I will say good morning, good afternoon, or good evening, depending on where in the world you're signing in from today. I've got with me today, Contango ORE's CEO, Rick Van Nieuwenhuyse, and CFO, Mike Clark, to discuss the company's recently closed financing. Mike, Rick, how are you today?
Good. Good to see you again, Romeo.
Awesome. So here's how today's gonna work, just for the folks in the room. I've got some questions just based on the recent release, just to give a bit of clarity for everybody that's here. But this is an interactive event, so there is that chat button at the bottom of the screen. Like always, we welcome your questions throughout the event. Probably gonna be about a half hour today, so if you'd like to get your question in earlier, it's probably more likely to get covered. If for whatever reason I don't get to your question, we just run out of time, it's totally off topic, it's sort of a repeat, I'll still make sure the transcript gets to the team, and they can get back to any of the ones that were missed following the event.
Last piece of housekeeping, this event is being recorded and will be available for replay, before the end of the day today. So probably, close to 5 P.M. Eastern, it'll pop right in your inbox, but it'll also be on the Sixty YouTube channel. Okay, boring stuff done. Rick, you just announced a $50 million raise, bulk of the proceeds going towards buying back gold hedge contracts. Love if you could walk us through the thinking here. What made now the right time to start knocking off those hedges?
Yeah. Well, obviously, you know, gold's been very volatile in the last, you know, year. And, you know, so we've been talking about this for quite a while, and, you know, we didn't wanna, you know, look like idiots and buy, you know, it went up to $6,000-$7,000, you know, lock it in there. So, I think it, you know, we like the sort of trading range that it's in. We... If you ask, you know, why, like, right now, specifically, I'd say, you know, one of the motivating factors was there was a conveyor belt fire at Fort Knox.
Mm.
Now, it didn't, it doesn't have any effect on our production, and so that's, that's good news for us. But it did, it was a bit of a wake-up call, as, "Hey, operations have risks still." I mean, there's, there's lots of risk in the mining business, but it doesn't stop when you're, you know, when you're producing gold, there's still operational risk. And we said: Well, you know, geez, if, if, if this, this event had resulted in us not, you know, having to shut down operations for three or six months, and, you know, it didn't, but if it did, that would be a problem. 'Cause we'd have to go buy gold at, you know, $5,000-$6,000. So, so that's why we think it's the right thing to do.
It de-risks the company from an operational standpoint of having to go buy gold if for some reason operations get interrupted. Again, fortunately, that didn't happen this time. Then Kinross folks, you know, literally put out the fire and made work arrangements to have some mobile crushers put in place so that we can easily process the Manh Choh ore. So that's all going according to plan. I won't be surprised if costs are gonna be a little higher as a result of that. But we'll, you know, we'll—that'll come out, we'll understand that, you know, a little bit further down the road. So we've talked about taking out the hedges for a while. It's what, it's... We all know it's what's holding the stock back a bit.
Sure.
But this $50 million financing with two existing shareholders who believe in gold and believe in our business model, so very supportive. We think it's the right group of people to do this kind of a financing with. And it will set the stage for us to completely unwind the hedges, I think by the middle of the year. Mike might have a more specific answer, but you know, in generalities, that's the objective.
Yeah, great. Mike, I do have a question for you, and it's reflected in the chat. Somebody came right out of the gate asking, "Clarify how many hedges will be removed and what will be left?" So with $45 million from this going towards the buyback, how much of the hedge book does this take out?
Yeah, so we're taking out roughly 15,000 ounces of hedges, and that'll be kind of the next 15,000 ounces of hedge contracts that we have, so March, June, and into September. What that'll leave you at for the end of this year is there's still 11,000 ounces hedged this year for 2026, and then another 15,000 in the first half of 2027. So our roughly 42,000 ounces of hedges today is reduced by 15,000, and then we'll be down to, you know, 26,000-27,000 ounces that we can deliver into with this year's production. And, like, to Rick's point, the idea is to fully deliver into them this year and be debt-free and hedge-free by the end of the year.
I'll just add that the debt position with the lenders is $14.6 million right now, so that is gonna be paid down by another $4 million this year, and there's $10 million remaining at the end of the first half of 2027.
Great. No, I appreciate that-
I'll just pipe in here that we will continue to work with our bankers, who that's who we, you know, deliver the hedges to. There are some alternatives there that we'll be pursuing to, again, you know, we want to get unhedged as quickly as possible and 'cause we do believe in the upside of the gold price, and we want exposure to that. So that is the plan, and this $50 million basically sets that plan in, you know, underway.
Gets it moving. No, it makes sense. Mike, I know a lot of people wanted to know, just reaching out, what the impact on cash flow margins, et cetera, is gonna be. So when is the guidance for 2026 coming out?
Yeah, we're targeting having guidance out in mid-March, when we put out our annual financials. So, I'd estimate about March 15th, and we should have full guidance out for this year.
Great.
At that point.
No, awesome. One more, and I know I asked you this last time I did a raise, Mike, but people, I think, seem curious, so I will ask again. Investors aren't familiar with the structure, what are the pre-funded warrants that were part of this raise?
Sure.
Why did you choose to include that component?
Yeah, well, we didn't really choose to incorporate it, but it was one of the investors wanted to use it. It's commonly used in the States. It's not a warrant, but it's really a fully funded warrant, just it doesn't have voting rights. And so at this point in the future when it gets converted, they just become normal shares. But currently, they're just non-voting, but it's. I look at it as an equity grant, and we got the $50 million, and, you know, there's 1.6 million shares and 325,000 pre-funded warrants. It's really 1.9 million shares.
Great.
If you're exercising a warrant for a penny, you're pretty sure that's gonna happen, right?
Yeah, you-
They don't have to. They'd be silly not to, or we'd be down a penny, but yeah. But they'll get exercised.
While we're on numbers, actually, how many shares are issued with the current financing, with and without PFW? And then just give us a recap of what's the total post-merger with Dolly Varden.
So I'll take that, and then Mike, correct me if I make any mistakes. But and I'll do it in kind of round numbers, not to get too many decimals in there. But it's a little over 1.9 million shares were issued with this current financing, and that, again, that includes, you know, that's assuming all the warrants are exercised. So that brings our current total up to about 17.7 million shares. And then when we merged with Dolly, that was. The ratio was set, so that doesn't change. And again, I'm gonna use a round number here. We were a little over 15 million shares at the time of the merger, and that's where the ratio was set, the one, the 0.1652.
So in total, it's around a little over 15 million shares, or in total, we'll have 33 million shares outstanding, with post-merger and when we're trading as Contango Silver & Gold, both in the US and Canada, TSX under the symbol CTGO. There, in addition, we still have about 680,000 warrants. Roughly half of those are priced at $26, and the other half at $30.
Great. Sorry, just helping somebody with their audio issues in the chat. The one thing I wanted to ask is, I know, the raise was placed with those same two institutional investors, like you said, "Believe in gold, believe in your business model." That's, you know, still a pretty concentrated book for a $50 million deal. So what does that tell you and, and the audience here today about appetite for Contango's story right now? And did the conversations with them give you any read on how the market's viewing the company right now?
Yeah, I mean, I think, you know, as we said before, what was holding the company's share price back was the fact that we had these hedges in place, largely, and a lot of our... We're producing the gold, but we're only getting, you know, $2,000, a little over $2,000 for that gold, and yet gold's trading at $5,000. So this ex- gives us exposure to the upside in the gold price, and we do fundamentally believe in the gold price. And so, obviously, we're taking a little bit of a bet here that the gold price eventually is, you know, gonna go higher. We, it's in a nice consolidation stage around $5,000 now.
So if we guess wrong and gold goes down to $4,000 or $3,000, well, that's why, you know, Mike's paid the big bucks to CFO. He's, you know, put the puts in place so that we, we protect that downside. And that's the most important thing for a junior producer, is protecting the downside. If, if we make more money because we bet right, nobody's gonna, you know, worry about that. But if, if, if we bet wrong and, gold goes back to $2,000, you know, we'd still be making money because our, our cost, you know, last year was $1,625, and they're probably gonna be a little higher this year, but, you know, we're still making money.
But, you know, I'd rather, if gold went to $2,000, I'm gonna, you know, really thank Mike, and he's probably gonna want a big bonus for putting those puts in there, $4,000. So it's just managing the business. We're, you know, we're, we don't have, you know, 10 other operations to rely on delivering gold from. So, I think it's just prudent business management. And obviously, our two big shareholders share the view that gold's going up. You don't invest in a gold mining company if you think gold price is going down.
Sure.
Shorter. So, like I say, it's just good business. And they, they like the fact, they like our business model. They like the fact that, you know, we have this growth plan, a five-year growth plan to produce 200,000 ounces of gold and 5-6 million ounces of silver with adding the Dolly Varden asset. So, I think this just makes us a very strong company.
Well, great. Mike, while we're on that topic, actually, I'll get you in on the $700,000 for gold put contracts for downside protection, too. I'm just curious for your take on the piece. Obviously, like Rick just said, looks like you want more spot exposure and upside with some prudence still. But you know, how are you getting your bonus with this one is basically-
Yeah, yeah, yeah. We gotta stop talking about that. Yeah, I refer to it more as a price protection policy or a plan. It's really insurance. And so the idea is, you know, we're buying out, you know, 15,000 ounces of hedges. I have... I'm literally gonna, you know, buy puts to match what we're taking out, to go at the same, the same, you know, three quarters of hedge deliveries. And we just, we're just buying those to protect us if it goes below $4,000. It's a small insurance cost when you think about what we're paying, and we just didn't wanna have any more exposure beyond that kind of $1,000 spread.
Great, makes sense. I wanna zoom out a bit for kind of big picture, Rick, so I'll throw this to you. So I know between Manh Choh, the Alaska Development Properties, and the proposed merger with Dolly Varden, lots going on, but now the balance sheet's in a different position, post-raise. You got more gold selling at market prices. What are your broad priorities for the next, we'll call it 12 months?
Yeah, it really doesn't change, and I think we've been signaling that we're, you know, gonna find the right time to do a transaction that can allow us to get hedge-free, at least for this year, and then we'll work on next year. So it's basically the same plan. We're currently drilling at Lucky Shot now, and that program will take. Drilling will take place throughout the year, probably a little bit into early next year. And then with all that drill information, we'll do a feasibility study, mine plan, and transportation plan.
We'll have a conversation with Fort Knox and see if it makes sense to go up there, or, you know, maybe we're, as I mentioned before, we're looking at the opportunity to buy or carve out some room in another mill to process the ores from Lucky Shot. Similar thing at Johnson Tract. This year, we plan to get our permits for the tunnel, to build the tunnel. Those are permits that are issued by the state of Alaska. We expect to have those well in place, in probably Q2 of this year. And some, I think some of the permits might actually come in by the end of Q1, but certainly by the end of Q2, we'll have all those in place.
We'll build the road connecting the camp to the port site, and we'll get all the equipment mobilized in to start building the tunnel. But we won't get started on building the tunnel this year. First thing we need to do is also winterize camp, so we can work year-round. So, that just sets us up. Meanwhile, of course, we're in the FAST-41 permitting track for permitting the federal permits that we need to build a road between the mine site and the barge landing site on the coast. So those permits are for road construction and for barge, a barge landing facility. The US Army Corps of Engineers is the lead federal agency. Working well with them.
We've had, I think we've had our, like, on our third or fourth meeting now with the FAST-41. We have meetings every other week to keep everybody on the same page in terms of us submitting reports and submitting information for the issuance of permits as we go through the whole process. We expect that process to take about two years. So by the middle of 2028, we'd have all the permits we need for mining and for constructing the access road and port facility at the barge landing facility at the coast. And then that brings up the Kitsault, which we're basically planning now. First step there is completing a mineral resource estimate on the Kitsault assets. And there's five main deposits there.
Homestake, Homestake Silver, Wolf, Torbrit, and Dolly Varden, the old Dolly Varden Mine. So, that will incorporate about 200,000 meters of drilling that's been done since the last mineral resource estimate was updated, I think about four or five years ago. So lots of work going on. We've already been having meetings with the Dolly Varden team, and sort of, you know, blending our teams, and we're looking for office space and all those sort of administrative things as well. So yeah, we're definitely planning for this to happen.
We still have the shareholder vote and to take place on the 17th, with the closing being a roughly week later, about I think it's the 26th, is what it's scheduled for.
Great. And to zoom out even further, and it's just, 'cause I know there's a few hundred people in the room. Looking at the list, there's some investors who seem brand new to the Contango story, some that are Dolly Varden shareholders that are still learning about the story. Really, I'd love you could do is just frame the opportunity for people in the room. What's the pitch for, the combined Contango Dolly Varden from here?
Yeah. So on a combined basis, you've got a, you know, roughly, you know, $800 million-$1 billion market cap company, New York Stock Exchange listed, TSX listed. We'll have well over $100 million of cash in the bank, U.S. We'll be generating well over $100 million of free cash flow at today's metal prices. So, and then we've got four high-quality districts to explore in. The Manh Choh District, because that's all private land. Remember, that's a big land package. It's all private land. We're doing about $5 million of exploration work there. Lucky Shot's a whole district we control. Johnson Tract's a whole district we control, and the Kitsault Valley project is a, you know, a big area of the- it's a southern part of the Golden Triangle.
It's a big piece of its own little triangle inside the Golden Triangle. So lots of exploration upside in those districts. So we see we have a five-year plan, basically to advance our projects that all fit the DSO, the direct shipping ore model, high grade, near infrastructure, and relatively easy to permit the mine sites. In the case of Kitsault, the former mine was a historically producing mine, so it's a brownfield site. There's a road to it. So that growth profile will get us to 200,000 ounces of gold and 5-6 million ounces of silver. That is very similar to Hecla.
So if you want an investment, into a safe jurisdiction, North American jurisdiction, precious metals, gold, silver, and, with a continued growth profile based on the fact that we've got these four exploration districts to continue to explore, we think that's the, you know, That company looks like Hecla, and so we think, we think that's a great investment opportunity for investors, because Hecla is a $15 billion market cap company, and this high merged company, Contango Silver and Gold, will be, you know, roughly a $1 billion market cap company. So we're, we're staged for solid growth, safe jurisdiction.
... Great, so appreciate that outline. One question that came in online in advance, just before I get to the questions in chat. Somebody wanted to know, can the management explain the logic of raising $50 million now instead of opting for a call option when they took the loan?
Great question. And the short answer is, that option wasn't available. What, three or four years ago when we put this in place, we had a very, very different market. You remember, we had a market, gold was trading, you know, $1,800-$1,900, and everybody thought it was going to go trade at $1,200. The major companies were using $1,400 to define reserves, and that, in fact, that's the mine's own reserves, because that's the guidance that Kinross was using, was $1,400. So bankers are gonna be more conservative than mining companies when loaning money to mining companies. So that was the world we live in. So you gotta do things in the world you live in, not the one you wanna live in.
That's probably classic lifetime advice, so there you go. There's one question from Jan in the chat: Is there a hold period for the institutions?
No, these are free trading shares.
Great, thank you. There's one question, and there's a couple variations of it from the same person, which is really why choose to do this now and not six months ago, for example?
Well, now, we. And I think they explained that a little bit. Six months ago, we talked about doing it, and then every time we talked about doing it, the damn gold price would go up $1,000. So, we felt like we were chasing ourselves a little bit there. And now just seemed like a good time, and again, we had a bit of a wake-up call with the conveyor belt fire at Fort Knox. Again, which didn't affect production, but something else could happen that would affect it.
You know, getting unhedged is the right decision for the company, and you know, if the right set of circumstances had existed six months ago, we would have pulled the trigger, but they didn't, at least in our estimation, we didn't. Then, you know, hindsight's always great, but you know, when you're living it day to day, you're Mike and I talked a lot about this, and of course, we had a lot of discussions with our board. You know, we wanted to—I guess one of the things I'll say with regards to timing is, you know, we've got two really solid shareholders here, who again, support the company, believe in the company, believe in the gold price, and that's really important.
And you know, when we announced this, you didn't see the gold price get whacked, right? It just... So these are good, solid shareholders. And not all shareholders are good, solid shareholders. You know, so we, I think that's another thing, is developing the relationships with our shareholders, you know, gives us confidence that this is an accretive transaction.
I'll just add to that, Rick, you know, when six months ago or five months ago, we did raise money, but the shareholders weren't interested in use of proceeds going, buying out hedges. They were interested in adding, you know, putting money into Lucky Shot and the Johnson Tract, and so that's what was there. And we just couldn't get the type of numbers we needed and at the right dilution levels and the right stock price to, to pull the trigger at that time.
Great. No, appreciate that. It's always hindsight. People always wanna know what you could have done, what you would've done. I would appreciate it. One person in the chat, Rock, thanks for joining us, asked, Dolly Varden recently had very good assay results. He's wondering if the by-product of the raise, that there will be more money broadly, for moving Dolly's projects forward?
Yeah, we've got about a CAD 30 million program planned, that's with Canadian planned for the Kitsault assets this year. Where specifically we're gonna be drilling will really dependent on the mineral resource estimate and, but they'll in broad categories, there'll be more infill with the for the mine to start looking at, which is the first asset in Kitsault Valley to start thinking about developing a mine. You know, is it Torbrit? Is it Homestake? Is it Wolf? And so, the mineral resource estimate will help guide that. So there'll be a lot of drilling that will be infill, preparing to say, "Yep, we're gonna start focusing on Torbrit," as an example, or Homestake.
These are all open, so there'll be an element of further expansion drilling at any and all of those deposits. And then we still have a huge land package that is completely underexplored. And, you know, we're not, you know, we're well aware of our neighbors, who have, you know, continued to find new veins and new targets in these terrains that are just recently unglaciated, because, you know, the glaciers have been receding. So there's lots of exploration potential on this significant block of land that comes with the Dolly Varden asset purchase. So yeah, we've got lots to do, but the short answer is a $30 million program is a pretty healthy program.
Awesome. One question, obviously, you can't give an exact number for this, so really just your personal opinion. Beyond from the chat, wants to know, what are the chances of the Dolly Varden deal going through or not going through?
Yeah. I'm not even sure if I'm supposed to comment on that, but I can just repeat that we have voting share agreements with 22% and verbal commitments that about another 30-ish%, or a total of 30%, 35%, I think it was, have verbally told us they support the transaction. These are, you know, all large chunky shareholders. So, you know, I'm confident. I think it's a merger that makes sense. I think it is truly accretive. And I think most of the feedback we've heard has been very, very positive from both Dolly and Contango shareholders.
Awesome. Great, thank you. Love a political answer. I think that is the most you're allowed to say, so great stuff. Somebody in the chat does wanna very explicitly talk about politics. They wanna know if you anticipate any impact from the midterms on permitting in Alaska?
Zero. The fact is that we do need permitting reform, and there's been a lot of talk about permitting reform. There's a couple of, there's a SPEED Act that's in the, that's being discussed in the, in the House. I'm not aware of a parallel bill in the Senate yet, but there's discussion of that. So short answer, the midterm elections will have a zero effect on permitting. Permitting reform needs to take place to have an effect on... a meaningful effect on permitting. Certainly we still have a favorable administration in the Trump administration, in terms of their recognition of the importance of metals and critical metals, specifically, of which our Johnson Tract and, and the soon to be, Kitsault assets, fit very much in that critical metal space.
You know, silver is a critical metal, zinc's a critical metal, copper's a critical metal. You can argue whether gold is a critical metal or not, but, on some lists it is, on some lists it's not. So, but bottom line is, you know, we've got, you know, another after the election, we've still got two years of the Trump administration. FAST-41, I will point out, doesn't mean fast. It's Fixing America's Surface Transportation Act. That's what the acronyms stood for. We think it's a kind of a crummy acronym because it gives people the impression that things happen fast. They don't, they just put it on a dashboard, so everybody actually knows what's going on and who's to blame if things aren't moving along according to plan. That includes the company.
We have, you know, we have times when we have to have our applications in and our information gathered so that it can be reviewed for issuing specific permits, so. But it does hold the agencies accountable as well. So FAST-41 was passed under the Obama administration. It's not a Trump invention, it's been around for years. So yeah, that's. I don't know, that's a long-winded answer, I guess. But we need permitting reform, and so any chance I get, why, I'll get on my soapbox and talk about it a little bit.
Oh, hey, this is what the soapbox is for. It's why you got your time. Somebody asked, "Is there gonna be a campaign update soon, and is there one going on right now?
Yeah, so there is a campaign, and we'll update that. I think, Mike, we're gonna just wrap that into the year-end financials, right?
No, we're gonna... I think, next week we'll give an update on starting the campaign and, you know, FAST-41 stuff on JT. So yeah, next week we'll have an update to the market.
Yeah, and then just a little further out, we are drilling at Lucky Shot, and at the right time, we'll put out results on that as well. That drill program is actually going along, you know, pretty smoothly.
Great. Also somebody from the chat just says, "Very exciting stuff. Keep on going." So that is where I'll close off today, 'cause I said it'd be a half hour, and I'm so rarely honest with you guys about how long we'll be. So we'll close it off for today. Rick, Mike, thank you so much for going through the details of this and answering people's questions about the financing. Thanks everybody who joined. I know there are quite a few of you in the room, so thank you for behaving. I'll always say when there's more than 200. I hope everybody has a wonderful end of their day. Talk to you guys soon.
Thanks, Romeo. Cheers.
Cheers.