Silver At All-Time Highs! Equity Opportunities Abound | Shawn Khunkhun & Rick Van Nieuwenhuyse

Key Concepts

• Merger of Equals: Dolly Varden Silver and Contango Ore are proposing a merger to create North America’s next mid-tier gold and silver producer.
• Direct Shipping Ore (DSO): Contango’s strategy of processing ore through existing mills (Fort Knox Mill) instead of building new infrastructure, reducing capital intensity and permitting timelines.
• Synergistic Value: Combining Dolly Varden’s silver focus and exploration expertise with Contango’s cash flow, DSO model, and operational experience.
• Kitsalt Valley & Alaska: The geographic focus of the combined company, highlighting the favorable jurisdictions of British Columbia and Alaska.
• Shareholder Value Enhancement: Potential for increased liquidity, ETF inclusion, and institutional investment due to increased scale and share structure.
• Free Cash Flow: Contango currently generates approximately $100 million USD annually in free cash flow from its Mancho project.

Strategic Merger: Dolly Varden & Contango – Creating North America’s Next Mid-Tier Producer

This discussion centers on the proposed merger between Dolly Varden Silver and Contango Ore, announced on December 8th, 2024. The goal is to establish a significant mid-tier gold and silver producer, developer, and explorer in North America. The merger is structured as a “merger of equals,” with shareholders of both companies expected to own 50% of the combined entity.

Current Market Conditions & Sector Attractiveness

The conversation begins by acknowledging the current high nominal prices of gold and silver. However, the key argument presented is that the mining sector, when evaluated based on equity valuations relative to commodity prices, is currently exceptionally attractive. Sean Kungun (CEO of Dolly Varden) emphasizes that this is an opportune time to enhance portfolios, leveraging access to capital, technical expertise, and substantial resource bases.

Contango Ore: A Unique Operational Model

Rick Van Nieuwenhuyse (CEO of Contango) details Contango’s unique approach to gold production at the Mancho project. Instead of the traditional, capital-intensive route of building a mill and tailings facility, Contango utilizes a Direct Shipping Ore (DSO) model. This involves transporting high-grade ore (approximately 8 g/ton gold equivalent) to the existing Fort Knox Mill for processing. This strategy significantly reduces costs and permitting timelines. Contango secured federal permits within a year and state permits within six months, commencing gold production in July 2024. Currently, the company processes approximately 200,000 tons of ore every quarter, generating roughly $100 million USD in annual free cash flow.

Dolly Varden Silver: Exploration & Resource Potential

Sean Kungun highlights Dolly Varden’s focus on silver, specifically its high-concentration deposits in the Kitsalt Valley region. He emphasizes the team’s success in unlocking the discovery potential of the region through an active drill program. Dolly Varden has consistently delivered on its commitments and is now positioned to benefit from the rising precious metals prices.

Synergies Driving the Merger

The core rationale for the merger lies in the complementary strengths of both companies. Key synergies include:

• Asset Complementarity: Dolly Varden’s silver focus complements Contango’s gold production.
• Operational Expertise: Contango’s DSO model offers a faster, lower-cost path to production, which Dolly Varden aims to replicate. Rick Van Nieuwenhuyse’s experience in Alaska and successful project development is a key asset.
• Financial Strength: Contango’s $100 million USD in cash and consistent free cash flow provide a strong financial foundation for the combined company.
• Geographic Consistency: Both companies operate in politically stable and mining-friendly jurisdictions – Northwest British Columbia and Alaska.
• Shareholder Base: Both companies have attracted institutional shareholders (e.g., Franklin, Aliesa), but there is currently no cross-pollination. The merger aims to leverage both shareholder bases.
• Increased Scale & Liquidity: The combined entity is expected to have approximately 31 million shares outstanding, a relatively tight share structure. This, coupled with potential ETF inclusion and listing on the Toronto Stock Exchange (TSX), is projected to increase liquidity and attract further investment, with a modeled $38-50 million USD in potential buying pressure.

Merger Details & Timeline

The merger is expected to close in March 2025. Contango Ore will be the surviving entity, primarily for tax reasons. Shareholders will receive shares in the new Contango Silver and Gold (CTGO) and have the option to exchange shares for tax benefits.

Risk Mitigation & Long-Term Vision

Sean Kungun emphasizes that the joint venture with Kinross at the producing asset minimizes operational risk. The combined company aims to control four mining districts and leverage Rick Van Nieuwenhuyse’s expertise to continue expanding its resource base. The long-term vision is to build a robust, high-growth precious metals producer with a strong balance sheet and a focus on shareholder value.

Concluding Remarks

Both CEOs express excitement about the merger and its potential to create a leading mid-tier gold and silver producer. They believe the combination of assets, expertise, and financial strength positions the new company for significant success in a favorable market environment. Sean Kungun concludes by highlighting the importance of jurisdiction, grade, and stability, positioning the new Contango Silver and Gold as a unique and attractive investment opportunity within the precious metals sector.

Technical Terms:

• DSO (Direct Shipping Ore): A mining method where ore is transported directly to a processing facility without on-site crushing or grinding.
• g/ton (grams per ton): A unit of measure for ore grade, indicating the concentration of valuable metals.
• Free Cash Flow: The cash a company generates after accounting for capital expenditures.
• ETF (Exchange Traded Fund): An investment fund traded on stock exchanges, often tracking a specific index or sector.
• TSX (Toronto Stock Exchange): A major stock exchange in Canada.
• GDXJ: A popular gold miners ETF.