Contango ORE (NYSEAMERICAN:CTGO) executives said the company has eliminated its remaining gold hedge book by converting the last 15,000 ounces of hedged gold into debt, a move management framed as increasing shareholder exposure to gold prices while preserving equity.
Speaking during an investor webinar, Rick Van Nieuwenhuyse, President and CEO of Contango Silver & Gold, said the hedges were not put in place as a bet against gold, but were required by lenders in 2023 as the company moved the Manh Choh mine toward production.
Final Hedges Converted Into Debt
Mike Clark, CFO of Contango Silver & Gold, said the remaining hedges covered March and June 2027 deliveries totaling 15,000 ounces and were priced at $1,935 per ounce after a prior restructuring. When the hedge settlement was locked in, he said gold was trading around $4,035 per ounce, while the forward curve used for settlement was roughly $100 higher.
Clark said he viewed the settlement cost as approximately $1.5 million related to the forward curve versus the spot price. He added that the company’s debt increased from $12.6 million to $46.3 million, though the interest rate declined from 8.9% to 7.4% and no restructuring fees were charged.
Assuming the debt is carried through the full term, Clark said the incremental interest expense could be about $2 million. However, he said the company intends to repay the debt early if possible.
“The intention still is to pay these down ahead of schedule,” Clark said. “Especially if gold goes back up to $5,000, we’re going to have that much more ability to repay it early.”
Lenders Required Downside Protection
As part of the arrangement, the company also purchased put contracts at a $3,100 strike price covering the same 15,000 ounces. Clark said the puts cost $715,000 and were required by lenders seeking downside protection.
Clark said the puts were structured in a way that the lenders funded them initially, with repayment added to the debt and scheduled for March and June of next year alongside principal repayments.
“It’s not that much money to protect us on the downside if gold does correct more so,” Clark said. “I don’t look at that as a cost. You can always sell those in the future here.”
Management Cites Gold Price Pullback as Opportunity
Van Nieuwenhuyse said the company viewed the recent pullback in gold prices toward $4,000 as an “opportunistic window” to complete the transaction. He said central bank buying has been a key driver of gold prices and cited a BMO report that said central banks bought 41 tons of gold in May.
He said Poland, the Czech Republic, Singapore, Kazakhstan and Uzbekistan were among the buyers mentioned, while Russia was selling.
“We think the $4,000 gold price is a good support level for gold,” Van Nieuwenhuyse said. “Once we came back down to that $4,000 level, we pulled the trigger.”
Manh Choh Production Transition Remains Central
Executives said the debt repayment schedule aligns with the original timing of hedge deliveries and with the Manh Choh mine plan. Van Nieuwenhuyse said 2027 had always been expected to be a stronger year for production and lower costs because the company is completing pre-stripping this year as it transitions from the north pit to the south pit.
“We’re finished mining in the north pit now,” Van Nieuwenhuyse said. “We’re pre-stripping, doing a lot of pre-stripping in the south pit. We’ll see sulfide production increase in the next two quarters.”
He said the company has guided 2027 production at Manh Choh of 75,000 to 80,000 ounces, with cash costs of $1,200 to $1,300 per ounce. At current gold prices discussed during the webinar, the operator noted that would imply a margin approaching $3,000 per ounce. Van Nieuwenhuyse said the company would now be fully exposed to spot gold prices on those ounces.
Van Nieuwenhuyse also said oil and diesel costs remain an important factor for mining operations, particularly given Contango’s direct shipping ore model and transportation costs. He said even a significant increase in oil prices would add roughly $100 per ounce to production costs, in his view.
Growth Projects Remain Funded by Cash Flow
Management said the company’s longer-term plan is to grow from approximately 60,000 ounces of gold production to 200,000 ounces of gold production and 5 million ounces of silver production over the next four to five years. Van Nieuwenhuyse said cash flow from Manh Choh is intended to fund advanced-stage projects including Lucky Shot, Johnson Tract and Kitsault.
At Kitsault, Van Nieuwenhuyse said the company is more than halfway through a 40,000-meter drill program and expects to publish a new mineral resource estimate before the end of the month. He said guidance on a potential Kitsault production timeline could come around this time next year, after further work including an S-K 1300 Initial Assessment.
Van Nieuwenhuyse also said securing a mill or processing facility for both Kitsault and Johnson Tract is “probably the biggest priority of the company right now,” though he said the company is under confidentiality agreements and could not provide details.
On Lucky Shot, Clark said he does not envision the company returning to lenders to advance the project. Van Nieuwenhuyse said the company is currently envisioning roughly $50 million to $60 million to bring Lucky Shot into production, with some spending already underway this year for underground access and feasibility-level mine planning.
Van Nieuwenhuyse said the elimination of the hedge book removes what analysts had viewed as a constraint on the company. He said Contango is trading at approximately 0.25 times net asset value, compared with a peer group average of 0.55, according to his comments during the webinar.
“Now we’ll make as much money as the gold price will allow us to make,” Van Nieuwenhuyse said.
About Contango ORE (NYSEAMERICAN:CTGO)
Contango ORE Royalty Trust (NYSE American: CTGO) is a grantor royalty trust that holds net overriding royalty interests in oil and gas properties. As a non‐operating entity, the trust itself does not engage in exploration, drilling or production activities but instead receives a percentage of revenues generated by producing wells. This structure offers investors exposure to commodity price movements and production volumes without the direct capital expenditure or operational risks associated with upstream oil and gas companies.
The trust’s assets consist primarily of royalty interests in offshore leases located on the continental shelf of the Gulf of Mexico.
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