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

Just between all of us on stage ready to cover several time zones, but I'm glad all of you could join us on short notice after this morning's news. I've got with me today, Rick Van Nieuwenhuyse, CEO of Contango Silver & Gold and Dave Larimer, the company's resident Rockstar and Vice President, Exploration. Gentlemen, how are you today? Awesome. So a couple of housekeeping notes. As usual, I'll be brief. I promised kind of a lot of you are regulators. There's a chat on at the bottom of your screen. I know that some of you did submit questions in advance over e-mail. Please do use it. I'll try to get to as many questions I can during today's event. If I don't touch it for whatever reason, I'll make sure the team gets it and can get back to your efforts, but I usually do a pretty good job of getting to most of them. This event is being recorded and will be available for replay mid-afternoon Eastern time. So certainly before the end of the day for most people watching. It will come right in your inbox, but also be on 6ix YouTube channel. And finally, there's a meeting request button at the bottom of the screen. Please do use that if you'd like to get in touch with the Contango Silver & Gold team and somebody will be sure to give you a call. But you're going to get into a lucky shot results. I think it's a very exciting news release. So Rick, I'll start with you. This morning's release just for folks who don't know, the second batch of assays from the Goldman surface program the first since the whole program ramped at the end of August. So to sum up, 5,800 meters, 27 holes, 5 pads and now excitingly, 140-gram hit in 26018 on top of the earlier results. So with the rigs off the hill, most lab work back. How does the summer grade out against what you send the crews out to do?

I think they accomplished everything they set out to do. I think we were too hold short of the overall objective. And we just had an early winter here. And so [indiscernible] sort of more than 6 inches that's now on the ground get line, especially out there. It's really steep you've seen photos, but it's super steep. So that was more of a safety call. But I think we accomplished all the objectives in terms of -- most of that drilling was infill and the expansion of the vein down dip in [indiscernible], right. So I think that's all -- that all worked out as planned. And yes, 140 grams per tonne is a great hit. Obviously, it's going to put that over to a mining with 2 to 3 meters that all this information is going to get incorporated into our mineral resource update probably April timeframe, somewhere in there, see when we get all the assays back and QA/QC. I think we'll be drilling people probably comment on this as well, but I think we'll be drilling probably into February. And so a couple of months to get all the assays back, can you see mineral resource update, and then we'll use that to incorporate into a feasibility study, which we'll have them before the end of the year and the year 2027. So that's kind of the plan. And yes, I think it's not just a single assay. It's a whole suite of assay, basically demonstrating vein continuity. There are a few more veins that we've identified that just means more tons. And obviously, they've got to all fit into a mine plan. So we have a lot more going to do underground now. We'll have one more batch of assays to release I don't know, probably 2, 3 weeks or a month or so. But that said, it's kind of [indiscernible] it up for the surface drilling and several more months of underground.

Exciting. And Dave, and I got a bunch of tech questions for you. We're going to nerd out questions that's okay. But Rick, feel free to jump in whenever you'd like. Coleman 4, the vein that seems to keep showing up. It carries that 40-gram interval in '18 on Pad D, the 118-gram subinterval in '19 on Pad E, and it's half of the 18-gram Intercept in '21 in Pad F. So that's 3 pads, 1 vein. Is common 4, in your opinion, turning into the backbone of the system? And how much strike does that give you between those pads?

I would definitely say Coleman 4 is emerging as definitely an important part of the picture. It's definitely encouraging. We can maintain that structural and continuity across multiple pads through there is demonstrating that the models really are behaving as they should. I would be a little cautious and a little careful call them the backbone quite yet. These are vein systems. I would interpret it more as maybe a major artery. We're dealing with vein systems. We're dealing with fluid pumping through openings through there. So I would almost consider Coleman 4 as it occurs over and over a major arteries that's passed these fluids, precipitating our courts and our goals out through the system, giving us that lateral spread through the system on the Coleman side. It's interesting to note, put this back into context, the Coleman side was last model in 2023 to that last mineral resource update. Strike length, it was about 500 meters by 500 meters. It is a substantial part. We've known that but it is a substantial part of the Coleman vein system. So to be able to come in here and do this drilling inside of it, just to demonstrate the increased grade that we're seeing in this upgrade centering on the Coleman 4 I mean I think it's a very compelling story where you have a central artery and the rest of your plumbing around it, supporting the gold grades, passing through there. It's definitely interesting to look at. We're looking at these drill holes especially Pads D, E and F, they were specifically designed to target the heart of the Coleman system. What we saw in the last resource model was some historic drill holes in historic 1960s, there were -- I wouldn't say suspect, but we couldn't confirm the assays. So what we did is we took them out of the model because we didn't have the confidence to say exactly, and we couldn't [indiscernible] the results of it. So by taking those historic roles out of the model, what it did is it left our resource into an inferred category -- excuse me, an indicated category. So being able to target these drill holes in the middle was an upgrade exercise for us. Can we increase the classification, derisk the system, and these are the results that are coming out of this drilling program. So to me, it's really exciting to see this picture coming together from basically the heart of the system of Coleman on the way out to the drilling.

Great. Appreciate that. One thing I wanted to ask about the 4.57 meter interval in 018, grading near 10 grams, it signed a Coleman 7. So a lot of us, me included, Coleman count stopped somewhere lower than 7. So I guess where does this vein come from? And how many Coleman structures are actually in the model today versus a year ago?

Absolutely. I know it's confusing, most of what we've talked about in the past year has been the lucky shot side. It was the first time we've really been able to get into depth on the Coleman side. And again, taking it from that 2023 mineral resource update through that model and through all the historics up to that point, there's actually 8 named models, Colemans 1, 2, 3, 4, 5, 6, 7, 8. We currently hold 6 of them, and I'll kind of explain this through their Colemans 1, 2, 3, 4, 7 and 8. So Coleman 7 isn't a new discovery. It's always been in our model. It's a little on the fringes, but it's always been there. And what you see and when you start working in [indiscernible], and I got a great analogy to this is as you start to develop your understanding of the systems, you find the discovery, Oh, you got to give it a name. Well, I already found this one, I'll ask Coleman 1. And you got to remember, this dates back all the way to the early 1900s, the vein system. So the exploration and developing these systems has gone on for decades, 100 years. And so it's basically an addition of adding on [indiscernible] a little more. And geologically, can you prove continuity, can you prove structure and how do you tie these things together and space through drilling. And that's how you end up with 8 named [indiscernible]. I will say in the 2023 mineral resource update when we did the remodeling through that and all the current drilling in there, the realization is, well, hey, 2 of these veins really are these other ones, just laterally connected. So that's where Colemans 5 and 6 dropped out. I will say I know it's confusing. We found a lot of conversations. But at the same time, we need to maintain our kind of disciplined approach right now, and we can't just [indiscernible] only start changing names. Because then it just starts looking like, "Oh my god, contangos got 15 new discoveries. And that's not what we're trying to do. So right now, the disciplined approach is, hey, we're going to maintain these as we go through out there. When we do the appropriate time to do this will be next spring when we do the next mineral resource update and leading into the feasibility study, this is the appropriate time to rename these on the best geologic picture of what we got. So I expect to do a name change, and we'll put it out there, whoever it understands it. Ideally, you -- especially an underground mining scenario, you'd like to name these things sequentially, kind of top down, Coleman 1, 2, 3 and 4. However, it doesn't always work like that. And the perfect example is [indiscernible]. When we're working there. We had the L1 vein, L2 vein. Well, then we found stuff in between it was like, "Oh, God, what do we call this, was this the L1.5. I thought we thought something a little higher. Well, it the L0.5. So things do got to remain a little dynamic, but we do intend to clean this up, especially for clarity. Going forward and really a clear understanding of the next mineral resource update.

Right now I appreciate that.

Yes, definitely not do that. Yes.

That's probably for the best. 26021 is interesting to me and reading through the release because it tags the 3.65 meter 18-gram intercept as Colman 1 and Colman 4 together. So for a neofight like me, when 2 veins show up in 1 run of core like that, what are you looking at a junction 2 veins pinching together, something structural and what is the main intersection due to grades and the kind of with that you guys and investors should care about?

Absolutely, [indiscernible] take us back to the context of plumbing, fluid pathways. We know these are at Aero veins. We know we're dealing with fluid pathways through there. They do kind of converge together. Wind veins and your plumbing systems do convert together, you'll generally get a larger dilated space. So potentially, you get larger areas to potentially get blowouts, potentially get ore shoots. So being able to see where it remains converged together is a good thing. You want to target those intersections. It does give you greater thickness. The grade is obviously based on the assays, but these are good things and understanding these. Again, when we come back to the vein models, geometry changes with these systems, they pinch, they swell, they bifurcate, they split just like your veins in your body. They kind of go kind of all over. You're sitting in the general trend of your geology out there, but they can go kind of wherever they want, wherever that broken rock is that fluid pathway. So by understanding that, drilling it, you're also targeting where these intersections are. If you do get blow out so those are great areas to model and pull up and be really restrictive on how far you extrapolate out that grade, knowing that this could be a local phenomenon through there. But all this does is helps us pull together that geological understanding. This tighter drilling that we did helps us get better constraints on the geometry of these veins, where they're sitting, how they pitch, how they swell, where they merge together and where they truncate. And this will lead into next year's plan of, hey, how do we overlay a mining plan on this. This is how we get that conversion from resource to reserve, and it all starts with this detailed drilling and understand this geology. In the drill core, when we're logging this, we're looking for very, very specific stuff. Again, some of these composites compromise 2 banks, just because that's the way the composite works out here, a small little piece internal but by our compositing rules, we're going to composite this together. We do go through there in our logging. Our geologists are very detailed looking at the court's veins, the structures, what's breaking out, the alteration. So we can see on a final result -- is this really coming together? Is this an internal salvage where the whole bank came together, and this is just the internal salvage through there. So our geologist doing a great job marketing this. And this gets dumped into our models, which then will ultimately get put into the mining plan going forward in the future.

Great. One thing -- look, I look at a lot of tables, as you can imagine. I think there's a lot of honesty in Table 1 featured in this release. There's vein assignments marked known, a few marked on the sign and 2 intervals in 19 and 31 flagged is shallower than the model veins. So you're hitting gold to model didn't predict above where it said the veins should be. So just as a geologist, how do you decide when an unassigned interval has earned its own name? And what is mineralization with the model tell you about how much is still out there?

Yes Absolutely. For me on an side, we move back to the we want to designate on the side, we just want to give to something. And really to me, it was important that we didn't have enough geologic context on some of these intercepts to definitely quantify it into abate. Once you do that, you call this the Coleman 4 for Intercept, you're taking that last Coleman 4 and you're drawing your line and you're saying, yes, we have enough geologic confidence that these connect together. The way these intercepts will line out and looking at the model, it just wasn't there. And I'm okay calling something unsigned. To me, that means we got mineralization that we can't confidently yet say what veins systems this long to and again, back to our vein system, these things pinch and swells play off, and it very well could be is just a play of a Coleman 4 is just to Coleman 4.5, if you will. And this is the stuff we want to be very, very diligent on is our disciplined process of modeling out there is, we're not quite sure. We got gold here. This means we have to follow up this area in the future to tie this together, to tie that plumbing back into it. For the unknowns, those are interesting ones. We're drilling down through the systems, and we are discovering that top of that plumbing system. We've got some vein systems up there. We got gold grade. It doesn't correlate to anything up there. Well, we don't know what it is. We only got 2 intercepts on this yet. Well, this is unknown. So this is another target area for us down the future. And you put a goose tag on it and be like, there's some more up here. At the end of the day, we're dealing with the system. I always look at these small vein systems as fluids passing through kind of a SIP and we're trying to target the best parts of it and the more you drill, the more you find out. Additionally, got through experience, you end up finding what you look for. If you're looking for flat lying veins, when you drill, you kind of have that preferential understanding, oh this is flat line and you connect everything up or are you looking for high angle structures. For us in this program, we drill through this and we look at each intercept with open eyes. How does this thing fit and you spin them all around. Does this truly fit with one of our model intercepts. Yes, that's very definitely there that's on plan. We see the core access angles and the orientation of the core, it all lines up. That's definitively assigned to that one. If it doesn't, it's a target area for us in the future of the system that we're exploring.

Let me keep in mind is that we are -- the drill density here is in the order of 25 meters. So there's pretty close. And our objective in doing that is to have measured indicated resources so that we can -- we can just take this, develop a mine plan. And then with our DSO model, feasibility study is basically a modified transportation plan and offtake or a tolling arrangement. Pretty simple.

Simple is good, simple is my favorite. There's 2 holes I want to talk about, 07 and 08 [indiscernible] contrarian. They came back nothing significant to report. And I want to spend a minute on the I think that's still useful because they ran Northeast and hit the lucky shot fall. So what, in your opinion, did those 2 holes teach you about where the common veins stop against that fault and about the fault itself.

Yes, absolutely. Pad C was on the lower -- it's on the northeast corner of the Coleman specifically designed to test the down dip extensions of the [indiscernible]. Can we bring this thing deeper. At the same time, let's look at the larger context. We've got the Coleman Vein system. We know it's high and then the Lucky Shot Vein system that's been offset. And we know we have a lucky shot fall that offset them. We know it's in there somewhere, basic geology. In our underground program, if you remember, half a year ago, a year ago when we have these discussions, we were drilling on the western end and we found the Lucky Shop fault in the Lucky shop system. So we could pin that fault lower down at depth where the Lucky shop system works really well. And we knew she goes up and she knows she goes up and offsets the Coleman somewhere. So this drilling was specifically designed to offset and step off the Coleman vein system down dip. And we wanted to target where this lucky shop fall was and we got it. These 2 drill holes intersect the Lucky Shop fall gave us extremely tight controls on where the Lucky Shop fault is up at surface. We know where it's at really well in depth, and we can pull that up. So now we've got that great plan of that offset between the Coleman and the lucky shot. I would say these drill holes to me were probably one of the most exciting ones we've had. I mean, hole rate's good, don't get me wrong. But for me, modeling this and pushing forward, we now know that how far much further we can push the Coleman down into that [indiscernible]. She's offset and we're stepping off, we now can pull that line, and we know where the Coleman terminates into that fault area. Additionally, some interesting things we were seeing through that drilling and that drill pad is we can also find small little bits of courts chunks in the falls. So you can see where this thing ripped apart from the lucky shot in Coleman, dragging down support spending with it, which just supports the basic geology theory that we got going on in the system. So on a peer geologic economic geology deposit standpoint, this was a huge success. No one wants to report no significant assays, but to me, this was a huge one. When you look at the model and you look at the cross sections, you can terminate where [indiscernible]. We had enough confidence in these drill holes that we actually terminated and didn't drill 2 other drill holes. They would have been on the other side of drilling. We're not just going to win something out there. So we're able to invest that footage back into the other programs going out there. So to me, these were extremely successful holes. And we have tight geologic controls up on the Coleman in that area, and it was exactly what we designed to do up there.

That's great. And the last question for Rick, I'll throw it back to you. The Pad D interpretation now includes a modeled West Coleman fault. So that's a new structure in the picture for people who are following the project. What is that fault doing to the veins? Is it moving them, putting them bounding them? And how do you design your next holes, so fall like that works for you, not against you.

Total agreed. Again, this was another success story. While we're drilling in the heart of the Coleman again, a lot of drilling up there through the decades. We were drilling down there, specifically targeting some infill. And what our geologists were able to see is we're finding significant thoughts. And I'll have [indiscernible] this is Alaska. This is Ontario Alaska they are faults everywhere. But it's how important are the falls the displacement and direction of movement. But what our geologists and our loggers and our project deals we're seeing down there is we're having a consistent plan through our orientation they looked at that and they got the leeway of, hey, if you see something in there following up. So our project go followed up and said, "This is a fault. I got a great plan and when you cast that fault out there and you pull it down from all the drilling, it goes and it just truncates the drilling to the Southwest right there on Coleman. So we know where the mineralization was and that fault was able to come down and it just projected right down to where the no extensive to the Coleman was. So yes, that's definitely a fault put it in there. What that tells us is that's the offsetting boundary for the majority of the Coleman in that area. So now we know we have this approach going forward, a, when we follow this up, when we do the step offs, we don't need to target drilling specifically in this area, we can expand resources and refine our search target area a lot more based on this high-density geology confidence we have in our model going forward. So we had another great technical success story of what we can do through our infill drilling when we keep our eyes open, and have that holistic approach to the model and let the geology dictate what's in front of us.

That's fine. I love the detective work of experts in geology I think fun. But Rick, I want to read you for a number that I've already seen screenshot on X.com and elsewhere. With gold north of $4,000 an ounce, 140 grams a ton. That's a slab of rock. You just got in your hand were $19,000, which is a hell of a bar type where I'm from. So even the 18-gram run over 3.5 meters is a couple -- a couple of thousand dollars a ton. So for a retail investor, who I know here's high grades every week, I say it 10 times a week on a webinar, put those grades in context for what a project like Lucky Shot has to look like to make money.

I'd say we're targeting is 10 to 12 grams. And that's not universal. It's over the whole ore body. Certainly, and if you take this take 10 grams or call it 1/3 of an ounce, if you want to take an ounces in dollars, it's a little easier maybe. That's good rock that you can mine. I kind of break it down, I think we can mine for probably $200, $300 a ton processed for [indiscernible] we can transport for. So that's your -- most of your total costs. You're under $400 a tonne. And then maybe your admin is a bit more than that. But when you've got rock, that's worth twice that, you're going to make the market -- and again, it's simple. It's -- I think we said before, rocks in a box and set them up for [indiscernible] it is a beauty of the model. Now we're going to look at them in their options too. [ Fortnox ] is there, it's got plenty of capacity. I think Kinross would love to have it. We'd have to work. We have a business relationship already. So there's something to be done there discussion we had. But there are other options. And so we're going to evaluate. There's a group that has processing facility in Taiwan. That's something we can take a look at and that's -- the same thing that kept the rock stock site north to go on the training they go south to sewer and then they can be loaded on a barge or ship and headed to Taiwan. So that's another option. I mean we end up buying our own facility and then processing at our own facility. So we've talked a lot about that, and I know we've had several questions in the past.

People do love to ask.

Where is the mill, we're still evaluating a couple of different options. But it's nice to have choices. And when you have grade, that gives you a lot of flexibility. And so -- we like the big numbers. Everybody likes a 140-gram number. I love it. It's -- we're going to need to put that over minable with [indiscernible] but it's still way above 10 grams per test. Say, 10 grams per tonne, 30 ounce rough numbers, you can make a lot of money on a good margin on that. So I think we're -- I think the results are showing the continuity and the grade is good, good enough to make money.

[indiscernible] High grade in a simple plan. It's hard to be it really. I want underground, so moving there. You're at 450 of 830 meters. As I understand it running 2 shifts around the clock with 3 headings going at once. 2070E, the in-search tunnel extension and 2300A. If you could walk us through what each of those 3 headings actually gets you. Where is each 1 point and what does it open for drilling once it's done.

I'll start off on the -- so the first one was the west drift extension. That is complete, we put that in there. The first one, closest up. What that gives us are close in drill targets up into the KM Vein, with Dr. KM Vein where it's close in there, it gives us short drills right up in there. Can we quickly expand this, put enough drill holes in there? Can we pull this into a resource quickly that is nearby and show that continuity and show how the KM Vein, the importance of the KM Vein. So that's going and going right now. Your first Easttrift, what that gives us are drill stations that we can come back and target the eastern side of Lucky Shot from the footwall. We'll drill those up and kind of pull those out. And again, the duplication of those other drifts coming back, we're coming out and drilling from the hanging wall side of a Lucky Shot Vein system. I kind of equate it to a quarter. That first underground drill program on the West [indiscernible] was basically your first quarter. Then we got the other 3 quarters. And you look at what we were able to do from our previous [indiscernible] results, not forward-looking too much, we are looking what we were able to do in 1 quarter. This is what drilling can do for you in the tight Vein system. So we're going to [indiscernible] that through more times. Additionally, KM, that's like over time. That's like some great stuff close in through there. So once we get these completed, get the drilling going on with 2 drill rigs. We'll be able to push the drilling. We've got the geo crews lined up. They've been working with us. They know the geology. We've seen the great work that they do. And these will focus into the model. I previously talked about one of the pushes we're looking at is shortening that curve between drilling, modeling, obviously, the assays are on their own time line, but back into the [indiscernible] I don't want to say in the old days, back in my day, back in rigs days, you'd have to wait for the assays to get facts to you. Then you going through the system. But what we have now with our models in our database management system is, say, we're logging right into the database. So that's getting our geology right in there. Again, I've talked about it, our project [indiscernible] and myself, while those loggers are log and the hit F1 and in uploads, I can be here in Fairbanks and download it, and I can see exactly what they've done. Sean can look at it near real time, assays come in, we QAQC them, they get uploaded, they get populated right in there. And where we're pushing now with our geologic programs, we're able to expand quickly the vein solids, our domain, right, we can quickly kind of see it and assign yes, I see the continuity, I can sign which ones these fit to, and those will expand our domains in our geology model. Then you bring in your assays and then through the systems that we have now, we are setting up at this time the ability to kind of do this continuous geostatistical analysis, and I don't want to say almost in [indiscernible] resource modeling. So we can see the effect of each of those drills almost on a one by one, a, this increase here, okay, decrease here and expanded here. Nothing that we're going to publish because you have to do your full QHQC and make sure everything is straight. But we have this near-term dumping in that will really let us focus. What that also allows us to do is to myself, the project geo, we can say, "Hey, this drill spread really didn't give what we were looking for on the Geology it let's modify the next one. So it gives us that tighter controls again back into that disciplined approach. This thing was coming in lower than we thought. We need extensive drill holes, right? We hit this a lot earlier, hey, we can pull back a couple of thousand meters and reinvest it. So I'm extremely excited with the program, but we got set up. Let's get this exploration development complete, let's get the drills in there and keep pushing.

Awesome. The [indiscernible] that Dave was referring to, it's not quite exact offset of the West at that we've built on now. But that's right underneath where the historical mine most of the 23,000 ounces, again, 40 grams. That was high-high grade mine, we selectively mined and they [indiscernible] can see that they [indiscernible] New York as they put the non-ore back in play. So they were there doing this. We'll take a look at ore sorting. That's definitely a new technology, a relatively new technology that can be very effective. But that's probably something we'll look at down the road. What we want to do is get the same unit production, make money we think the 10 programs makes good money. And if we can improve that over time, that's great, but keep it simple.

Keep it simple. Rick, I got 2 for you on KM specifically because I know drilling started as recently as September 16, and you've already got 10 or 17 holes done. Congratulations on the hustle to the team. But the whole program is 1,140 meters across 17 holes from 5 stations. So there are short holes under 70 meters on average, drilled tight from underground. So no as is yes. I'm not going to ask for grades, people reach out, I'm not we can't tell you that. But what's the whole design? How are you paying them for each station and what's the core telling you to the best of your ability, about the KM Vein so far just eager to discuss?