Disclosure: Contango Ore, Inc. has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions.
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The project has potential to operate for 4.5 years, producing 225 Koz per year (67.5 Koz for CTGO), with an average gold grade of 8 gpt; making it a medium-sized/ultra high-grade open-pit gold mine.
CTGO’s share of CAPEX is being funded through a $70M debt financing package from ING Capital (ENXTAM: INGA) and Macquarie Bank (ASX: MQG).
In 2024, CTGO plans to allocate $10M for exploration across its 100% owned projects, as well as the land held by the JV with Kinross.
We maintain a positive outlook on gold in light of the anticipated rate cuts by the Fed, and as we anticipate inflation will remain above its historic average in 2024.
CTGO is trading at a 27% discount to junior gold producers. M&A activities in the junior gold sector are on the rise. Recent transactions involved Dundee Precious Metals’s (TSX:DPM) acquisition of gold explorer Osino Resources (TSXV: OSI) for C$215M, and Zhaojin Mining’s (SEHK: 1818) acquisition of new gold producer Tietto Minerals (ASX: TIE) for C$422M.
Upcoming catalysts include the commencement of production, resource expansion drilling, and the potential for higher gold prices. 
*See last page for important disclosures, rating and risk definitions. All figures in US$ unless otherwise specified.
Aiming to Commence Production in Q3-2024
Ore will be transported over a distance of 400 km to Kinross' Fort Knox mine for processing.
FS Highlights - CTGO's 30% Share
A JV between Kinross (70%) and CTGO (30%); Kinross is the operator
4.6 years of production, totaling 914 Koz AuEq (270 Koz for CTGO)
$215M in CAPEX ($65M for CTGO)
$900/oz in cash costs, and $1,116/oz in All-in-Sustaining Costs (AISC)
AT-NPV5% of $77M, using $1,920/oz gold
Reserves totaling 997 Koz gold (299 Koz for CTGO), with minor silver credits
We note that the project has unusually high-grades for an open-pit mine
Resource Expansion Potential
Kinross and CTGO intend to continue exploring the Chief Danny area, and conduct regional exploration including mapping, sampling, geophysical surveys, and trenching.
Multiple targets identified
Kinross and CTGO spent $3M on exploration in 2023; an additional $4.7M has been budgeted for this year (CTGO’s share: $1.4M)
Lucky Shot, 100% owned by CTGO
Multiple Targets
Source: Company
Lucky Shot is one of the four targets identified within CTGO's 100%-owned land package, which covers 8,554 acres
40 miles northeast of Anchorage
This project is connected to Anchorage via a paved highway
Similar to Manh Choh, Lucky Shot can be fast tracked to production as ore can be processed at Fort Knox, or other facilities in the region
Location Map
Source: Company
CTGO has delineated a small tonnage/high-grade resource
Resources are spread across two deposits – Coleman and Lucky Shot
These deposits lie along the 1.6 km long Lucky Shot vein, which remains open along strike and depth
Source: Company
Coleman and Lucky Shot account for 30% of the Lucky Shot vein. Management believes this vein has potential to host 400-500 Koz gold. In 2024, CTGO intends to spend $5M in exploration including 7,000 m of surface and underground drilling
Financials
$15M in working capital, and $33M in long-term debt at the end of Q1-FY2024
CTGO had withdrawn $20M from a $70M debt facility; remaining available funds will cover the company’s share of CAPEX to production
Source: FRC/Company
FRC Valuation and Rating
We are reintroducing our valuation in this report
CTGO is trading at a 27% discount to junior gold producers
Applying sector multiples, we arrived at a comparables valuation of $26.10/share
Our DCF valuation is $20.35/share
Our valuation includes CTGO’s 30% interest in Manh Choh, plus 100% of resources delineated for Lucky Shot
We are reinstating our BUY rating, with a fair value estimate of $23.22/share. Our valuation does not include any upside potential from the company’s upcoming resource expansion drill programs. Gold producer valuations are 16% lower compared to the past three instances when gold surpassed $2k/oz. We anticipate stronger gold prices and a rebound in sector valuation once the Fed initiates rate cuts, possibly in June 2024.
Risks
We believe the company is exposed to the following key risks (not exhaustive):
- Our valuation is highly sensitive to gold prices
- Development
- Potential for delays in advancing to production
- Exploration programs might not be successful
