Dolly Varden Silver | Shawn Khunkhun and Jimmy Connor

Key Concepts

• Gold-Silver Ratio: A metric comparing the price of gold to silver, currently at 60 (down from 100 the previous year), with potential to fall to 30-25.
• Dolly Varden & Contango Merger: A strategic merger between Dolly Varden (silver exploration) and Contango (gold production) to create a diversified precious metals company.
• Direct Shipping Ore (DSO): A cost-effective mining method involving shipping high-grade ore directly to a processing facility, bypassing the need for on-site infrastructure.
• Lan Curve: A concept describing the financial profile of mining projects, with high exploration costs followed by lower development costs and eventual production revenue.
• Golden Triangle (BC): A highly prolific mineral region in British Columbia, Canada, known for its high-grade gold and silver deposits.
• All-In Sustaining Cost (AISC): The total cost of producing an ounce of gold or silver, including operating costs, capital expenditures, and exploration expenses.
• Heap Leach: A mining process used to extract precious metals from ore.

Dolly Varden & Contango Merger: A Detailed Overview

I. Background & Rationale for the Merger

Six years prior to the interview, a new team took over Dolly Varden when silver prices were around $16/oz. Over the next five years, the company secured $185 million in capital from investors including Heckla Mining, Eric Sprott, and Fidelity. This funding facilitated five acquisitions, expanding Dolly Varden’s land position from 7,000 to 100,000 hectares and increasing its mine count from two to five past-producing silver mines in British Columbia’s Golden Triangle. The company’s valuation rose from $20 million to a peak of $750 million.

Despite investor interest in production, the previous management favored exploration and acquisition due to cost-effectiveness. However, the recent surge in silver prices prompted a re-evaluation. The merger with Contango was deemed necessary because Dolly Varden lacked the expertise to navigate permitting and development. The “Lan Curve” – the challenge of financing development during bear markets – further reinforced the need for a partner with existing cash flow. The core principle driving the merger is Contango’s optimized Direct Shipping Ore (DSO) model. Complementary projects and management skillsets were also key factors.

II. Contango’s Alaskan Assets

Contango’s portfolio consists of three Alaskan assets:

• Mcho (Macho) Mine: An open-pit gold mine grading 8 g/ton, considered one of the highest-grade open-pit gold mines globally. Ore is trucked 240 miles to Kinross’s Fort Knox facility. Annual production is approximately 200,000 ounces, with 60,000 ounces attributable to Contango shareholders through a 70/30 joint venture with Kinross. In 2025, the mine generated $102 million in free cash flow. The average All-In Sustaining Cost (AISC) is around $1,500/oz.
• Lucky Shot Mine: A 100% owned, past-producing, permitted high-grade gold mine that historically produced 250,000 ounces at 40 g/ton. A $50 million drill program (18,000 meters) commenced before Christmas to bring the mine back into production, with initial production targeted for 2028 at 30,000 ounces/year, ramping up to 40-50,000 ounces/year.
• Johnson Track Project: A gold project containing approximately 1 million ounces at 10 g/ton. Current work focuses on camp upgrades and infrastructure improvements to facilitate a future production decision, with a projected annual production of 100,000 ounces.

III. Direct Shipping Ore (DSO) Model Explained

The DSO model involves shipping high-grade ore directly to existing processing facilities, eliminating the need for on-site processing plants and tailings facilities. This significantly reduces capital expenditure (CAPEX) and permitting timelines. The model leverages underutilized processing facilities in North America (e.g., Red Lake, Northwest BC, Yukon). Historically, the “hub and spoke” model was common, but DSO offers a streamlined alternative. The success of DSO is contingent on high-grade projects, which is the focus of both Contango and Dolly Varden.

IV. Dolly Varden’s Silver Assets in British Columbia

Dolly Varden holds a 100,000-hectare land position in the Golden Triangle, encompassing five past-producing, high-grade silver mines. The company has identified significant gold potential alongside the silver.

• Unique Geology: The project is hosted in Jurassic rock (Hazelton Formation) within the Golden Triangle, a region known for world-class deposits like SK Creek, Premier, and Brucejack.
• Silver Resources: Currently holds 100 million ounces of silver, with exploration targeting expansion to 200 million ounces and beyond.
• Exploration Targets:
  • Wolf Vein: A newly discovered vein expanding to 30-40 meters in width, averaging 300 g/ton silver, and remaining open.
  • Torbert Deposit: Discovery of mineralization similar to the past-producing Torbert mine (Canada’s third-largest primary silver mine) a kilometer away from the original deposit.
  • Thea Property: Similar mineralization to Torbert discovered 20 kilometers north, indicating regional potential.
• Homestake Deposit: Indicated resource of 7 g/ton.
• Dollyard Silver: 300 g/ton.

V. Post-Merger Strategy & Financial Outlook

Following the merger (shareholder vote on March 17th), the combined entity will have approximately $140 million in cash and generate $150 million in annual free cash flow. The 2024 budget is fully funded, covering drill programs at Dolly Varden (Kitsole Valley) and Lucky Shot, as well as infrastructure improvements at Johnson Track. The goal is to become a significant player in the precious metals market, offering investors an alternative to Heckla Mining, with a focus on safe jurisdiction, gold production, and a substantial silver inventory. Drilling will continue aggressively on both the Alaskan and BC assets, leveraging the combined financial strength of the merged company.

VI. Notable Quotes

• Sean: “What often starts as a silver mine…explorers developers and miners in BC’s golden triangle have started with high-grade silver deposits and they’ve morphed into some of the biggest gold systems on the planet.”
• Sean: “We’re creating a vehicle that’ll be valued at about a billion dollars in a marketplace where there is no peer like it in that mid-tier space.”

VII. News Flow Expectations

Investors can anticipate:

• Drill results from Homestake and Wolf at Dolly Varden.
• Drill results from Lucky Shot in Alaska.
• The outcome of the shareholder vote on March 17th.
• Completion of the merger by the end of March.
• Continued exploration updates and progress towards production at multiple projects.

Conclusion

The merger between Dolly Varden and Contango represents a strategic move to create a diversified precious metals company with a strong financial foundation and a compelling growth profile. The combination of Contango’s cash-flowing gold assets and Dolly Varden’s high-grade silver exploration potential, coupled with the efficient DSO model, positions the new entity for success in a favorable precious metals market. The company aims to become a significant player, offering investors a unique opportunity in a sector lacking comparable peers.