CONTANGO ORE 2025 Q2
Earnings Overview & AI Insights

Earnings Performance

Summary of Financial Performance:
Contango Ore reported a strong Q2, with operating earnings of $23 million and net income of $16 million, a significant turnaround from a $3.1 million operating loss and $18.5 million net loss in Q2 of the prior year. Earnings per diluted share improved to $1.24, up from a loss of $1.90. Cash costs were well below guidance at $1,416 per ounce for the quarter, with all-in sustaining costs (AISC) of $1,548 per ounce. The company realized an average gold price of $3,274 per ounce, with a blended carry trade price of $2,441 per ounce. Operating cash flow for the first half of the year surged to $36.9 million, compared to $6.9 million in the prior year period.

Company Outlook & Strategy:
Contango is focused on reducing debt and delivering on hedge commitments while advancing its key projects. The company plans to reduce its debt from $23 million currently to $15 million by year-end and lower its hedge position from 63,000 ounces to 43,000 ounces. For the Johnson Tract (JT) project, the priority is obtaining permits for an underground mining operation. At Lucky Shot, the company aims to resume drilling but will do so only when it has sufficient financial flexibility. Management is committed to balancing debt reduction with reinvestment in growth projects.

Key Industry Trends:
The gold price environment remains favorable, with rising prices benefiting profitability. However, the company is managing risks related to fluctuations in gold prices through its hedging and carry trade strategy. Additionally, improvements in operational efficiency and recovery rates at the mill are reflective of broader trends in the mining industry to minimize costs and maximize returns.

Operational Highlights:

• Manh Choh Project: The third ore processing campaign at the Fort Knox mill is underway, with 250,000 tons at 7 grams per ton grade being processed. Recovery rates have improved to 92-93%, aided by a 2:1 oxide-to-sulfide ore ratio, which optimizes processing performance. An oxygen sparging system is being added to enhance recovery as sulfide content increases.
• JT Project: Permit approval for underground mining is progressing smoothly, with strong relations with the state of Alaska. The deposit is described as environmentally favorable for mining, with minimal risk of water contamination.
• Lucky Shot: The project remains on hold, with plans to restart drilling once the company achieves greater financial flexibility. A small royalty acquisition (0.5% NSR) was completed to improve project economics.

Challenges & Risks:

• Rising operational costs, such as truck replacements and capital expenditures for oxygen sparging systems, could impact margins.
• Gold price volatility remains a concern, though mitigated by the hedging and carry trade strategy.
• Timing and execution risks associated with permitting and project development at JT and Lucky Shot remain critical.
• Limited financial flexibility may delay reinvestment in growth projects.

Key Analyst Questions & Responses:

1. Drivers of Financial Turnaround: Management attributed the earnings improvement to increased production at Manh Choh, stable gold prices, and gains from Onyx shares acquired during the HighGold acquisition.
2. Hedge Strategy: The optimal hedge ratio mirrors the feasibility study, with 70% of production hedged and 30% sold at spot prices. Management focuses on ensuring sufficient gold for hedge deliveries to avoid exposure to price swings.
3. Operational Consistency at Manh Choh: Consistent grades are maintained through blending oxide and sulfide ores. The upcoming oxygen sparging system will enhance processing as sulfide content increases.
4. Capital Allocation: The company aims to balance debt reduction and reinvestment. While $29 million in debt has been paid down, additional cash is being allocated toward permitting at JT and preparatory work at Lucky Shot.
5. JT Tonnage Potential: The project is targeting a 1,500-ton-per-day operation, supported by the favorable geometry of the ore body, which allows efficient underground mining.
6. Royalty Acquisition at Lucky Shot: The purchase of a 0.5% NSR royalty will reduce future production costs, enhancing project economics.

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