Contango ORE - Q3 Update

0:03 I'll say good morning, good afternoon, or good evening, wherever you're tuning in from today. I personally am joined live at the Deutsch Goldmess in Frankfurt, Germany by Contango Aura CEO, Rick Van Nueniza, and CFO Mike Clark to discuss Contango's Q3 reporting. Gentlemen, how are you? Good to see you here in Frankfurt, Romeo. 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'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 and then I'm eager to take questions from the live audience. So if there's 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. 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.

0:56 I wanted to jump right into the protein as quickly as I can. Rick, Obviously looking at a record operating income of 25 million this quarter, while I think almost as impressively or more impressively maintaining ASIC below that 1625 target at 1597 per ounce. So 2 comments and a question. First, geez, that's a lot of money, Congratulations.

1:17 And what's kept ASIC in check? Well, I think that is a lot of money. It's record for us. That was your Q3 production level was above plan by about 2000 ounces. And importantly, the ASIC is coming in lower than the 1625 that we guided to and obviously we get our guidance from Kinross. So I think a big reason behind that is the mine plan that we outlined we're delivering into or exceeding that. And I think that's somewhat typical of Kenross as a big company, they like to under promise and over deliver. That's good, because that means we're not gonna get too far ahead of our skis. And 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.

2:23 But what is different about this time around is that we don't see the oil prices going up in Alaska. We've had the same pretty stable diesel price at the pumps for several years now. That's a good thing. It's a good thing for our project, obviously, with the transportation aspect of transporting the ore from the mine site to the mill, it's a significant part of our cost structure. So I think that and I think the other thing is, look, Ken Ross is doing a great job

2:56 just delivering into the plan that they've outlined. So when you're kind of firing on all cylinders is the way I like to express it. No, it 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 a eye popping 107 million as of September 30th with 87 million distribution received from that peak gold JV to date. I'd love if you could walk us through just capital allocation proper priorities. So you've paid down a bunch of debt, settled carry trade. What's the strategic thinking behind those moves?

3:30 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 paid off as quickly as possible, pay down the debt on schedule. To date, we're always about a quarter ahead on our production, so we're always delivering about 3 months in advance. That's why we're using the carry trade and in a rising gold market that has saved us, I think this quarter we saved over $2.4 million as a result. So the strategy is working. And so we're gonna continue doing

3:56 that. We're delivering into December hedges right now. And the goal is we'll basically try to get these delivered into you all by September of next year. So we're waiting for the 26 plan for Macho, but that is currently what our target is internally. No, appreciate that. 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? Yeah, you can thank Rick for that last minute. Basically, you know, 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 group 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 reoccurring net income position to a net loss. So we put it in there so that shareholders could

4:55 kind of see what the business will look like once those things are gone and what our normal business looks like. Rick, anything to add to that? Yeah, I was just going to go in 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, that future gold, Yeah, 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 it 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, you know, what we can, we try to make it least clear to the shareholder, but the reality is, no, appreciate that very much. I think that's helpful context.

5:45 The unrealized is the, the remaining hedges that are on the books at September 30th. 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 50-50 split, 50 million each during the quarter.

6:02 Great. No, I do appreciate that. One thing I wanted to ask you about, an interesting thing in the PR is the test batch blending man shows low-grade oxide ore with the Fort Knox ore achieved a 94% recovery. It's going to add about 1300 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 man show material that might have been uneconomic in you know a previous era? Well 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 ounces per ton, which is 3 grams. So when we say low grade, it's low grade relative to the 8 grams per ton that is the average grade.

6:49 So we have to sort of put that in context. But 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. And it is oxide material.

7:02 And there's a fair bit of this low grade material Because you have to go back to the original mind plan The feasibility study mind plan and that was done at a $1,400 gold price, you know, what 3 3 years ago or so so

7:19 obviously with a gold price well it's you know it's down today kind of hard but it you know it's still about 4000 that's just a different mind plan and so testing this low grade you know roughly 3 gram material is you know the start of taking a look at how, you know, is there another way of working on processing this low-grade material, just blending it with Fort Knox. And so the Fort Knox ore, which is much, much lower grade, is, you know, somewhere in the 0.6, 0.7 grams per ton. That's the typical Fort Knox work. And it's not really oxide or Fort Knox. It just doesn't have any sulfide. So taking our oxidized low-grade three-gram 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 Montreal on a batch basis, it's down to 10,000 tons a day. So it's looking for those economies scale.

8:15 We don't have the results for all that and the consumables and the cost, the power costs, all the details of what go into determining the milling cost. But 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. But the batches will continue. That's on the higher grade material.

8:43 We're down in the sulfite part of the UK channel. So The material we're talking about is all sitting on the surface in stockpiles, the oxide, the low-grade oxide. So, dude, yeah, no, absolutely. And I appreciate that. I think I understand a lot better. And I know at Moncho, you process 287,000 tons, that 0.214 ounces per ton, 92.5% recovery in Q3. How does this compare to reserve grade expectations and what's your visibility into the ore body as you sequence through that mine plan? Yeah, so we'll have a detailed mine plan for 2026 here, probably 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. So I think stay tuned for that.

9:34 But basically, the grade's a little lower than the feasibility grade, which was close to 8 grams per ton, but that's because we're blending it with lower grade material.

9:45 Because the gold price isn't $1,400, it's $4,000. So, you know, we're gonna, the tendency of that 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. So 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 line. Now we've done a few things. We've purchased some additional trucks. We're obviously looking at this blending strategy. So we'll see what the mine plan is in the next couple of weeks and we'll have to have another podcast or interview on the platform here to explain what the plan looks like. Thank you, Hilde. That was a nice one. That makes sense. Appreciate that.

10:42 Now, I know you mentioned in the PR, sustaining capital for tractor replacements and ongoing exploration drilling at Manchur contributed to the ASIC increase. Is this new baseline for sustaining costs or we expect those to moderate it as we

10:56 kind of complete the capital replacement cycle? Yeah, I think this is, I mean, you 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. Yeah, I think these are probably, we'll wait for the 26 budget to see what it is next year, but I think for now, I think it's a good benchmark to follow. And again, this will all, it'll become less at the end of the mine life, But yeah, I think we're going to continue to be below $1,600 ASIC this year.

11:37 And next year, probably consistent, but then come much more in the later years of the mine life. 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 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 own sustaining costs are on the higher end of the average and then 27, 28 or 29 are gonna be lower. Awesome, I do wanna get into LaKesha just for a quick second. So I know you've mobilized a drill rig for that 15,000 meter underground infill program, looking at, as I understand it, a feasibility study in 12, 18 months and a production decision as quickly as 27.

12:27 With production estimates of 30,000, 40,000 ounces annually using the classic Contango DSO approach. How does Lucky Shop fit into your larger portfolio and what makes you kind of confident in this really cool but aggressive timeline?

12:41 Yeah, I mean, look, this isn't the biggest mine in the world, but it is really good grade. We've done enough drilling to, you know, we put out a modest resource and I know, you know, 100,000,110,000 ounces of resource doesn't get, you know, everybody's attention get everybody wound up. But the grade should get them wound up. It's 14 grams per ton. And, And so we're underground, we've got the underground infrastructure in place. We've been carrying and maintaining the mine all year. So we've been waiting for, you know, 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 2. And the plan is to drill 15,000 meters underground.

13:28 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 minus 10, 20 degrees. You're basically just spraying the vein is sitting here and you're just drilling into it. 30 meter holes on average. And so we should start having drill results by the middle of January. We're basically using a photon assay that the lab is in Fairbanks. So we basically just put the rocks in a box and hang them, take them up to the lab and get them analyzed. So I think we'll start releasing results in the middle of January sometime and it'll be kind of constant all year long. So we'll be able to know and the market will understand

14:16 that our objective here is to outline 4 to 500,000 ounces. This mine produced a quarter million ounces of very high grade, you know, 40 gram per ton average grade. That was mine, you know, the old style narrow vein mining that, you know, frankly wasn't terribly safe. We're going to be mining on a 3 meter average width and diluting that grade over that width, so we're expecting a grade more like 10 to 12 on a diluted, mine diluted basis. We're fully permitted And so basically give us a year to get the drilling done, you know, another 6 months to get a feasibility level mine plan. And I call it feasibility light because again, we're not building a mill on a tailings facility, a power plant. It's basically just a mine plan and a transportation plan. And the transportation plan is to haul it down to the railroad and then we can decide if we're going north to Fort Knox or if we go south to Seward.

15:13 And we've had interest from overseas to take

15:15 this to a smelter. That might work out as good or better than taking it up to Fort Knox. So we've got a lot of choices. And that's the thing, when you have grade, you have a lot more choices. And that's the other thing I like about our DSO model is we focus on things that have great, they're not necessarily the biggest gold mine in the world, but they're gonna make our shareholders money. And I think that's the business we wanna focus on being in is having minds that actually make money and can get into production quickly. And the DSO model allows us to do that. 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 Trek really quickly, because it represents potentially the highest grade asset in your portfolio, based on historical drilling, at least.

16:04 Can you provide us on 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 development? Yeah, so look, Johnson Track, it's a great project. We bought it a little over a year ago with the acquisition of Hygo. 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. So 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. And those are permits with the state of Alaska. There are basically 2 fundamental permits, a mine operating permit, because technically you're a mine.

16:53 We're still doing exploration, but technically it's a mine. And then because you have a mine and you have a potential for water discharge, you need a water discharge permit. So those 2 permits we expect to receive between 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 kilometer or 3 mile 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 for called Bailey bridges. They just basically go across the creek and you get yourself to the other side. We're not, this is not, we're not permitted for mining, a mining operation at this point for the road. That will come next.

17:41 And then we want to get the equipment mobilized to start building the tunnel and we want to winterize camp so that we can operate year round. That's about a $20 million program. And again, we're funded to do that. And so 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. And then 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. So Lots of work going on in the background, and it'll be exciting to get the drills turning to do the drilling and blasting to build the tunnel mix, the sawdust mix. Probably September is probably what we'll push in for.

18:44 Getting the wood cap winterized is a very important step so that we can work year round. 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 when we zoom out. But we transitioned the company from an explorer to a cash generating producer, 107 million in the treasury, this point minimal debt, and 2 development projects advancing. So as you're looking at the next 5 years, 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? Yeah, I'd say we're like to express it. I think we have a really solid, executable 5 year plan.

19:33 And we have the money to execute. So that's why I say it's executable. We have the team to do it. We know Alaska, we know this is our backyard. We know how to get stuff done here. And now we're starting to think, okay, well that's a great five-year plan. Why don't we put a 5 year plan into a 10 year or 20 year plan? And so, and to do that growth, we want to be looking at M&A. And so we're taking a look at opportunities. We're not going to trade straight too far from home. So Alaska, BC, Yukon, that's kind of our backyard. We know how to work there. We've all worked there before. So that's where I would say we're looking. And we've got a half a dozen different opportunities that fit the DSO model.

20:19 They're all going to fit this model. We like this model. This is a, we've demonstrated that it works. And so we did, we see another half a dozen opportunities like Johnson Track, like Lucky Shot type opportunities to continue to invest in and continue to grow the company beyond the 5 to 7 years out with the existing resources. And don't forget, I mean, we're not going to forget about doing exploration at Johnson Track 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, 15 years, just like the Kensington mine has had. They've been operating for 25 years, and they've never had more than 5 years of mine life ahead of them.

21:04 So just that's how an underground mine works. And so we will be spending money doing exploration once the mine's up and running. First thing is get the mines up and running. Awesome. That's very helpful. I always like seeing what the plan is for the future. And Mike, I'm gonna get you in on 1. 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 asked, when do you expect the old hedges to be fulfilled and get to 100% of market price? Yeah, so our objective is to get these hedges paid off as early as possible. And so any shipments that are coming in, we're delivering 100% into these kind of carry trades, because we're always a quarter ahead. So assuming we can have a 50,000 ounce, 26 year of gold, The objective is to try to deliver into those hedges by September.

21:54 The last ones mature in mid-2027, but I think we should be able to cash to support that approach. I think we can deliver into these and then be done with them by September, assuming the 26 budget is where we think it'll be. Does that answer your question? I reckon so. 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? Losses, they're a little more complicated in the States because there's these non-operating losses that you can only apply 80% against net income. But we are set up in a way where we can, any costs incurred as a lucky shot can be offset against a Mont Shell profit. So, we don't anticipate being in a tax, we're not gonna, we don't anticipate paying any taxes this year or next year. You know, I think, you know, and as we move forward on Johnson track, the idea is to offset those costs.

22:55 So my hope and my goal is that we will never actually have to pay taxes related to Mont Sho, but you know, that'll involve, if we wanna actually achieve that, we're gonna have to be, you know, continuing to spend on Lucky Shot and JT. But right now, you know, we don't anticipate anything this year. And I'd be surprised if we had to pay next year. But we are starting to dwindle down on our loss positions in the States. So At some point we will be taxable, but that's a good problem to have because it means we're making money. Paying taxes means you're making a lot of money, so I'm good with it. 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? Somebody just asked. Well, we updated the presentation on the website.

23:42 There's not going to be anything else. Great. Thank you. If you take a look at the website, we just recently updated that with the Q3 results. It might be, yeah, but that's, just take a look at the website. It should be on there. And I think we'll, you know, 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. Yeah, you know, if you, as always, if you have questions you can email us at the generic info at contango.com. If you've got our addresses, I'm not going to put them out there in public, but if you've got addresses or phone numbers just give us a call as well. Great, thanks. One question from Jan in the chat, and there's 1 of 2 things he probably meant with this, but he asks how many ounces were there in Q4 2024.

24:31 So I'm not sure if you recall total ounces from last 2024. Well, I know how many ounces we produced in 2024. I think we produced about 42,000 ounces in 6 months. We did 2 batches in Q4. I don't know the actual number, but I just know over the 2 quarters, it was 42,000 ounces. And just keep in mind, you know, we started mining almost a year before that. We opened the mine and then you know, that we weren't hauling with all the trucks right away so you're building up a stockpile and you're starting to haul ore. So we had you know a fair bit of ore built up for that first half year of production and what I would describe now in the 60,000 ounces is more of a steady state plan.

25:21 And so, you know, we'll say again, next year, 2026 was always going to be a low year because of the stripping going on at the main pit. But we'll have the details on that 2026 mine plant here in a few weeks, so stay tuned for that. Awesome. I know this is meant to be a short event today, so I'll wrap up with 1 real quick 1. And that's, Rick, What are you most excited about coming up? What's what's keeping you up with excitement at this point about contango or It's great to be drilling underground lucky shot again. I mean look we We think lucky shot again. It's a small It's not going to be the biggest mine in the world will never tell anybody it will be but we think it's going to make a lot of money. The drill's turning. And so stay tuned for the drill results. It's always exciting to see free gold in a quartz vein underground.

26:12 So yeah, as a geologist, this is what it's all about. So stay tuned. Awesome. Appreciate it very much. 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. 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 their day. Thanks, Robio. You