Somebody that chat us if the silver and copper byproducts are large enough to attract the interest of streaming financing.

I'd say yes, but not a fan, just like Mike's known a fan on hedging, I'm not a fan of streaming.

I'm not a fan of either

Mike's going to both answer that.

I've been on the wrong side of this twice. Here you go.

I just say I also don't think there'll be any necessity. I mean where the streaming companies have been very successful at financing because the equity market has been really tough. So again, now that we're generating cash flow, it puts us in a little bit different league. And as Mike said, never say never, but as we see the world right now and the gold price where it is, and so we think -- I think a traditional debt financing would be the way we would go here.

I guess I will caveat, the streaming deals are a lot better than the original ones that were out there. So there's better terms, and they aren't necessarily life of mine. So I guess I will say numbers. I won't say never, but

I can tell by the front you're interesting Wesley from the chat talking about company strategy. He notes Contango looks like it's going to use Mancha to pay for the development of Johnson and Lucky because both of them are shorter lived mines based on current reserve size. So just curious what the strategic plan is for long-term value at Contango. Basically, what's the deep future plan?

Well, it really is exploration, and we're doing exploration of Manso. So I'll be very surprised if we just mined the feasibility plan at Mancha. I think we'll at least get a few more years out of it. lucky shot. We only have 100,000 ounce resource or 110,000 ounce resource there, but we know we have a lot of drilling to do. We've got -- that is a permitted mine site. And -- we just need to do the drilling. And as I mentioned earlier, we'd love to do the drilling this year. We just want to make sure that we've got the financial horsepower to pay the debt off and delivering the hedges before we make that commitment. And then we were just talking about the exploration upside at Johnson Track, which I think is just excellent. I mean, it's just some of the deeper drill holes that we've drilled there deeper being at the bottom of that mineralization that we've identified to date are in some of the best grade material that's been drilled. So -- now that we're going to put a tunnel right in the guts of that, I'll be very surprised if it just ends magically right there. So it is about exploration. I'd also say, we're looking at other opportunities. We like the idea of not being a single-asset mine producing mine. So obviously, why we have our development plan. But looking at other opportunities where we can continue to expand, in particular, opportunities that might lend themselves to the DSO model and/or an existing operation that would lend itself to being the hub of a DSO model. So hub-spoke approach, which is pretty frequently used in Australia, but not as prevalent here in North America. So that may be something that we look at more specifically and look and see if that hub and spoke, we can make that hub and spoke work for contango as we grow the company.

Great. One question was right at the top of the hour that I wanted to save for after the Johnson Track specific content. I'd ask if there's any plans to monetize or explore the other assets acquired from High Gold.

We didn't acquire any other assets from High Gold. It was just -- they had already spun off the Ontario assets in Onex -- so yes, there were no other assets that came with the High Gold acquisition.

We do own Chunkoonex, though. So that is going well for us.

Looks like a pretty good project from an exploration standpoint. Happy shareholder.

There's one question from Jan and I only bring up the bridge once per webinar these days. But he asked when will the Menthobridge killer be finally behind us.

So the -- so again, the Biden administration didn't approve the Alaska Department of Transportation budget plan and budget. And so that's what precipitated the reductions in the bridge rate restrictions. The Trump administration approved the plan. And so now -- there is a plan to fix the bridge that was causing the issues for us next year. So it's not something we see as a fix from the ridge rate restriction standpoint this year, but next year.

Awesome. I know it is getting into evening in England, so I won't keep you too much longer, but I will leave it to you skin as a clock. I don't want to throw it to what you're most excited about coming up next at Contango.

Well, I mean, so next week, I think Mike is going to release our Q1 results. I'm excited to get those out. I think we're -- as you saw in our reverse campaign this year, we produced 30% more gold. And so it will be exciting for us to tell everybody how much we spent producing that goal. And then I think the week after we start the next campaign for the May campaign. So it's nice when we see an operation that's just doing well and really kind of ahead of schedule by producing more gold -- and so that's exciting and making money is exciting, paying off the debt is exciting, delivering the hedges is exciting. And look, this initial assessment on Johnson Track demonstrate that this is a really viable project. I think in a year's time, we've added a lot of value for for Contango shareholders. And hopefully, the high gold shareholders who stuck with the project and stuck with Contango are rewarded by the fact that we were starting to demonstrate the value of this high-quality asset. And so I'm really excited about that, but I would also like to get the drills turning at Lucky shot. So I'm just -- I think we're in a good spot and gold prices I think it's going to keep marching forward. I don't know if people saw the Fed announcement, not the song and dance that Joe and Paul did for yesterday, I guess it was, and keeping holding rates steady. But behind the scenes, they started quantitative easing again. And they -- was it $25 billion of bonds that they had to buy because the rest of the market wasn't buying them. So when QE comes back, gold price does well. So if we keep doing QE, it doesn't matter what the interest rates are, you're printing money again, and that's inflationary. So gold price will respond accordingly.

That makes sense. I certainly see the money printers getting geared up. You can hear their humming just starting. But Rick and Mike, thank you guys so much. This is a great presentation. Thanks for going through the drilling with the questions. Folks in the chat or go for it, Mike.

One comment. Our annual meeting is on June 10. -- proxy materials went out last week. I just want to remind people to build their shares, please? -- vote your shares. Thank you.

Good note to end on. folks in the chat. Thanks so much another 1 million questions. I think I got through all of them. But I will send the whole transcript with the contango team just in case we missed one. Thank you, everyone, so much. And I hope everybody has a great afternoon.

Thank you.

Cheers folks.