Earnings Call Transcript - CTGO Q3 2025

Operator, Operator

Good evening, wherever you're tuning in from today. I personally am joined live at Deutsche Goldmesse in Frankfurt, Germany by Contango CEO, Rick Van Nieuwenhuyse; and CFO, Mike Clark, to discuss Contango's Q3 reporting. Gentlemen, how are you?

Rick Van Nieuwenhuyse, CEO

Good to see you here in Frankfurt, Romeo.

Operator, Operator

Awesome. And I wish we were in the same room, but we're several feet away just because of the practicalities of movie magic on webinars. But here's how today is going to work just for the folks in the room. I've got a number of questions to go through, just eager to get into these pretty great Q3 reports. And then I'm eager to take questions from the live audience. So if there are any questions that you got during today's event, there is a chat button in the bottom right of your screen. Please jump in at any time. Anything I don't get to, we're going to be a pretty short event today. But any questions I don't get to, I'll be sure to get to both Rick and Mike and the Contango team afterwards, and they'll be able to get back to you as quickly as possible. I wanted to jump right into the protein as quickly as I can. Rick, obviously, looking at record operating income of $25 million this quarter, while I think almost as impressively or more impressively maintaining AISC below that $1,625 target at $1,597 per ounce. So two comments and a question. First, that's a lot of money. Congratulations. And what's kept ASIC in check?

Rick Van Nieuwenhuyse, CEO

Yes, it's a significant amount and a record for us. Our Q3 production was above plan by around 2,000 ounces. Importantly, the all-in sustaining cost is lower than the $1,625 we forecasted. We based our guidance on Kinross, and a key reason for our performance is that we are meeting or exceeding the mine plan outlined. This approach is typical of Kinross, as they tend to underpromise and overdeliver, which helps ensure that we don't overly extend ourselves. Another factor aiding our project is the low oil price and the stable diesel prices we've seen, which have remained steady for years. This stability is beneficial, particularly regarding the cost of transporting ore from the mine to the mill, which is a significant part of our expenses. Kinross is doing an excellent job executing the plan they set, and when everything is operating effectively, we are in a strong position.

Operator, Operator

No, makes a lot of sense. And Mike, I want to get you in here for some of the dollars and cents questions. I know the cash position jumped from $20 million at year-end 2024 to an eye-popping $107 million as of September 30, with $87 million distribution received from that Peak Gold JV to date. I hope you could walk us through just capital allocation priorities. So now you've paid down a bunch of debt, you settled the carry trade. What's the strategic thinking behind those moves?

Mike Clark, CFO

Yes, there hasn’t been much change over the last few periods. Our goal has always been to fulfill our hedges quickly and pay down our debt on schedule. So far, we have been about a quarter ahead on our production, delivering around three months in advance. This is why we are utilizing the carry trade in a rising gold market, which has proven beneficial. This quarter, we saved approximately $2.4 million as a result. The strategy is effective, and we will continue with it. Currently, we are delivering the December hedges, with the aim of having these delivered by September of next year. We are also awaiting the 2026 plan for Manh Choh, which aligns with our internal target.

Operator, Operator

No, I appreciate that. And Mike, one thing I noticed you added adjusted net income this period. Just for folks in the room and for me, too, to be honest, can you provide some insight into that? What are we looking at here?

Mike Clark, CFO

Yes. You can thank Rick for that last minute. Basically, we continue to report a very strong income statement, and you keep having these derivative hedge losses that kind of muddy the waters. And really, what that is, is an unrealized loss on the derivatives, which is a function of the forward curve of the gold price. And because it went up so much in September, up to like $4,300, the derivative loss went way up. And so that had a $30 million impact on our P&L, which took us from what really would be a normal recurring net income position to a net loss. So we put it in there so that shareholders could kind of see what the business would look like once those things are gone and what our normal business looks like. Rick, anything to add to that?

Rick Van Nieuwenhuyse, CEO

Yes, I'll just add kind of I find the accounting rules somewhat inaccurate when they're describing this and how they sort of force describe things. So it's unrealized, meaning that if we don't deliver that gold and future gold, yes, we're in trouble. We've got to come up with either go buy gold in the market or whatever because it's a contract that we have to deliver into. That's why it's unrealized. I would have preferred something like potential loss or something like that. But anyways, the accounting rules are what they are. We're just a little company; we're not going to change them. So we try to make it at least clear to the shareholders what the reality is...

Mike Clark, CFO

The unrealized is the remaining hedges that are on the books at September 30. And then for any hedges we delivered into during the quarter and recognize that loss, those are going to be recognized losses. So it was about a 50-50 split, about $50 million each during the quarter.

Operator, Operator

Great. No, I do appreciate that. One thing, Rick, I wanted to ask you about, one interesting thing in the PR is the test batch blending Manh Choh's low-grade oxide ore with the Fort Knox ore achieved 94% recovery, and it's going to add about 1,300 ounces in Q4. To me, that looked like a pretty significant technical achievement. So I'm looking for your perspective on what does this successful met test tell us about the potential to process additional Manh Choh material that might have been uneconomic in a previous era?

Rick Van Nieuwenhuyse, CEO

The short answer is we don't know yet because we have only the net result of the test. We processed 44,000 tonnes at an approximate grade of 0.1 ounces per tonne, which translates to 3 grams. When we refer to it as low grade, it is low grade in comparison to the average grade of 8 grams per tonne, so that context is important. You're correct that we are conducting this test to evaluate how that marginal ore would perform if blended with Fort Knox ore, which is oxide material. There's a considerable amount of this low-grade material, as we need to refer back to the original mine plan and feasibility study that was based on a $1,400 gold price about three years ago. Given the current gold price, which has dropped but is still above $4,000, this indicates a different mine plan. The testing of this low-grade, roughly 3-gram material is the first step in exploring the processing of this material by blending it with Fort Knox. The typical Fort Knox ore is significantly lower grade, around 0.6 to 0.7 grams per tonne, and it is not really categorized as oxide ore, as it lacks sulfide. By blending our oxidized low-grade 3-gram material with Fort Knox ore, we process at a rate of 2,500 tonnes a day when running the mill for Fort Knox. For Manh Choh, we process on a batch basis at 10,000 tonnes a day, aiming for economies of scale. We do not yet have the complete results regarding consumables, costs, or power expenses that influence our milling costs, but we expect to have that information in the next month. We'll then make decisions about whether it makes sense to process this low-grade material on a blended basis as opposed to a batch basis. In any case, batches will continue with the higher-grade material, and we are currently focused on the sulfide component. The low-grade oxide material we are discussing is all stored on the surface in stockpiles. Does that make sense?

Operator, Operator

Yes. No, absolutely. And I appreciate that. I understand a little better. And I know at Manh Choh, you processed 287,000 tonnes that 0.214 ounces per tonne, 92.5% recovery in Q3. How does this compare to reserve grade expectations? And what's your visibility into the ore body to sequence through that mine plan?

Rick Van Nieuwenhuyse, CEO

We will have a detailed mine plan for 2026 available in the next few weeks after our budget meeting and the subsequent approval of the budget and mine plan. We will share this information publicly. The grade is slightly lower than the feasibility grade of nearly 8 grams per tonne, primarily because we are blending it with lower-grade material due to the gold price being $4,000 instead of the anticipated $1,400. Blending in more low-grade material tends to decrease the overall grade; however, we are profiting more because the gold price is significantly higher than expected. It’s crucial to stay tuned for the 2026 mine plan. Referring back to the feasibility study, that year was projected to be the lowest gold production year throughout the entire mine life. We have made some adjustments, including purchasing additional trucks and examining our blending strategy. We will reveal the mine plan in the coming weeks, and we plan to conduct another podcast interview to provide further explanation.

Operator, Operator

No makes sense. Appreciate that. Now I know you mentioned in the PR sustaining capital for tractor replacements and ongoing exploration drilling at Manh Choh contributed to the AISC increase. Is this a new baseline for sustaining costs? Or would you expect those to moderate as we kind of complete the capital replacement cycle?

Rick Van Nieuwenhuyse, CEO

Yes. I think you might want to address this from an accounting perspective. However, from a mining perspective, this has always been part of the plan, focusing on ways to optimize the transportation aspects of the project.

Mike Clark, CFO

Yes, I think we will wait for the '26 budget to understand what next year holds. For now, it's a good benchmark to follow. This will likely decrease towards the end of the mine's life. However, I anticipate that we will remain below $1,600 AISC this year and next year, with a consistent trend, and then expect much lower costs in the later years of the mine's life.

Rick Van Nieuwenhuyse, CEO

Maybe just to add on to that. I mean, one of the things in the feasibility level mine plan, we're wrapping up mining on the North pit. And then so that means you're starting to mine more on the main pit. So you're getting your layback in, right? So there's a lot of pre-stripping that you're doing to do that. So I think that's why our all-in sustaining costs are on the higher end of the average. And then '27, '28 are grades going to be lower.

Operator, Operator

Awesome. I do want to get into Lucky Shot just for a quick second because I know you've mobilized the drill rig for that 15,000-meter underground infill program, looking at, as I understand, the feasibility study in 12, 18 months and a production decision as quickly as '27. With production estimates of 30,000, 40,000 ounces annually using the classic Contango DSO approach, how does Lucky Shot fit into your larger portfolio? And what makes you kind of confident in this really cool, but aggressive timeline?

Rick Van Nieuwenhuyse, CEO

Yes, this mine may not be the largest, but it has a strong grade. We've conducted enough drilling to identify a small resource. I understand that a resource of 100,000 to 110,000 ounces might not excite everyone, but the grade is impressive at 14 grams per tonne. We're well established underground, maintaining the mine throughout the year and preparing for the cash buildup. Now we can proceed with our drilling plan. The drill is on site and will likely start drilling soon, within the next couple of days. We plan to drill 15,000 meters underground over roughly a year. These holes will be relatively short, averaging around 30 meters, drilled from a near-vertical position at about minus 10 to 20 degrees. We anticipate having drill results by mid-January as we utilize a photon assay, with the lab located in Fairbanks. We'll transport the samples to the lab for analysis and expect to release results consistently throughout the year. Our aim is to outline between 400,000 to 500,000 ounces. This mine previously produced 250,000 ounces with a very high grade of 40 grams per tonne, using old mining techniques that weren't very safe. Our approach will allow for mining at an average width of 3 meters, which will dilute the grade to about 10 to 12 on a mine-diluted basis. We're fully permitted, so we need a year for the drilling and another 6 months for a feasibility-level mine plan, which I refer to as feasibility light since we aren't building a mill, tailings facility, or power plant. The plan mainly involves mining and transportation logistics, either to the railroad to go north to Fort Knox or south to Steward. We've even received overseas interest in smelting this material, which could be advantageous. With a good grade, we have many options. Our DSO model emphasizes high-grade materials that may not be the largest gold mines, but they will generate profits for our shareholders. That's the focus of our business—developing mines that can quickly become profitable, and the DSO model facilitates this.

Operator, Operator

Great. And I also still think we should make rocks in a box T-shirts. I just think that's a fun idea for the future every time you say it. But I want to talk about Johnson Tract really quickly because it represents potentially the highest grade asset in your portfolio based on historical drilling at least. Can you provide us just an update on the permitting process for that underground exploration drift and the transportation infrastructure CIRI? What's up next basically? What are the critical path items that determine where this project is going towards?

Rick Van Nieuwenhuyse, CEO

Certainly. Johnson Tract is an impressive project that we acquired over a year ago with the purchase of HighGold. We’re currently in the permitting phase, working with the state of Alaska to secure the necessary approvals for the underground tunnel. This process is similar to what we went through at Lucky Shot, where we first had to obtain permits for the underground work. There are two key permits we need: a mine operating permit, since we are technically considered a mine even while in exploration, and a water discharge permit because of the potential for water discharge from the mine. We anticipate receiving both permits by the first quarter of next year. Once we obtain those, we plan to mobilize equipment next summer to construct a 5-kilometer (approximately 3 miles) road connecting the camp to the proposed portal site, including a couple of temporary bridges to facilitate the process. However, we are not yet permitted for the mining operation associated with the road, and that will come later. Our next steps involve mobilizing equipment to begin building the tunnel and winterizing the camp for year-round operations, which involves about a $20 million program, and we are financially prepared for this. As we receive the permits, we will make announcements and mobilize equipment next summer. There’s a lot happening behind the scenes, including working with federal agencies on the road route and barge landing site easements. We’re eager to start drilling and blasting for the tunnel, aiming for September, and getting the camp operational is a critical step in our plans.

Operator, Operator

Great. No, I think that's really helpful context for that project. Now I do want to zoom out here a bit before I get to the questions from the audience. I'm going to gas up Contango more than I usually do while we zoom out. But we've transitioned the company from an explorer to a cash-generating producer, $107 million in the treasury at this point, minimal debt and 2 development projects advancing. So as you're looking at the next 5 years with the potential to extend into a longer plan, what does success look like? Are you focused on organic growth through Lucky Shot and Johnson Tract? Or does this new financial position allow you to consider consolidation options elsewhere?

Rick Van Nieuwenhuyse, CEO

I believe we have a strong and actionable 5-year plan, along with the funds to carry it out. This is why I describe it as executable. We have the right team in place and our familiarity with Alaska helps us navigate projects effectively. As we evaluate our 5-year plan, we are considering how to extend it into a 10 or 20-year strategy. To support this growth, we are exploring mergers and acquisitions, focusing on opportunities close to home, particularly in Alaska, British Columbia, and Yukon, where we have experience. We have identified several opportunities that align with the DSO model, which has proven effective for us. We see additional prospects similar to Johnson Tract and Lucky Shot that will enable us to grow the company for the next 5 to 7 years with our current resources. We will also continue exploration at both Johnson Tract and Lucky Shot. We can maintain a 5-year plan at Lucky Shot similarly to what has been done at the Kensington mine, which has operated for 25 years without ever having more than 5 years of mine life planned. This is typical for underground mining operations. Once the mines are operational, we will invest in exploration activities to further our growth. The first priority is to get our mines running.

Operator, Operator

Awesome. That's very helpful. I was like seeing what the plan is for the future. And Mike, I'm going to get you in on one. I promised you 6 months ago, one question about hedges maximum per webinar. So here's your one question about hedges. And that's somebody from the chat asks, when do you expect the old hedges to be fulfilled and get to 100% of market price?

Mike Clark, CFO

Yes, our goal is to pay off these hedges as soon as possible. For any shipments coming out, we're allocating 100% into these carry trades because we're typically a quarter ahead. Assuming we have a 50,000 ounce gold production in 2026, our aim is to deliver into those hedges by September, completing all deliveries by that time. Although the last hedges mature in mid-2027, we believe we will have sufficient cash flow to support this strategy. We expect to fulfill these obligations and be finished by September, provided the 2026 budget aligns with our expectations. Does that answer your question?

Operator, Operator

I reconciled. And there, that's it for hedges. You can relax; no more hedge for the rest of this webinar. Somebody else from the chat asked — and this, I think, is also for you, Mike. How large is the net operating loss carry forward?

Mike Clark, CFO

Losses are a bit more complex in the states due to nonoperating losses that can only offset 80% of net income. However, we have a structure in place that allows us to offset any costs associated with Lucky Shot against Manh Choh profits. Therefore, we do not expect to pay taxes this year or next. As we progress with Johnson Tract, our aim is to continue offsetting costs. I hope we will avoid tax liabilities related to Manh Choh altogether, but to achieve this, we need to keep spending on Lucky Shot and Johnson Tract. Currently, we expect no tax implications this year, and I would be surprised if we had to pay any next year, although we are gradually reducing our loss positions in the states. Eventually, we will become taxable, which is a positive situation since it indicates we are generating profit.

Rick Van Nieuwenhuyse, CEO

Paying taxes is — I mean you're making a lot of money. So I'm good with it.

Operator, Operator

It's a champagne problem to some degree, for sure. Looking at the last question that just came in, is there going to be a Q3 earnings presentation as somebody just asked?

Mike Clark, CFO

We updated the presentation on the website. There's not going to be anything else.

Rick Van Nieuwenhuyse, CEO

You take a look at the website; we just recently updated that with the Q3 results. It might be — yes, that's — just take a look at the website, it should be on there.

Mike Clark, CFO

And I think we'll hopefully be able to give guidance in December for '26. And at that point, we'll update it and probably have a call at that point.

Rick Van Nieuwenhuyse, CEO

As always, if you have questions, you can e-mail us at the generic info@contangoore.com. If you've got our addresses, I'm going to put them out there in public. But if you've got addresses or phone numbers, just give us a call.

Operator, Operator

One question from Jan in the chat. And there's one or two things he probably met with us, but he asked how many ounces were there in Q4 2024. So I'm not sure if you recall total ounces from 2024.

Mike Clark, CFO

Well, I know how many ounces we produced in '24. I think we produced about 42,000 ounces in 6 months. We did 2 batches in the Q4. I don't know the actual number, but I just know over the 2 quarters, it was 42,000 ounces.

Rick Van Nieuwenhuyse, CEO

We started mining nearly a year earlier since we opened the mine, and we didn't immediately begin hauling with all the trucks. During that time, we were stockpiling and beginning to haul ore, so we accumulated a significant amount of ore for the first half year of production. Currently, the 60,000 ounces can be seen as part of a steady state plan. Looking ahead, 2026 is expected to be lower in production due to the stripping at the main pit. We'll provide more details about the 2026 mine plan in a few weeks, so stay tuned for that.

Operator, Operator

I know this is meant to be a short event today, so I'll wrap up with one real quick one. And that's Rick, what are you most excited about coming up? What's keeping up with excitement at this point about Contango Ore?

Rick Van Nieuwenhuyse, CEO

It's great to be drilling underground Lucky Shot again. I mean, look, we think Lucky Shot, again, it's a small — it's not going to be the biggest mine in the world. We'll never tell anybody it will be, but we think it's going to make a lot of money. The drill is turning. And so stay tuned for the drill results. It's always exciting to see free gold in the quartz chain underground. So yes, as a geologist, this is what it's all about. So stay tuned.

Operator, Operator

Awesome. Appreciate it very much. And thanks, everyone. This is a big audience today. You guys don't know how difficult it is to set up stuff at a conference, but Rick and Mike do, and thank you for joining us very much being able to get this done today and answer everybody's questions. I really appreciate your time. And if anybody has any additional questions, make sure to shoot them through. But otherwise, I hope everybody has a great end of the day.

Rick Van Nieuwenhuyse, CEO

Thanks, Romeo.

Operator, Operator

Cheers.