Earnings Call Transcript - CTGO Q4 2025

Romeo Maione, Host / Moderator

I've got with me today Rick Van Nieuwenhuyse, CEO of Contango Ore, and Mike Clark, the company's CFO, to discuss both 2025 year-end earnings and guidance for 2026, 2027, among other things. We'll keep a broad list of topics today. Here's how today is going to work for those of you in the room. I see at least, it looks like 40, but I have never been in the 6ix webinar before, so this next part is mostly for you. I'll say that I have got some questions to the gentlemen just to get us started. The chat is interactive. There's a button in the middle bottom of your screen. If you pop it up, you should be able to ask questions at any time during today's event. We'll be trying to get as many as we can. We're trying to stick to about half an hour today. The recording, we believe, will be available about 4:00 p.m. Eastern Time. It will pop right in your inbox. It will also be available on 6ix' YouTube channel at that time. Enough of the boring stuff from me. I want to get right to the good stuff. Mike, that means I will start with you. So you're on mute before you start. The cash distributions from the Peak Gold JV came in at $102 million for 2025. I'd love if you could walk us through how that flows down to Contango's balance sheet and what the unrestricted cash position looks like today versus where you started the year. You're on mute, Mike, sorry?

Mike Clark, CFO

Good morning, Romeo. Thanks for the question. So the way that we account for the Peak Gold JV is equity accounting because we own 30%. What you see happening is we recognize 30% of the net income of the joint venture, which for '25 was $88.6 million. You see that go into our statement of operations with a corresponding increase to the investment in the Peak JV on the balance sheet. The $102 million distributions actually get a direct increase to our cash with a corresponding reduction to the investment in Peak Gold. At the beginning of the year the balance of that investment on the balance sheet was $60 million, and that's been reduced to $47 million at the end of the year, which is the difference between $102 million and $88 million. To answer your second question, the cash increase from $20 million to start the year to $65 million at the end of the year was primarily driven by the equity raise we did in September. That's really what drove that. The profits from Manh Choh effectively funded our paydown of the debt for $37.5 million and the realized hedge losses of $63 million, which was incidentally about $100 million. So those funds more or less took care of paying down our debt.

Romeo Maione, Host / Moderator

Great. No, I appreciate that very much. Rick, I got one question about ASIC. I know it came in at about $1,616 per ounce sold in 2025, which is, I believe, almost right on guidance, like almost exactly on guidance. Now the 2026 number jumps to that $2,200 to $2,300 range. What drives the increase? How much of that is just the math on lower ounces versus cost inflation? What are we looking at there?

Rick Van Nieuwenhuyse, CEO

Yes. Obviously, we're pleased to be slightly under guidance. I think guidance was $1,625, so I think a good job there. In terms of next year — or I should say this year, 2026 — guidance has always been higher because of the mine plan. The mine plan is there's more stripping. We're switching from the North pit to the South pit. Because of that, a lot of the mine fleet is distracted doing a bunch of pre-stripping. When you're stripping waste, that's a higher all-in sustaining cost on an across-the-board basis. That's the main driver of the increased cost: you're doing a lot of pre-stripping in 2026. That's why you see the cost go down in 2027, because now you're just mining ore and a bunch of the fleet is going away — that's just the sequencing of the mine plan. So that's the big driver. A couple of things in terms of continued guidance going forward: that's based on the mine plan, and we're executing the mine plan, plus or minus where it was originally in terms of grade and things like that, grades and tonnes and ounces delivered. We are starting to see inflation, in particular wage-related inflation. It's relatively small, but we're certainly seeing that. I think that's, in general, what the gold price still tells you. If the gold price is going up, it's usually an indicator. The recent developments related to the Iran war and the closing of the Strait of Hormuz are potential inflationary drivers. In rough numbers, about one-third of our costs are related to transporting the ore from Manh Choh to Fort Knox. If we see higher diesel prices as a result of a $200 spike in oil costs, which some people are talking about, our costs will go up. That's more of a cautionary thing. We don't have anything now. We buy fuel in advance in Alaska for this project in particular, so a lot of it is locked in. We have a lot of storage capacity in Alaska. I noticed while traveling in the Lower 48 a lot of really high costs for gas and diesel; I haven't seen that here, interestingly enough. But I think it's something we expect could happen if the Iran situation continues.

Romeo Maione, Host / Moderator

Sure. Okay. No, makes sense. Appreciate it. Mike, on another quick accounting question: I know you raised $50 million in September and another $50 million in February. With the credit facility already down to under $15 million, how should investors think about the capital structure from here, especially going into 2027 when distributions could be north of $165 million?

Mike Clark, CFO

Yes. The debt is just under $15 million right now. It's scheduled to be down to $10 million at the end of this year. The hedges are scheduled to be reduced — we'll deliver another batch this year. Our objective still is to early deliver into those and potentially early pay off that debt. Either you're going to see the debt and hedges extinguished by the end of this year or in early '27. How that ties through to our cash: we have about $65 million to start the year. We've got exploration and development expenditures at Lucky Shot and Johnson Tract. We're going to spend around $40 million on those projects. What you should see is with the Manh Choh profits and those expenditures, our cash should stay relatively flat for this year. We should finish the year around, say, $60 million. Going into '27 and '28, we'll be debt-free, hedge-free and generating a significant amount of free cash flow from Manh Choh. We'll continue to put money into Lucky Shot, Johnson Tract and Kitsault, but you should still see us be able to fund all those planned expenditures while the cash continues to grow by a significant amount over the next couple of years. Rick, anything to add to that?

Rick Van Nieuwenhuyse, CEO

Yes, I was just going to add, once the merger is completed, which is coming up here very shortly and Dolly Varden comes with a significant amount of cash, that $60 million number is going to grow significantly to over $100 million with the Dolly Varden merger. We'll let all that come out in the wash when we come out with new financials for Q2, I guess.

Romeo Maione, Host / Moderator

Sounds good. Coming in with cash always sounds nice to me. I got one question that came up from Irina Pierre. The transition from the North pit to the South pit creates this kind of four-month lag between mining and then getting credited. Could you explain the mechanics for folks who might not be familiar with how Fort Knox does batch processing arrangements and give some color on how that works?

Rick Van Nieuwenhuyse, CEO

Yes. The batch processing target is the middle month of every quarter. It can vary a week or two on either side depending on conditions and weather and when everything is ready. It can be confusing when you look at things that are mined at Manh Choh and stockpiled at Manh Choh. There are 225,000 ounces of gold that are mined and stockpiled at Manh Choh — it's not processed yet. If you take 30% of that, you get about 63,500 ounces. So when people say you're going to produce between 40,000 and 45,000 ounces, that's where the confusion comes from. You take that ore and about four months later it gets transported, batch processed and sold, and Mike gets a check for it. That takes roughly four months. That's the difference between what's processed and paid for and sold versus what was mined in a particular quarter or year at Manh Choh. If you're looking at why one number isn't simply 30% of the total 225,000, it's because those mined ounces are sitting on a pad and they don't get processed until about four months later. That sequencing is part of why 2027 is such a banner year: the processing and payments catch up then. We're doing a fair bit of pre-stripping on the South pit while finishing up mining on the North pit. The good news is there's more ore in the North pit at the bottom than originally expected, which is not uncommon. It's a bench or two; it's not doubling the size, but it does delay moving equipment over to the South pit because once you're done with the North pit, we fill it back up — that was part of the mine plan. So bottom line: the ounces mined at Manh Choh that are sitting on a pad are different, and there's a four-month lag between the ounces that are processed, sold and the time Mike gets a check, roughly four months later.

Romeo Maione, Host / Moderator

Awesome. I appreciate that. Just the mechanics of it — I think it's helpful for people to get an understanding. Speaking of 2027, which I think we all know to expect to be a pretty strong year, Michael, I'll ask you: gold production guidance for '27 is 75,000 to 80,000 ounces with cash cost of $1,200 to $1,300. At today's spot prices, that's a very wide margin. What are the assumptions baked into that number just so folks understand?

Mike Clark, CFO

Yes. It's basically based on what's in the feasibility study and the mine plan, with updates for actual costs and the tonnes and grade that we're mining in front of us. What's really driving that is the huge amount of pre-strip done in '26; you're getting all the benefits in '27. Additionally, the grade is much higher in '27 and you're processing more tonnes. All those things drive to much lower cash costs and all-in sustaining costs. If you look at the remaining life-of-mine ASIC, it's about $1,700 when you look at all the remaining years of the mine: '26 is a higher year and '27 and '28 are much lower, but it all averages out.

Romeo Maione, Host / Moderator

I think so. Appreciate it. I want to move over to Lucky Shot for a second. Rick, I know you're targeting 400,000 to 500,000 measured and indicated ounces to support a feasibility study with a production decision targeted in 2027. I have two questions: one, what are you seeing with early drill results and what are they telling you so far? Two, what does the classic Contango DSO approach actually look like in practice at Lucky Shot?

Rick Van Nieuwenhuyse, CEO

Because Lucky Shot is a fully permitted mine site, technically an operating mine even though we're not producing gold, we're doing all the things you would do from a mining and permitting standpoint. We have a roughly 18,000-meter drill program well underway now. In the next few weeks or so we'll finish up drilling in the West drift and then we'll bring the miners in and continue putting the underground development in. That will give us a bit of a breather to do other work. We're particularly excited about the KM vein, which I think we talked about on the last webinar. It's a new discovery, a vein at right angles to the Lucky Shot vein that we've been drilling, and it's very high grade, averaging a couple of ounces per tonne. We're going to put together a specific plan to continue to explore that. Because it's at right angles, it's an awkward angle to drill from the infrastructure we have in place. We're going to extend the drift and get underneath the vein because it's basically dipping back towards us. It's offset by the Lucky Shot fault, which we put the West drift over because we know the Lucky Shot fault offsets the whole Lucky Shot vein system over to the Coleman by somewhere around 150 meters, which means the hanging wall side on the Lucky Shot fault for the KM vein is quite a ways below it. We need to drill that and get infrastructure underneath on the footwall side of the Lucky Shot vein. Those are the sorts of modifications and adjustments to the program as we move along. We're targeting 10 to 15 grams for the Lucky Shot vein; if we're hitting 50 to 60 grams in the KM vein, then that's where we'll focus. Once we bring the miners back, that's one of the top priorities. The overall exploration program will take most of the year and might go a bit into 2027. Once we have all that information and data we'll roll it into a feasibility-level mine plan and transportation plan. We'll decide where the ore is going: up to Fort Knox, over to Asia, or to a tolling operation in British Columbia — those are all options. It'll be a feasibility-light study because we're not building a mill and tailings facility: it's primarily a mine plan and a transportation plan. Transportation is straightforward — put rocks in a box and ship them — and that's the attraction of the DSO model. That program this year will cost about $25 million and so far we're tracking well on drilling costs. When we get the miners back we'll see how the costs go. I feel pretty comfortable about that budget. Then once we have all the data we'll complete a feasibility study and lay out the infrastructure necessary to start mining. We think that's another $25 million to be spent in 2027, which would then get us in place to produce gold in 2028.

Romeo Maione, Host / Moderator

Awesome. Jumping around to Johnson Tract: I know it just landed on the FAST-41 dashboard in January. For anyone unfamiliar with that program, what does that mean for the permitting timeline and what's happening on the ground at Johnson Tract this year?

Rick Van Nieuwenhuyse, CEO

FAST-41 — and I'll always point out it doesn't mean 'fast' as in quick; it stands for Fixing America's Surface Transportation Act. It was an act of Congress recognizing that permitting roads and infrastructure was taking far too long. The permitting council is a coordinating agency among the federal agencies that are involved in your project from a permitting standpoint. For us that means the U.S. Army Corps of Engineers is the lead federal agency because they issue the driving permits for the project — the 404 permit to build the road connecting the mine site to the coast and the port site. The port authorization involves a combination of the U.S. Army Corps of Engineers, the Coast Guard, NOAA, National Marine Fisheries and there are state permits involved as well. The state is participating in the process and the state permits are listed on the FAST-41 dashboard. The dashboard is a website that has all the projects covered under the program. You can go there to track the process of delivery of information to the agencies and review. When a document is determined to be complete, it goes on the dashboard. We submit plans, they get reviewed and authorized by a variety of agencies — U.S. Army Corps of Engineers, the Park Service because we're doing the road building and the port will be on Park Service land, NOAA, National Marine Fisheries and agencies like the Coast Guard are involved. What we like about the process is it's transparent; it's all out there for everyone to understand what's being reviewed, what plans are being reviewed and what the timeline is. From our standpoint it's useful to work with all the agencies to agree on a timeline to get final permits from the federal agencies. That is on the dashboard: it's March 2028 as the target for permits. Everybody has a job and an expectation that it gets done so that the next steps can proceed and work can be reviewed and organized and kept on task. That's important for us: to get our permits by March 2028.

Romeo Maione, Host / Moderator

Great. I appreciate that. One last project: assuming the merger with Dolly Varden goes through — which I know you and Mike can't say, but it probably looks pretty good — could you outline the exploration plans that get kicked off this year?

Rick Van Nieuwenhuyse, CEO

First on the agenda is an updated mineral resource estimate by the end of Q2 this year. That update incorporates about 200,000 meters of drilling that Dolly Varden has done over the last three to four years, so it's a substantial mineral resource update. From there we'll outline our exploration plans for this year. We plan to spend about USD 25 million in expenditures and that will be about 50,000 meters of drilling. Where the 50,000 meters goes exactly I don't know yet, but I'd give a rough guide that one-third to three-quarters of it will be infill drilling because we want to do a preliminary economic assessment under Canadian parlance — an initial assessment under U.S. parlance — to lay out a plan for developing the Kitsault assets. There are five deposits between Torbrit and Dolly Varden and then going up to Homestake Silver and Homestake Ridge. A good part of the drilling will be directed at infill and expansion. There will be some high-grade holes that can continue to expand known resources, and we generally want to focus on developing a 10-year plan for the assets. Then I'd say one-quarter to one-third of the drilling will be for greenfield exploration upside and new targets. There's a multitude of new targets to evaluate across a very large land position in the southern triangle of the Golden Triangle — good hunting ground.

Romeo Maione, Host / Moderator

Certainly lots to explore here. It's exciting. I'll give a wrap-up question before I get into the emails and chat, which are pretty active. With the vote tomorrow on the merger and expected close towards late March, once you're operating as Contango Silver & Gold, how does the combined portfolio change the way you think about capital allocation across all the projects? Mike, do you want to start and then Rick?

Mike Clark, CFO

It doesn't change much for us because we already have our plans with Lucky Shot and Johnson Tract. We know we're more or less fully funded to deliver on those plans. Kitsault is the fourth leg of the chair coming into the company. There's a little more work for us to do on the MRE and the drilling this year to decide plans for '27 and '28. I think there's plenty of cash available to fund that internally, but we'll need to do more work to get there. We'll close this merger at the end of March, we'll have over $100 million in the bank, 33 million shares outstanding, and we're nearly debt-free and hedge-free. We'll be in a good position to deliver on all these assets and be done with the hedges and the debt.

Rick Van Nieuwenhuyse, CEO

I'll just emphasize we still want to stay focused on getting out from underneath the hedges. I think we're a long way there. If we deliver in this current batch and the next batch, we'll be sitting in a really good position for the future. The market right now — and I think the war in Iran has the market a little bit nervous — naturally people go to the dollar when there's global uncertainty, and that's what we have right now. Gold is priced in U.S. dollars, so strength in the dollar can weaken gold prices. It's frustrating to see equities get punished as much as they have, but it's a risk-off environment. We just have to muscle through. The assets are still there — the gold and silver in the ground isn't going away.

Romeo Maione, Host / Moderator

There you go. I had four people ask this question that I know you can't fully answer, but I'm going to ask anyway: any update on acquisition of a permitted mill?

Rick Van Nieuwenhuyse, CEO

Stay tuned. We're working on a number of opportunities. We're going to be patient and not rush into anything. There are a couple of good opportunities — two or three — that we're taking a look at. Stay tuned.

Romeo Maione, Host / Moderator

Perfect. A couple of people asked about the difference between how much you mine at Manh Choh versus how much you actually produce. Could you give color on what those numbers mean and why they look different to investors?

Rick Van Nieuwenhuyse, CEO

That's essentially the difference between how much is mined in a year versus how much is processed in the year and the four-month lag we talked about. Some inbound emails this morning asked the same question: looking at guidance, why isn't one number simply 30% of the total 225,000 ounces? Yes, it's mined, it's not produced. It's mined and sitting on a pad. You build the pad up, transport it, build another pad up at Fort Knox, and then by the time it actually gets processed in the middle month of a quarter and then refined, Mike gets paid for it. It gets processed, produced into doré bars at Fort Knox, those go to the refinery, they produce 99.99% gold, and they sell that refined gold. Mike eventually gets a check. All those steps take about four months — that's the lag period.

Romeo Maione, Host / Moderator

There's nothing I like more than days when Mike gets a check. Those are the better days. I'm jumping into questions from the chat. One: David says he's a Dolly Varden shareholder and is looking forward to the merger. What's the update and timeline from here?

Mike Clark, CFO

The vote for both companies is tomorrow morning at 10:00 a.m. Pacific. We expect that to be successful. Then the B.C. courts need to approve it on March 26, and that's when it will close. You will see Q1 consolidated between the two entities. We'll plan to give more guidance in April on plans moving forward. We don't want to get ahead of ourselves. Everything is looking great.

Rick Van Nieuwenhuyse, CEO

We'll press release the results of the vote and when the court approves, so shareholders know all these steps have happened and the timing is clear.

Mike Clark, CFO

So you'll see news tomorrow after the market.

Romeo Maione, Host / Moderator

Jan asked an impossible question I'm still interested in: any expectations on a rerating of the stock anytime soon?

Rick Van Nieuwenhuyse, CEO

There are a couple of different triggers that I think would help rerate the stock. We've had a roughly $200 decrease in the gold price recently, which is de minimis in terms of percentage, yet equities are off 10-plus percent. This is a risk-off environment given geopolitical tensions. I can't predict the market, but we have a strong rerate story. I don't think we're getting a lot of valuation for our growth optionality right now; I think we're being valued fundamentally on our current cash flow from Manh Choh, which will dramatically increase when we stop delivering hedged ounces. That's imminent. There's a lot of value we can add as we advance Lucky Shot and Johnson Tract. Kitsault will continue to provide high-impact holes — among the top intersections worldwide — and we won't stop advancing these projects. We have the money to do them all. So yes, I think a rerate is in the cards. The merger should help by clarifying the combined company's strength as a producer, developer and explorer. We've got four big districts to advance and we're all pretty excited about what we can accomplish.

Romeo Maione, Host / Moderator

I know we're over the half-hour mark. Two more quick questions. Rick, Kontakt from the chat asks what's the plan with the life of mine at Manh Choh? Are Kinross and Contango planning to add a few years to it? Where does that stand right now?

Rick Van Nieuwenhuyse, CEO

Short answer: yes, we'd love to add a few years. We're spending about $5 million on near-mine exploration this year. I think there's good potential to extend mine life by a year or two. The feasibility study was done at $1,400 gold. Kinross are sharp operators. We're sticking to the mine plan in terms of grade, tonnes and ounces delivered to the mill, but we're not discarding material — it's in a big stockpile. When you get done with the feasibility-level mine plan, we'll take a look at how much of that material should be processed at the Fort Knox mill at a higher gold price. It's not something to give guidance on now because we don't know where the gold price will be in a few years, but in two to three years we'll make that decision. It's essentially doing a feasibility study on that mineralized waste material: it's categorized as waste but contains gold. We're not stockpiling high grade; high grade goes to Fort Knox. I see that as upside, plus new exploration finding more ore around the edges.

Romeo Maione, Host / Moderator

Two quick follow-ups from the chat that came in: what is the current mine life according to the feasibility, and when will you start looking at the stockpiled material?

Rick Van Nieuwenhuyse, CEO

Mine life goes to 2029. I'd say it's probably the second half of 2028 when you start putting some numbers to that stockpiled material and evaluating it in detail.

Romeo Maione, Host / Moderator

Mike, last one for you from Subhas: are you preparing your 2027 budget consolidating numbers from Dolly Varden already? How are you thinking about preparation for 2027?

Mike Clark, CFO

Yes, we have high-level numbers for '26 and '27 and we're refining them over the next couple of weeks. It's a project to get into the details and ensure we remove redundancies. We have a budget; I know what we're going to spend in '26 and roughly what we'll spend in '27, particularly at Lucky Shot and Johnson Tract and what will come in from Manh Choh for the next three years. For Dolly Varden, we probably won't have the finalized allocations until the end of the year, but we'll put placeholders for planned work and refine them as we go.

Rick Van Nieuwenhuyse, CEO

A key driver for 2027 for Kitsault is going to be the PEA or initial assessment that we're going to get done.

Romeo Maione, Host / Moderator

One final question that just came in: Wesley says he's heard Kinross has problems with their Fort Knox mill foundation and wants to know if this could impair processing of Manh Choh ore.

Rick Van Nieuwenhuyse, CEO

I haven't heard of any mill foundation problems. The mill has been operating for 30 years; issues like that usually show up early in planning. They did have a conveyor belt fire previously and we had a workaround for Manh Choh ore using rented crushers because our ore is simple to work with, but I'm not aware of any foundational issues.

Romeo Maione, Host / Moderator

Awesome. I'll close it there. Rick, Mike, thanks so much for letting me grill you — even going five minutes over, which is good for us actually. Thanks so much. I know the vote is tomorrow, so everybody stay tuned for more news from Contango as we go forward. Gentlemen, thanks so much, and for everybody in the audience, thanks for joining us. Cheers, everyone.

Rick Van Nieuwenhuyse, CEO

Thank you.