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

Good morning, good afternoon or good evening, depending on where in the world you're logging in from today. I really appreciate you guys joining us. I've got with me today Rick Van Nieuwenhuyse, CEO of Contango Silver & Gold; and Dave Larimer, the company's Vice President of Exploration, to discuss the recent press release, kind of updates across the company's very broad at this point, project suite. Gentlemen, how are you today?

Doing well. Go Canada.

Go Canada. For the Canadians in the room, hope you're feeling patriotic. Here's how today is going to work. There's a number of questions about the PR. Some got sent in advance over e-mail. I think our questions will cover most of those, but I will try to get to any that we don't. Of course, as always, this is an interactive event, so you can use the chat button at the bottom to ask any questions you'd like. We'll be spanning today from the market through each project so please feel free to ask any questions you'd like. We'll try to get them as much as we can in today's half hour event. If I do miss questions, I will make sure the team gets them afterwards. It's also recorded and will be available for replay late this afternoon Eastern Time. Probably right at the end of the day for those on the East Coast.

But let me get right into the business here because, Rick, I know the update was on a bunch of specific programs, but I do want to set the stage because obviously, it's an odd week for markets. Gold and silver, roller coaster for a year plus now. You're of anybody I know plugged into the metals market. How are you reading the current backdrop? And what makes this a moment worth paying attention to a company like Contango?

Yes. I mean, obviously, roller coaster is a good way to describe the last year. The last 5 months have been a roller coaster. They've been like straight elevator to the basement. I mean we sit below $4,000 gold, and we're approaching $55 silver, obviously, way down from the highs and the stocks are reflecting it. And I'd say the producers are getting hammered a bit more than the explorers, which I find interesting. It seems odd to me, but I guess what it would tell me is that everybody thinks the future price is going to be higher at some point. I mean, look, the Fed is between a rock and a hard spot. The employment numbers came in good. So they don't have to worry about employment right now or unemployment right now. So they are concerned about inflation. I think the biggest news out of that, the Fed discussion was it's going to be a different Fed. And I think all of those things make the market nervous. They don't know how to read it. And clearly, the big takeaway from [ JenWorks's ] discussion was that, hey, we're not going to give guidance anymore. So you guys are on your own. So I think the market is just a bit nervous about being on their own without being spoon-fed by the Fed. Anyways, I mean, all of that just on the big picture scene, nothing has changed. We're still $37 trillion in debt. And China is no better off and Europe is no better off. So it's not like it's just the dollar gold prices, price in all sorts of currencies. And the one we usually pay attention to the ones in dollars. Of course, for us, that is where we're producing gold. So I mean, look, I got this in Europe last time I was there. This is one of those $10 billion Zimbabwe notes. I mean that's where we're headed. Trump is not afraid of debt. So look, the central banks are still buying gold. They're doing that for a reason. India was just in the news the other day that they didn't sell their gold. They sold their other currencies in their foreign currency reserves. So look, I mean, everybody is doing something a little different. It's definitely Iran is on again, off again. I don't know -- they have the ceasefire that nobody pays attention to. So look, it's a very confusing market. We're just going to put our head down, and I don't like the share price, but to me, it's a buying opportunity. And so I think I said earlier, this year is about execution for us. We've got a lot of things on the go. It's a good solid plan. We're well financed to do it. We're still selling gold, and we're still making money selling gold. It's not like we're losing money selling gold. We've delivered into all the hedges for this year. So the rest of the year, the rest of the gold that we sell this year is at spot. And if that spot price is $4,000, we're making $2,000 an ounce. That's not so bad. I mean, 5 years ago, we would have been doing backflips for that. So look, it's confusing. I think people have to -- if you're going to invest in the mining space, you got to look at it from a longer term. And so I think this is the opportunity to be loading up on stocks that are truly, truly undervalued, which I believe Contango is. I mean we're -- we're trading at less than the value -- the net present value of one of our projects, the Johnson Track project. So yes. We're just going to put our head down and do what we do and which is what we're going to talk about. So it's a good segue.

Yes. I know, I appreciate the context of the market. I just didn't want to not ask that question with today's gold environment so I appreciate that answer. Let me give you a real kind of overarching question and then Dave, I'll get into you for some of the specifics. Because Rick, you got rigs starting at Lucky Shot, where Dave is joining us from right now. A summer field season ramping up at Johnson Track and a 40,000 meter program underway at Kitsault all at once. So how are you thinking about running all these programs in parallel? And what does that say about where Contango sits in the market today?

Well I just think we have a lot going on. They're all sort of at different stages. I mean, at Lucky Shot, fully permitted. We're underground mining. We're creating new tunnels from which to drill. We've got an exciting new discovery that we're going to talk about. I'm actually heading down to Lucky Shot tomorrow to join Dave and Sean and Lucky and the team down there to see with my own eyes, what is it that these guys are all excited about. So that's -- Lucky Shot is just kind of off to the races. And that's something we can get into production relatively quickly, fully permitted. We just acquired all the land. We bought out the underlying landowner and the royalty. So we have a space now to actually develop the mine. Besides just being on the side of the mountain, we've got a big facility that we can use. So yes, very pleased with where Lucky Shot is. Johnson Track is mostly about permitting and being part of the FAST-41 program, and that's going along very well. Meanwhile, we are in a big logistical move here. We're barging over all the heavy equipment to start building the road that connects the camp to the portal site. So -- and then, of course, at Kitsault, we've got 5 rigs turning. And whenever that project is drilling, just like Johnson Track, when we're drilling at Johnson Track, we're always putting out really, really good results. So stay tuned for all of that news flow. And I think both Lucky Shot will be producing good results when we get back to drilling there, which Dave will talk about. And Kitsault, we have 5 rigs turning. So we're going to be putting out a lot of results, I'd say, in about a month.

That's fun. I love seeing the news flow and knowing that's coming up. Dave, I want to get you in here because you are live on scene at Lucky Shot where the surface programs was kicked off June 22, 2 helicopters supported rigs. So walk us through what these 29 holes are designed to do and why the link between the Coleman zone and the Lucky Shot vein system is the part that you're really kind of most excited to test.

Yes, absolutely. Like I said, live from Lucky Shot, beautiful day outside, still a little snow on the peaks but I'll be there all year, but we're operating, it's beautiful. The driller showed up yesterday, got the drills here on the bench, got the helicopters coming in today, tomorrow, start mobilizing these things up there, got pads built. So everything is looking really good at the start of this surface exploration. So the intent for the 6,800 meters that we've designed is kind of twofold. The first one is we have an objective to do some infill drilling within the Coleman portion of the known mineralization. There are some areas up there that are in the model. It is inferred and indicated resource, but we think we can do some further risk reduction by just tapping in a couple more drill holes in there. So this should help tighten the geologic model and support that more detailed mine plan and mine design work going forward in the next potential year. The second objective, as we talked about, is that step-out drilling from the Coleman, seeing if that, what we call that link between the Coleman side and the Lucky Shot side. This step-out drilling is simply designed to see how much more battle space we can take the Coleman and keep stepping it off towards what we believe will be the cutoff, which is that Lucky Shot fault. We've previously talked to Lucky Shot fault from the underground side. We've tapped it really well underground. We know where it's at. On the surface, we know where it's at. And it's really interesting that when you start pulling these faults together to the geologist, when you first get them, what's the first thing you do? You just draw the fault as a straight line because you don't know. Now that we've done this drilling, we advanced the structural backbone in the structural model, we know the Lucky Shot fault starts at the surface and she curves down a little, almost that little listric faulting. What that does for us on the Coleman side is it opens up more battle space as she curves the way towards Lucky Shot. So our drilling is looking to do the step off of Coleman and basically thread that needle. How far can we pull that Coleman mineralization and tie it into that Lucky Shot fault right there. And that's the link we're looking to get to this summer. It's really exciting. I'm not going to say it's easy drilling, but it's conceptually pretty simple. It's literally right there at the top of the ridge. Our logistics are all lined up. So we're really excited about this. Again, it's a pretty straightforward program. We're going to execute it hard. And the program is designed to derisk the known Coleman mineralization and then test that linkage between that, the Lucky Shot and the Lucky Shot fault side. And ideally, this drilling will validate the models, and it will be an important next step for us as we continue this value creation of our project in the next couple of years.

Now. it's certainly a big summer at Lucky Shot. But Rick, I wanted to get you in because obviously, you know a lot about the structural side, too. So while we're talking about the Lucky Shot vein system, how is progress going on extending the West drift to test the KM vein?

Yes. As I mentioned, I'm going to head down there tomorrow to see with my own eyes how the progress is. But they've advanced the tunnel. So remember, the West drift was built to fan drill the Lucky Shot fault structure, which more or less runs east-west and we're drilling kind of fans off to the north. The Lucky Shot fault offsets the Lucky Shot vein up to the Coleman side, which Dave was just talking about. When we punched through, we saw this other new structure at right angles to the Lucky Shot fault system. So striking north-south, dipping east. And it ran really well, and we called it the KM vein after Keith Miles, our mine superintendent. And we've now advanced 15 meters-ish, 50 feet, the tunnel just in the same orientation. And we're seeing some interesting veins. I can't say much more than that. We don't have assays back, but this is, a course-free gold deposit. So we see certain things with our eyeballs and Dave and crew are pretty zoned in on finding free gold. So I'm heading down there tomorrow, and I think we'll take a look, and I think we'll probably do some talking at the vein face tomorrow. We'll get that out to our investors as well. So I'm excited by what we're seeing. And as with my structural background, Lucky Shot is a shear vein. So it's things moving back and forth this way that open up spaces for fluids to hydrothermal fluids to come in. The KM vein orientation is at right angles, which means it's the expansion vein. And as you -- when you crunch things this way, they open up the opposite -- in the opposite direction because they're getting squished. And so that's exciting because open spaces are what suck in hydrothermal fluids. So we're excited about what we're seeing geologically, structurally. We've got to go assay. And so that's the work that we're doing now. And we'll get the drills in there once we get the underground infrastructure completed, we'll get the drills in and do our normal thing there, but pretty exciting with what we're seeing. I'm excited to get down boots underground tomorrow.

Yes, I'm personally excited to see footage. I always like seeing footage out there. Dave, I know a team framed this drilling is feeding into feasibility level mine design. So for investors in the room, what's the significance of moving Lucky Shot towards that stage rather than just adding more ounces?

Yes, absolutely. It's an important distinction, especially for us planning this out. At this stage, Lucky Shot, we're not just about chasing ounces in there. It's about converting geologic understanding into a practical mine plan. And at the end of the day, that's what we're looking for on the geology side. Can we build these ounces? Yes, we can increase the resource reserve, but we also need the rest of that geologic understanding to make the practical mine plan going forward. The infill drilling at Coleman, like I briefly talked about, designed to help increase the confidence in that continuity and the geometry on the Coleman side and the great distribution. And that matters for a feasibility kind of level mine design because you really need that tighter data spacing and the confidence in that geology to make those disciplined engineering decisions around stope shapes and the sequencing of how all this comes together. I do have a saying where mining is always based in the geology and nothing is more true than right now, this kind of pre-feasibility studies where we got to get the geology, we got to make sure it's tightened in there because that's what all the engineering it hangs on and the mining hangs on the next years down the road. So for investors, the significance is that this work is moving the project from that exploration concept, and we're moving it now towards that development framework concept. And it starts with this drilling, the geologic modeling, updating our mineral resource estimate. And then as we've talked before, doing that feasibility level study in the future, that's when we start hanging our engineering and hanging everything else off of what we're doing right now. So really, the value is twofold, testing that growth potential while we go at every opportunity and developing that technical work to feed into that feasibility study going forward in the future.

Awesome. No, I appreciate that. I do want to move on now to Johnson Track. I know this was a multi-project update PR.

I just want to make one other point on the feasibility study. And this is something that's specific to the DSO model, the direct shipping ore model is because we're not building a mill in a tailings facility and we don't need a bunch of power to run all that stuff. I refer to this as feasibility light because it is effectively just a mine plan, feasibility level mine plan, hence, the definition drilling that we're doing, a transportation plan and the tolling arrangement. So it is -- we don't have to do a bunch of test work on where we're going to put tailings and all that because that's already done. We don't have to do foundational drilling and worry about permafrost and stuff like that because we're not building the mill. And so we don't have to worry about foundations. And power plants are big messy things to permit because they have to have air quality. And so we just need a mobile, a small -- relatively small mobile generator to provide power to the drill rigs, just like we're doing right now. So it is really a lot simpler that DSO makes that whole part of the process or that end of the process a lot simpler. So a lot of work to do, but simplifies it greatly.

It's just rocks in the box.

It's just rocks in the box.

Just rock in the box. Let's jump over to Johnson Track because as you mentioned already today, you're inside the FAST-41 program with 6 actions already completed. For folks who don't live in the permitting world, which I know most of us, why is that a meaningful milestone for a critical metals project in Alaska?

Yes. I mean, obviously, the Trump administration is very focused on critical metals and is using the FAST-41, which has actually started back in the Obama administration. So it's been around a while. It just hasn't been used specifically a lot for mining projects. And we're hopeful that the permitting reform that's talked about in Congress will actually happen. And what it should look like is what FAST-41 is, that the timelines are met and that those things are -- that the agencies get the work done in a timely fashion. And so it takes 1 to 2 years to permit a project, not 10 to 15. And so that's the beauty of FAST-41 as it's being applied to critical metals, which, of course, the Johnson Track has numerous critical metals depending on which list you want to pay attention to. So that it's all working smooth. There's a lot of work to do. It's collecting appropriate engineering work and environmental work, studies on land and water. because we have to build a barge landing facility, so that's in the water. So that's -- hence, we have to study things that are in the water. And we have a lot of -- we have some sensitivity -- sensitive things around the cooking Beluga Whales and endangered species. So we're going to do a fair bit of work on that to understand what the best way and where are they hanging out and how can we avoid them. That's kind of what it gets down to. Cultural studies. Obviously, lots of things on hydrology and birds and moose and bars. And the good news is we have a lot of data on that because of all the park-related activities that go on in the area. So there's a huge database to draw on. So that's all in support of basically following the NEPA process, which referred as NEPA, National Environmental Policy Act. And yes, the U.S. Army Corps of Engineers is the main -- the lead federal agency is how that's referred to. So they kind of coordinate and stick handle the other agencies who are then referred to as cooperating agencies. So yes, it's working well, and we're on track, I'll say. Johnson Track is on track.

Johnson Track is on track. I like it. Like you said, a lot of the work this year is infrastructure. You get the 2.6 mile access road, the geotechnical drilling, the equipment to the portal site mobilization. How does getting all that built this season set up for '27?

Yes. So basically, what we wanted -- the main construction activity is to connect camp and the proposed portal site, which we're finalizing the permits with the state on. I think we've got 2 main permits, we've got one more that there -- the reclamation plan has to be approved basically. And so what getting the road finished this year will allow us to do is to start building the tunnel next year, subject to being permitted, which we're -- again, we're confident that we'll get the permits in plenty of time to meet that timeline. So it's about a mile long tunnel. So it's a little longer than the Lucky Shot tunnel or the amount of tunnel we've done at Lucky Shot. So but it will take roughly a year to complete. And so that will be most of the activities in 2027. They'll spill over in 2028. In order to -- for it to spill over into 2028, we need to winterize camp, which we're also starting to work on this year, and then we'll be able to complete that next year so that we can work year-round underground. Once you're underground, you're in good shape, good stead there, right? So that's the plan. And then it will take about a year to complete the tunnel. And then the following year, 2028, we can do all the drilling to do exactly what we're doing at Lucky Shot now is basically complete another DSO feasibility level mine plan, transportation plan and figure out where the ore is going. And those are all things that we're working on in the background, particularly the site as to where this ore is going to be processed.