“Eighty Thousand Ounces of Gold Production in 2027” projects Contango’s CEO Rick Van Nieuwenhuyse

Key Concepts

• Direct Ship Ore (DSO) Model: A mining strategy where ore is extracted and transported directly to a third-party facility for processing, reducing the need for on-site milling infrastructure and lowering initial capital expenditure (CAPEX).
• Pre-stripping: The process of removing waste rock to access ore bodies in a pit; it is a necessary investment that temporarily lowers production but enables higher output in future periods.
• FAST-41: A federal permitting improvement framework designed to expedite the environmental review and permitting process for major infrastructure and critical mineral projects.
• Hedge Book: A financial strategy used to lock in commodity prices; Contango is actively eliminating its hedge book to provide shareholders with full exposure to gold and silver price fluctuations.
• Infill Drilling: Drilling conducted within a known mineralized zone to increase the confidence level of the resource (upgrading from "inferred" to "measured and indicated").
• PEA (Preliminary Economic Assessment): An early-stage study that provides a conceptual framework for the economic viability of a mining project.

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1. Manh Choh Mine (Producing Asset)

• Production Status: Q1 production was 8,000 ounces of gold. The company maintains annual guidance of 40,000–45,000 ounces for the current year.
• Operational Strategy: 2024 is a transition year, moving mining operations from the North Pit to the larger South Pit. Heavy focus is currently on pre-stripping waste, which explains the lower quarterly production.
• Future Outlook: Production is expected to ramp up to 75,000–80,000 ounces in 2027.
• Financials: The company received a $9 million dividend from the joint venture with Kinross and expects three additional dividends this year. Contango aims to be debt-free and hedge-free by the end of 2024.

2. Lucky Shot Project (Development)

• Current Activity: The company is conducting 18,000 meters of drilling to support a feasibility study.
• Strategy: The project utilizes a DSO model. Management noted that because the project is fully permitted, the risk of a "CAPEX blowout" is minimal, as the primary capital requirement is basic mining equipment (trucks, slushers).
• Ownership: Contango recently bought out the underlying owner, including the lease, patented claims, and a 2% royalty, signaling full commitment to the project.

3. Johnson Tract Project (Development)

• Permitting: The project is part of the FAST-41 program, which targets project permitting completion by March 2028.
• Infrastructure: Work is underway to build a 5 km road and winterize the camp to allow for year-round underground tunnel construction starting next year.
• Technical Note: CEO Rick Van Nieuwenhouse humorously referred to this as the "boring" phase of the Lassonde Curve, referencing both the slow permitting process and the physical act of tunnel boring.

4. Kitsault Valley Project (Silver Assets)

• Resource Update: A mineral resource estimate update is expected in late June, incorporating 150,000 meters of historical drilling. The company anticipates the silver resource will approach 100 million ounces.
• Exploration: A 40,000-meter drill program is planned with five rigs. The goal is to release a PEA/initial mine plan by this time next year, targeting an annual production of approximately 5 million ounces of silver.

5. Corporate Strategy and Market Perspective

• Market Volatility: CEO Rick Van Nieuwenhouse attributes recent stock volatility to geopolitical tensions (specifically the war in Iran), which has strengthened the U.S. dollar and pressured commodity prices.
• Institutional Interest: The company anticipates future buying pressure from ETFs (GDXJ and Russell 2000) following rebalancing, with estimates suggesting approximately $50 million in potential inflows.
• Integration: Following the merger with Dolly Varden, the company is fully integrated with a 20-person team. Management is currently evaluating four different options for bringing a mill in-house to improve long-term economics.

Notable Quotes

• "Our philosophy is that investors can hedge their bet on gold. That's not our job. Our job is to produce gold." — Rick Van Nieuwenhouse, on the decision to eliminate the company's hedge book.
• "If our capital doubled... it still wouldn't kill the project." — Rick Van Nieuwenhouse, regarding the low-risk nature of the Lucky Shot DSO model.

Synthesis

Contango Silver and Gold is currently navigating a transition year at its Manh Choh mine, characterized by heavy pre-stripping and debt reduction. The company is positioning itself for significant growth by 2027 through a combination of high-grade production, the advancement of its Lucky Shot and Johnson Tract projects, and the expansion of its silver resources at Kitsault Valley. By eliminating debt and hedges, and focusing on a DSO model for development, the company aims to provide shareholders with direct exposure to commodity price upside while maintaining a disciplined, low-CAPEX growth trajectory.