tango ORE(CTGO) - 2024 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements Unaudited condensed consolidated financial statements and detailed notes for Contango ORE, Inc. for Q1 2024 Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets Summary | ASSETS/LIABILITIES & EQUITY | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :---------------- | | TOTAL ASSETS | $66,159,103 | $58,591,628 | | TOTAL LIABILITIES | $100,208,923 | $73,136,173 | | TOTAL STOCKHOLDERS' EQUITY/(DEFICIT) | $(34,049,820) | $(14,544,545) | - Total Assets increased by approximately $7.57 million (12.9%) from December 31, 2023, to March 31, 2024, primarily driven by an increase in Investment in Peak Gold, LLC[10] - Total Liabilities significantly increased by approximately $27.07 million (37.0%) over the quarter, leading to a larger stockholders' deficit[10] Condensed Consolidated Statements of Operations This statement details the company's revenues, expenses, and net income or loss over a specific period Condensed Consolidated Statements of Operations Summary | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Total expenses | $(2,712,892) | $(2,396,379) | | Total other income/(expense) | $(17,784,347) | $(5,529,108) | | NET LOSS | $(20,497,239) | $(7,925,487) | | Basic and diluted LOSS PER SHARE | $(2.14) | $(1.09) | - Net Loss increased significantly from $(7.93) million in Q1 2023 to $(20.50) million in Q1 2024, primarily due to a substantial unrealized loss on derivative contracts of $(15.63) million in Q1 2024[16] - Loss per share more than doubled from $(1.09) to $(2.14) year-over-year[16] Condensed Consolidated Statements of Cash Flows This statement reports the cash generated and used by the company from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Summary | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(4,414,297) | $(3,026,848) | | Net cash used by investing activities | $(15,457,500) | $(5,090,719) | | Net cash provided by financing activities | $11,986,321 | $2,271,504 | | NET DECREASE IN CASH | $(7,885,476) | $(5,846,063) | | CASH AND RESTRICTED CASH, END OF PERIOD | $7,851,915 | $3,150,091 | - Net cash used in investing activities increased significantly to $(15.46) million in Q1 2024, primarily due to increased cash invested in Peak Gold, LLC[20] - Net cash provided by financing activities increased to $11.99 million in Q1 2024, driven by cash proceeds from debt, partially offset by debt issuance costs[20] Condensed Consolidated Statement of Stockholders' Equity (Deficit) This statement outlines changes in the company's equity accounts over a specific period Stockholders' Equity (Deficit) Changes | Item | Balance at December 31, 2023 | Balance at March 31, 2024 | | :---------------------------------- | :--------------------------- | :------------------------ | | Total Stockholders' Equity/(Deficit) | $(14,544,545) | $(34,049,820) | | Net loss for the period | — | $(20,497,239) | | Stock-based compensation | — | $670,625 | | Common stock issuance | — | $227,598 | - The total stockholders' deficit increased from $(14.54) million at December 31, 2023, to $(34.05) million at March 31, 2024, primarily due to the net loss for the period[24] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements 1. Organization and Business This note describes the company's legal structure, primary business activities, and operational focus - Contango ORE, Inc. (CORE) engages in gold ore exploration and development in Alaska through its wholly-owned subsidiary Contango Minerals Alaska, LLC, a 30.0% interest in Peak Gold, LLC (Manh Choh Project), and its wholly-owned subsidiary Contango Lucky Shot Alaska, LLC (Lucky Shot Property)[26][30] - The Manh Choh Project has commenced ore mining and stockpiling at the Fort Knox facility, with production anticipated to begin early in Q3 2024. All other projects are in the exploration stage[31][32] - The Company changed its fiscal year end from June 30 to December 31, effective December 31, 2023[36] 2. Basis of Presentation This note explains the accounting principles and conventions used in preparing the interim financial statements - The unaudited condensed consolidated financial statements are prepared in conformity with US GAAP for interim financial information and SEC rules, omitting some annual disclosure requirements. All necessary adjustments are included and are of a normal recurring nature[37] 3. Liquidity This note discusses the company's ability to meet its short-term and long-term financial obligations - The Company's primary cash needs are for Peak Gold JV capital calls, Contango Properties exploration, debt repayment, and general & administrative expenses[38] - As of March 31, 2024, the Company funded $62.7 million of the 2023 and 2024 capital calls to the Peak Gold JV, with $42.5 million from the Secured Credit Facility[38] - The Company believes it has sufficient capital, including $22.5 million available under the Facility, to reach Manh Choh mine production (anticipated Q3 2024) and meet working capital requirements for the next twelve months[38] 4. Summary of Significant Accounting Policies This note outlines the key accounting policies applied in the preparation of the financial statements - There have been no changes to the Company's significant accounting policies since the Form 10-KT for the six-month period ended December 31, 2023[39] 5. Investment in the Peak Gold JV This note details the company's equity investment in the Peak Gold Joint Venture - As of March 31, 2024, the Company held a 30.0% membership interest in the Peak Gold JV and had contributed approximately $90.4 million[40] Investment in Peak Gold, LLC Details | Item | Investment in Peak Gold, LLC | | :---------------------------------- | :--------------------------- | | Investment balance at December 31, 2023 | $28,064,405 | | Investment in Peak Gold, LLC (current period) | $15,450,000 | | Loss from equity investment in Peak Gold, LLC | $(140,253) | | Investment balance at March 31, 2024 | $43,374,152 | - The Company's share of the Peak Gold JV's net loss for the three months ended March 31, 2024, was approximately $0.1 million, a significant reduction from $0.2 million in the prior year, with no suspended losses as of March 31, 2024[43] 6. Prepaid Expenses and other assets This note provides details on the nature and amounts of the company's prepaid expenses and other assets Prepaid Expenses and Other Assets Summary | Item | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :---------------- | | Prepaid expenses and other | $1,189,852 | $1,112,910 | - Prepaid expenses primarily consist of prepaid insurance, surety bond deposits, and claim rentals[44] 7. Net Loss Per Share This note explains the calculation of the company's basic and diluted net loss per share Net Loss Per Share Calculation | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss attributable to common stock | $(20,497,239) | $(7,925,487) | | Weighted Average Shares Outstanding | 9,587,113 | 7,243,345 | | Basic and Diluted Loss Per Share | $(2.14) | $(1.09) | - Options and warrants to purchase 501,000 shares were outstanding but excluded from diluted EPS computation due to being anti-dilutive[46] 8. Stockholders' Equity (Deficit) This note provides further details on the components and changes in the company's stockholders' equity or deficit - As of March 31, 2024, the Company had 9,613,604 shares of common stock outstanding, including 429,153 shares of unvested restricted stock, and 501,000 options and warrants outstanding[48] - Under the ATM Program, the Company sold 11,022 shares for approximately $0.2 million net proceeds in Q1 2024, with $34.6 million remaining available[49] - The Rights Agreement, which provides for preferred stock purchase rights under certain conditions, was extended to September 23, 2024[59][63] 9. Property & Equipment This note details the company's property and equipment, including mineral properties, and related depreciation and impairment Property & Equipment Details | Asset Type | March 31, 2024 | December 31, 2023 | | :---------------------------------- | :------------- | :---------------- | | Mineral properties | $11,700,726 | $11,700,726 | | Land | $87,737 | $87,737 | | Buildings and improvements | $1,455,546 | $1,455,546 | | Machinery and equipment | $295,471 | $287,635 | | Vehicles | $135,862 | $135,862 | | Computer and office equipment | $23,235 | $23,571 | | Furniture & fixtures | $2,270 | $2,270 | | Less: Accumulated depreciation and amortization | $(271,860) | $(244,864) | | Less: Accumulated impairment | $(122,136) | $(122,136) | | Property & Equipment, net | $13,306,851 | $13,326,347 | - Net Property & Equipment slightly decreased from $13.33 million at December 31, 2023, to $13.31 million at March 31, 2024, primarily due to accumulated depreciation and amortization[64] 10. Related Party Transactions This note discloses transactions and arrangements with parties considered to be related to the company - The Management Services Agreement with Juneau Exploration, L.P. (JEX), a company managed by the Company's Chairman, was terminated on March 31, 2024, after a monthly fee reduction to $3,000 in January 2023[64] - A receivable of $217,000 from Rick Van Nieuwenhuyse (President and CEO) related to taxes from vested restricted shares was settled in April 2024[64] 11. Stock-Based Compensation This note describes the company's stock-based compensation plans and related expenses - Stock-based compensation expense for the three months ended March 31, 2024, was $0.7 million, up from $0.6 million in the prior year[67][68] - As of March 31, 2024, there were 429,153 shares of unvested restricted common stock outstanding and 100,000 options to purchase common stock outstanding[67][72] Unvested Restricted Stock Activity | Unvested Restricted Stock Activity | Shares | | :--------------------------------- | :----- | | Balance - January 01, 2024 | 433,528| | Restricted shares granted | 144,500| | Restricted shares vested | (148,875)| | Balance - March 31, 2024 | 429,153| 12. Commitments and Contingencies This note outlines the company's contractual obligations, legal proceedings, and other potential future liabilities - The Peak Gold JV is required to spend $350,000 per year in exploration costs on the Tetlin Lease until July 15, 2028, a requirement already satisfied for the next four years[78][79] - The Company has contingent consideration liabilities related to the Lucky Shot Property, requiring payments of cash and common stock if specific gold resource or production milestones are met (e.g., $5 million cash and $3.75 million stock for 500,000 oz gold resource or 30,000 oz production)[80] - Retention agreements for key executives (Brad Juneau, Leah Gaines, Rick Van Nieuwenhuyse) provide for payments upon a change of control occurring before August 6, 2025[82][84] 13. Income Taxes This note provides information on the company's income tax provisions, deferred tax assets, and effective tax rate - The Company recognized a full valuation allowance on its deferred tax asset and zero income tax expense for the three months ended March 31, 2024 and 2023, resulting in a 0% effective tax rate[87] - The Company forecasts a book loss and immaterial taxable income for fiscal year 2024 due to limitations on federal and Alaska NOLs[87] 14. Debt This note details the company's various debt instruments, including terms, principal amounts, and interest rates Debt Summary | Debt Component | March 31, 2024 | December 31, 2023 | | :---------------------------------- | :------------- | :---------------- | | Secured Debt Facility (Principal) | $42,500,000 | $30,000,000 | | Convertible Debenture (Principal) | $20,000,000 | $20,000,000 | | Total Debt, net | $57,078,008 | $44,679,859 | | Less current portion | $21,700,000 | $7,900,000 | | Non-current debt, net | $35,378,008 | $36,779,859 | - The Company drew a total of $42.5 million on the Secured Credit Facility as of March 31, 2024, with $22.5 million of unused borrowing commitments remaining[95][99] - The Convertible Debenture's interest rate was amended from 8% to 9% per annum (7% cash, 2% stock), and its maturity date was extended to May 26, 2028[102][103] 15. Derivatives and Hedging Activities This note describes the company's use of derivative financial instruments and their impact on financial results - The Company entered into hedging agreements for the sale of 124,600 ounces of gold at a weighted average price of $2,025 per ounce, representing approximately 45% of its projected production from the Manh Choh mine[108] - Derivatives are not designated as hedges, and changes in their fair value are recorded directly in earnings. An unrealized loss of $(15,625,330) was recognized for the three months ended March 31, 2024[110][116] Gold Hedging Contracts | Year | Commodity | Volume (ounces) | Weighted Average Price ($/oz) | | :--- | :-------- | :-------------- | :---------------------------- | | 2024 | Gold | 21,100 | $2,025 | | 2025 | Gold | 62,400 | $2,025 | | 2026 | Gold | 41,100 | $2,025 | 16. Fair Value Measurement This note explains the methodologies and inputs used to measure the fair value of financial instruments - The Company measures derivative financial instruments and contingent consideration liabilities at fair value on a recurring basis, classifying them within a three-level hierarchy based on input observability[125][126][127] Financial Liabilities Fair Value Measurement | Financial Liabilities (March 31, 2024) | Level 1 | Level 2 | Level 3 | | :------------------------------------- | :------ | :------------ | :---------- | | Derivative Liability - current | $— | $9,494,487 | $— | | Derivative Liability - noncurrent | $— | $29,548,624 | $— | | Contingent consideration liability - noncurrent | $— | $— | $1,100,480 | 17. General and Administrative Expenses This note provides a breakdown of the company's general and administrative expenses General and Administrative Expenses Breakdown | Expense Category | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Marketing and investor relations | $80,995 | $122,493 | | Office and administrative costs | $62,543 | $38,179 | | Insurance | $323,166 | $222,455 | | Professional fees | $418,808 | $203,688 | | Regulatory fees | $107,893 | $79,430 | | Salaries and benefits | $563,144 | $482,370 | | Stock-based compensation | $670,625 | $607,818 | | Travel | $90,821 | $39,488 | | Director fees | $150,000 | $185,000 | | Total | $2,467,995 | $1,980,921 | - Total general and administrative expenses increased by approximately $0.49 million (24.6%) year-over-year, driven by higher professional fees, insurance, and salaries/benefits[136] 18. Subsequent Events This note discloses significant events that occurred after the balance sheet date but before the financial statements were issued - On May 1, 2024, the Company entered into an agreement to acquire 100% of HighGold Mining Inc. for approximately $37 million, with existing Contango shareholders owning 85% and HighGold shareholders 15% of the combined company upon closing (expected July 2024)[132][133] - Also on May 1, 2024, the Company agreed to acquire Avidian Gold Alaska Inc. for initial consideration of $2.4 million ($0.4 million cash, $2.0 million stock), with a contingent payment of up to $1.0 million based on production decisions[138][139] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial condition, operations, strategy, and liquidity, including critical estimates and forward-looking statements Cautionary Statement about Forward-Looking Statements This section outlines the inherent risks and uncertainties associated with forward-looking statements in the report - The report contains forward-looking statements regarding financial position, business strategy, capital expenditures, financing, gold prices, production timing, operating costs, liquidity, and legal risks[143] - These statements involve known and unknown risks and uncertainties, including the ability to raise capital, retain ownership in Peak Gold JV, realize acquisition benefits, operational delays, price volatility, and regulatory changes[144][146] First Quarter 2024 Highlights Key operational and development milestones achieved by the company during the first quarter of 2024 are highlighted - The Manh Choh Project has commenced ore mining and stockpiling at the Fort Knox facility and is on track for first production in early Q3 2024[148] - Ore and waste mining are ongoing with the full mining fleet in operation, and transportation of ore to Fort Knox is ramping up[149] - Mill modifications and site preparation at Fort Knox are on plan, with building construction, interior piping, and electrical works advancing well[150] Overview This section provides a general description of the company's business, projects, and strategic focus - The Company's core business is gold exploration and development in Alaska, primarily through its 30% interest in the Peak Gold JV (Manh Choh Project) and wholly-owned Contango Properties (Lucky Shot, Contango Minerals Alaska)[153] - The Manh Choh Project, a joint venture with Kinross Gold Corporation, is developing two mineral deposits (Main and North Manh Choh) with ore processing at the Fort Knox complex, aiming for production in the second half of 2024[155][158] - As of March 31, 2024, the Company funded $62.7 million of the $74.4 million budgeted cash calls for the Peak Gold JV's 2023 and 2024 development[156] Recent Developments and Other Information This section details significant events and updates that have occurred recently, including acquisitions - On May 1, 2024, Contango ORE, Inc. announced the acquisition of HighGold Mining Inc. for approximately $37 million, expected to close in July 2024[161] - Concurrently, the Company agreed to acquire Avidian Gold Alaska Inc. for an initial $2.4 million, with a potential $1.0 million contingent payment, also expected to close in July 2024[162] Strategy The company's strategic objectives, including equity incentives, exploration expansion, and legal challenges, are outlined - The Company's strategy includes structuring incentives through equity ownership to align executive and director interests with stockholders, with directors and executives beneficially owning approximately 17.4% of common stock as of March 31, 2024[165] - The Company aims to expand future exploration work by partnering with strategic industry participants and acquiring additional properties in Alaska, subject to fund availability and potential strategic partnerships[169][172] - The Peak Gold JV is currently involved in a lawsuit filed by the Committee for Safe Communities, seeking injunctive relief against the DOT regarding the Manh Choh ore haul plan[168][197] Off-Balance Sheet Arrangements This section confirms the absence of any off-balance sheet arrangements impacting the company's financial position - The Company reported no off-balance sheet arrangements[173] Critical Accounting Estimates This section identifies and explains the key accounting estimates that require significant judgment and assumptions - The Company's critical accounting estimates include derivative instruments, which are recognized at fair value with changes recorded in current earnings, and contingent considerations related to asset acquisitions, measured based on probability and timing of milestones[167][175] Results of Operations This section analyzes the company's financial performance, revenues, and expenses for the reporting period - Neither the Company nor the Peak Gold JV has commenced producing commercially marketable minerals or generated revenue from mineral sales, with profitability dependent on future capital raising and debt repayment[176][177] Results of Operations Expense Breakdown | Expense Category | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Claim rental expense | $0.1 million | $0.1 million | | Exploration expense | $0.1 million | $0.3 million | | General and administrative expense | $2.5 million | $2.0 million | | Loss from equity investment in Peak Gold JV | $0.1 million | $5.1 million | | Interest expense | $2.0 million | $0.4 million | | Loss on derivative contracts | $15.6 million | $0 | - General and administrative expenses increased due to a surety bond requirement for Manh Choh and higher audit/legal fees from the fiscal year-end change[181] Liquidity and Capital Resources This section assesses the company's cash position, funding needs, and ability to meet its financial obligations - As of March 31, 2024, the Company had approximately $7.9 million in cash[185] - The Company has funded $62.7 million of the 2023 and 2024 capital calls to the Peak Gold JV, with $15.5 million funded in Q1 2024, and anticipates $27.2 million in total capital calls for 2024[187] - The Company believes it has sufficient capital, including $22.5 million available under its Secured Credit Facility, to reach Manh Choh production and meet $29.9 million in debt repayment obligations over the next twelve months[188] Available Information This section informs readers where to access the company's public filings and general information - General information and SEC filings (10-K, 10-KT, 10-Q, 8-K) are available free of charge on the Company's website[192] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a 'smaller reporting company,' Contango ORE, Inc. is not required to provide quantitative and qualitative disclosures about market risk in this report - The Company is exempt from providing quantitative and qualitative disclosures about market risk due to its status as a 'smaller reporting company'[193] Item 4. Controls and Procedures Management deemed disclosure controls effective as of March 31, 2024, with no material internal control changes during the quarter - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of March 31, 2024[194] - No material changes in internal control over financial reporting occurred during the last fiscal quarter[195] PART II – OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings The Peak Gold JV faces a lawsuit over the Manh Choh ore haul plan, citing DOT violations and public safety risks, with pending injunction and judgment motions - A lawsuit was filed by the Committee for Safe Communities against the State of Alaska Department of Transportation (DOT) concerning the Manh Choh ore haul plan[197] - The complaint alleges DOT approved a haul route violating regulations, created an unreasonable public safety risk, and aided negligent driving[197] - Motions for preliminary injunction and judgment on the pleadings are pending, with the Peak Gold JV having intervened in the case[197][198] Item 1A. Risk Factors The Company reiterates prior Form 10-KT risk factors with no material changes, impacting financial condition and results due to industry and economic factors - No material changes have occurred in the Company's risk factors since the Transition Report on Form 10-KT for the six-month period ended December 31, 2023[200] - Investment in the Company involves a high degree of risk, with the trading price affected by business performance, competition, market conditions, and general economic factors[200] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company reported no unregistered sales of equity securities or use of proceeds during the period - There were no unregistered sales of equity securities or use of proceeds to report[201] Item 4. Mine Safety Disclosures The Company reported no mine safety disclosures for the period - There were no mine safety disclosures to report[202] Item 5. Other Information The Company reported no other information for the period - There was no other information to report[203] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate documents, debt agreements, certifications, and financial statements in XBRL format - The exhibits include corporate organizational documents (Certificate of Incorporation, Bylaws), forms of common stock certificates, preferred stock designations, convertible debenture forms, and rights agreements[205][210] - Recent amendments to the Credit and Guarantee Agreement and Security Agreement, dated January 31, 2024, and February 16, 2024, are filed[212] - Certifications of the Principal Executive Officer and Principal Financial Officer (pursuant to 18 U.S.C. 1350 and Rules 13a-14 and 15d-14) are included, along with financial statements in Inline XBRL format[209][212][213]