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

Good morning, good afternoon or good evening, depending on where in the world you're signing in from today. I think almost all time zones are represented in our fairly large audience. So I appreciate everybody for joining me. I'm pretty excited. I've got a pretty elite panel with me today to discuss the never-ending drama of metals prices, how they impact mining securities. So I've got J.T. Starzecki, Executive Chairman of Guardian Metal Resources; Vincent Metcalfe, President and CEO of Pecoy Copper. I've got Shawn Khunkhun, President of Contango Silver & Gold; and Christian Aramayo, COO of Kuya Silver. We've got a lot of metals represented today, should be a very good conversation. So here's how today is going to work. It's kind of a loose structure for a conversation to get to the bottom of metals prices, but I'll also give each company an opportunity to speak to their projects. Now that being said, I don't think we're going to have time today for questions about individual securities. So I'll just note everybody in the chat, you can feel free to ask questions, and I will pass them through to the teams afterwards. But it's likely we won't actually cover them during today's event, just for your reference. But if there is a commentary in the chat that does speak to the conversation we're having, I'll try and work it in where I can. And so we'll be able to incorporate some of that commentary as much as possible. The other thing I'll say is today's event is being recorded and will be available for replay likely in the early afternoon Eastern Time. It will be in the same link, but it will also be on 6ix's YouTube page. But enough out of me, I want to get into the good stuff. So let's start with the scoreboard. Gold sitting right now just under $4,000. I think it was the first time it's closed under $4,000 in quite some time. Silver is in the mid-50s after obviously briefly trading in the triple digits earlier this year. Copper holding near all-time highs and tungsten has gone functionally vertical since China restricted exports. So between the 4 of you, I don't want to make you guys sound old because you're all actually quite young. You have watched a lot of these cycles.

Shawn, I'll start with you. Is this correction in precious metals? Is it a normal correction? Or is the start of something you think might be less friendly?

Good question. I just want to start off by just kind of zooming out and putting some perspective around this. And if you go back 1 year, gold is up 20%. The GDXJ is up 40%. So if we looked ahead a year and the price of gold was up 20% and equities were up 40%, I think we should celebrate that. So I know it's doom, it's gloom. On my drive into the office this morning, I had friends saying, oh, it's over. It was nice knowing you. But I think the reality is, look, we had such an epic year in 2025, where gold stocks were up 200%. The silver price was up 200%. Like we had a monster year last year. And I think it's unsustainable. And so that's why we had some sobering conversations at the VRIC conference here in January when we saw the big surge to $5,500 to $120. Those industry veterans, guys like Rick Rule, were getting up on podium saying, I'm selling, whether it's some physical. Now the good news is, from a longer-term perspective, the signs that you have at the end of a bull market, we didn't see. So for example, the equities were not wildly outperforming the metal. The silver stocks were barely keeping in line with the silver price. We should see 300% outperformance at the end of a bull market cycle. So to answer your question, I think this is a normal correction. If you look at historic bull markets, 20%, 30% corrections, even 50% corrections of either the metal or the equities are par for the course. And typically, like where we are in terms of the seasonality, this is right on cue. The timing of this is right on queue. The depth of it is right on queue. So I think this is a normal correction in a bull market. And I think investors should be looking at where they can allocate at this time.

And if I could add to that, I think -- because I'm in copper now, but I spent most of my career in gold. And I fully agree with Shawn. And one of the things to keep in mind for investors is that 10, 15 years ago for gold companies, people were talking about $200, $300 margins even at $4,000 gold today, like the margins are insane. I mean the next few quarters are going to be great quarters. So that's going to show the generalists that we're actually a good business to invest in. And you're going to see -- I mean, when you look at where Agnico is right now versus where it was at the start of the year, the next quarters are going to be very, very good. And I think that's very positive because they're going to reinvest in juniors and developers and new mines. So that's -- those are the types of -- that's what you want to see in a bull market. So...

And I think if you allow me to add a little bit to that, you see that currently, defense is a very big bucket. We are hitting -- we are right now at $2.8 trillion worldwide defense and the metals, although USGS already had their critical metals, the specific percentage aside from titanium and tungsten, let's say, is not there. And no investor has the visibility on what's in there. So once it hits because U.S. is importing just talk about silver, is the one that I know the most, 64% of its silver and the military is intentionally not reporting how much goes into the precision-guided munition like you need silver plate, you need gold plating for all critical -- vital critical connectors like the Patriot System, the PAC, TMS, they did use it, the new hypersonic weapons all use it. AUKUS submarines all use it, and we know that Australia is acquiring already 9 of them. Boeing has never seen a pipeline with a demand as high as now. We have that all the mission-critical portions have it, and there is no visibility of it, but it will trigger. So in the next 2 or 3 quarters with the current arms race that we are seeing, we are going to see metals like silver, copper, gold going ballistic just because when the Army needs it, they will just take it. We have seen it before happening.

Sure. And speaking of defense metals, actually, J.T., I'll get you in to talk about the tungsten story over the last year. And I referenced it in the intro, but I'd love to hear your perspective on why it's gone so vertical since the export ban in China.

Yes. It's -- so we are still -- from -- at least from a tungsten perspective, we are still smack dab in the middle of a bull market when it comes to the particular metal. So just for anybody within the audience that will listen in on the replay, tungsten has had historically on a tonnage basis, a price somewhere around sort of $29,000 a ton to sort of 315 -- sorry, $32,500 a ton. Right now, we're currently sitting at about $305,000 a ton. So when you look at what metals have gone parabolic in the last 12 months, tungsten is probably the outlier when it comes to how much it has run. Tungsten has a massive military defense application. So when you talk to the defense primes and you see that a month ago, POTUS called everybody back to the White House and essentially called out a state of emergency to replenish munitions and to arm the war fighter, given all the global conflict that unfortunately, we're involved in, tungsten sort of leads the way in that. So it's anything from fighter jets and the counterweights that sit in those fighter jets to armor-piercing munitions, munitions that actually have to defend upon that, those armor-piercing munitions, all of that is tungsten. And so tungsten has been sort of historically about a 10% to 11% application into military applications and everything that we're talking with the U.S. government about and with the defense primes, they see that amount tripling just in the next 12 to 18 months. So we don't have any domestic tungsten production here in the United States. As you rightfully point out, Romeo, China cut us off at the beginning of 2025. There was legislation passed in '24 that bans all defense-related tungsten products from China and Russia and North Korea on January 1, 2027. So we, unfortunately, as a country, have worked our way into a situation where we're in a pretty dire position. And tungsten right now is a simple supply-demand case. We can't import it from the 3 largest importers in the world. We had sunsetted all of our mines. So there's currently no domestic production for tungsten. And we're in a time in our history where global conflict is unfortunately what we find ourselves in. So that is really the backbone as to why the tungsten price has gone up 1,000 fold in a 9-month period of time.

To add, ammonium paratungstate, because ATP has been already banned by China. So even if you start producing tungsten in U.S., in the middle or wherever you are, you still will need to depend on China for their controls, for the alloy, the technology. So that has to be solved. And I think that's what DAP 3 (sic) [ DPA III ] and the DOW warrants and all the incentives that are happening to companies like Alloy, MP Materials, IperionX are helping like bringing not just the material, but the technology to do it. Otherwise, it will be like titanium. You can produce titanium sponge whatever, okay? But then you need magnesium. China control 87% of magnesium. So even if you have a nice magnesium mine, whatever, what do you do with it?

Tungsten, I have a little bit different view. Tungsten is the one oddity where we're not dependent on China for processing. In fact, we have excess processing capacity here in the United States based on a couple of large players. What we have none of is domestic production. So the bottleneck actually is the opposite for tungsten, it is with other materials is that we've got production capacity, nameplate capacity that can be added. but we don't have any place to get it from. So it's a precarious decision.

It's just not there. But speaking about global [ Ecom ] for a second, Shawn, I want to get you in again just because I was talking to your colleague, Rick Van Nieuwenhuyse, the company's CEO; and Ronnie Stöferle earlier this week. Ronnie said, the one thing that will make gold really rip is if hikes come off the table. So you don't need rates to lower, but the Fed has to take hikes off the table. We've also got Middle East pushing oil and inflation expectations around seemingly week-to-week. Honestly, before panels, I checked the news 5 minutes before, just to make sure I don't miss anything. But curious for your take on where you think the economy has to go for precious metals to get on the move. And then I'll get into copper in a second.

That's a good question, Romeo. I don't know, I look back in history, and there are so many little nuances to some general ideas that we have and some of them are misconceptions. So one idea is that if you're in a rising rate environment, that is ultimately negative for precious metals. And if we look back at one of the greatest rises in the gold price in the early '80s, it was at a time when rates were actually rising. And so I would argue that it's also about the real rate of inflation, not just the nominal rate. And so Fed could be hiking. But until their nominal rate reaches the real rate of inflation, you could actually still be in a precious metals bull market. So I think there's a tremendous amount of nuances. But look, I can't keep up with all the headlines and all the volatility. So what I -- for me, gold works in deflation, it works in inflation. And for me, I try to look at it and keep it really, really simple, whether it's wars, whether it's debts, these governments can't afford it, right? They just absolutely can't afford it. And so my protection against the funny money is the precious metals. That's -- it's that simple.

I love that the classic take. I think it was Dan Wilton was on last week who said, unless you see trust in Fiat currency increasing over the next 10 years, gold remains a good bet. I tend to agree. Vincent, I want to get you in on where you think the copper price has held near its all-time high and where you reckon it will go in the near future?

Yes. Well, look, I think the main theme here in copper is that, obviously, there's been a lot of headlines. The copper concentrate market is generally tight. The refined copper market is pretty much balanced at the moment, but it's more geographical, I would say, distortion at times. So you do see different -- you do see companies or countries actually stockpiling on some of that. But I would say that the long-term outlook per se remains structurally deficient. I mean, it depends on who you look at, whether it's S&P, whether it's ICSG. I mean, you're looking at a market right now of around 28 million tonnes per year. And when you look at the future, some say it's going to -- 2040, you need probably another 7 million to 14 million tonnes. So it's either you need a 25% growth, 50% growth depends on where you're looking from now. But that means a lot of new mines. And that's just not -- when we -- I was in gold, most of my career, but 2, 3 years ago when we sold our last company, I looked at the future and I said, you know where do I want to be in 10 years? And copper was -- I'm saying it right now, I didn't see the AI thing coming out, but I was looking at more kind of the structurally -- for every copper mine being developed, you probably have 10 smaller gold mines or silver -- gold mines getting built. So these big copper mines take a long time to get on to the market. We're looking probably at 17 years to 20 years right now for a copper mine to go from 0 to production, and that's for new ones. You see there's probably -- I was just on a call with Bank of America just before this call, and they have 43 new projects within, we'll call it, the big companies, the top 10, top 15 companies, but 30 of them have been on the shelves for like 15 years. So -- and they're not bad projects, but the main thing is there's probably either a community issue, there's either a metallurgy issue, there's either a permitting issue. Like there's a lot of projects out there, but the ones that actually get developed are very -- don't -- there's not a lot of them. So all that to say that now when we were looking at it, we said, okay, we want to be in copper, but it was more for an EV for a structurally deficient market in the future. But now you've got this AI theme that just came out 2, 3 years ago now or even, we'll call it, 18 months ago, that's kind of -- it's not a black swan event per se, but it's going to change the perspective on copper. And I think the general market hasn't really understood where this brings copper because at the end of the day, whether you want more AI capacity, you're going to need more silver, you need more copper, you need more -- a lot of these different metals because they all go into these chips and all go into these supercomputers and so on. So I think that's what we don't fully understand yet. And I think that's -- whatever is being put out right now and with CapEx numbers for these AI, we talk about big CapEx in copper being $3 billion, $4 billion, $5 billion projects. When you look at these AI CapEx, we have a few investors that are in Hong Kong, and they're invested with these companies. These companies are talking about $100 billion CapEx. So -- and the raw material component is like 5% of that. So they just put like, okay, $100 million, probably $5 billion for metal. They don't think of, oh, we need to build these mines. So that's -- I think that's for me what's exciting when I look at the copper market 5, 10 years down the road. I think the visibility of those projects is not there yet in the market. All we know is that we're going to need more mines. But like in all metals, the mines are getting lower grade. There's less -- like all the good projects are gone. So the more difficult ones are the ones that are left. So if you're able to get your hands on a good project, I think you're in a very good position.

Yes. I appreciate that. And it's certainly, I think, helpful perspective to know that the easiest mines are already done. Some people don't realize, I think a lot of the time. Christian, I'm going to get you in because there was a question in the chat that I think is interesting, and there were a couple of people on e-mail asked the same thing. And that's, is silver's industrial demand dropping? Or is the reduction in price from January just based on its value as a monetary metal?

Okay. So I think I would frame it like the divergence is telling us something very specific. The market has separated silver into 2 assets, okay? And it's currently pricing it just on one, the monetary silver. So silver trades like the costing of gold, let's say, now it's entering industrial in terms of energy. We know all the increase in solar panel usage in AI, okay? So it has corrected hard. But industrial silver, the silver inside the PAC3, let's say, interceptor being produced right now and is restocked and depleted as the western arsenals, the silver in torpedo batteries of Virginia-class submarines being built under AUKU silver, let's say, in the hypersonic weapon, that demand hasn't correct at all. It's accelerating. And why is that? Because we don't know how much it is. As I was saying, global military expenditure has reached almost $2.8 trillion in 2025, okay, for the 11th consecutive year of increase. Europe roses 14% to $800-plus billion. That's the sharpest annual growth since the end of Cold War more or less, okay? That's a structural and spending commitment. It's not a quarterly data point. And silver was formally added by USGS as a critical mineral on November 2025, if I recall correctly, for the first time ever. Now we also know that U.S. imports 64% of its silver. So it's not just a matter of if, it's a national security problem. So the divergence that we are seeing or this dislocation, if you want to see it, is between the monetary metal and the defense industrial metal is partially real, but just because we don't know the data yet because we are still using inventories, existing inventories. So it will be reflected the fact that silver demand is -- it wouldn't be reflected because silver demand is invisible to public data, but it does not mean that we are not using. So there will be a point very soon when we are going to see the silver spike -- the silver going ballistic again. And it's not because something funny will happen or something like, let's say, a squeeze or anything. It will be a real demand and supply issue. Just allow me to give you an example. The Manhattan project case, let's say, for anybody, and I understand that J.T. is very embedded in the defense. When the Manhattan project needed, they secretly borrow 14,000-plus tons of U.S. treasury silver, okay? And they use it for the electronic magnetic separation for calls of uranium enrichment and everything that we know, okay, what happened then? That's a different story. But what I'm trying to say is military does not use silver incrementally. When they need it, they just go and take it. And we are going to see that very soon. What we are going to see is prices going up as we speak because what -- how are the governments going to use their silver? Are they going to prioritize London, sending it back to New York, New York sending it back to Shanghai, if they can do it again or anywhere to India or if NATO said, I need to restock my Patriot missiles for Ukraine. I need to restock my Tomahawk. I need to redo my anything because now we know all these kind of things, okay, the fighter jets, are we going to ask or are they going to just take it? We are seeing that they are just taking it. The numbers are talking by itself. The fact that no analysts have, then there is intentional because no government want to say, okay, I don't have this. But we are going to see silver now at 50-something, okay, going up again just because the war...

No, I appreciate it. And militaries and governments certainly work a little differently than the solar panel manufacturers when it comes to purchasing. So fair enough.

I got to jump in because silver is my favorite subject here. And first of all I got to say, Christian, I love your perspective because we don't talk about military and the underreporting. So I just want to say thank you for giving that perspective. The only thing I want to add, though, is especially for new entries, new participants in the precious metals landscape, what you have to appreciate is in history, we'd only breached $35 3x, right? And I know we're so focused on what happened from December to the end of January, right? But again, taking a step back, silver is up 50% in the last year. Silver equities are up 60% in the last year. We're at a price level right now, we're above the old price ceiling, right? So what was the ceiling is now support. And whether we incrementally lose that support for a nanosecond, to Christian's point, it's not going to matter because what we're setting up for is we're in a structural issue right now where we're mining less than the demand is. And what causes these big price spikes now is you've got 2 competing forces. You've got the industrial user and you've got like Christian gold's cousin, I like that.

Speaking of supply shortages actually, Vincent, I'll jump to you for a second because I know everybody in copper from BHP to the IEA says the copper pipeline is dangerously thin. They usually use the word dangerously, which I find interesting. You're sitting on one of the largest undeveloped porphyries in Peru at Pecoy, low elevation, close to port, same belt as Cerro Verde and Quellaveco. If the deficit is as real as the major say, what does it take to move a deposit like yours up the development curve? And what do investors maybe misunderstand about time lines for copper projects?

Well, no, I think right now, like one of the stats that's going around right now is like 96,000 tonnes of refined copper is kind of your -- really going from -- really needing more and more metal. So that's basically one mine. So if you got one mine that goes offline or that is in the pipeline -- that isn't in the pipeline, but that doesn't show up, then you -- the balance of the market is off. And that's 96,000 tonnes of surplus on a 28 million tonne market. I mean it doesn't take a lot to move the copper prices. Obviously, the copper prices going up is going to help a lot. But I think what we've seen in the last year, whether it's Grasberg, Kamoa-Kakula, El Teniente, a lot of these mines are underground mines. And for the last 10, 15 years, we've looked at -- where we've heard, especially on the base metal front, and especially on the copper side, these big block caves were kind of what the operators were looking at because, yes, they do have higher grades. However, technically speaking and operationally, they're a lot tougher to operate. So I think that's what we have for us is when you look at Southern Peru, whether it's the Anglos, whether it's Southern Copper, Grupo Mexico, Freeport, they operate all very, very big, large open pits. And they're not the highest grades in the world. Right now, Cerro Verde is probably around 0.24 copper. They do have some 0.3 days. And even if you look at the U.S. side, I think in Bagdad, I think they're at like 0.2, 0.3 on good days. So it's -- I mean, looking at it from an operator point of view, having a low elevation, closer infrastructure, a big open pit that's simple. Right now, our mineralization basically sits within a hill. So from a stripping ratio, we're going to be around 0.5 or so. Like all these things add to the -- I would say, the attractiveness of the projects. But most importantly, as it's the case in all countries, making sure you keep the communities on board and being in an area where you're not in a close to a nature reserve or anything of that sort. The good thing with where we're at in Southern Peru is that we are in basically mining communities. Most of the activity around us are informal or formalized mining. So that's something that's part of the culture. They understand the benefits of the mining sector. So that's something we're very, very lucky. But it's all about -- and Christian knows that very well as well in Peru is I think every area is different, and it's not -- it's very specific in Canada. I think there's places you want to go in Quebec, there's places you don't want to go. And whether you just have to take care of the communities and make sure that your first point of contact in everything you do. But I think that's where -- when a big company looks at saying, we'll acquire a project, they want to know, have you lined up the community, what's your permitting status? What's the government status? And then after that, don't go -- if you answer those questions, don't look at your project because if you don't answer those, as I mentioned in the intro, there's a lot of these projects that are on the shelves and they've been on the shelves for 20, 30 years. And there's a reason why they're there. It's probably -- I would say 50% of that, if I'm -- I would think, is likely because either the political front or the community side is not taken care of. So...

Those are obviously things that investors should keep a keen eye on. While we're still on the topic of shortages, I don't think there's a bigger shortage than 0 for domestic production. So J.T., I'll jump to you. I know the Pilot Mountain PFS came out at the end of June, showing a $660 million NPV at a base case price that's roughly 1/3 below spot, so fairly conservative for today's pricing with the Department of War already invested through DPA. Walk us through what the tungsten market reset looks like from inside the only U.S. project with a compliant PFS in hand.

Well, we've essentially, as a country, have to start from 0. Look, we took a contrarian view back in, call it, 2022, and we had acquired -- so our jurisdiction is Nevada. So being able to have 2 world-class tungsten projects essentially in the same mineral belt in the #1 mining jurisdiction in the world as identified by the Fraser Institute, I think, is a pretty good. It was a bit of a gamble, but it seemed to have paid off. And our flagship asset at the time was Pilot Mountain. So with Pilot Mountain, you've got a completed PFS. You have an investment from the Department of War that has been deployed. A big milestone for us as a company as we brought our company over from the AIM Exchange in London on to the New York Stock Exchange by the end of Q1. And so we've really now started to kind of build upon that. And we feel that the environment as it comes to U.S.-based tungsten mines sort of runs through us. And the reason is that there are certain things you just can't fast track. We're on year 3 of our baseline studies, right? So we've completed multiple years of environmental impact studies bugs, bunnies, everything else, birds, flora, fauna, you name it. We've got multiple years of studies. We completed the PFS, as we said we would by 30th of June. The economics came back and they're as robust as I've ever seen on a project in my 20 years doing this. As you mentioned, $660 million at a discounted spot price. At spot price today, it's about for our CapEx number, which is $288 million. In the scheme of things, being able to add 15% to 20% of the U.S.'s needs for tungsten, that's anywhere between a 6- and a 12-month payback. So the economics, very, very robust. The deposit, we were able to increase the resource by about 40%. So we're in a really good position. And the market actually hasn't really recognized the fact that we have another world-class asset about 2 hours away. One that was at one point, the largest producing tungsten asset in the United States. And we ended up picking that up really right before the tungsten boom started to happen. So we got it for a song. It has an estimated $40 million of infrastructure already on it. It's got the mill building and Shell already built. It's got a 3,000-kilowatt power station. It's got tailings. It's got stockpile. It's got water pipeline. We then added to the land package and then actually bought the water rights next door. So we're building a platform is how we refer to it. We're building a platform to help bring tungsten back to the United States and help really rearm the defense industrial base. And so it's been fun. It's been a bit trailblazing too as well. And we've been supported by just a fantastic tungsten concentrate price, which is what we're going to be producing. So...

Awesome. I appreciate that perspective. I think people forget defense metal sometimes in my audience. It's good to have one of the trailblazers in America on the panel today. Shawn, I want to ask you a question about M&A because people always ask about M&A on these events. You've actually lived it. I know most M&A deals have been consolidation between similar companies, but Dolly Varden and Contango took a different route, pairing a high-grade silver developer with a cash-flowing producer. What did you see in that structure that you thought the market would appreciate and that you thought would build a better company?