Contango Ore - Earnings Call - Q3 2025
November 14, 2025
Transcript
Romeo Maione (VP of Business Solutions)
Or good evening, wherever you're tuning in from today. I personally am joined live at the Deutsche Goldmesse in Frankfurt, Germany, by Contango Ore 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.
Romeo Maione (VP of Business Solutions)
Awesome. I wish we were in the same room, but we're several feet away just because of the practicalities of movie magic on webinars. Here's how today's 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, pretty great Q3 reports. I'm eager to take questions from the live audience. If there are any questions that you've got during today's event, there's 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. 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 we're 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 $15.97/oz. Two comments and a question. First, that's a lot of money. Congratulations. What's kept AISC in check?
Rick Van Nieuwenhuyse (CEO)
Yeah, it is a lot of money's record for us. That was our Q3 production level was above plan by about 2,000 oz. Importantly, the AISC is coming in lower than the $1,625 that we guided to. Obviously, we get our guidance from Kinross. I think a big reason behind that is the mine plan that we outlined we're delivering into or exceeding that. I think that's somewhat typical of Kinross as a big company. They like to underpromise and overdeliver. That's good because that means we're not going to get too far ahead of our skis. I think the other thing overall that we see that's really helped our project specifically is the fact that the oil price is low and diesel prices have not gone up.
We all know that an increasing gold price environment is telling us that inflation is still there regardless of what the government officially tells us. We know that that's what it is anticipating. What is different about this time around is that we do not see that going, the oil prices going up in Alaska. We have had the same very pretty stable diesel price at the pumps for several years now. That is a good thing. It is specifically a good thing for our project because obviously with the transportation aspect of transporting the ore from the mine site to the mill, it is a significant part of our cost structure. I think that, and I think the other thing is, look, Kinross is doing a great job just delivering into the plan that they have outlined.
When you're kind of firing on all cylinders is the way I like to express it.
Romeo Maione (VP of Business Solutions)
No, makes a lot of sense. 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 30th, with $87 million in distribution received from that Peak Gold JV to date. I'd love if you could walk us through just capital allocation priorities. Now you've paid down a bunch of debt, you've settled the carry trade. What's the strategic thinking behind those moves?
Mike Clark (CFO)
Yeah, it hasn't changed much from the last couple of periods. Our objective all along has been to deliver into the hedges, get those payoffs as quickly as possible, pay down the debt on schedule. To date, we're always about a quarter ahead on our production. We're always delivering about three months in advance. That's why we're using the carry trade. In a rising gold market that has saved us, I think this quarter we saved about $2.4 million as a result. The strategy is working. We're going to continue doing that. I think we're delivering into December hedges right now. The goal is we'll basically try to get these delivered into all by September of next year. We're waiting for the 2026 plan for Manh Choh, but that is currently what our target is internally.
Romeo Maione (VP of Business Solutions)
No, appreciate that. Mike, one thing, I noticed you added adjusted net income this period. Just for the 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)
Yeah, you can thank Rick for that last minute. Basically, we continue to report a very strong income statement. You keep having these derivative hedge losses that kind of muddy the waters. Really what that is, is an unrealized loss on the derivatives, which is a function of the forward curve of the gold price. Because it went up so much in September, up to like $4,300, the derivative loss went way up. 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. 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)
Yeah, I was just going to say, and kind of I find the accounting rules somewhat inaccurate in when they're describing this and how they sort of force you to describe things. So it's unrealized, meaning that if we don't deliver that gold and that future gold, yeah, we're in trouble. We better come up with either go buy gold in the market or whatever, because it's a contract that we have to deliver it into. That's why it's unrealized. I would have preferred something like potential loss or something like that. Anyways, the accounting rules are what they are. We're just a little company. We're not going to change them. We try to make it at least clear to the shareholder what the reality is.
Romeo Maione (VP of Business Solutions)
No, appreciate that very much. I think that's helpful context.
Mike Clark (CFO)
The unrealized is the remaining hedges that are on the books at September 30th. For any hedges we delivered into during the quarter and recognize that loss, those are going to be recognized losses. It was about a 50-50 split, about $50 million each during the quarter.
Romeo Maione (VP of Business Solutions)
Great. No, do appreciate that. One thing I wanted to ask you about, an interesting thing in the PR is the test batch blending Manh Choh's low-grade oxide ore with the Fort Knox ore. Achieved a 94% recovery and it's going to add about 1,300 oz in Q4. To me, that looked like a pretty significant technical achievement. I am looking for your perspective on what does a 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 all we know is the net result of the test. We processed 44,000 tons at a rough grade of 0.1 oz/ton, which is 3 g. When we say low grade, it's low grade relative to the 8 g/ton that is the average grade. We have to sort of put that in context. You're right in the sense that we're doing this test to see what that marginal ore would be like if we just blended it with Fort Knox. It is oxide material. There's a fair bit of this low-grade material because you have to go back to the original mine plan, the feasibility study mine plan, and that was done at a $1,400 gold price, what, three years ago or so.
Obviously with a gold price, well, it's down today kind of hard, but it's still above $4,000. That's just a different mine plan. Testing this low-grade, roughly 3 g material is the start of taking a look at how is there another way of working on processing this low-grade material, just blending it with Fort Knox. The Fort Knox ore, which is much, much lower grade, it's somewhere in the 0.6 g-0.7 g/ton. That's the typical Fort Knox ore. It's not really oxide ore at Fort Knox. It just doesn't have any sulfide. Taking our oxidized low-grade 3 g material and blending it, when you're doing that, you're running the mill at 2,500 tons a day. That's when they run the mill for Fort Knox. That's what you're doing.
When we run it for Manh Choh on a batch basis, it's down to 10,000 tons a day. It's looking for those economies of scale. We don't have the results for all that and the consumables and the cost, the power cost, all the details of what go into determining the milling cost. In the next month, we should have those and we'll make some decisions on going forward if this makes sense to process this low-grade material on a blended basis versus just a batch basis. The batches will continue. That's on the higher grade. We're down in the sulfide part of the material. The material we're talking about is all sitting on the surface in stockpiles, the oxide, the low-grade oxide. Does that make sense?
Romeo Maione (VP of Business Solutions)
Yeah, no, absolutely. I appreciate the lighting. I understand a lot better. I know at Manh Choh, you processed 287,000 tons at that 0.214 oz/ton, 92.5% recovery in Q3. How does this compare to reserve grade expectations? What's your visibility into the ore bodies you have sequenced through that mine plan?
Rick Van Nieuwenhuyse (CEO)
Yeah, so we'll have a detailed mine plan for 2026 here, probably in another few weeks. Once we've had our budget meeting and we've approved the budget and that mine plan, we'll certainly put that out to the public. I think stay tuned for that. Basically, the grade is a little lower than the feasibility grade, which was close to 8 g/ton. That's because we're blending it with lower-grade material. Because the gold price isn't $1,400, it's $4,000. The tendency when you're adding more low-grade material in there is to lower the overall grade, but you're making more money because the gold price is more than twice as high as what you planned for. I think the most important thing is to stay tuned for the 2026 mine plan.
Now, if we go back to the feasibility study itself, that was always going to be the lowest gold production year for the entire mine life. Now we've done a few things. We've purchased some additional trucks. We're obviously looking at this blending strategy. We will see what the mine plan is in the next couple of weeks. We will have to have another podcast or interview on the platform here to explain what the plan is.
Romeo Maione (VP of Business Solutions)
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 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)
Yeah, I think this is, I mean, we might want to answer this from more of an accounting perspective, but from a mining perspective, this was always part of the plan, looking at ways to optimize the transportation aspects of the project.
Mike Clark (CFO)
Yeah, I think these are probably, we'll wait for the 2026 budget to see what it is next year. I think for now, I think it's a good benchmark to follow. Again, this will always, it'll become less at the end of the mine life. Yeah, I think we're going to continue to be below $1,600 AISC this year and next year probably consistent, but then come much lower in the later years of the mine life.
Rick Van Nieuwenhuyse (CEO)
Yeah, 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 that means you're starting to mine more on the main pit. You're getting your layback in, right? There's a lot of pre-stripping that you're doing to do that. I think that's why our own sustaining costs are on the higher end of the average. Then 2027, 2028, or 2029 are going to be lower.
Romeo Maione (VP of Business Solutions)
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 m underground infill program. Looking at, as I understand it, the feasibility study in 12 months-18 months and a production decision as quickly as 2027. With production estimates of 30,000-40,000 oz 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)
Yeah, I mean, look, this isn't the biggest mine in the world, but it is really good grade. We've done enough drilling that we put out a modest resource. I know 100,000 oz-110,000 oz of resource doesn't get everybody's attention to get everybody wound up. The grade should get them wound up. It's 14 g/ton. We're underground. We've got the underground infrastructure in place. We've been carrying and maintaining the mine all year. We've been waiting for getting this cash buildup that we have now. Now we can execute the plan that we have in place to get the drilling done. The drill is actually on site. I don't know if it's actually drilling today, but if it's not today, it'll be the next day or two. The plan is to drill 15,000 m underground.
Give us about a year to get that done. These are relatively short holes. And we drill kind of what I call a fan shot from underground, from a near vertical hole to about a -10, -20 degrees. You're basically just spraying the sun. The vein is sitting here and you're just drilling into it. 30-m holes on average. And so we should start having drill results by the middle of January. We're basically using a photon assay. The lab is in Fairbanks. So we basically just put the rocks in a box and take them up to the lab and get them analyzed. I think we'll start releasing results in, say, middle of January sometime. And it'll be kind of constant all year long. We'll be able to know and the market will understand that our objective here is outlining 4-500,000 oz.
This mine produced a quarter million ounces of very high grade, 40 g/ton average grade. That was mined, the old style narrow-beam mine that frankly was not terribly safe. We are going to be mining on a 3 m average width and diluting that grade over that width. We are expecting a grade more like 10-12 on a mine diluted basis. We are fully permitted. Basically, give us a year to get the drilling done, another six months to get a feasibility level mine plan. I call it feasibility light because, again, we are not building a mill or a tailings facility and a power plant. It is basically just a mine plan and a transportation plan. The transportation plan is to haul it down to the railroad. We can decide if we are going north to Fort Knox or if we go south to Seward.
We have had interest from overseas to take this to a smelter. That might work out as good or better than taking it up to Fort Knox. We have a lot of choices. When you have grade, you have a lot more choices. The other thing I like about our DSO model is we focus on things that have grade. They are not necessarily the biggest gold mine in the world, but they are going to make our shareholders money. I think that is the business we want to focus on being in, having mines that actually make money and can get into production quickly. The DSO model allows us to do that.
Romeo Maione (VP of Business Solutions)
Great. 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. 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. Could you provide us just an update on the permitting process for that underground exploration drift and the transportation infrastructure? What's up next, basically? What are the critical path items that determine where this project is going towards?
Rick Van Nieuwenhuyse (CEO)
Yeah, so look, I mean, Johnson Tract, it's a great project. We bought it a little over a year ago with the acquisition of High Gold. We're on the boring part of the Lassonde Curve. This is about permitting. We've been working with the state government on permitting the underground tunnel. Basically sort of doing exactly what we got through doing with Lucky Shot, get the underground tunnel in place. We have to permit that first. Those are permits with the state of Alaska. They're basically two fundamental permits, a mine operating permit because technically you're a mine. We're still doing exploration, but technically it's a mine. Then because you have a mine and you have a potential for water discharge, you need a water discharge permit. Those two permits we expect to receive by Q1 of next year.
Assuming that, then we would mobilize next summer, we'd be mobilizing equipment to build the road. It's about a 5 km or 3 mi road between the camp and the proposed portal site. There's a couple of bridges to put in place. Again, these are temporary bridges because, again, it's still exploration. And we use this what are called Bailey bridges. They just basically go across the creek and you get your stuff to the other side. This is not permitted for mining operation at this point for the road. That'll come next. We want to get the equipment mobilized to start building the tunnel. We want a winterized camp so that we can operate year-round. That's about a $20 million program. Again, we're funded to do that. That's our plan.
Obviously, when we receive the permits, we'll be announcing that, and as we start mobilizing equipment next summer, a lot of work to do on all that. While all that's going on, we're in the process of permitting with the federal government agencies, the transportation road route on the transportation easement and the port site easement, which is for us a barge landing site. We're also in the process in a parallel fashion to permit the road and the barge landing site. Lots of work going on in the background. We're excited to get the drills turning to do the drilling and blasting to build the tunnel next, starting next probably September is probably what we're pushing for. Getting the camp winterized is a very important step so that we can work year-round.
Romeo Maione (VP of Business Solutions)
Great. No, I think that's really helpful context for that browsing. 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. We transitioned the company from explorer to cash-generating producer, $107 million in the treasury, at this point minimal debt, and two development projects advancing. As you're looking at the next five 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)
Yeah, I'd say the way I like to express it is I think we have a really solid executable five-year plan. And we have the money to execute. That's why I say it's executable. We have the team to do it. We know Alaska. This is our backyard. We know how to get stuff done here. Now we're starting to think, okay, well, that's a great five-year plan. Why don't we put a five-year plan into a 10-year or 20-year plan? To do that growth, we want to be looking at M&A. We're taking a look at opportunities. We're not going to stray too far from home. Alaska, BC, Yukon, that's kind of our backyard. We know how to work there. We've all worked there before. That's where I would say we're looking.
We've got half a dozen different opportunities that fit the DSO model. They're all going to fit this model. We like this model. We demonstrated that it works. We see another half a dozen opportunities like Johnson Tract, like Lucky Shot type opportunities to continue to invest in and continue to grow the company beyond the five to seven years out with the existing resources. I don't want to forget, I mean, we're not going to forget about doing exploration at Johnson Tract and Lucky Shot. We can have a five-year plan at Lucky Shot and we can have a five-year plan for the next 10 years-15 years, just like the Kensington mine has had. They've been operating for 25 years and they've never had more than five years of mine life ahead of them. That's how an underground mine works.
We will be spending money doing exploration once the mine's up and running. First thing is get the mines up and running.
Romeo Maione (VP of Business Solutions)
Awesome. Very helpful. I was seeing what the plan is for the future. Mike, I'm going to get you in on one. I promised you six months ago one question about hedges maximum per webinar. Here's your one question about hedges. Somebody from the chat asked, when do you expect the old hedges to be fulfilled and get to 100% of market price?
Mike Clark (CFO)
Yeah. Our objective is to get these hedges bid off as early as possible. Any shipments that are coming out, we're delivering 100% into these kind of carry trades because we're always a quarter ahead. Assuming we can have a 50,000 oz, 2026 year of gold, the objective is to try to deliver into those hedges by September, all of them by September. They all technically, the last ones mature in mid-2027, but I think we should be able to have the cash to kind of support that approach. I think we can deliver into these and be done with them by September, assuming the 2026 budget is where we think it'll be. Does that answer your question?
Romeo Maione (VP of Business Solutions)
I reckon so. That is 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, they're a little more complicated in the U.S. because there's these non-operating losses that you can only apply 80% of against net income. We are set up in a way where any costs incurred at Lucky Shot can be offset against monthly profits. We don't anticipate being in a tax, we don't anticipate paying any taxes this year or next year. I think as we move forward on Johnson Tract, the idea is to offset those costs. My hope and my goal is that we will never actually have to pay taxes related to Manh Choh. If we want to actually achieve that, we're going to have to be continuing to spend on Lucky Shot and JT. Right now, we don't anticipate anything this year. I'd be surprised if we had to pay next year.
We are starting to dwindle down on our loss positions in the U.S. At some point, we will be taxable, but that's a good problem to have because it means we're making money.
Rick Van Nieuwenhuyse (CEO)
Paying taxes means you're making a lot of money. So I'm good with it.
Romeo Maione (VP of Business Solutions)
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.
Romeo Maione (VP of Business Solutions)
Great. Thank you.
Rick Van Nieuwenhuyse (CEO)
If you take a look at the website, we just recently updated that with the Q3 results. Yeah. Just take a look at the website. It should be on there.
Mike Clark (CFO)
I think we'll hopefully be able to give guidance in December for 2026. 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 email us at the generic [email protected]. If you've got our addresses, I'm not going to put them out there in public. But if you've got our addresses or phone numbers, just give us a call as well.
Romeo Maione (VP of Business Solutions)
Great. Thanks. One question from Yann in the chat. There's one of two things he probably meant with this, but he asks how many ounces were there in Q4 2024. I'm not sure if you recall total ounces from last 2024.
Mike Clark (CFO)
I know how many ounces we produced in 2024. I think we produced about 42,000 oz in six months. We did two batches in Q4. I do not know the actual number, but I just know over the two quarters, it was 42,000 oz.
Rick Van Nieuwenhuyse (CEO)
Just keep in mind, we started mining almost a year before that. We opened the mine and then we were not hauling with all the trucks right away. You are building up a stockpile and you are starting to haul ore. We had a fair bit of ore built up for that first half year of production. What I would describe now in the 60,000 oz is more of a steady state plan. Again, next year, 2026 was always going to be a low year because of the stripping going on at the main pit. We will have the details on that 2026 mine plan here in a few weeks. Stay tuned for that.
Romeo Maione (VP of Business Solutions)
Awesome. I know this was meant to be a short event today. I'll wrap up with one real quick one. That's Rick, what are you most excited about coming up? What's keeping you 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's turning. Stay tuned for the drill results. It's always exciting to see free gold in a quartz vein underground. Yeah, as a geologist, this is what it's all about. Stay tuned.
Romeo Maione (VP of Business Solutions)
Awesome. Appreciate it very much. Thanks, everyone. It's 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. Thank you for joining us very much, being able to get this done today and answer everybody's questions. I really appreciate your time. If anybody has any additional questions, make sure to shoot them through. Otherwise, I hope everybody has a great end of their day.
Rick Van Nieuwenhuyse (CEO)
Thanks, Romeo.
Romeo Maione (VP of Business Solutions)
Cheers.