Good morning, good afternoon, or good evening, depending on where in the world you're signing in from today. Great to see a packed house for today's event. I've got with me today Rick Van Neuenheise, CEO of Contango Silver and Gold, and Mike Clark, the company's CFO. Here's how today's going to work with the folks in the room. I've got some questions based on this morning's press release, but this is also an interactive event. So please do enter your questions in the chat section on the bottom of the screen. We're going to try to stick to half an hour today. So if we can't get to your questions, I'll make sure the Contango team receives all the content as soon as the event is over. But we will try to get to as many as we can today. The event is also being recorded and will be available for replay this afternoon, Eastern Time. So let's get into the meat and potatoes here. Rick, before we get into the Q1 numbers, you've been telegraphing forever that this quarter was going to likely be the lightest production quarter of what is presumably the lightest production year for Mancho under the current mine plan. Can you remind investors how the 2026 mine sequencing was designed and why Q1 was always going to look the way it was relative to what's coming in the back half of the year?
Sure, Bianca. Good to see you again. And we're, I think, we're together here in Frankfurt for the Goldmiss conference. So looking forward to that. But, yeah, 2026 was always going to be the the low production year and the higher cost year in general. And it really did sequence for that. The beginning, the first half was worse than the second half. So in terms of gold production ounces and in terms of costs, lower ounces, higher costs. We'll make up for that as the year progresses. And this was basically the transition year from mining the north pit, finishing up mining the north pit and transitioning to stripping and mining on the main pit or south pit. And so it's just this mine plan playing out as it was originally described in the feasibility study. Nothing really has changed except the gold price is a hell of a lot higher than it was when we did the feasibility study at $1,400 gold. So we are mining to the mine plan. We continue to recognize that we've got a large pile of low-grade mineralized waste is how it's categorized technically. That is going on a separate stockpile. We've found a few more benches of ore in the North Pit. So we've continued to mine that, which takes equipment away from pre-stripping on the South Pit. And so all this is kind of just playing out according to the mine plan with a few slight modifications that are actually positives in the sense of finding more ore at the bottom of the North Pit. It's not a bad thing. It's a good thing. But it does it does delay the production on the South Pit. So, yeah, bottom line. And I know you've got another question coming at me, so I won't I'll let you ask it and then I'll I'll continue that those details.
Perfect. Well, I was going to say that Contango's share of Q1 production came in at just over 8,000 ounces, and you're already guiding to 10,000 ounces from the second campaign alone, which kicked off yesterday. Walk us through what changes as you move into the South Pit, both on the grade and on tonnage, and how confident you are in landing inside that 40,000 to 45,000 ounce annual range.
Yeah, so I'll start there and just say we're confident we're going to meet the guidance. It's Kinross's guidance. They tend to be a conservative company, and they always tend to meet guidance. Now, the first quarter is lower than what was expected. We were shooting for 10. We only got eight winter conditions, the belt fire, which resulted in a bunch of operational challenges, I think is how we described them in the press release. um they you know we did come up a little short of what we were originally planning which was the 10 000 so um that's a bit of a miss um but we can make up for that as we go through uh the rest of the uh the rest of the three quarters and so we we are still planning to shoot between 40 000 and 45 000 ounces of gold production um and basically as i described earlier you know as we get into the south pit the deeper you get into the south pit the more more and more higher grade material you encounter and and you do the pre-stripping so you're you know early in this year the trucks are all stripping waste material the true waste material and and then we get into the the the higher grade ore body as we go down the pit so from there and always remember there's two things we're doing here we're mining and then stockpiling at mancho and then we're transporting stockpiling it at Fort Knox and then once a quarter in the middle month of every quarter we're processing that stockpiled ore so there is this delay effect between what's mined and we're planning on mining higher and higher grades and actually larger tonnages of ore as the year goes on and then of course we're transporting that so it's a bit like a almost like a caterpillar moves as you transition from or as you transport from the stockpile up to the stockpile of Fort Knox and then once a quarter for a month process that ore. So you just have to kind of keep those images in mind as you're walking through how this mine plan gets executed. So the bottom line is we're sticking to the plan. We continue to stockpile that low-grade mineralized waste. that's going to come in at the end of the mine line. You never process or bump low-grade ore for high-grade ore. If you've got high-grade ore, you're always going to get that up to the mill as quickly as you can. So bottom line, we were a little shy in Q1 from the original plan, mainly due to weather and the belt fire, but we'll make up for it in the next three quarters going forward.
Makes sense. I like that caterpillar metaphor. That's a good way to think about it. It's a good visual.
It is how the whole process moves forward.
Yeah, no, it's great. I like that a lot. On the cost side, reported cash costs of $2,692 and an ASIC of $2,778 per ounce sit above your full year guidance bands.
How should investors think about the relationship between Q1 unit costs and the annual ranges when the vast majority of your ounces are still ahead of you and what mechanically brings those numbers down as this year progresses yeah so it basically goes back to the this mine plan and it's it's uh it's both tons and grade um again in the early part of the mine plan the for this year we're doing all that pre-stripping and so the equipment's busy moving waste tons of waste and not tons of ore as the as the year uh progresses you're moving more tons of ore uh to to the stockpiles at moncho and at higher uh higher and higher grades as you go between the beginning of the year and the end of the year so it is um and then of course you're transporting that or and you're you're a quarter behind every time uh when you're transporting the So if you're and I'm just giving examples, if you're transporting 0.15 ounces per ton or so you're mining 0.15 ounces per ton one quarter in the pit, it's not getting transported until the end of the next quarter. And when you're processing it through the mill, so just it's just progressive and progressive. So in Q4, when we're solidly in the south pit or the main pit, and in high-grade material that's probably going to be around a quarter ounce per ton, you won't actually see that show up in the mill at Fort Knox until early next year, which is why 2027 is such a great year, because now you're solidly in the main part of the south pit, and you've got all the equipment focused on mining ore. So that's why we're projecting 75,000 to 80,000 ounces of production and at really low cost because all your mining equipment is mining ore and not busy mining waste.
So that's how the mine sequencing was planned originally in the feasibility study and what we're busy and why we're competent, I guess, in meeting our guidance for the year. and in particular our guidance for next year of course which is going to be a banner year so very good uh mike over to you this time uh the headline net loss of 14.3 million is going to draw some attention but the bulk of it comes from a 19 million non-cash hit on the derivative block can you take investors through how you'd encourage them to read this quarter's pnl particularly the bridge from your adjusted net income of 4.7 million back to the gap figure
Yeah, good morning, Bianca. Yeah, no, thanks for the question. So, yeah, so the net loss does include a big derivative loss, and that derivative loss also includes a $51 million recognized loss, and that's all driven from early settling those 15,500 ounces of hedges. So that was a huge driver of what really drove that loss. But, you know, there are other components to the loss that I think, you know, listeners need to think about as we move forward. You know, we do expense all of our exploration. So, you know, during this period, we had $3.8 million, which was mainly related to the Lucky Shot exploration drill program. But, you know, looking forward for the remainder of the three quarters, we got programs at Lucky Shot, Johnson Track and Kitsault. So you're going to have other expenses, you know, feeding into the loss. And then just looking, you know, when you kind of compare what we did in this quarter versus the Q1 of 2025, you know, the Peak Gold JV had a much bigger quarter last year in the first quarter. And so you saw like a twenty two million dollar income and income inclusion from the JV last year. This year was only 12. So, you know, as as we deliver on execute on this plan this year, you're going to see the equity income go up each period and normalize. And especially in Q4 when we have a much, much, much better quarter. And then just back to the kind of your, your, your, your adjusted net income. The hedge contracts are really what drives this calculation. And so we have materially reduced those during the quarter. We're down to 22,000 ounces now. So these adjustments are going to be muted or gone effectively by the end of the year, as our intention is still to fully deliver into those and pay off the debt by the end of the year.
On a related note, the balance sheet movement might be the most underappreciated story in this release. Cash went from $64.8 million at year end to $97.5 million at the end of Q1, even after you wrote a $46 million check in February to settle hedges. Can you unpack what the equity raise, the JV distribution, and the hedge restructuring did for the balance sheet? And where do you expect to exit the year on cash?
Yeah, well, the balance sheet is in a much better position, and for a few reasons. We have more cash and we have less hedges. But, you know, if you really break it down, you know, when we started the year to where we are at March 31st, the main driver of the increase in cash is from the Dolly Parton merger. That netted us $36 million at the time of merger, which was right at the end of the quarter. You know, the equity raise, we raised 50, but that basically went all out the door to pay for the hedge settlement. You know, and then we have the distribution of $9 million that kind of went in and that's helping fund operations. You know, it was also paying down debt and kind of just corporate costs. So the main driver was the dollar margin.
Continuing the conversation on hedges here. You now cut the hedge book to 22,000 ounces and the debt to 13.6 million, both of which you said will be fully cleaned up by year end. With Spot Gold, where it is and the second campaign processing higher grade ore, what does an unhedged debt-free contangle look like from a free cash flow capacity perspective heading into 2027?
Yeah, 2027 is our biggest year we're expecting. And so right now, you know, 26 is a lower year, 40 to 45,000 ounces of gold production. 27 is more like 75,000, 80,000 ounce production. You know, we've given guidance at $3,700 gold, a gold price. And if that's the gold price, then we expect about $165 to $175 million in free cash. If you use a $5,000 gold price, that number is closer to $225 million. So, you know, as we exit this year, which, you know, we should exit the year, you know, with cash in the bank, you know, in a healthy position and be debt free and hedge free. And basically all that money is coming to us next year. down. So we'll get to appreciate the whole upside in the gold price. Rick, anything to add to that?
Yeah, no, I think that I think that says it all because well, and next year, as I said, it's the banner year after that, you know, we go back to more of the average years after that. So but, you know, today's gold price, we're going to be in the 200 plus million neighborhood in terms of free cash flow. And again, hedges paid off or hedges delivered into and debt paid off. So So we're going to have, it's a great balance sheet.
No, it sounds like it's going to be a very exciting year ahead. Switching gears a little bit, we were talking earlier about how the war in Iran might impact inflation. How might it impact fuel prices in Alaska specifically?
Yeah, so we get this question a lot. We've been on the road, so we've been talking a lot to investors. And I think it's good just to address it because so a year ago, diesel prices in Alaska were about 25, 30 percent less than they are today. Now, we haven't really seen a huge impact to date in in the cost of diesel fuel, but it's coming because we buy usually buy our fuel a year ahead of time. And so it hasn't really hit costs yet, but it will. and we're certainly seeing it when we're arranging our exploration projects and you know arranging helicopters and for our project that at Johnson track we've got fuel and we're moving a lot of equipment around and so we're definitely seeing the impact of the higher diesel prices at the exploration stage and I suspect we'll see it at the mining site at Manchou in the second half of the year and going forward we'll see you know see what happens in Iran and if it gets resolved and prices go back down it might just be a bit of a flip but just to frame that what what the impact will will be if it stays just if that's what we're stuck with you know six dollar barrel or sorry six dollar a gallon diesel prices in alaska that's what it costs us today and a year and a half a year ago was you know 450 or less so that's the that's the cost of the pump obviously we're buying bulk so it's a little different but the the percent increase is going to be roughly the same. And so just walking through that, transportation's about one-third of our costs. And about one-third of that cost is fuel-related. So if your fuel prices are going up 10%, or sorry, 30%, that results in about a 10% increase in the overall costs for that segment. So that's just, you know, it's a bit of a thumb suck, but I think it's fairly accurate for where we are. And we'll just have to see how things move forward. If we're stuck with $6 gallon fuel in Alaska, that's what we can expect as an incremental increase going forward. So not a huge impact, but not insignificant. But of course, when have $4,700 gold price, that more than makes up for that small increase in cash costs.
Yeah, no, that definitely helps things for sure. Switching to the development pipeline, you put real capital behind Lucky Shot this quarter, including the agreement to acquire the underlying lease and extinguish the 2% NSR royalty.
What did the underground drill results have to do with the timing of that decision and how does owning the project outright change the economics you'll be putting into the h1 2027 feasibility study yeah so buying out the underlying owner is was uh was opportunistic um i think um you know look the gold price has gone up um he's he's had he's owned the project a long time and so you know i i think it was uh it was opportunistic for him to say, Hey, you know, you interested in sell, buy my property and buy the royalty. And we're like, yeah, we like, we like what we're seeing the drill results, uh, where they weren't part of the, you know, part of the overall dynamic. And, um, you know, we, we just didn't, you know, we didn't get great drill results and say, Hey, you don't want to go sell your property. It was more of the other way around. Um, so definitely opportunistic, uh, the drill results certainly, um, uh, uh, support our, our position that the, you know, we're, we've got a mine project here an exploration project that we believe can become a mine we'll continue to actually hit the drill program underground um we took we're taking a little bit of a break right now as we've kind of transitioned we finished uh drilling all the drilling doing all the drilling on the uh on the 2080 uh west drift we get the miners in there remember that that high grade vein we hit uh the km vein uh we're gonna first thing miners are gonna do is extend that uh west drift tunnel another 100 meters so it's above our heads and we can drill it properly because it's at right angles to the one we're supposed to be drilling which is the lucky shot um and then meanwhile we'll get the drillers back and then we'll finish up doing the underground uh development on the uh on the other three drifts underground uh then we got this summer uh we'll transition to uh drilling the surface uh from from filling the top of the from the top of the mountain with surface drills and get that work done. And then we'll get back underground in the fall time and finish out all the drilling there. So busy season of drilling. It's about $21 million program, 18 to 20,000 meters of drilling. Most of it's underground, but there's about 5,000 meters that will drill from the surface there. So lots of catalysts, lots of news flow and uh yeah we're uh we're really pleased to buy out the royalty in particular because um you know that'll be an 80 an ounce savings basically uh for every ounce of gold we mine there so um we think that's that brings long-term uh adds long-term value for for the shareholders totally makes sense um switching gears here uh kitzalt valley has a 40 000 meter program starting in June, with a new resource estimate landing by end of this quarter.
For investors who came in through Dolly Varden, on the Dolly Varden side of the merger, and are watching this asset very closely, what does a successful 2026 field season at Kitzel look like? And how does the timeline to an initial assessment fit alongside Lucky Shot and Johnson Track?
Yeah, so obviously, we're very excited to get the drills turning back at Kitzel. Every time you're drilling there, you're announcing drill results are among the top 10 drill results in the world. So that's always fun and exciting. It's going to start with the mineral resource estimate update that will be coming out by the end of June. We're working on it now. I was just talking with Dave Larimer, our BB Exploration, and Rob. job. And that work is ongoing, but we're basically on schedule to get that MRE out as planned by the end of June. And that then will be used as a sort of template on, okay, where else are we going to be drilling? We expect a significant increase in the Silver resource and probably something in the neighbourhood of a 50% increase. And then the Gold resource, mostly that's it's not really going to be a big increase in the total ounces because remember the gold resources is up at home stake and it's somewhat separate most of that drilling was infill so it's going to be more of an upgrading into the measured indicator category but that will come with probably an increase in grade because you're focused on drilling those high grade those high-grade zones. So now the 40,000-meter drilling plan for this year will play off of that mineral resource update. So we want to basically plan towards getting a preliminary economic assessment or initial assessment under SK-1300 rules, basically outline a mining plan and for the deposits. There's five, six main deposits that we have. Torbret is the one that's as the largest single silver resource in it so far and the road goes right there. So that's one of the activities we'll see is upgrading the road to the Torbret mine. Power line is not too far away. So we'll be making all those assessments from an engineering standpoint, incorporating that into an initial assessment like we have for the Johnson track project. But that won't come until the second half of next year. But the drilling is going to focus on extending those high-grade zones at depth because we want to put together a really good mine plan. And so I think you're going to see a lot of good drill results come out of this year. There's a couple of targets, new targets that we've identified that haven't been drilled at all. And so, you know, we want to always have some new exciting drill results to talk about. And so we've got some portion of that 40,000 meter drill program. I'm going to guess around 10,000 meters of it is going to go to new exploration targets. So always something exciting when you've got such a large and productive land package like we've got at Kitsault. So So very exciting year for results there.
I'm talking about exciting. The Dolly Varden integration, ringing the bell at the New York Stock Exchange. The TSX listing last month, the Lucky Shot acquisition, the Fast 41 progress that Johnson tracked. It's a very, a lot of corporate activity layered on top of a really stellar operationally transitional quarter. From a management bandwidth standpoint, how do you and the combined team stay disciplined across all of this without taking the eye off of man show execution?
Yeah, it is. It's all about execution right now. We've got a good team. We started with 10 people at Contango and Dolly Barton had 10 people. So now we got 20. But they all know what they're doing. they're all very focused um and uh we were just talking the other day with uh mobilizing and getting the camp set up at kit salt uh we're mobilizing the same things at johnson track but the team's done it before and that's just it's kind of wash rinse repeat sort of a exercise um and look we are we are going to continue to grow and as we uh think about uh more of a development plan here, we're going to continue to add more people. So, you know, we're definitely the integration's done. You know, we've been on, Mike, Sean and I have been on the road here along with Bonnie for basically the whole month of May. And I'm looking forward to getting all the interviews wrapped up and getting back up to Alaska and getting out in the field and seeing the drill rig's turn.
Well earned. And with that, actually, we're coming to the tail end of our talk today. We have a few audience questions and then I have one more question for you, Rick, to wrap things off. But let's jump to the audience questions here. One of our listeners asks, please explain a loss on derivative contracts related to the hedges in the amounts of $19 million and $45 million. I do think we went through this a little bit, but maybe for folks who are tuning in late, if you wouldn't mind, Mike.
Yeah. Yeah, so valuing the hedges, you've got to use this forward curve Monte Carlos simulation, but basically at the beginning of the year, you had 43,000oz of hedged gold at about $4,200 spot price. So the forward curve is going to be a bit higher, but you had to value that, that was about a little over $100M. During the period, you've effectively delivered 17,000oz into the hedges, $1,500 delivered into uh delivered into the naturally delivered into them and then um and then 15 and a half thousand cash settled and so you know at that time um you you valued those those those hedges being early cash settled and that at that time gold was about 4 800 so when that occurred you had a realized loss on the hedges uh effectively for 51 million dollars um and so you know as you know so that gets recognized during the quarter and then you get to the end of the quarter the end of the quarter we're sitting with 22 000 ounces of gold uh remaining in the hedges and so you know using you know the gold price was about forty four hundred dollars an ounce spot so maybe that four price is forty five forty six hundred dollars so you value that on the 22 000 ounces which gets you closer to that um 65 70 million dollars on the derivative liability so it's it's an odd one because you're early cash out but normally it's it's not as it's not as aggressive and you don't normally see that massive realized loss during the period. And so going forward, we're going to be done or lower on the hedges, you're going to see smaller swings.
Makes sense. Another question here. What is the plan for the use or recovery of the low-grade pile? Will it become a leach pile?
No, it will not become a leach pile. This is low-grade, again, technically called mineralized waste. And that's because it's not in the mine plan. That's the way you have to sort of account for it. And it will only come into the mine plan when you're done running your normal material that you've had in your feasibility study. And you've got this big pile of low-grade rock and you'll go, what's the gold price? Oh, gold price is $4,700. Well, we've been using $3,700 to do the mine planning for this low-grade stockpile, a waste pile. So if the gold price is above $3,700, you're going to figure out that that's going to go to the mill at Fort Knox. So it's got to be able to afford to transportation. It's already been mined, so you've already accounted for the mining of it. I think we've already, and Mike correct me here, but I think we're starting to have that environmental sweeping fund uh we're starting to fund that so at least in part some of those ounces will always be already be accounted for to get back into the pit because that's that's what the mine plan was now we don't have to put that stuff back in the pit if they can make money and if it pays for the transfer transportation ride up to fort knox it'll get processed but it won't happen until the very end of the mine life and of course we don't know what the gold price will be at the end of the my life so we'll wait until we know that and but it's it's it's already been paid for so it's they're relatively cheap ounces makes sense uh folks this next question will be the last question
of the day uh before i get into a big thank you to everyone who attended live uh if you have a question it just occurred to you and you want to uh send it to the contango team feel free to send it in we'll make sure they get it uh preemptively thank you rick and mike for being here as always It's such a pleasure to have you. But I want to close things off today by asking you, Rick, the magic question. What are you most excited about for the rest of 2026?
60,000 meters drilling. I'm excited to see what this KM vein is going to look like at Lucky Shot. We'll get that going here in another month or so. We get the tunnel built. We can get the rig back in there and start drilling. And 40,000 meters of drilling at Kitsalt. I know we're going to be in that top 10 drill results worldwide in terms of both gold and silver there. So there's all the reason to be excited about that as well. So it's going to be a very busy year for the company, but the team's ready. We're already starting to mobilize and get ready for the drilling at Kit Salt. We're already drilling at Lucky Shot. So it should be a fun year. Meanwhile, Moncho just keeps every quarter is going to be a better quarter than the last quarter with this year. This again, this year is the low, the low, low production year overall in the mine plan. And I forgot to say that I mentioned the belt fire at at Kinross. That's now all been fixed. I have to hats off to the team at Kinross. We're working hard, hard winter, hard, hard conditions during the winter to get that thing fixed. And so, you know, it should be smooth sailing from here. but uh yeah it's been a first quarter was a struggle no question and uh but it'll it'll uh we'll meet the mine plan and get the 40 45 000 ounces of gold and and uh hey we've got forty seven hundred dollar gold price so uh what's not to be happy about great final words rick mike thank you guys so much uh deeply appreciate it with that have a wonderful rest of your day folks, and we'll close things off now.
