US junior turning high gold prices into big money

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A Rare Bird

Contango ORE (CTGO.NYSE-A) is that rarest kind of junior mining company — one with cash flowing hand over fist.
 

Thanks to Contango’s direct-shipping-ore model of production, its first project in Alaska is already turning sky-high gold prices into cold, hard cash (and a lot of it).
 

Now, the company is looking to apply that model to its two other Alaska gold projects, becoming a highly desirable hybrid royalty company in the process.

In the junior mining sector, a cash-flowing company is a rarity.

Most juniors spend their lives as cash-flow-negative operations — burning matches — raising money from capital markets to explore and develop potential mines.

So, when a company like Contango ORE (CTGO.NYSE-A) reports it has sold $36 million worth of gold from the first shipment of ore from its Manh Choh mine in Alaska, that’s reason for investors to take notice.

Contango made that money from an operation that it has partnered on with industry major Kinross to mine and then truck the ore to the mill at Kinross’s Fort Knox Mine in central Alaska.
 

As you’re about to see, that direct-ship-ore model is one that Contango plans to repeat with its two other high-grade gold projects, also in Alaska.
 

It’s a model that promises to make the company a low-capital-intensity, high-cash-flow, hybrid royalty company — one that would spin off tremendous cash flows as gold prices continue to surge.

The Manh Choh Model

The high-grade Manh Choh mine is operated by Peak Gold, the joint venture company owned 70% by Kinross and 30% by Contango.
 

Contango outlined a high-grade, open-pittable gold mine at Manh Choh and then worked with Kinross to set up a direct-ship-ore model for the mine.

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The Manh Choh project is in eastern Alaska. Ore from the mine is shipped to Kinross’s Fort Knox mill near Fairbanks, Alaska.

This model takes advantage of underutilized mill capacity at Kinross’s Fort Knox operations in central Alaska.
 

In July, Peak Gold poured its first gold dore bars from the Manh Choh project. Trucking costs account for about a gram-per-tonne of costs but — with a head grade at 9.5 g/t — those costs barely made a dent on the ore’s profitability.

The first batch of ore produced 16,200 ounces of gold to Contango’s account, generating a phenomenal $36 million of revenue and $19.5 million of cash for the company.
 

The second shipment of ore to Fort Knox has already been completed, and the company should report the cash flow from that shipment in the days just ahead. A third batch is expected in November.

In all, Contango expects to receive cash flow from 30,000-40,000 ounces of gold in 2024 and 65,000 ounces of gold in 2025 from four quarterly batches. The gold is sold at a price of $2,025/oz through a hedge on 60% of the sales and at current spot prices for the remaining 40%.
 

That gives Contango the chance to deliver powerful leverage on rising gold prices and, if gold prices continue to soar, to make even more money than the eye-popping $75 million in cash flow it is predicting for 2025.

Lucky Shot:
The Money-Making Model Continues

With the money it is and will be making from Manh Choh, Contango will continue to advance work on its 100%-owned Lucky Shot mine.

This is a past-producing, ultra-high-grade mine that has extensive underground infrastructure already in place.

Contango plans to drill 15,000 meters starting in 2025 to define a resource and mine plan, and believes within two years it can delineate enough high-grade ounces for a 30,000-40,000 ounce-per-year operation.
 

And the company plans to follow the direct-ship-ore model here as well. The mine’s road infrastructure is such that you can drive a minivan to the site, and the railhead is located 20 miles from the mine site.
 

Therefore, Contango believes that the ore developed from Lucky Shot could be transported to an existing mill, the same as it is doing for Manh Choh.

…And Johnson Tract Too

Longer term, this direct-ship-ore model will be followed as well on Contango’s newly acquired 100%-owned Johnson Tract project in southeast Alaska.

Johnson Tract is a high-grade polymetallic mine with 1.1 million ounces of gold equivalent material at a rich 9.4 g/t average grade.

The deposit is ideally set up for a simple underground mining operation where the ore can be extracted with a small environmental footprint. Bottom-up, gravity-assisted mining would also significantly lower the capital and operating expenses.

Tidewater is nearby, so it would be a fairly simple matter to truck the ore to a barge landing, load it onto a barge, and then ship it to an existing mill or smelter anywhere on the Pacific Rim.
 

As with Manh Choh, the advantage of this model is that the company has a simpler permitting process and dramatically lower capex, because it does not need to build or permit a new mill or tailings facility.

Drum-Tight Share Structure
— And More Cash Just Ahead —
Makes Contango Explosive

For all its that it has accomplished so far, Contango ORE has an extremely tight share structure. In fact, it’s one of the tightest you’ll ever encounter.
 

Consider that, with one mine built and all this cash flow, the company still has only 12.2 million shares outstanding and just 12 employees resulting in low overhead costs.

With 65,000 ounces of gold production anticipated in 2025, the average cash flow is over $6 per share. This translates into powerful positive leverage on the price of gold and extreme responsiveness to good news.

With the cash flow numbers about to hit the market from its second shipment from Manh Choh, the time is now to start doing your due diligence on Contango ORE.

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