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

Coming in from. As always, for Contango event, it is a very international audience. So folks coming in from Switzerland, from APAC, from Alaska. I appreciate everybody joining us. I've got with me today, Rick Van Nieuwenhuyse, CEO of Contango Silver and Gold. It was kind enough to put out a major corporate update right after Labor Day to keep us on the loop. Rick, how are you?

Good. Good to see you, Romeo.

Yes, good to see you. So here's today is going to work for the folks in the room. If -- for those of you who are regulators, you can just stop listening for the next 30 seconds, you've heard this a million times. But there's a chat on the bottom of the screen. I really encourage you to ask questions at any point during today's event. Probably going to be a shorter one. We're looking at about a half hour. But as usual, I've got a bunch of questions based on the release. But I do want to hear from you guys as well. Some questions were submitted in advance over e-mail. So we'll make sure we get to those. Then any questions that are coming from a live audience, we'll take those up as well. Two other pieces of housekeeping. This is being recorded and will be available for replay probably midday, Eastern time. Certainly today. So we'll get right into your inbox. It will also be on 6ix's YouTube channel. There's also a request meeting button at the bottom of the screen. You can press that to have an opportunity with the Contango Silver and Gold team. I'll be passing on that along with your registration information as soon as the event ends. You can press that at any point during today's event, including after it ends. But that's the boring stuff, Rick. I want to get into the press release. Because today, yesterday's release reads like a checklist, where it's one of those every box gets checked. You had 3 core assets, 2 jurisdictions, drilling, road building, underground development, all on time, on budget in a single field season. Most companies, your size and bigger and smaller, struggle to pull off one of those programs. So I'd love if you could give us a sense of what it takes behind the scenes to run a wild season like this with so much going on.

Well, I think I said earlier this year that this year would be about execution and just getting things done. And that is pretty much what we did. And it really starts with putting the whole team together. Remember, we merged 2 companies. Contango Ore and Contango Gold & Silver. And so that was really the first thing to do is to get the teams together and integrate the 2 teams. And I think we've demonstrated that we've done that flawlessly. We've had a very successful year, very bitty year. I think we're over close to 70,000 meters of drilling in total between the 2 main projects. And that's exploration drilling, infill expansion. We've also done geotechnical work and things like that at Johnson Tract. But -- yes, it's just been a very busy year, and all projects have executed exactly what we had planned to do. At Lucky Shot, the underground development, the exploration drilling, announcing results, we're on track to release an MRE on that early next year, first half of next year. Johnson Tract road building, actually got more accomplished there than planned. We got the laydown area completely done, which we had actually expected to do next year what we got that done this year. So now the road is connected between the camp and the proposed portal site. Permitting on the portal side is, I'll say, substantially complete. You never quite ever complete permitting, you're always permitting something

We're renewing it or there's always a permit.

Correct. It's an ongoing -- it's a process. And we're substantially permitted there to build the tunnel. So next year, we'll be about building the tunnel and then it will be about doing the infill drilling there. So -- and of course, Kitsault,I think that's the one that redemonstrates how the teams have worked together very well. We had planned for a 40,000-meter drill program. We're going to be over 50,000 meters. And that's just because of the efficiencies and the team working together. And that's a difficult place to drill it, support, it's steep terrain. I really have to thank all of our contractors, the helicopter contractors, the pad builders, the tree fellers, the drillers, the geologists. It's been a very busy year. And I think the thing to emphasize, it's been a very safe year. We done all this work, the 70,000 meters of drilling, the road building, the bridge building, underground drilling, underground tunneling, and it's been 100% safe, no LTIs, and that's how we want to work and that's how we want to execute our programs.

Awesome. One thing I noticed in the PR is a pretty big Manh Choh story in the release I think might be getting less attention. I've certainly seen less attention I think it should be getting. As of the mill modifications for recovering the higher grade sulfide ore from the south pit are done and working according to plan. That was one of the real question marks coming into the year as far as I understood it. So what does it mean now that that's proven out, that's behind you.

Yes. The first half of this year for Monh Choh was always going to be the struggle 2 quarters. The first half of the year, it was about transitioning from north pit to south pit, lots of pre-stripping. So you've got a lot of equipment moving waste material to get at the ore in the south pit or the main pit. And the core that ore is more -- it's more sulfide rich. It's higher grade and it is more sulfide rich, which means you need the oxygen plant installed to make the recovery sufficient. And so that was done. It was completed last quarter, and it's now operating. And so we should see our recoveries in the 80s to low 90s depending on the sulfide. It's the amount of sulfide that really dictates how efficient the oxygen plant works. So that's done, and we'll look forward to -- we're in the middle of the third batch for the year. And we'll probably run all months, maybe a little bit into October. So it will be -- the production will actually go across probably 2 quarters. I'm not sure how Mike will report that, but I'll let him figure that out. But yes, it's an exciting time for Monh Choh because those higher grades in the main pit. And that's the main pit because it's a bigger one and now that the pre-stripping is substantially done, we should see our costs come down and our production go up, and we'll get the real benefit of that next year. We're guiding towards 75,000 ounces of production and a lower cost, $1200, $1300 all-in sustaining cost. So -- and again, the oxygen plants installed. It's actually a bit of redundant system that they've installed. So it's -- we should see those efficiencies in the recoveries and in th throughput.

Okay. Great. I do want to move over to Lucky Shot because that's some news that excited me this year. You go nobody was talking about a KM vein system. Now your drill contractor arrives this week to put about 1,100 meters into it from the new West Drift extension. So for investors, just catching up, we're here that mostly follow another project of Contangos, what is KM? And why is this jump in the queue for everybody's attention?

Yes. So the KM vein, it's a new discovery, and that's what's exciting. And whenever you're exploring a district, which the Lucky Shot project is a district. It's not just a one little vein. There's a whole series of veins in the district. But at Lucky Shot itself, the vein that we were exploring is basically almost east-west striking and dipping to the north. And when we were building the tunnel to evaluate that with the drilling, we use the fanshot-type drilling across the tunnel. We came across a vein dipping at right angles, basically, a conjugate set vein. We named the KM after Keith Miles, one of the fellows who worked for us at the project. Sadly, passed away, but he was -- he's been a long time in the district. He's a miner in the district for quite a while. And so that vein is dipping at right angles and it is a new discovery. It's never been explored, never been described in the district before. So that makes it exciting. And the fact that it was running up to 10 ounces per ton. That also makes it very exciting. So greatest king as I say. So vein was dipping away from us at the end of the tunnel. So we now attended the West Drift tunnel about 100 meters, and so the vein is above us. And so we're going to do fanshots like this above us, holes like that. We're going to outline an area of probably 100 meters by almost 100 meters. It's a little irregular shape, but it's roughly that. And so when we're seeing these kind of multi-ounce grades, you can build ounces quickly. So that drilling will get underway at the end of the week. The should be installed, all the airbag is installed in electrical and water is installed now. So they'll get up and running and probably take about a month to get that drilling done. And then unfortunately, it takes a couple of months to get your assays back. So that's always the frustrating part of exploring this -- especially this time of the year, it's everybody in the brothers out drilling and so the labs are packed. But that will -- that information will come out before the end of the year is what we're planning.

Sure. And people e-mail in every day asking, why is the company put assays -- it's not really always up to them, dates just to understand like these labs are real back up sometimes. It takes in heavy season.

Yes, it's a frustration that I think everybody in the industry deals with right now, and it's -- well, we'll get sidetracked on that topic.

Yes. No, for sure. Because I want to talk about surface drilling at Coleman because it wrapped with 29 holes, including that 2.45 meter head grading over 86 grams. Now you got 10,000 meters of underground drilling running through February, feeding the FS, which is scheduled for next year, if I'm not mistaken. So how do KM and the Eastern L2 extension change what that study could look like versus what you were modeling 6 months ago? Because I feel like it's changed pretty significantly.

Yes, certainly adding the KM vein in the mix. And obviously, it's still exploration. We got -- we sampled where we could and it ran really well. So we'll do this 1,100 meters of drilling and see what we get. But clearly, what's significant about KM is it's right there in front of us, that takes very little work to have to put that into production. So if that -- if we end up hitting sort of a lot of plus 10-gram material in that vein, we'll look to integrate that into the overall mine plan. And it may well change our overall development scheme for the deposit. But we're not there yet. We're just -- we're still going to go do the exploration. Meanwhile, we're almost finished building the script, which is basically just opposite the West Drift down the indie tunnel and then one goes off West on 1 goes out East. The East Drift is almost done, and we'll bring a second drill rig and then start drilling that in about a month or so. So -- and that's targeted on the classic Lucky Shot vein system. In fact, it's literally right underneath where they mined it before. And so -- and then meanwhile, we advanced the tunnel and we build 2 more drifts further down further at the end of the tunnel to continue extending the Lucky Shot being down dip further down there. Obviously, if we really like what we see at KM, we'll adjust. And we'll -- it is the exciting thing about KM, it's never been explored. So right now, we're just going to test 100 meters of it, but it's going, we'll probably keep testing it, especially if it keeps running multi out. We like multi-ounce. It's...

That's exciting to have drill core. It's worth the kind of money, just to drill core, it's pretty neat.

It is all this visible goal, right? The BT gets reported and it so that is exciting. It's always exciting for geologists. So when you look -- by the time I get to look at the court, it's got all these little red circles on it, so it makes it really easy for me [indiscernible] gold.

What some people don't know is exploration geologists are the biggest adrenaline junkies possibly in the world. These are like base jumpers. I don't think people realize that. But I do want to talk about Johnson Tract for a second because I'm bouncing around your projects. And I hate to contradict you because I know you've previously described it as a permitting story. But it feels to me like this summer, it graduated into a bit of a construction story because the road from camp to the portals built, 2 bridges are in, portal pads done. So what is having that pad sitting ready to go unlock for 2027 for this project?

Yes. I mean this sets us up for continued execution and get the tunnel built. The team that we're building at Lucky Shot to build tunnels, that's going to transition really nicely to get all those folks who work with and we've worked with for a while now to go over to -- from Lucky Shot down to Johnson Tract and start building tunnel there. So a couple of things we have to do to accommodate that because once we get under we want to be underground year-round. So we're upgrading the camp. So we're starting to work on that this year. It won't get completed until next year, but next year, we want to be working year around through the winter. So there's a substantial upgrade to due to camp. But yes, the portal sites all set to go. I think you see from the photos that the bridges are well built. There's nice stout bridges. The road looks great. you can drive a sedan on it if you want it. It's a nice -- it's a good road. We've got lots of material to work with, and that was -- that's a big advantage of working at Johnson Tract because you have a lot of -- it's a big river system right through there. And so you've got a lot of material to work with. It's nicely channel, and obviously, that's what the bridges and the opens to the bridges do with KB and baskets. They keep the water under control, so it's not kind of going all over the place. So yes, it's been a good solid year of work. We've got a great crew out there as well. And again, they work safely. And so we're really proud of what they've accomplished in there. relatively short period of time.

Yes. No, it's going on. And speaking of that, somebody I want to talk about Contango generally and just to kind of summarize all the work. You have 50,000 meters at Kitsautlt, 5,800 meters plus underground program at Lucky Shot, road construction Johnson Tract, all paid out from the Monh Choh cash flow without going back to the market, which right now is great. That's good news for everybody. I'd love if you could talk about on the financial discipline, I guess, it takes to keep all these programs on budget at the same time?

Yes. And that's where the team work comes together that you plan out of budget, you put it forward and you sort of fatigue it about are you really planning out things accurately from a costing standpoint, but also from a timing standpoint. We just had a big meeting yesterday where we had the whole team together discussing here's what we've accomplished this year. What are the plans for next year? And what does it need for dollars, what does it need for people. Those are the 2 key things. And then making sure you get the timing right, so that you're be doing the appropriate work at the appropriate time. So you're not trying to get things done when the weather is terrible. We do -- and whether it's hard to predict day-to-day, but are definitely rainier parts of the season. And again, so -- and I'll give you an example. We got the surface drill program at Lucky show shut down a little early. -- because we got about 6 inches of snow. And we want to work safe that's a big criteria for us. And so we said, okay, we had a couple of holes lab we could drill. We said, let's just wrap it up. then this snow was not 1 that was going away. You can sort of feel it was 6 inches going to 12 inches, as any day tomorrow. So -- those are the sort of things we want to -- if you get a little short, it's not a big deal. Those are holes we can drill next year or the year after on. But that's the timing and just making sure you've got your budgets accurate. I don't want to say take because we always want to have a contingency in things we don't always use, and most of those are due to weather delays. But we had a lot of equipment working this year. road construction equipment, we had a lot of helicopters moving equipment and again, to doing that at the right time of the year and doing it safely is the key parts of staying on budget.

Makes sense. I'll certainly say being from Ottawa. You can tell when 6 inches is another going to be a keeper. You just get a sense for it. These are the ones these are sticking around. You do get in a sense.

It was an early winter this year in Alaska for sure, I think it shut a lot of folks down early.

Yes. I saw pictures of snow caps in August still, which manner. That is -- those goods get different up there. But I want to look into 2027. Just kind of a follow-on, I guess, from the last question. Because each 1 of the assets is asking for capital, as you talked to. You got underground drilling through February, drift development camp expansion at Johnson Tract and obviously, the engineering work at Kitsault gone after the MRE. How are you thinking about prioritizing these dollars? Like how does that math work for the team strategically?

Well, I guess it starts with Mantra and the production we're expecting out of so, and we're using a $3,700 gold price to do our financial projections. So I think we're being on the conservative end of things there. And so the cash flow that we're going to generate, we obviously want to spend more than that. And so we're -- we've got things planned out where I'm going to predict a little bit here. We're going to get a feasibility study done at Lucky Shot. Most of the work it's done this year in terms of the tunneling and the drilling will spill over into about February of next year. But then it's just working with the data to complete the feasibility study. And again, I call this feasibility late because it's with the DSO model, we're not building a mill and a tailings facility and a big power plant to run all that it's definitely -- it's a mine plan and a transportation plan effectively in working on an offtake arrangement for production. And so I think for Lucky Shot, that it's pretty straightforward. And then we can obviously pull the trigger on in the sort of the second half of the year on the development plan. Here's the feasibility study. We're going to execute the feasibility study. at Johnson Track, the tunneling is based on what we're doing at Lucky shot this year, we're going to be doing it Johnson Tract next year. We probably won't get started until we had to mobilize equipment in it and all that. So probably actually won't get tunneling until August, September, the latter half of the summer because we got to get everything set up. But then you're doing it all year around, and now your campus is upgraded.

And then at Kitsault, I think it will be a little less billing. We had 5 rigs t

And then at Kitsault, I think it will be a little less billing. We had 5 rigs turning this year. I think it will be only a couple next year, and we'll be working towards -- we'll update again the MRE. We've got one coming out here shortly by -- certainly before the end of the month. But then we've got another 50,000 meters of drilling we did this year to incorporate. So that will get updated first half of next year, in assays probably won't get all the assays back until January. -- late in the year. And so then I'd say by the end of the first quarter, early second quarter, we should have the MRE updated. And so it's -- I guess, all the programs we're not doing all the same things at all the programs. We're all slightly out of phase, and so -- which is nice because then you've got, like you said, the drilling and the underground mining team from Lucky Shot can basically transition over to the Johnson Track. And you know you've got a good group of people who have worked together and can work safely and get things done efficiently.

Great. And I know -- I'm just going to talk about Kitsault really specifically for a second before I broaden out. Because what was the first full field season with Kitsault time the Contango Silver & Gold banner. And all 8 of the previous target areas were drilled, plus some stake. So 123 holes and an updated resource estimate landing as far as I understand in the next few weeks is our guess. So when that MRE comes out, I encourage everybody to keep a keen eye out for it. what should investors be looking at to judge whether this season delivered it's.

Yes. So obviously, there's a total number and will have moved a significant amount of the inferred resources into measured indicated and indicated is really the 1 to focus on. As underground mines, you don't really get measured until you get underground. And so that's a significant part. Well, obviously, we've got a new zone that we're drilling on the 470. That won't come into play until next year because that's a discovery this year. So -- but that's we'll talk and we'll certainly highlight that when we release drill results, which are also be coming out here shortly. But if I tick to the MRE, it's basically infill drilling and overall expansion of the resource. And keep in mind, this resource that's out there in the public, there's 60 -- almost 65 million ounces of silver million ounces of gold. That's quite dated. I mean it's -- it was sort of rebranded, but it's -- I think it's like a 2017, 2018 era resource, and there's been 150,000 meters of drilling sense. A lot of it is infill. So the focus of the program was not to -- not to make $65 million ounces to over 150 million ounces over whatever. It's the new infill drilling and to really understand the geologic controls. So it's a much tighter resource estimate. You'll see a lot less inferred -- and obviously, if you've got new discoveries, you'll have more inferred on those. And that obviously is what a lot of the drilling this year will update as well. So -- but the MR that will come out here in a couple of weeks look for the inferred transitioning into indicated. Obviously, the gold and silver prices have changed significantly since that was released in 2023, I think it is under the Dolly Barton banner. And that -- the gold prices and silver prices that were used in will be different from now. We're going to stick with the consensus pricing, which I believe is in the $50 neighborhood for silver and $3,500 for gold. So there'll be some changes in when you increase the gold price, you lower your cutoffs so you lower your average grade and all those dynamics have to work. And we'll try to explain all that in the press release, but we'll have another forum like this, and we can talk about it in more detail.