Contango Silver & Gold Inc 10-Q for FY2024 Q1
Contango Silver & Gold Inc. (CTGO)
About this 10-Q
Contango Silver & Gold Inc filed this 10-Q on May 14, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $20.5M
- compared with a net loss of $7.93M a year earlier
- Diluted EPS
- -$2.14
- compared with -$1.09 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” or “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer ☐ |
Accelerated filer ☐ |
Smaller reporting company |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The total number of shares of common stock, par value $0.01 per share, outstanding as of May 14, 2024 was
CONTANGO ORE, INC.
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION |
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Item 1. |
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Condensed Consolidated Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 4. |
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Item 5. |
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Item 6. |
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All references in this Form 10-Q to the “Company”, “CORE”, “we”, “us” or “our” are to Contango ORE, Inc.
2
CONTANGO ORE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
Item 1 - Financial Statements
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March 31, 2024 |
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December 31, 2023 |
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ASSETS |
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CURRENT ASSETS: |
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Cash |
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Restricted cash |
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Prepaid expenses and other |
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Total current assets |
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LONG-TERM ASSETS: |
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Investment in Peak Gold, LLC |
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Property & equipment, net |
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Commitment fee |
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Total long-term assets |
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TOTAL ASSETS |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Derivative contract liability |
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Debt, current portion |
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Total current liabilities |
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NON-CURRENT LIABILITIES: |
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Advance royalty reimbursement |
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Asset retirement obligations |
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Contingent consideration liability |
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Derivative contract liability |
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Debt, net |
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Total non-current liabilities |
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TOTAL LIABILITIES |
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STOCKHOLDERS’ EQUITY/(DEFICIT): |
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Preferred Stock, |
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Common Stock, $ |
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Additional paid-in capital |
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Treasury stock at cost ( |
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Accumulated deficit |
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TOTAL STOCKHOLDERS’ EQUITY/(DEFICIT) |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
CONTANGO ORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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EXPENSES: |
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Claim rental expense |
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$ |
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$ |
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Exploration expense |
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Depreciation expense |
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Accretion expense |
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General and administrative expense |
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Total expenses |
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OTHER INCOME/(EXPENSE): |
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Interest income |
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Interest expense |
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Loss from equity investment in Peak Gold, LLC |
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Unrealized loss on derivative contracts |
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Total other income/(expense) |
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NET LOSS |
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$ |
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$ |
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LOSS PER SHARE |
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Basic and diluted |
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |
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Basic and diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CONTANGO ORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation |
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Depreciation expense |
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Accretion expense |
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Loss from equity investment in Peak Gold, LLC |
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Unrealized loss from derivative contracts |
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Interest expense paid in stock |
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Amortization of debt discount and debt issuance fees |
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Changes in operating assets and liabilities: |
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Increase in prepaid expenses and other |
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Decrease in accounts payable and accrued liabilities |
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Net cash used in operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Cash invested in Peak Gold, LLC |
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Acquisition of Contango Lucky Shot Alaska, LLC |
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Acquisition of property and equipment |
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Net cash used by investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Cash paid for shares withheld from employees for payroll tax withholding |
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Cash proceeds from debt |
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Debt issuance costs |
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Cash proceeds from common stock issuance, net |
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Net cash provided by financing activities |
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NET DECREASE IN CASH |
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CASH AND RESTRICTED CASH, BEGINNING OF PERIOD |
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CASH AND RESTRICTED CASH, END OF PERIOD |
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$ |
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$ |
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Supplemental disclosure of cash flow information |
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Cash paid for: |
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Interest expense |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
CONTANGO ORE, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY/(DEFICIT)
(Unaudited)
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Additional |
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Total |
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Common Stock |
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Paid-In |
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Treasury |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Stock |
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Deficit |
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Equity/(Deficit) |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
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Stock-based compensation |
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— |
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Restricted stock activity |
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Common stock issuance |
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Cost of common stock issuance |
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— |
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Stock issued for convertible note interest payment |
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Net loss for the period |
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— |
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Balance at March 31, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Additional |
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Total |
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Common Stock |
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Paid-In |
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Treasury |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Stock |
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Deficit |
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Equity/(Deficit) |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation |
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— |
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Restricted stock activity |
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Common stock issuance |
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Treasury shares issued in common stock issuance |
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Warrants |
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Cost of common stock issuance |
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Stock issued for convertible note interest payment |
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Treasury shares withheld for employee taxes |
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Net loss for the period |
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— |
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Balance at March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
CONTANGO ORE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Business
Contango ORE, Inc. (“CORE” or the “Company”) engages in exploration and development for gold ore and associated minerals in Alaska. The Company conducts its business through three primary means:
The Lucky Shot Property and the Minerals Property are collectively referred to in these Notes to Unaudited Condensed Consolidated Financial Statements as the “Contango Properties”.
The Company’s Manh Choh Project has commenced ore mining and stockpiling at the Fort Knox facility. All other projects are in the exploration stage.
The Company has been involved, directly and through the Peak Gold JV, in the exploration of the Manh Choh Project since 2010, which has resulted in the identification of two mineral deposits (Main and North Manh Choh) and several other gold, silver, and copper prospects. The other
Kinross released a combined feasibility study for the Fort Knox mill and the Peak Gold JV in July 2022. Also, in July 2022, Kinross announced that its board of directors (the “Kinross Board”) made a decision to proceed with development of the Manh Choh Project. Effective December 31, 2022, CORE Alaska, LLC, a wholly-owned subsidiary of the Company (“CORE Alaska”), KG Mining, and the Peak Gold JV executed the First Amendment to the Amended and Restated Limited Liability Company Agreement of the Peak Gold JV (as amended, the “A&R JV LLCA”). The First Amendment to the A&R JV LLCA provides that, beginning in 2023, the Company may fund its quarterly scheduled cash calls on a monthly basis. The Peak Gold JV management committee (the “JV Management Committee”) has approved budgets for 2023 and 2024, with cash calls totaling approximately to $
Work on the Lucky Shot Property has been ongoing since late 2021. Underground work includes rehabilitation of approximately
7
In August 2023, the Company began executing a program to complete surface drilling on the Coleman segment of the Lucky Shot vein. The program was shut down in September 2023 due to challenging weather conditions.
On the Shamrock and Eagle/Hona Properties, the Company conducted surface mapping and sampling programs during 2021.
The Company’s fiscal year end is December 31. On November 14 2023, the Company’s board of directors approved a change in the Company’s fiscal year end from June 30 to December 31, effective as of December 31, 2023.
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), including instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by US GAAP for complete annual consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the consolidated financial statements have been included. All such adjustments are of a normal recurring nature. The consolidated financial statements should be read in conjunction with the consolidated audited financial statements and notes included in the Company’s Form 10-KT for the six-month period ended December 31, 2023 and its Form 10-K for the fiscal year ended June 30, 2023. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2024.
3. Liquidity
The Company’s cash needs going forward will primarily relate to capital calls from the Peak Gold JV, exploration of the Contango Properties, repayment of debt and related interest and general and administrative expenses of the Company. The JV Management Committee has proposed a significant budget to complete the required development to start the operations of the Manh Choh mine, which is anticipated to begin production early in the third quarter of 2024. In 2024, it is anticipated that there will be $
4. Summary of Significant Accounting Policies
Please see the Company’s Form 10-KT for the six-month ended December 31, 2023 for a summary of the Company's significant accounting policies, as there have been no changes to the Company's significant accounting polices since the time of that filing.
5. Investment in the Peak Gold JV
The Company initially recorded its investment at the historical book value of the assets contributed to the Peak Gold JV, which was approximately $
8
The following table is a roll-forward of the Company’s investment in the Peak Gold JV as of March 31, 2024:
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Investment |
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in Peak Gold, LLC |
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Investment balance at June 30, 2023 |
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$ |
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Investment in Peak Gold, LLC |
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Loss from equity investment in Peak Gold, LLC |
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Investment balance at December 31, 2023 |
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$ |
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Investment in Peak Gold, LLC |
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Loss from equity investment in Peak Gold, LLC |
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Investment balance at March 31, 2024 |
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$ |
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The following table presents the condensed unaudited results of operations for the Peak Gold JV for the three-month periods ended March 31, 2024 and 2023 in accordance with US GAAP:
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Three Months Ended |
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Three Months Ended |
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March 30, 2024 |
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March 31, 2023 |
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EXPENSES: |
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Exploration expense |
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$ |
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$ |
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Production |
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Accretion |
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General and administrative |
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Total expenses |
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NET LOSS |
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$ |
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$ |
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The Company’s share of the Peak Gold JV’s results of operations for the three months ended March 31, 2024 was a loss of approximately $
6. Prepaid Expenses and other assets
The Company has prepaid expenses and other assets of $
7. Net Loss Per Share
A reconciliation of the components of basic and diluted net loss per share of common stock is presented below:
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Three Months Ended March 31, |
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2024 |
|
|
2023 |
|
||||||||||||||||||
|
|
|
|
|
Weighted |
|
|
Loss |
|
|
|
|
|
Weighted |
|
|
Loss Per |
|
||||||
|
|
Net Loss |
|
|
Shares |
|
|
Per Share |
|
|
Net Loss |
|
|
Shares |
|
|
Share |
|
||||||
Basic Net Loss per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net loss attributable to common stock |
|
$ |
( |
) |
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
$ |
( |
) |
||
Diluted Net Loss per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net loss attributable to common stock |
|
$ |
( |
) |
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
$ |
( |
) |
||
Options and warrants to purchase
9
8. Stockholders’ Equity (Deficit)
The Company has
ATM Program
On June 8, 2023, the Company entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (the “Agent”), pursuant to which the Company may offer and sell from time to time up to $
Underwritten Offering
On July 24, 2023, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Maxim Group LLC and Freedom Capital Markets (collectively, the “Underwriters”), relating to an underwritten public offering (the “Offering”) of
May 2023 Warrant Exercise
In May 2023, the Company offered holders of its December 2022 Warrants and January 2023 Warrants with an original exercise price of $
10
January 2023 Private Placement
On January 19, 2023, the Company completed the issuance and sale of an aggregate of
Pursuant to the January 2023 Warrants between the Company and each of the January 2023 Investors, the January 2023 Warrants are exercisable, in full or in part, at any time until the second anniversary of their issuance, at an exercise price of $
December 2022 Private Placement
On December 23, 2022, the Company completed the issuance and sale of an aggregate of
Pursuant to the December 2022 Warrants between the Company and each of the December 2022 Investors, the December 2022 Warrants are exercisable, in full or in part, at any time until the second anniversary of their issuance, at an exercise price of $
Rights Agreement
On September 23, 2020, the Company adopted a limited duration stockholder rights agreement (the “Rights Agreement”) to replace the Company’s prior stockholder rights plan, which was terminated upon adoption of the Rights Agreement.
Pursuant to the Rights Agreement, the Company's board of directors declared a dividend of
11
The Rights Agreement had an initial term of one year, expiring on September 22, 2021, which the Company's board of directors approved several amendments to the Rights Agreement, extending the term of the Rights Agreement to September 23, 2024.
9. Property & Equipment
The table below sets forth the book value by type of fixed asset as well as the estimated useful life:
Asset Type |
|
Estimated |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Mineral properties |
|
N/A - Units of Production |
|
$ |
|
|
$ |
|
||
Land |
|
Not Depreciated |
|
|
|
|
|
|
||
Buildings and improvements (years) |
|
|
|
|
|
|
|
|||
Machinery and equipment (years) |
|
|
|
|
|
|
|
|||
Vehicles (years) |
|
|
|
|
|
|
|
|||
Computer and office equipment (years) |
|
|
|
|
|
|
|
|||
Furniture & fixtures (years) |
|
|
|
|
|
|
|
|||
Less: Accumulated depreciation and amortization |
|
|
|
|
( |
) |
|
|
( |
) |
Less: Accumulated impairment |
|
|
|
|
( |
) |
|
|
( |
) |
Property & Equipment, net |
|
|
|
$ |
|
|
$ |
|
||
10. Related Party Transactions
Mr. Brad Juneau, who served as the Company’s Chairman, President and Chief Executive Officer until January 6, 2020, and the Company’s Executive Chairman until November 11, 2021, and now serves as the Company's Chairman is also the sole manager of Juneau Exploration, L.P. (“JEX”), a private company involved in the exploration and production of oil and natural gas. On December 11, 2020, the Company entered into a Second Amended and Restated Management Services Agreement (the “A&R MSA”) with JEX, which amends and restates the Amended and Restated Management Services Agreement between the Company and JEX dated as of November 20, 2019. Pursuant to the A&R MSA, JEX provides certain facilities, equipment and services used in the conduct of the business and affairs of the Company and management of its membership interest in the Peak Gold JV. Pursuant to the A&R MSA, JEX provides the Company office space and office equipment, and certain related services. The A&R MSA was effective for one year beginning December 1, 2020 and renewed automatically on a monthly basis unless terminated upon ninety days’ prior notice by either the Company or JEX. Pursuant to the A&R MSA, the Company paid JEX a monthly fee of $
11. Stock-Based Compensation
On September 15, 2010, the Company's board of directors adopted the Contango ORE, Inc. Equity Compensation Plan (the “2010 Plan”). On November 10, 2022, the stockholders of the Company approved and adopted the Second Amendment (the “Second Amendment”) to the Contango ORE, Inc. Amended and Restated 2010 Equity Compensation Plan (as amended, the “Amended Equity Plan”) which increased the number of shares of common stock that the Company may issue under the Amended Equity Plan by
As of March 31, 2024, there were
12
was $
Stock Options. Under the Equity Plans, options granted must have an exercise price equal to or greater than the market price of the Company’s common stock on the date of grant. The Company may grant key employees both incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, and stock options that are not qualified as incentive stock options. Stock option grants to non-employees, such as directors and consultants, may only be stock options that are not qualified as incentive stock options. Options generally expire after
The Company applies the fair value method to account for stock option expense. Under this method, cash flows from the exercise of stock options resulting from tax benefits in excess of recognized cumulative compensation cost (excess tax benefits) are classified as financing cash flows. See Note 4 - Summary of Significant Accounting Policies from Company's Form 10-KT for the six-month period ended December 31, 2023. All employee stock option grants are expensed over the stock option’s vesting period based on the fair value at the date the options are granted. The fair value of each option is estimated as of the date of grant using the Black-Scholes options-pricing model. Expected volatilities are based on the historical weekly volatility of the Company’s stock with a look-back period equal to the expected term of the options. The expected dividend yield is
Restricted Stock. Under the Equity Plans, the Compensation Committee of the Company's board of directors (the “Compensation Committee”) shall determine to what extent, and under what conditions, the Participant shall have the right to vote shares of Stock Awards and to receive any dividends or other distributions paid on such shares during the restriction period. The terms and applicable voting and dividend rights are outlined in the individual restricted stock agreements. All restricted stock grants are expensed over the applicable vesting period based on the fair value at the date the stock is granted. The grant date fair value may differ from the fair value on the date the individual’s restricted stock actually vests. The total grant date fair value of the restricted stock granted in the three month period ended March 31, 2024 and March 31, 2023 was $
As of March 31, 2024, there were
Below table indicates the unvested restricted stock balance as of March 31, 2024 and December 31, 2023:
|
|
Number of restricted shares unvested |
|
|
Balance - January 01, 2024 |
|
|
|
|
Restricted shares granted |
|
|
|
|
Restricted shares vested |
|
|
( |
) |
Balance - March 31, 2024 |
|
|
|
|
|
|
|
|
|
Balance - July 01, 2023 |
|
|
|
|
Restricted shares granted |
|
|
|
|
Restricted shares vested |
|
|
( |
) |
Balance - December 31, 2023 |
|
|
|
|
13
A summary of the status of stock options granted under the Equity Plans as of March 31, 2024 and changes during the three months then ended, is presented in the table below:
|
|
Three Months Ended |
|
|||||
|
|
March 31, 2024 |
|
|||||
|
|
Shares Under |
|
|
Weighted |
|
||
Outstanding as of December 31, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Exercised |
|
|
|
|
|
|
||
Forfeited |
|
|
|
|
|
|
||
Outstanding at the end of the period |
|
|
|
|
$ |
|
||
Aggregate intrinsic value |
|
$ |
|
|
|
|
||
Exercisable, end of the period |
|
|
|
|
|
|
||
Aggregate intrinsic value |
|
$ |
|
|
|
|
||
Available for grant, end of period |
|
|
|
|
|
|
||
Weighted average fair value per share of options |
|
$ |
|
|
|
|
||
12. Commitments and Contingencies
Tetlin Lease. The Tetlin Lease had an initial ten-year term beginning July 2008 which was extended for an additional ten years to July 15, 2028, and for so long thereafter as the Peak Gold JV initiates and continues to conduct mining operations on the Tetlin Lease.
Pursuant to the terms of the Tetlin Lease, the Peak Gold JV is required to spend $
Gold Exploration. The Company’s Triple Z, Eagle/Hona, Shamrock, Willow, and Lucky Shot claims are all located on State of Alaska lands. The annual claim rentals on these projects vary based on the age of the claims, and are due and payable in full by November 30 of each year. Annual claims rentals for the 2023-2024 assessment year totaled $
Lucky Shot Property. With regard to the Lucky Shot Property, the Company will be obligated to pay CRH Funding II PTE. LTD, a Singapore private limited corporation (“CRH”), additional consideration if production on the Lucky Shot Property meets two separate milestone payment thresholds. If the first threshold of (1) an aggregate “mineral resource” equal to
Royal Gold Royalties. Royal Gold currently holds a
Retention Agreements. In February 2019, the Company entered into retention agreements with its then Chief Executive Officer, Brad Juneau, its then Chief Financial Officer, Leah Gaines, and one other former employee providing for payments in an aggregate amount of $
14
Agreements to extend the term of the change of control period from August 6, 2020 until August 6, 2025. Mr. Juneau and Ms. Gaines will receive a payment of $
Employment Agreement. Effective July 11, 2023, Michael Clark was appointed to serve as Executive Vice President, Finance of the Company. On January 1, 2024, he was appointed as Chief Financial Officer and Secretary of the Company. Mr. Clark performs the functions of the Company’s principal financial officer. Pursuant to his employment agreement (the "Employment Agreement"), Mr. Clark receives a base salary of $
Short Term Incentive Plan. The Compensation Committee of the Company's board of directors (the “Compensation Committee”) adopted a Short-Term Incentive Plan (the “STIP”) for the benefit of its executive officers. Pursuant to the terms of the STIP, the Compensation Committee establishes performance goals at the beginning of each year and then at the end of the year will evaluate the extent to which, if any, the officers meet such goals. The STIP provides for a payout ranging between
13. Income Taxes
The Company recognized a full valuation allowance on its deferred tax asset as of March 31, 2024 and December 31, 2023 and has recognized zero income tax expense for the three months ended March 31, 2024 and March 31, 2023. The effective tax rate was
15
14. Debt
The table below shows the components of Debt, net as of March 31, 2024 and December 31, 2023:
|
|
March 31, |
|
|
December 31, |
|
||
Secured Debt Facility |
|
|
|
|
|
|
||
Principal amount |
|
$ |
|
|
$ |
|
||
Unamortized debt discount |
|
|
( |
) |
|
|
( |
) |
Unamortized debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Debt, net |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Convertible Debenture |
|
|
|
|
|
|
||
Principal amount |
|
$ |
|
|
$ |
|
||
Unamortized debt discount |
|
|
( |
) |
|
|
( |
) |
Unamortized debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Debt, net |
|
$ |
|
|
$ |
|
||
Total Debt, net |
|
$ |
|
|
$ |
|
||
Less current portion |
|
$ |
|
|
$ |
|
||
Non-current debt, net |
|
$ |
|
|
$ |
|
||
Secured Credit Facility
On May 17, 2023, the Company entered into a credit and guarantee agreement (the “Credit Agreement”), by and among CORE Alaska, LLC as the borrower, each of the Company, LSA, Contango Minerals, as guarantors, each of the lenders party thereto from time to time, ING Capital LLC (“ING”), as administrative agent for the lenders, and Macquarie Bank Limited (“Macquarie”), as collateral agent for the secured parties. The Credit Agreement provides for a senior secured loan facility (the “Facility”) of up to US$
The Credit Agreement will mature on December 31, 2026 (the “Maturity Date”) and will be repaid via quarterly repayments over the life of the loan. The Facility has an upfront fee and a production linked arrangement fee based upon the projected total production of gold ounces in the base case financial model delivered on the closing date, payable quarterly based on attributable production, with any balance due upon the maturity or termination of the Credit Agreement. The Credit Agreement is secured by all the assets and properties of the Company and its subsidiaries, including the Company’s
Term loans, which can be made quarterly are to be used only to finance cash calls to the Peak Gold JV, fund the debt service reserve account, pay corporate costs in accordance with budget and base case financial model and fees and expenses in connection with the loan. Liquidity loans, which can be made once a month, are to be used for cost overruns. Any outstanding liquidity loans must be repaid on July 31, 2025.
Loans under the Facility can be Base Rate loans at the Base Rate plus the Applicable Margin or Secured Overnight Financing Rate (“SOFR”) loans at the three month adjusted term SOFR plus the Applicable Margin. The type of loan is requested by the borrower at the time of the borrowing and the type loan may be converted. The “Base Rate” is the highest of Prime Rate, Federal Funds Rate plus
Interest is payable commencing on the date of each loan and ending on the next payment date. The interest payment dates prior to November 1, 2025 are the last day of July, October, January and April; thereafter the payment dates are the last day of March, June, September and December. The Company also will pay commitment fee on average daily unused borrowings equal to a rate of
16
Borrowings under the Facility carried an original issue discount of $
The Credit Agreement contains representations and warranties and affirmative and negative covenants customary for credit facilities of this type, including limitations on the Company and its subsidiaries with respect to indebtedness, liens, mergers, consolidations, liquidations and dissolutions, sales of all or substantially all assets, transactions with affiliates and entry into hedging arrangements. The Credit Agreement also requires the Company to maintain, as of the last day of each fiscal quarter, (i) a historical debt service coverage ratio of no less than
As of March 31, 2024, the Company had drawn a total of $
In connection with entering into the Credit Agreement, the Company entered into a mandate lender arrangement fee letter (the “MLA Fee Letter”) with ING and Macquarie (collectively, the “Mandated Parties”) and a production linked arrangement fee letter (the “PLA Fee Letter”) with ING. Pursuant to the MLA Fee Letter, the Company paid the Mandated Parties on the date of the initial disbursement at the initial closing an upfront fee, calculated based on the principal amount of the Facility. Additionally, the Company paid the Mandated Parties an initial disbursement upfront fee, calculated based on the initial disbursement of $
Convertible Debenture
On April 26, 2022, the Company closed on a $
In connection with the closing of the Credit Agreement, the Company entered into a letter agreement with QRC (the “Letter Agreement”) which amended the terms of the Debenture. In accordance with the Letter Agreement, QRC acknowledged that the Debenture would be subordinate to the loans under the Credit Agreement, and acknowledged that the Company entering into the loans under the Credit Agreement would not constitute a breach of the negative covenants of the Debenture. QRC also waived its put right in respect of the Debenture that would require Contango to redeem the Debenture in whole or in part upon the completion of a secured financing or a change of control. In consideration for QRC entering into the Letter Agreement, the Company agreed to amend the interest rate of the Debenture from
The Debenture currently bears interest at
17
In connection with the issuance of the Debenture, the Company agreed to pay an establishment fee of
The Debenture carried an original issue discount of $
15. Derivatives and Hedging Activities
On August 2, 2023, CORE Alaska, a subsidiary of the Company, pursuant to an ISDA Master Agreement entered into with ING Capital Markets LLC (the “ING ISDA Master Agreement”) and an ISDA Master Agreement entered into with Macquarie Bank Limited (the “Macquarie ISDA Master Agreement”), in accordance with its obligations under the Credit Agreement, entered into a series of hedging agreements with ING Capital LLC and Macquarie Bank Limited for the sale of an aggregate of
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by gold future pricing. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments.
Non-designated Hedges
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to gold movements and the Company has elected not to apply hedge accounting. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings.
18
As of March 31, 2024, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships:
Period |
|
Commodity |
|
Volume |
|
|
Weighted |
|
||
2024 |
|
Gold |
|
|
|
|
$ |
|
||
2025 |
|
Gold |
|
|
|
|
$ |
|
||
2026 |
|
Gold |
|
|
|
|
$ |
|
||
Fair Values of Derivative Instruments on the Balance Sheet
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023.
|
|
|
|
As of March 31, 2024 |
|
|
As of December 31, 2023 |
|
||||||||||||||||||
Derivatives not designated as hedging instruments |
|
Balance Sheet |
|
Gross |
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Gross |
|
|
Net |
|
||||||
Commodity Contracts |
|
Derivative contract asset - current |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Commodity Contracts |
|
Derivative contract liability - current |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Commodity Contracts |
|
Derivative contract asset - noncurrent |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Commodity Contracts |
|
Derivative contract liability - noncurrent |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
As of March 31, 2024, the fair value of derivatives in a net liability position, which excludes any adjustment for nonperformance risk, related to these agreements was $
Effect of Derivatives Not Designated as Hedging Instruments on the Income Statement
The table below presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Condensed Consolidated Statement of Operations for the three months ended March 31, 2024 and 2023.
Derivatives Not Designated as Hedging Instruments under Subtopic 815-20 |
|
Location of Unrealized Gain or (Loss) Recognized in Income on Derivative |
|
Amount of Gain or (Loss) |
|
|||||
|
|
|
|
Three month |
|
|
Three month |
|
||
Commodity Contracts |
|
Unrealized loss on derivative contracts |
|
$ |
( |
) |
|
$ |
|
|
Total |
|
|
|
$ |
( |
) |
|
$ |
|
|
Credit-risk-related Contingent Features
Cross Default. The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.
Material adverse change. Certain of the Company's agreements with its derivative counterparties contain provisions where if a specified event or condition occurs that materially changes the Company's creditworthiness in an adverse manner, the Company may be required to fully collateralize its obligations under the derivative instrument.
Incorporation of loan covenants. The Company has an agreement with a derivative counterparty that incorporates the loan covenant provisions of the Company's indebtedness with a lender affiliate of the derivative counterparty. Failure to comply with the loan covenant provisions would result in the Company being in default on any derivative instrument obligations covered by the agreement.
19
16. Fair Value Measurement
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. FASB ASC Topic 820 provides a framework for measuring fair value, establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and requires consideration of the counterparty’s creditworthiness when valuing certain assets.
The three levels are defined as follows:
Level 1 – Observable inputs such as quoted prices in active markets at the measurement date for identical, unrestricted assets or liabilities.
Level 2 – Other inputs that are observable directly or indirectly, such as quoted prices in markets that are not active or inputs, which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 – Unobservable inputs for which there are little or no market data and which the Company makes its own assumptions about how market participants would price the assets and liabilities.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instrument’s complexity. The Company reflects transfers between the three levels at the beginning of the reporting period in which the availability of observable inputs no longer justifies classification in the original level. There were no transfers between fair value hierarchy levels for the quarter ended March 31, 2024.
Fair Value on a Recurring Basis
The Company performs fair value measurements on a recurring basis for the following:
Derivative Financial Instruments - Derivative financial instruments are carried at fair value and measured on a recurring basis. The Company's potential derivative financial instruments include features embedded within its convertible debenture with Queens Road Capital (see Note 14). These measurements were not material to the Consolidated Financial Statements. The Company also has hedging agreements in place to manage its exposure to changes in gold prices.
Derivative Hedges - As discussed in Note 15, the Company has entered into hedge agreements with delivery obligations of gold ounces. The Company utilizes derivative instruments in order to manage exposure to risks associated with fluctuating commodity prices. The derivative hedges are mark-to-market with changes in estimated value driven by forward commodity prices.
Contingent Consideration - As discussed in Note 12, the Company will be obligated to pay CRH additional consideration if production on the Lucky Shot Property meets two separate milestone payment thresholds. The fair value of this contingent consideration is measured on a recurring basis, and is driven by the probability of reaching the milestone payment thresholds.
20
The following table summarizes the fair value of the Company’s financial assets and liabilities, by level within the fair-value hierarchy (in thousands):
As of March 31, 2024 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||
Financial Assets |
|
|
|
|
|
|
|
|
|
|||
Derivative contract asset - current |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|||
Derivative Liability - current |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Derivative Liability - noncurrent |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Contingent consideration liability - noncurrent |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
As of December 31, 2023 |
|
|
|
|
|
|
|
|
|
|||
Financial Assets |
|
|
|
|
|
|
|
|
|
|||
Derivative contract asset - current |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|||
Derivative Liability - current |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Derivative Liability - noncurrent |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Contingent consideration liability - noncurrent |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Fair Value on a Nonrecurring Basis
The Company applies the provisions of the fair value measurement standard on a non-recurring basis to its non-financial assets and liabilities, including mineral properties, business combinations, and asset retirement obligations. These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments if events or changes in certain circumstances indicate that adjustments may be necessary.
17. General and Administrative Expenses
The following table presents the Company's general and administrative expenses for the three-month period ended March 31, 2024 and 2023.
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Three Months |
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2024 |
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2023 |
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General and administrative expenses: |
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Marketing and investor relations |
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$ |
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$ |
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Office and administrative costs |
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Insurance |
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Professional fees |
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Regulatory fees |
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Salaries and benefits |
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Stock-based compensation |
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Travel |
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Director fees |
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Total |
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$ |
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$ |
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18. Subsequent Events
HighGold Acquisition
On
21
contains customary representations, warranties and covenants and also includes indemnification provisions under which the parties have agreed to indemnify each other against certain liabilities.
Avidian Alaska Acquisition
On
If Contango makes a positive production decision on either of the Amanita or Golden Zone properties within
The Transaction is subject to Avidian Shareholder approval, as well as the receipt of all required governmental and/or regulatory approvals, including that of the Toronto Venture Exchange and NYSE American. Should Avidian Shareholders not approve this transaction the Agreement will terminate and a termination fee of $
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the accompanying notes and other information included elsewhere in this Form 10-Q and our Form 10-KT for the six-month period ended December 31, 2023 and Form 10-K for the fiscal year ended June 30, 2023, previously filed with the SEC.
Cautionary Statement about Forward-Looking Statements
Some of the statements made in this report may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words and phrases “should be”, “will be”, “believe”, “expect”, “anticipate”, “estimate”, “forecast”, “goal” and similar expressions identify forward-looking statements and express our expectations about future events. Any statement that is not historical fact is a forward -looking statement. These include such matters as:
Although the Company believes the expectations reflected in such forward-looking statements are reasonable, such expectations may not occur. These forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which are outside of our control, that may cause our actual results, performance or achievements to be materially different from future results expressed or implied by the forward-looking statements. In addition to the risk factors described in Part II, Item 1A. Risk Factors, of this report and Part I, Item 1A. Risk Factors, in our Transition Report on Form 10-KT for the six-month period ended December 31, 2023, these factors include among others:
23
You should not unduly rely on these forward-looking statements in this report, as they speak only as of the date of this report. Except as required by law, the Company undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events. All forward-looking statements included herein are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.
First Quarter 2024 Highlights
The Company’s Manh Choh Project has commenced ore mining and stockpiling at the Fort Knox facility. The project is on track for first production in early Q3 2024.
Ore and waste mining are ongoing with the full mining fleet now in operation as planned. Following several months of orientation runs, transportation of ore to Fort Knox, where the ore will be processed, continues to ramp up with all contracted trucks received, the majority of the drivers onboarded, and trailer manufacturing now complete.
At Fort Knox, mill modifications and site preparation remain on plan, including the completion of the ore delivery road and tie-ins for the pebble recycle conveyor. Building construction is advancing well, along with interior piping and electrical works.
All other projects are in the exploration stage.
24
Overview
The Company engages in exploration and development for gold ore and associated minerals in Alaska. The Company conducts its business through three primary means:
The Lucky Shot Property and the Minerals Property are collectively referred to in this Quarterly Report on Form 10-Q as the “Contango Properties”.
The Company’s Manh Choh Project has commenced ore mining and stockpiling at the Fort Knox facility. All other projects are in the exploration stage.
The Company has been involved, directly and through the Peak Gold JV, in the exploration of the Manh Choh Project since 2010, which has resulted in the identification of two mineral deposits (Main and North Manh Choh) and several other gold, silver, and copper prospects. The other 70.0% membership interest in the Peak Gold JV is owned by KG Mining (Alaska), Inc. (“KG Mining”), an indirect wholly-owned subsidiary of Kinross Gold Corporation (“Kinross”). Kinross is a large gold producer with a diverse global portfolio and extensive operating experience in Alaska. The Peak Gold JV will mine ore from the Main and North Manh Choh deposits and process the ore at the existing Fort Knox mining and milling complex located approximately 240 miles (400 km) away in Fairbanks, Alaska. The Peak Gold JV has entered into an Ore Haul Agreement with Black Gold Transport, located in North Pole, Alaska to transport the run-of-mine ore from the Manh Choh Project to the Fort Knox facilities. The use of the Fort Knox facilities is expected to accelerate the development of the Peak Gold JV Property and result in reduced upfront capital development costs, smaller environmental footprint, a shorter permitting and development timeline and less overall execution risk for the Peak Gold JV to advance the Main and North Manh Choh deposits to production. Peak Gold JV has also entered into a contract with Kiewit Mining Group to provide contract mining and site preparation work at the Manh Choh Project. The Peak Gold JV will be charged a toll for using the Fort Knox facilities pursuant to a toll milling agreement by and between the Peak Gold JV and Fairbanks Gold Mining, Inc., which was entered into and became effective on April 14, 2023.
Kinross released a combined feasibility study for the Fort Knox mill and the Peak Gold JV in July 2022. Also, in July 2022, Kinross announced that its board of directors (the “Kinross Board”) made a decision to proceed with development of the Manh Choh Project. Effective December 31, 2022, CORE Alaska, LLC, a wholly-owned subsidiary of the Company (“CORE Alaska”), KG Mining, and the Peak Gold JV executed the First Amendment to the Amended and Restated Limited Liability Company Agreement of the Peak Gold JV (as amended, the “A&R JV LLCA”). The First Amendment to the A&R JV LLCA provides that, beginning in 2023, the Company may fund its quarterly scheduled cash calls on a monthly basis. The Peak Gold JV management committee (the “JV Management Committee”) has approved budgets for 2023 and 2024, with cash calls totaling approximately $248.1 million, of which the Company’s share is approximately $74.4 million. As of March 31, 2024, the Company has funded $62.7 million of the budgeted cash calls. On May 15, 2023, the Peak Gold JV received approval of its Waste Management Plan, Plan of Operations, and Reclamation and Closure Plan from the State of Alaska Departments of Environmental Conservation and Natural Resources. Construction is essentially complete, on budget and on schedule for production in the second half of 2024. Mining activities are well underway including the commencement of ore mining and stockpiling. Transportation of ore to Fort Knox, where it will be processed, has commenced and will gradually increase throughout the first half of the year. Modifications to the Fort Knox mill continue to progress on schedule and on budget. Construction of the conveyors and associated buildings are planned for the first quarter along with interior piping and mechanical installations. The commissioning and operational readiness team is in place and preparing for pre-commissioning activities
25
following the mechanical completion of each area. Kinross, on behalf of the Peak Gold JV, is also continuing its comprehensive community programs and prioritizing local economic benefits as it develops the project. All permitting activities are completed with all major permits received from both Federal and State permitting agencies. The Peak Gold JV believes that production is expected to commence at Manh Choh in the second half of 2024, with a mine plan that consists of two small, open pits that will be mined concurrently over 4.5 years.
Work on the Lucky Shot Property has been ongoing since late 2021. Underground work includes rehabilitation of approximately 442 meters of existing drift and the addition of 612 meters of new drift and 3,816 meters of underground HQ core exploration drilling. In August 2023, the Company began executing a program to complete surface drilling on the Coleman segment of the Lucky Shot vein. The program was shut down in September 2023 due to challenging weather conditions.
On the Shamrock and Eagle/Hona Properties, the Company conducted surface mapping and sampling programs during 2021.
Recent Developments and Other Information
On May 1, 2024, the Company entered into a definitive arrangement agreement (the “Arrangement Agreement”), by and among the Company, Contango Mining Canada Inc., a corporation organized under the laws of British Columbia and a wholly owned subsidiary of the Company, and HighGold Mining Inc., a corporation existing under the laws of the Province of British Columbia (“HighGold”), pursuant to which the Company intends to acquire 100% of the outstanding equity interests of HighGold (the “HighGold Acquisition”). Under the terms of the Arrangement Agreement, each HighGold share of common stock will be exchanged for 0.019 shares of Contango common stock (the “Exchange Ratio”) based on the VWAP of Contango shares on the NYSE American for the five-day period ending on May 1, 2024. The Exchange Ratio implies total consideration of approximately $0.40 per HighGold share and total HighGold equity value of approximately $37 million. Upon completion of the HighGold Acquisition, existing Contango shareholders will own approximately 85% and HighGold shareholders will own approximately 15% of the combined company. In connection with the HighGold Acquisition, Contango will grant to HighGold the right to appoint one director to Contango’s board of directors. Closing of the HighGold Acquisition is subject to customary closing conditions and is expected to occur in July 2024. The Arrangement Agreement contains customary representations, warranties and covenants and also includes indemnification provisions under which the parties have agreed to indemnify each other against certain liabilities.
On May 1, 2024, the Company entered into a stock purchase agreement with Avidian Gold Corp. (“Avidian”) pursuant to which the Company has agreed to purchase Avidian’s 100% owned Alaskan subsidiary, Avidian Gold Alaska Inc., for initial consideration of $2,400,000, with a contingent payment for up to $1,000,000 (the “Avidian Acquisition”). Closing of the Avidian Acquisition is subject to customary closing conditions and is expected to occur in July 2024.
The Company is a 30% owner of the Peak Gold JV, which operates the Manh Choh mine near Tok, Alaska. Ore from the mine is being trucked to the Fort Knox mill for processing via public roadways in state-of-the-art trucks carrying legal loads. Certain owners of vacation homes along the ore haul route and others claiming potential impact have organized a group to oppose the ore haul plan and disrupt the project. These efforts have included administrative appeals of certain state mine permits unrelated to ore haul. To date, those appeals have been unsuccessful. On October 20, 2023, the Committee for Safe Communities (“CSC”), an Alaskan non-profit corporation inclusive of certain owners of vacation homes along the Manh Choh ore haul route and others claiming potential impact and objecting to the ore haul plan and project, filed suit (the “Complaint”) in the Superior Court in Fairbanks, Alaska against the State of Alaska Department of Transportation and Public Facilities (“DOT”). The Complaint seeks injunctive relief against the DOT with respect to its oversight of the Peak Gold JV’s ore haul plan. The Complaint alleges that the DOT has approved a haul route and trucking plan that violates DOT regulations, DOT’s actions have created an unreasonable risk to public safety constituting an attractive public nuisance, and DOT has aided and abetted the offense of negligent driving. On November 2, 2023, CSC filed a motion for a preliminary injunction against the DOT and is seeking expedited consideration of its motion. The Peak Gold JV is also in consultation with DOT on addressing the allegations raised. On November 9, 2023, the Court denied CSC's motion for expedited consideration of the motion for preliminary injunction. The Peak Gold JV filed a motion to intervene and on November 15, 2023, the Court granted such motion to intervene. The plaintiff’s motion for a preliminary injunction is fully briefed and awaiting decision by the Court. On December 15, 2023, the plaintiff filed a motion for a hearing on its motion for preliminary injunction, which has been fully briefed, and is awaiting decision by the Court. On January 15, 2024, Peak Gold and DOT jointly moved for judgment on the pleadings and to stay all discovery, which motions remain pending.
Strategy
Partnering with strategic industry participants to expand future exploration work. As of October 1, 2020, in conjunction with the Kinross transactions that established the current ownership interests in the Peak Gold JV and the signing of the A&R JV LLCA, KG Mining became the manager of the Peak Gold JV (the “Manager”). KG Mining may resign as Manager and can be removed as Manager for a material breach of the A&R JV LLCA, a material failure to perform its obligations as the Manager, a failure to conduct the Peak Gold JV operations in accordance with industry standards and applicable laws, and other limited circumstances. Except as expressly delegated to the Manager, the A&R JV LLCA provides that the JV Management Committee has exclusive authority to determine all management matters related to the Company. The JV Management Committee currently consists of one appointee designated by the Company and two appointees designated by KG Mining. The Representatives designated by each member of the Peak Gold JV vote as
26
a group, and in accordance with their respective membership interests in the Peak Gold JV. Except in the case of certain actions that require approval by unanimous vote of the Representatives, the affirmative vote of a majority of the membership interests in the Peak Gold JV constitutes the action of the JV Management Committee.
Structuring Incentives to Drive Behavior. The Company believes that equity ownership aligns the interests of the Company’s executives and directors with those of its stockholders. The Company has implemented an equity compensation program for its executive officers and directors (and other persons) that provides an incentive for such officers to achieve the Company’s long-term business objectives. The Company’s equity compensation program includes two forms of long-term incentives: restricted stock and stock options. As of March 31, 2024, the Company’s directors and executives beneficially own approximately 17.4% of the Company’s common stock.
Acquiring exploration properties. The Company anticipates from time to time acquiring additional properties in Alaska for exploration, subject to the availability of funds. The acquisitions may include leases or similar rights from Alaska Native corporations and/or staking Federal or State of Alaska mining claims. Acquiring additional properties will likely result in additional expense to the Company for minimum royalties, minimum rents and annual exploratory work requirements. The Company is open to strategic partnerships or alliances with other companies as a means to enhance its ability to fund new and existing exploration and development opportunities.
Off-Balance Sheet Arrangements
None.
Critical Accounting Estimates
The discussion and analysis of the Company’s financial condition and results of operations is based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company has identified below the critical accounting estimate that is of particular importance to the portrayal of our financial position and results of operations and which require the application of significant judgment by management. Actual results may differ from these estimates under different assumptions or conditions.
Contingent Considerations. Contingent consideration in asset acquisitions payable in the form of cash is recognized when payment becomes probable and reasonably estimable, unless the contingent consideration meets the definition of a derivative, in which case the amount becomes part of the asset acquisition cost when acquired. Contingent consideration payable in the form of a fixed number of the Company’s own shares is measured at fair value as of the acquisition date and recognized when the issuance of the shares becomes probable. Upon recognition of the contingent consideration payment, the amount is included in the cost of the acquired asset or group of assets. The Company carries a liability for contingent consideration related to the acquisition of LSA. In estimating the fair value of the contingent consideration at each reporting period, the Company makes estimates regarding the probability and timing of reaching the milestones associated with payment of the consideration, as well as the weighted average cost of capital used to discount the liability to its present value as of the balance sheet date. The estimate of the fair value of the contingent consideration is sensitive to changes in any one of these estimates.
Derivative Instruments. The Company utilizes derivative instruments in order to manage exposure to risks associated with fluctuating commodity prices. The Company recognizes all derivatives as either assets or liabilities, measured at fair value, and recognizes changes in the fair value of derivatives in current earnings. The Company has elected to not designate any of its positions under the hedge accounting rules. Accordingly, these derivative contracts are mark-to-market and any changes in the estimated values of derivative contracts held at the balance sheet date are recognized in unrealized (loss) gain on derivative contracts, net in the Condensed Consolidated Statements of Operations as unrealized gains or losses on derivative contracts. Realized gains or losses on derivative contracts will be recognized in (Loss) gain on derivative contracts, net in the Condensed Consolidated Statements of Operations.
Results of Operations
Neither the Company nor the Peak Gold JV has commenced producing commercially marketable minerals. To date, neither the Company nor the Peak Gold JV has generated any revenue from mineral sales or operations. Neither the Company nor the Peak Gold JV has any recurring source of revenue. The Company’s ability to continue as a going concern is dependent on the Company’s ability to raise capital to fund future exploration, and repay debt obligations and related interest, and working capital requirements. In the future, the Company and the Peak Gold JV may generate revenue from a combination of mineral sales and other payments resulting from any commercially recoverable minerals from the Manh Choh Project. The Company does not expect the Peak Gold JV to generate revenue from mineral sales prior to mid-2024. If the Company’s properties or the Manh Choh Project fail to contain any proven reserves, the Company’s ability to generate future revenue, and the Company’s results of operations and financial position, would be materially adversely affected. Other potential sources of cash, or relief of demand for cash, include external debt, the sale of shares of the Company’s stock, joint ventures, or alternative methods such as mergers or sale of our assets. No assurances can be given, however, that the Company will be able to obtain any of these potential sources of cash. The Company will need to generate significant revenues to achieve profitability and the Company may never do so.
27
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
Claim Rentals Expense. Claim rental expense primarily consists of State of Alaska rental payments and costs incurred to record annual labor documents. For the three months ended March 31, 2024 and 2023, claim rental expense was $0.1 million and $0.1 million respectively.
Exploration Expense. Exploration expense for the three months ended March 31, 2024 was $0.1 million compared to $0.3 million for the three months ended March 31, 2023. Current and prior period exploration expense relates to care and maintenance work performed on our Lucky Shot Property.
General and Administrative Expense. General and administrative expense for the three months ended March 31, 2024 and 2023 was $2.5 million and $2.0 million, respectively. The Company’s general and administrative expense primarily relates to legal fees, regulatory fees, payroll and stock-based compensation expense. General and administrative expenses were higher for the three months ended March 31, 2024, as a result of a surety bond requirement for the Manh Choh Project and an increase in audit and legal fees as a result of changing the Company's year-end to December 31, 2023.
Loss from Equity Investment in the Peak Gold JV. The loss from the Company’s equity investment in the Peak Gold JV for the three months ended March 31, 2024 and 2023 was $0.1 million and $5.1 million, respectively. The capital contributions for the three months ended March 31, 2024 and 2023 was $15.5 million and $5.1 million, respectively. The capital contributions are higher for three months ended March 31, 2024 compared to March 31, 2023 as operations are ramping up at the Manh Choh project with ore and waste mining ongoing and focus on capital improvements at the Fort Knox mill facility. There were no suspended losses as of March 31, 2024.
Interest Expense. In connection with the closing of the Credit Agreement, the Company entered into an amendment to its $20,000,000 unsecured convertible debenture (the “Debenture”) with Queen’s Road Capital Investment, Ltd. (“QRC”) that raised the stated interest rate from 8% to 9%. The Debenture currently bears interest at 9% per annum, payable quarterly, with 7% paid in cash and 2% paid in shares of common stock of the Company (See Note 14 - Debt for discussion of both debt arrangements). The current quarter interest expense of $2.0 million includes a full quarter of interest expense related to the Debenture, and a full quarter of interest expense related to the Company’s cumulative $42.5 million draw-down on the Facility. Prior year interest expense of $0.4 million only included the current quarter interest expense related to the Debenture.
Loss on Derivative Contracts. The Company incurred a non-cash loss of $15.6 million during the current quarter related to derivative contracts compared to $0 during the quarter ended March 31, 2023. The Company did not enter into any derivative contracts until July 2023 (see Note 15 - Derivative and Hedging Activities).
Liquidity and Capital Resources
As of March 31, 2024, the Company had approximately $7.9 million of cash.
The Company’s primary cash requirements have been for general and administrative expenses, capital calls from the Peak Gold JV for the Manh Choh Property, repayment of interest related to debt and exploration expenditures on the Lucky Shot Property. The Company’s sources of cash have been from common stock offerings, the issuance of the Debenture, and the proceeds from the Facility (see Note 8 - Stockholders' Equity (Deficit) and Note 14 - Debt, for a discussion of the recent activity).
The JV Management Committee has proposed a significant budget to complete the required development to start the operations of the Manh Choh mine, which is anticipated to begin production during the second half of 2024. The budget primarily relates to completion of the Manh Choh camp, mine access road construction, earthworks, general construction and installation, pre-production stripping, etc. For 2024, it is anticipated that there will be $27.2 million of capital calls to the Peak Gold JV to reach production, $15.5 million of such amount has already been funded by the Company. As of March 31, 2024, the Company has funded $62.7 million of the 2023 and 2024 capital calls to the Peak Gold JV, of which $42.5 million was funded from the Facility. The Company will be required to make capital contributions of 30% of the budgeted amounts when cash calls are received from the Peak Gold JV or face possible dilution of its interest in the Peak Gold JV.
The Company’s cash needs going forward will primarily relate to capital calls from the Peak Gold JV, exploration of the Contango Properties, repayment of debt and related interest and general and administrative expenses of the Company. The JV Management Committee has proposed a significant budget to complete the required development to start the operations of the Manh Choh mine, which is anticipated to begin production during the second half of 2024. The Company believes it has sufficient capital to reach production at the Manh Choh mine, with its cash on hand and the $22.5 million of availability under the Facility. Although there can be no guarantee that the Peak Gold JV will make distributions to the Company, the Company believes that distributions are probable and that it will maintain sufficient liquidity to meet its working capital requirements, including repayment obligations of approximately $29.9 million on the secured credit facility, for the next twelve months from the date of this report. Failure to pay current debt obligations will result in an event of default and the Company's debt would be due immediately or callable (See Note 14). If the Company elects to not fund a portion of its cash calls to the Peak Gold JV, its membership interest in the Peak Gold JV would be diluted. If the Company’s interest in the Peak Gold JV is diluted, the Company may not be able to fully realize its investment in the Peak Gold JV. Also, if no
28
additional financing is obtained, the Company may not be able to fully realize its investment in the Contango Properties. The Company has limited financial resources and the ability of the Company to refinance current debt or arrange additional financing in the future will depend, in part, on the prevailing capital market conditions, the results achieved at the Peak Gold JV Property, as well as the market price of metals. The Company cannot be certain that financing will be available to the Company on acceptable terms, if at all.
Further financing by the Company may include issuances of equity, instruments convertible into equity (such as warrants) or various forms of debt. The Company has issued common stock and other instruments convertible into equity in the past and cannot predict the size or price of any future issuances of common stock or other instruments convertible into equity, and the effect, if any, that such future issuances and sales will have on the market price of the Company’s securities. Any additional issuances of common stock or securities convertible into, or exercisable or exchangeable for, common stock may ultimately result in dilution to the holders of common stock, dilution in any future earnings per share of the Company and may have a material adverse effect upon the market price of the common stock of the Company.
Available Information
General information about the Company can be found on the Company’s website at www.contangoore.com. Our annual reports on Form 10-K, transition report on Form 10-KT, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments and exhibits to those reports, are available free of charge through our website as soon as reasonably practicable after the Company files or furnishes them to the SEC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company” the Company is not required to provide this information.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15(b) of the Exchange Act, the Company has evaluated, under the supervision and with the participation of its management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that the Company files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of March 31, 2024 at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting. There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a 30% owner of the Peak Gold JV, which operates the Manh Choh mine near Tok, Alaska. Ore from the mine is being trucked to the Fort Knox mill for processing via public roadways in state-of-the-art trucks carrying legal loads. Certain owners of vacation homes along the ore haul route and others claiming potential impact have organized a group to oppose the ore haul plan and disrupt the project. These efforts have included administrative appeals of certain state mine permits unrelated to ore haul. To date, those appeals have been unsuccessful. On October 20, 2023, the Committee for Safe Communities ("CSC"), an Alaskan non-profit corporation inclusive of this same group of objectors and formed for the purpose of opposing the project, filed suit (the "Complaint") in the Superior Court in Fairbanks, Alaska against the State of Alaska Department of Transportation and Public Facilities (“DOT”). The Complaint seeks injunctive relief against the DOT with respect to its oversight of the Peak Gold JV’s ore haul plan. The Complaint alleges that the DOT has approved a haul route and trucking plan that violates DOT regulations, DOT’s actions have created an unreasonable risk to public safety constituting an attractive public nuisance, and DOT has aided and abetted the offense of negligent driving. On November 2, 2023, the plaintiff filed a motion for a preliminary injunction against the DOT and is seeking expedited consideration of its motion. The Peak Gold JV is also in consultation with DOT on addressing the allegations raised. On November 9, 2023, the Court denied CSC's motion for expedited consideration of the motion for preliminary injunction. The Peak Gold JV filed a motion to intervene and on November 15, 2023, the Court granted such motion to intervene. The plaintiff’s motion for a preliminary injunction is fully briefed and awaiting decision by the Court. On December 15, 2023, the plaintiff filed a motion for a hearing on its motion for preliminary injunction, which has been fully briefed, and is awaiting decision by the Court. On January 15, 2024, Peak Gold and DOT jointly moved for judgment on the pleadings and to stay all discovery, which motions remain pending.
29
Item 1A. Risk Factors
In addition to the risk factor set forth below and the other information set forth in this Form 10-Q, you should carefully consider the risks discussed in our Transition Report on Form 10-KT for the six-month period ended December 31, 2023, under the headings “Item 1. Business — Adverse Climate Conditions,” “—Competition,” “— Government Regulation” and “Item 2. Properties— Environmental Regulation and Permitting,” “Item 1A. Risk Factors,” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” which risks could materially affect our business, financial condition or future results. There have been no material changes in our risk factors from those described in our Transition Report on Form 10-KT for the six-month period ended December 31, 2023. The risks described in our Transition Report on Form 10-KT for the six-month period ended December 31, 2023 are not the only risks the Company faces. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. An investment in the Company is subject to risks inherent in our business and involves a high degree of risk. The trading price of the shares of the Company is affected by the performance of our business relative to, among other things, competition, market conditions and general economic and industry conditions. The value of an investment in the Company may decrease, resulting in a loss.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
(a) Exhibits:
The following is a list of exhibits filed as part of this Form 10-Q. Where so indicated, exhibits, which were previously filed, are incorporated herein by reference (File No. 001-35770, unless otherwise indicated).
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Incorporated by Reference |
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Exhibit |
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Description |
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Filed |
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Form |
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File No. |
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Ex. |
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Filing Date |
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3.1 |
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10/A2 |
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000-54136 |
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3.1 |
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11/26/2010 |
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3.2 |
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Certificate of Amendment to Certificate of Incorporation of Contango ORE, Inc. |
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8-K |
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001-35770 |
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3.1 |
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12/17/2020 |
3.3 |
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10/A2 |
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000-54136 |
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3.2 |
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11/26/2010 |
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3.4 |
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8-K |
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001-35770 |
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3.1 |
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10/21/2021 |
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4.1 |
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10-Q |
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001-35770 |
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4.1 |
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11/14/2013 |
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4.2 |
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Certificate of Designation of Series A Junior Preferred Stock of Contango ORE, Inc. |
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8-K |
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000-54136 |
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3.1 |
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12/21/2012 |
4.3 |
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Certificate of Elimination of Series A Junior Preferred Stock of Contango ORE, Inc. |
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8-K |
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001-35770 |
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3.1 |
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09/24/2020 |
4.4 |
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Certificate of Designations of Series A-1 Junior Participating Preferred Stock of Contango ORE, Inc. |
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8-K |
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001-35770 |
|
3.2 |
|
09/24/2020 |
4.5 |
|
|
|
|
8-K |
|
001-35770 |
|
4.1 |
|
04/09/2022 |
|
4.6 |
|
|
|
|
8-K |
|
001-35770 |
|
4.2 |
|
09/24/2020 |
|
4.7 |
|
|
|
|
8-K |
|
001-35770 |
|
4.1 |
|
09/22/2021 |
|
4.8 |
|
|
|
|
8-K |
|
001-35770 |
|
4.1 |
|
09/02/2022 |
|
4.9 |
|
|
X |
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
Incorporated by Reference |
||||||
Exhibit |
|
Description |
|
Filed |
|
Form |
|
File No. |
|
Ex. |
|
Filing Date |
4.10 |
|
|
|
|
8-K |
|
001-35770 |
|
4.1 |
|
06/21/2021 |
|
4.11 |
|
|
|
|
8-K |
|
001-35770 |
|
4.1 |
|
08/25/2021 |
|
4.12 |
|
Form of Registration Rights Agreement dated as of December 23, 2022. |
|
|
|
8-K |
|
001-35770 |
|
4.1 |
|
12/23/2022 |
4.13 |
|
Form of Registration Rights Agreement dated as of January 19, 2023. |
|
|
|
8-K |
|
001-35770 |
|
4.1 |
|
01/19/2023 |
10.1 |
|
|
X |
|
|
|
|
|
|
|
|
|
10.2 |
|
|
X |
|
|
|
|
|
|
|
|
|
31.1 |
|
Certification of Principal Executive Officer pursuant to Rules 13a-14 and 15d-14. |
|
X |
|
|
|
|
|
|
|
|
31.2 |
|
Certification of Principal Financial Officer pursuant to Rules 13a-14 and 15d-14. |
|
X |
|
|
|
|
|
|
|
|
32.1 |
|
Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350. |
|
X |
|
|
|
|
|
|
|
|
32.2 |
|
Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350. |
|
X |
|
|
|
|
|
|
|
|
101 |
|
Financial statements from the Company’s quarterly report on Form 10-Q for the three months ended March 31, 2024, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Cash Flows; (iv) Condensed Consolidated Statements of Changes in Shareholders’ Equity; and (v) Notes to Unaudited Condensed Consolidated Financial Statements. |
|
X |
|
|
|
|
|
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
|
X |
|
|
|
|
|
|
|
|
* |
Filed herewith |
|
|
† |
Management contract or compensatory plan or agreement |
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
|
CONTANGO ORE, INC. |
||
|
|
|
|
Date: May 14, 2024 |
By: |
|
/s/ RICK VAN NIEUWENHUYSE |
|
|
|
Rick Van Nieuwenhuyse |
|
|
|
President and Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
Date: May 14, 2024 |
By: |
|
/s/ MIKE CLARK |
|
|
|
Mike Clark |
|
|
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
32
EXHIBIT 4.9
AMENDMENT NO. 3
TO
RIGHTS AGREEMENT
This Amendment No. 3 (this “Amendment”) to the Rights Agreement (as defined below) is made and entered into as of September 13, 2023, by and between Contango ORE, Inc., a Delaware corporation (the “Company”), and Computershare Trust Company, N.A., as Rights Agent (the “Rights Agent”).
RECITALS:
WHEREAS, the Company and the Rights Agent have entered into that certain Rights Agreement, dated as of September 23, 2020 (the “Rights Agreement”);
WHEREAS, the Company amended the Rights Agreement pursuant to that certain Amendment No. 1 to Rights Agreement, dated as of September 22, 2021.
WHEREAS, the Company amended the Rights Agreement pursuant to that certain Amendment No. 2 to Rights Agreement, dated as of August 31, 2022.
WHEREAS, pursuant to Section 28 of the Rights Agreement, the Company may supplement or amend any provision of the Rights Agreement in any respect in accordance with the provisions of such section; and
WHEREAS, pursuant to the terms of the Rights Agreement and in accordance with Section 28 thereof, the Company has directed that the Rights Agreement be amended as set forth in this Amendment;
AGREEMENT:
NOW, THEREFORE, in consideration of the Recitals, the mutual covenants and agreements contained in this Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to amend the Rights Agreement as follows:
[Signature page follows]
2
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.
CONTANGO ORE, INC.
By: |
/s/ Leah Gaines |
Name: |
Leah Gaines |
Title: |
Vice President and Chief Financial Officer |
COMPUTERSHARE TRUST COMPANY, N.A.
By: |
/s/ Kathy Heagerty |
Name: |
Kathy Heagerty |
Title: |
Manager, Client Management |
SIGNATURE PAGE TO AMENDMENT NO. 3 TO RIGHTS AGREEMENT
EXHIBIT 10.1
WAIVER NO. 2 AND AMENDMENT NO. 4 TO CREDIT AND GUARANTEE AGREEMENT AND AMENDMENT NO. 2 TO SECURITY AGREEMENT, dated as of January 31, 2024 (this “Agreement”), among CORE ALASKA, LLC, a Delaware limited liability company (the “Borrower”), CONTANGO ORE, INC., a Delaware corporation (“Contango”), ALASKA GOLD TORRENT, LLC, an Alaska limited liability company (“AGT”) and CONTANGO MINERALS ALASKA, LLC, an Alaska limited liability company (“CMA”), together with Contango and AGT, the “Guarantors”), ING CAPITAL LLC, in its capacity as administrative agent (the “Administrative Agent) (with the consent of the Required Lenders (as defined below in the Credit Agreement referred to below)) and MACQUARIE BANK LIMITED, in its capacity as collateral agent (the “Collateral Agent”).
RECITALS:
WHEREAS, the Borrower has entered into (i) that certain Credit and Guarantee Agreement, dated as of May 17, 2023, with the Administrative Agent, the Collateral Agent, the lenders (the “Lenders”) party thereto from time to time, the Guarantors, ING Capital LLC and Macquarie Bank Limited, as Mandated Lead Arrangers and ING Capital LLC, as Bookrunner (as amended pursuant to Amendment No. 1 dated as of July 17, 2023, Amendment No. 2 dated as of August 15, 2023 and Amendment No. 3 dated as of December 31, 2023, the “Existing Credit Agreement” and as further amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) and (ii) that certain Security Agreement, dated as of May 17, 2023, by and among the Borrower, the Guarantors and the Collateral Agent (as amended by Amendment No. 1 dated as of September 13, 2023 (the “Existing Security Agreement”) and as further amended, amended and restated, supplemented or otherwise modified from time to time, the “Security Agreement”);
WHEREAS, on July 28, 2023, Contango created a new Subsidiary, Contango Mining Canada Inc. (“CMC”), which opened (i) a Canadian-dollar denominated account # 00041527538 with Bank of Montreal (“BMO”) on August 23, 2023 and (ii) a U.S. Dollar denominated account # 00044565360 with BMO on August 23, 2023 (collectively, the “BMO Accounts”);
WHEREAS, pursuant to (i) Section 6.17(b) (Partnerships, Formation of Subsidiaries, etc.) of the Credit Agreement, CMC was required to become a Guarantor, (ii) Section 4.01(p) (Subsidiaries) of the Credit Agreement, CMC was required to be included in Schedule 4.01(q) (Subsidiaries and Capitalization) to the Credit Agreement and (iii) Section 4.01(cc) (Accounts) of the Credit Agreement, the BMO Accounts were required to be included in Schedule 4.01(cc) (Existing Accounts) to the Credit Agreement, and, in each case, such requirements were not timely satisfied;
WHEREAS, the failure to meet such requirements resulted in various technical Events of Default (the “Defaults”);
WHEREAS, pursuant to (i) Section 10.02(b) (Amendments, etc.) of the Credit Agreement, no amendment or waiver of any provision of the Credit Agreement, and no consent to any departure by any Loan Party therefrom, shall be effective unless in writing executed by each Loan Party and the Administrative Agent with the consent of the Required Lenders and (ii) Section 6.1
AMERICAS/2024013442.2 Contango Ore – Waiver No. 2 and Amendment No. 4
to Credit and Guarantee Agreement and
Amendment No. 2 to Security Agreement
(Amendments and Waivers) of the Security Agreement, no amendment or modification to any provision of the Security Agreement shall be effective unless it is in writing and signed by the Collateral Agent and each Grantor; and
WHEREAS, the Borrower hereby requests the Required Lenders to (i) waive each Default and (ii) amend each of the Existing Credit Agreement and the Existing Security Agreement, in each case, to include each BMO Account.
NOW, THEREFORE, in consideration of the premises and agreements, and provisions herein contained, the parties hereto agree as follows:
““CMC” means Contango Mining Canada Inc., a corporation organized under the laws of British Columbia.”
Bank |
Company |
Account Number |
Account Type |
Bank of Montreal |
CMC |
00041527538 |
Checking - CAD |
Bank of Montreal |
CMC |
00044565360 |
Checking - USD |
AMERICAS/2024013442.2 2 Contango Ore – Waiver No. 2 and Amendment No. 4
to Credit and Guarantee Agreement and
Amendment No. 2 to Security Agreement
“(g) “CMC” means Contango Mining Canada Inc., a corporation organized under the laws of British Columbia.”
Bank |
Company |
Account Number |
Account Type |
Bank of Montreal |
CMC |
00041527538 |
Checking - CAD |
Bank of Montreal |
CMC |
00044565360 |
Checking - USD |
AMERICAS/2024013442.2 3 Contango Ore – Waiver No. 2 and Amendment No. 4
to Credit and Guarantee Agreement and
Amendment No. 2 to Security Agreement
AMERICAS/2024013442.2 4 Contango Ore – Waiver No. 2 and Amendment No. 4
to Credit and Guarantee Agreement and
Amendment No. 2 to Security Agreement
AMERICAS/2024013442.2 5 Contango Ore – Waiver No. 2 and Amendment No. 4
to Credit and Guarantee Agreement and
Amendment No. 2 to Security Agreement
[Signature page follows.]
AMERICAS/2024013442.2 6 Contango Ore – Waiver No. 2 and Amendment No. 4
to Credit and Guarantee Agreement and
Amendment No. 2 to Security Agreement
IN WITNESS WHEREOF, each of the undersigned has caused its duly authorized officer(s) to execute and deliver this Agreement as of the date first written above.
CORE ALASKA, LLC,
as Borrower
By:
Name: Rick Van Nieuwenhuyse
Title: President and Chief Executive Officer
CONTANGO ORE, INC.,
as Guarantor
By:
Name: Rick Van Nieuwenhuyse
Title: President and Chief Executive Officer
ALASKA GOLD TORRENT, LLC,
as Guarantor
By:
Name: Rick Van Nieuwenhuyse
Title: President and Chief Executive Officer
CONTANGO MINERALS ALASKA, LLC,
as Guarantor
By:
Name: Rick Van Nieuwenhuyse
Title: President and Chief Executive Officer
[Signature Page]
Contango Ore – Waiver No. 2 and Amendment No. 4
to Credit and Guarantee Agreement and
Amendment No. 2 to Security Agreement
ING CAPITAL LLC,
as Administrative Agent
By:
Name:
Title:
By:
Name:
Title:
[Signature Page]
Contango Ore – Waiver No. 2 and Amendment No. 4
to Credit and Guarantee Agreement and
Amendment No. 2 to Security Agreement
MACQUARIE BANK LIMITED,
as Collateral Agent
By:
Name:
Title:
By:
Name:
Title:
Signed in Australia by its duly appointed attorneys under Power of Attorney dated 18 January 2023, ref#3322
[Signature Page]
Contango Ore – Waiver No. 2 and Amendment No. 4
to Credit and Guarantee Agreement and
Amendment No. 2 to Security Agreement
EXECUTION VERSION
EXHIBIT 10.2
AMENDMENT NO. 5 TO CREDIT AND GUARANTEE AGREEMENT, AMENDMENT NO. 3 TO SECURITY AGREEMENT AND JOINDER AGREEMENT
This AMENDMENT NO. 5 TO CREDIT AND GUARANTEE AGREEMENT, AMENDMENT NO. 3 TO SECURITY AGREEMENT AND JOINDER AGREEMENT, dated as of February __, 2024 (this “Agreement”), among CORE ALASKA, LLC, a Delaware limited liability company (the “Borrower”), CONTANGO ORE, INC., a Delaware corporation (“Contango”), CONTANGO LUCKY SHOT ALASKA, LLC (f/k/a/ ALASKA GOLD TORRENT, LLC), an Alaska limited liability company (“CLSA”), CONTANGO MINERALS ALASKA, LLC, an Alaska limited liability company (“CMA”) and CONTANGO MINING CANADA INC., a British Columbia corporation (“CMC”, and together with Contango, CLSA and CMA, the “Guarantors”), ING CAPITAL LLC, in its capacity as administrative agent (the “Administrative Agent”) (with the consent of the Required Lenders (as defined below in the Credit Agreement referred to below)) and MACQUARIE BANK LIMITED, in its capacity as collateral agent (the “Collateral Agent”).
RECITALS:
WHEREAS, the Borrower has entered into (i) that certain Credit and Guarantee Agreement, dated as of May 17, 2023, with the Administrative Agent, the Collateral Agent, the lenders (the “Lenders”) party thereto from time to time, the Guarantors, ING Capital LLC and Macquarie Bank Limited, as Mandated Lead Arrangers and ING Capital LLC, as Bookrunner (as amended pursuant to Amendment No. 1 dated as of July 17, 2023, Amendment No. 2 dated as of August 15, 2023, Amendment No. 3 dated as of December 31, 2023 and Waiver No. 2 and Amendment No. 4 dated as of January 31, 2024, the “Existing Credit Agreement” and as further amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) and (ii) that certain Security Agreement, dated as of May 17, 2023, by and among the Borrower, the Guarantors and the Collateral Agent (as amended by Amendment No. 1 dated as of September 13, 2023 and Amendment No. 2 dated as of January 31, 2024 (the “Existing Security Agreement”) and as further amended, amended and restated, supplemented or otherwise modified from time to time, the “Security Agreement”);
WHEREAS, pursuant to Section 6.17(b) (Partnerships, Formation of Subsidiaries, etc.) of the Credit Agreement and Section 7(c) and (d) (Covenants) of Waiver No. 2 and Amendment No. 4 to Credit Agreement and Amendment No. 2 to Security Agreement, dated as of January 31, 2024 (the “Waiver and Amendment”), CMC is required to become (i) a Guarantor pursuant to and in accordance with the Credit Agreement and (ii) a Grantor pursuant to and in accordance with the Security Agreement;
WHEREAS, pursuant to (i) Section 10.02(b) (Amendments, etc.) of the Credit Agreement, no amendment or waiver of any provision of the Credit Agreement, and no consent to any departure by any Loan Party therefrom, shall be effective unless in writing executed by each Loan Party and the Administrative Agent with the consent of the Required Lenders and (ii) Section 6.1 (Amendments and Waivers) of the Security Agreement, no amendment or modification to any
AMERICAS/2024013442.2 Contango Ore – Amendment No. 5 to Credit and
Guarantee Agreement, Amendment No. 3 to
Security Agreement and Joinder Agreement
provision of the Security Agreement shall be effective unless it is in writing and signed by the Collateral Agent and each Grantor; and
WHEREAS, the Borrower hereby requests the Required Lenders to agree to certain amendments to the Existing Credit Agreement and the Existing Security Agreement, in each case, to reflect CMC’s accession to each of the Existing Credit Agreement and the Existing Security Agreement as a Guarantor and Grantor.
NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows:
AMERICAS/2024013442.2 2 Contango Ore – Amendment No. 5 to Credit and
Guarantee Agreement, Amendment No. 3 to
Security Agreement and Joinder Agreement
AMERICAS/2024013442.2 3 Contango Ore – Amendment No. 5 to Credit and
Guarantee Agreement, Amendment No. 3 to
Security Agreement and Joinder Agreement
AMERICAS/2024013442.2 4 Contango Ore – Amendment No. 5 to Credit and
Guarantee Agreement, Amendment No. 3 to
Security Agreement and Joinder Agreement
AMERICAS/2024013442.2 5 Contango Ore – Amendment No. 5 to Credit and
Guarantee Agreement, Amendment No. 3 to
Security Agreement and Joinder Agreement
[Signature page follows.]
AMERICAS/2024013442.2 6 Contango Ore – Amendment No. 5 to Credit and
Guarantee Agreement, Amendment No. 3 to
Security Agreement and Joinder Agreement
IN WITNESS WHEREOF, each of the undersigned has caused its duly authorized officer(s) to execute and deliver this Agreement as of the date first written above.
CONTANGO MINING CANADA INC.,
as Guarantor and Grantor
By:
Name: Rick Van Nieuwenhuyse
Title: Chief Executive Officer
[Signature Page]
Contango Ore – Amendment No. 5 to Credit and
Guarantee Agreement, Amendment No. 3 to
Security Agreement and Joinder Agreement
CORE ALASKA, LLC,
as Borrower
By:
Name: Rick Van Nieuwenhuyse
Title: President and Chief Executive Officer
CONTANGO ORE, INC.,
as Guarantor
By:
Name: Rick Van Nieuwenhuyse
Title: President and Chief Executive Officer
CONTANGO LUCKY SHOT ALASKA, LLC,
as Guarantor
By:
Name: Rick Van Nieuwenhuyse
Title: President and Chief Executive Officer
CONTANGO MINERALS ALASKA, LLC,
as Guarantor
By:
Name: Rick Van Nieuwenhuyse
Title: President and Chief Executive Officer
[Signature Page]
Contango Ore – Amendment No. 5 to Credit and
Guarantee Agreement, Amendment No. 3 to
Security Agreement and Joinder Agreement
ING CAPITAL LLC,
as Administrative Agent
By:
Name:
Title:
By:
Name:
Title:
[Signature Page]
Contango Ore – Amendment No. 5 to Credit and
Guarantee Agreement, Amendment No. 3 to
Security Agreement and Joinder Agreement
MACQUARIE BANK LIMITED,
as Collateral Agent
By:
Name:
Title:
By:
Name:
Title:
Signed in Australia by its duly appointed attorneys under Power of Attorney dated 18 January 2023, ref#3322
[Signature Page]
Contango Ore – Amendment No. 5 to Credit and
Guarantee Agreement, Amendment No. 3 to
Security Agreement and Joinder Agreement
SCHEDULE 1-A
Amended Schedule 4.01(q) (Subsidiaries and Capitalization) to Credit Agreement
Contango ORE Inc
Contango ORE Inc
Alaska Gold Torrent LLC
Lucky Shot Project
Contango Lucky Shot Alaska Inc
Alaska State Claims
CORE Alaska, LLC
Peak Gold, LLC
KG Mining Alaska, LLC
Kinross Gold Corporation
Contango Mining Canada Inc.
Name |
Jurisdiction |
CORE Ownership % |
Date Formed |
Tax Classification |
State/Province Qualifications |
EIN/Tax ID |
Contango Ore, Inc.
|
DE |
Parent |
9/1/2010 |
Corporation |
Delaware, Alaska |
27-343 1051 |
CORE Alaska, LLC |
DE |
100% |
10/14/2014 |
Limited Liability Company |
Delaware |
37-1767263 |
Contango Minerals Alaska, LLC |
AK |
100% |
9/28/2020 |
Limited Liability Company |
Alaska |
Disregarded entity |
Contango Lucky Shot Alaska, LLC (f/k/a Alaska Gold Torrent, LLC) |
AK |
100% |
1/25/2017 |
Limited Liability Company |
Alaska |
81-5318089 |
Contango Mining Canada Inc. |
British Columbia |
100% |
7/28/2023 |
Corporation |
British Columbia |
73659 5414 BC 0001 |
Contango Ore – Amendment No. 5 to Credit and
Guarantee Agreement, Amendment No. 3 to
Security Agreement and Joinder Agreement
SCHEDULE 1-B
Amended Schedule 1 (Location, Chief Executive Office, Type of Organization and Jurisdiction of Organization) to Security Agreement
LOCATION, CHIEF EXECUTIVE OFFICE, TYPE OF ORGANIZATION AND JURISDICTION OF ORGANIZATION
Legal Name |
Location and Chief Executive Office |
Type and Jurisdiction |
Tax Identification |
CORE Alaska, LLC |
516 2nd Avenue, Suite 401 Fairbanks, AK 99701 |
Delaware limited liability company |
37-1767263 |
Contango ORE, Inc. |
516 2nd Avenue, Suite 401 Fairbanks, AK 99701 |
Delaware corporation |
27-343 1051 |
Contango Lucky Shot Alaska, LLC (f/k/a Alaska Gold Torrent, LLC) |
516 2nd Avenue, Suite 401 Fairbanks, AK 99701 |
Alaska limited liability company |
81-5318089 |
Contango Minerals Alaska, LLC |
516 2nd Avenue, Suite 401 Fairbanks, AK 99701 |
Alaska limited liability company |
Disregarded entity |
Contango Mining Canada Inc. |
516 2nd Avenue, Suite 401 Fairbanks, AK 99701 |
British Columbia corporation |
73659 5414 BC 0001 |
Contango Ore – Amendment No. 5 to Credit and
Guarantee Agreement, Amendment No. 3 to
Security Agreement and Joinder Agreement
EXHIBIT 31.1
CONTANGO ORE, INC.
Certification Required by Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934
|
I, Rick Van Nieuwenhuyse, President, Chief Executive Officer, and Director of Contango ORE, Inc.(the “Company”), certify that: |
|
|
1. |
I have reviewed this Quarterly Report on Form 10-Q of the Company; |
|
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
4. |
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
5. |
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
|
|
Date: May 14, 2024
|
|
/s/ RICK VAN NIEUWENHUYSE |
|
Rick Van Nieuwenhuyse |
|
President, Chief Executive Officer, and Director |
|
EXHIBIT 31.2
CONTANGO ORE, INC.
Certification Required by Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934
|
I, Mike Clark, Chief Financial Officer of Contango ORE, Inc. (the “Company”), certify that: |
|
|
1. |
I have reviewed this Quarterly Report on Form 10-Q of the Company; |
|
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
4. |
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
5. |
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions): |
|
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
|
|
Date: May 14, 2024
|
|
/s/ MIKE CLARK |
|
Mike Clark |
|
Chief Financial Officer |
|
EXHIBIT 32.1
CONTANGO ORE, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Contango ORE, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2024 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Rick Van Nieuwenhuyse, President, Chief Executive Officer, and Director of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
|
1. |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
|
|
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
|
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Dated: May 14, 2024
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/s/ RICK VAN NIEUWENHUYSE |
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Rick Van Nieuwenhuyse |
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President, Chief Executive Officer, and Director |
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EXHIBIT 32.2
CONTANGO ORE, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Contango ORE, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2024 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Mike Clark, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
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1. |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
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Dated: May 14, 2024
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/s/ MIKE CLARK |
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Mike Clark |
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Chief Financial Officer |
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