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Contango ORE, Inc. (CTGO)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 printed a net loss of $18.5M and diluted EPS of -$1.90, driven primarily by a non-cash $12.6M mark-to-market derivative loss and higher interest expense as CTGO ramped Manh Choh financing and operations .
  • Post-quarter updates are constructive: first gold pour on July 8 and the first batch processed produced ~55,000 oz gold with CTGO’s share generating $32.2M at a blended realized gold price of $2,188/oz; management guided CTGO’s 2024 share to 30,000–40,000 oz with AISC expected in line with TRS ($1,116/oz) .
  • Hedge program: 124,600 oz forward sold at $2,025/oz through 2026 (about 65% of expected production in that period), which created non-cash MTM losses in Q2 but secures downside price protection to support debt service .
  • Liquidity/structure: cash was $24.3M at Q2-end; $60M drawn on the facility with $29.9M current debt obligations and compliance with covenants/waivers disclosed; management views Peak Gold JV distributions in H2 as probable to support cash needs .

What Went Well and What Went Wrong

What Went Well

  • First gold bar poured on schedule (July 8) with ore mining and transport ramping, and Fort Knox mill commissioning expected in Q3; project “on track to deliver its planned production this year” .
  • Strong first-batch metallurgy: ~210,000 tons at 0.276 oz/ton, 95% recovery vs TRS’s 90% estimate, supporting higher-than-expected realized proceeds; CTGO’s share sold at a blended $2,188/oz .
  • Guidance initiated and operating cost posture: management guided CTGO’s 2024 share to 30–40k oz and stated AISC remains in line with TRS ($1,116/oz) .
    • “The start of Q3 has been a transformative time for Contango… producing approximately 55,000 ounces of gold… Contango sold its portion… for proceeds of $32.2 million” — CEO Rick Van Nieuwenhuyse .

What Went Wrong

  • Reported net loss widened on derivative accounting and higher interest: $12.6M non-cash MTM derivative loss and $2.9M interest expense in Q2 drove -$1.90 EPS versus -$1.38 in Q2 2023 .
  • Litigation over ore haul and permitting adds headline risk: Alaska CSC public nuisance claim proceeding, and Dot Lake complaint challenging a wetlands permit; while not directly naming the JV as defendant in the federal case, risk remains .
  • Balance-sheet sensitivity from hedges: fair value derivative liabilities totaled $51.6M termination value and are subject to cross-default and covenant provisions; while not cash today, they can amplify earnings volatility .

Financial Results

MetricQ2 2023Q1 2024Q2 2024Consensus (Q2 2024)
Revenue ($USD Millions)$0.0 $0.0 $0.0 N/A
Net Loss ($USD Millions)$(10.4) $(20.5) $(18.5) N/A
Diluted EPS ($USD)$(1.38) $(2.14) $(1.90) N/A
Interest Expense ($USD Millions)$0.616 N/A$2.921 N/A
Unrealized Loss on Derivatives ($USD Millions)$0.0 N/A$12.553 N/A
Net Income Margin (%)N/A (no revenue) N/A (no revenue) N/A (no revenue) N/A
  • Segment breakdown: CTGO reported no revenue-generating segments; activities are exploration/pre-production with share of Peak Gold JV results recognized via equity method .
  • KPIs (operational/financial):
    • Cash ($M): $24.353 at Q2-end .
    • Total Debt, net ($M): $74.598 (facility $55.055 net; debenture $19.543 net) .
    • Derivative liabilities ($M): current $17.869; noncurrent $33.727 .
    • Hedge program: 124,600 oz @ $2,025/oz; 2024 21,100 oz; 2025 62,400; 2026 41,100 .
    • Peak Gold JV cash contributions: $11.790M in Q2; $27.240M YTD .
    • Post-quarter batch metrics (contextual): 55k oz gold produced (100% JV), CTGO sold 8,900 oz into hedge at $2,025 and 5,800 oz at ~$2,440 spot; recovery ~95%; CTGO share proceeds $32.2M, ~1,500 oz retained in recoverable inventory .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Gold Production (CTGO share, oz)FY 2024Not previously quantified30,000–40,000 oz Raised/Initiated
AISC ($/oz)FY 2024$1,116 (TRS reference) “Remain in line” with TRS Maintained
Hedge Deliveries (oz @ $2,025/oz)2024–2026N/A2024: 21,100; 2025: 62,400; 2026: 41,100 Initiated (structural)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023 and Q1 2024)Current Period (Q2 2024)Trend
Production rampQ1: “on track for first production in early Q3 2024” First gold pour July 8; commissioning in Q3; “on track” to plan Progressing to production
Hedging & accountingTransition 10-KT introduced hedges; no Q1 call explanation Detailed explanation of hedges, blended pricing, unrealized vs realized; first delivery 8,900 oz into hedges Improved clarity; active delivery
Cost framework (AISC)TRS AISC $1,116/oz referenced in corporate materials Management expects AISC “in line” with TRS; final processing costs to be reported with Q3 JV numbers Holding steady pending full data
Regulatory/legalNot highlighted in Q1 PRCSC lawsuit narrowed; Dot Lake federal complaint filed; trial set for Aug 2025 Ongoing headline risk
Johnson Tract strategyHighGold acquisition pending (May 1 agreement) Acquisition closed July 10; 3,000m infill + hydrology program underway; permitting path outlined Accelerating execution

Management Commentary

  • Strategic posture: “We then look forward to executing on our ‘Hybrid Royalty’ model focusing on our Lucky Shot and Johnson Tract properties, which we believe can both be developed efficiently by using our DSO (Direct Shipping Ore) approach” .
  • Production update: “The Peak Gold JV completed the first batch… producing ~55,000 oz gold… Contango sold its portion… for proceeds of $32.2 million” .
  • Cost/margins: Management expects AISC “plus or minus in that $1,100 to $1,200 range… giving us a good $1,000+ margin on our gold sales” (subject to Q3 processing cost data) .
  • Hedging rationale: Hedges (~124,600 oz at $2,025/oz) were a condition to securing $60M debt and protect downside; they limit upside but support balance sheet resiliency .
  • Johnson Tract development path: infill, hydrology, underground ramp permitting targeted, leveraging DSO/barge-access model with potential partners for processing .

Q&A Highlights

  • Hedge mechanics and accounting: Clarified unrealized MTM losses vs realized sales and blended price dynamics between hedged and spot ounces .
  • AISC expectations: Indicated confidence in TRS-level AISC pending full processing cost reporting in Q3, implying ~$1,000/oz margins at current prices .
  • Johnson Tract permitting and operations: Detailed steps for underground access ramp, hydrology, and PEA workstreams; targeting staged permitting 2024–2026 .
  • Processing optionality: Exploring barge-access mill options; high-grade feed improves partner interest; no commitments disclosed yet .
  • Listing/market strategy: No current plans for TSX listing; focus on operational delivery and re-rating via cash flows .

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 2024 EPS and revenue was unavailable at time of request due to data access limits; comparisons to consensus cannot be made reliably. S&P Global consensus data unavailable.

Key Takeaways for Investors

  • Near-term production ramp is the primary catalyst: first batch produced, next batches planned in fall 2024, with CTGO targeting 30–40k oz share for FY24 and commissioning of Fort Knox modifications underway .
  • Earnings optics will reflect hedge MTM volatility: expect non-cash derivative marks to swing with gold forward curves; focus on realized blended prices and cash generation, not quarterly MTM noise .
  • Watch liquidity inflection: management expects JV distributions probable in H2; facility repayments of ~$5.9M (rest of 2024) and $42.6M (2025) create timing sensitivity to gold sales and distributions .
  • Legal risk is manageable but persistent: CSC case narrowed; Dot Lake federal complaint ongoing; track milestones but note operations continue and JV not a named defendant in the federal case .
  • Johnson Tract provides medium-term growth: infill drilling, permitting, and DSO/barge strategy could enable accretive production without large mill capex; monitor PEA and permitting updates through 2025–2026 .
  • Trading lens: Near-term beats/misses hinge on realized gold price per batch vs AISC, pace of hedge deliveries, and JV distribution timing; gold price strength amplifies cash margins while hedges cap upside on delivered ounces .
  • Capital structure discipline: Hedge cover and covenant compliance underpin facility support; any equity or ATM usage would be tactical relative to gold price cycles and project milestones .