Transcript
Automated transcript · Written by software from the replay's audio. It can mishear names and figures; the replay is the record.
0:07 Hello, everyone, and welcome to Contango OARS Live Investment Summit today. I'm pleased to introduce President and CEO Rick Van Nuenheise. Rick is going to be reviewing some of the latest news and updates that are coming out of Contango and after we enter into a live Q&A session. So I'd like to remind everyone in the audience that you can ask those questions that you have in the Q&A chat found on the right hand side of your screen at any time during Rick's presentation.
0:29 And in a couple of days, we'll have this video up as a non-demand recording on Six.com of course. Without further ado, Rick, I'd like to hand things over to you to get us started. Perfect, Cam. Good morning and good morning, everyone. Thanks for coming in and thanks for hosting us this morning. Exciting day for us to have the feasibility study out with Kinross's announcement day before yesterday and they're due to quarterly call today talking about our Manchur project. Of course, they're a 70% owner in the project and the operator and manager of the project. I would like to thank and acknowledge them for getting the feasibility study completed ahead of time. That is always a good thing in this market. The results are good as expected. This is a high quality deposit.
1:19 We'll be trucking 8 grams of material, 8 gram per ton material to the Fort Knox mill. And of course, that's what makes this project special is we're not building a mill in a tailings facility. We're not capitalizing those things. We're not permitting those things. It's a very simple execution plan. So we'll be working on a technical report, SK1300 technical report for everyone to review the details. Obviously being a joint venture we have all the information but we have to put it into an SK 1300 format. We're working on that now. We expect that to be done by the end of August. Working with our qualified person John Sims to get that out the door here in short order.
2:08 So, I mean, just to highlight things, we'll now have a reserve of just a little shy of 300,000 ounces of gold at just shy of 8g per tonne gold. There's some Silver as well, about a little over 13g in the reserve base. Cash costs, all in sustained cash costs, I think came in a little higher than what was guided before, but I think I had guided that we expected that with the inflationary pressures we're seeing in the country and around the world today. So we came in at just right at $900 per ounce. That leaves a good margin still with a $1,700 gold price. That's an $800 margin. And we should be generating really good cash flows in excess of $50M a year from that.
2:54 It is only a 4.5-year mine life, but obviously we think there's good exploration upside on the property. It's a big property that we have under lease from the Tetlin tribe. 675,000 acres. It's about the size of Rhode Island, so we've got lots of area to explore. It's an exciting terrain being in the middle of the Tentina Gold Belt. Lots of news to come in the future. To stay focused on the now with the results of the feasibility study, average of 225,000 ounces of production from the Manchot site. Our share of production would be in the neighborhood of 67,500 ounces. So it's a meaningful amount of production for 30% ownership. And again, the ore mined at site, put into highway trucks and then trucked up the highway to the Fort Knox mill and processed.
3:53 In a batch processing decision was made there. Basically, running the Fort Knox mill
3:58 once 0.25 for 3 weeks. Something on that order is what is envisioned. The metallurgy of the deposit has always been quite good. It's a sulphide deposit, but we're getting in the neighbourhood of an average of high 80s to low 90s recoveries for Gold. It's a pretty friendly deposit. Again, it's an open-pit deposit. There's not a lot of things that need to be built at site. Essentially, truck shop and managing water are the 2 main things and some ATCO trailers for people to work out of and, our camp that's located in Tocque, which is the refurbishment of a hotel and also tell him talk is well underway.
4:47 So that'll that'll house the construction crews and the operating crews as the mine is put into development. Capital costs came in at $182M for the joint venture, So our share of that is roughly $55 million.
5:09 It's about $30 million more than I projected or I expected and guided our shareholders. And that is principally because we've actually changed the scope and we're actually purchasing the highway trucks and trailers that will carry the ore, truck the ore up to the Fort Knox mill. And that was a bit of a different plan than originally conceived. And there's a number of reasons for that that we'll probably detail in more detail in our in the feasibility study. But it's a obviously it's a trade-off between capital and operating. So I think in today's world we want to be in control of the things that matter the most. The trucking is an important component of the project. Taking on the responsibility and ensuring that truck and trailer assemblages get built is, I think, a positive move for the project.
6:03 These will be fit for purpose trucks. Ken Ross spent a lot of time talking with community members and getting feedback and understanding their concerns. And these will probably be the safest trucks on the highway in the world probably because it'll be brand new
6:23 and ready for operation in Alaska. So I think I've hit the high points there. I will Maybe stop now, Cam, and just go ahead and take Q&A from people on the call. Absolutely. Thanks, Rick. I'd like to remind everyone in the audience again that you can ask questions using Q&A chat found on the right-hand side of your screen. But let's start, Rick, with this. Could you explain the tolling arrangement and is it included in the all sustaining costs? Yeah, it's a good question. And the short answer is yes, it is included in the all in sustaining costs of $900 an ounce. So Fort Knox is pulling the ore from Rancho to the joint venture. So the joint venture, you know, it will pay the, the toll obviously will pay 30% and Kinross will pay 70. So they are sort of paying themselves, if you will, in the toll.
7:17 And it's, it was negotiated. It was part of our overall negotiation and it basically is capped at the 20% of costs. So we have their actual costs of what it costs to run the mill on a batch basis. And then we, the joint venture, pays a 20% premium to that. So it's sort of a profit premium, if you will. I call it sort of a convenience fee, because
7:45 The convenience for us is not having to build our own mill and tailings facility. That's how I think about it. It's a good, solid arrangement. It's helpful for Fort Knox, as you can see from Ken Ross' disclosure.
8:03 Obviously with delivering high-grade 8g material from Manchurian, it augments Ken Ross' production out of the Fort Knox facility significantly. Anthony is wondering how you're anticipating financing the CAFX gap that now exists compared to the prior guidance? Not really any difference. I mean, it's a slightly bigger number, but it was, I think I guided sort of, you know, I was expecting to raise $50 million. So we're, you know, we're not too far off of that, despite the fact that we have changed scope and we're now about purchasing the highway, truck and trailers. I think the market's available for projects that are going to be generating cash flow. I mean, the kind of way I look at this,
8:49 we have $50 million to spend. And I just should note that the 182 million, the total capital, we're spending part of that now, right, this year. We don't have an exact accounting of how much of that of our current budget is being allocated to capital, but let the accountants figure that out. But we are definitely spending capital dollars now. So let's just round numbers $50 million for over $200 million of free cash flow in the next few years. I think that's a pretty good investment thesis. We only have 6.8 million shares outstanding. So, you know, we've always had a very tight share structure. And I think the market, despite that it is a difficult market, we certainly all acknowledge that, but I think we'll be able to raise the capital in the equity markets to undertake what we need to take here.
9:42 We don't need to do it right away. We've got time. We're sitting on about $22 million of cash right now, so we're in good shape. We have curtailed some of our planned exploration this year on our earlier stage projects to conserve cash. We're not doing work on our ZZZ, Shamrock, or Eagle Hohner projects. But we are advancing our Lucky Shot project and I expect to have some interesting news out on that in the next few weeks. You got good things going down on the Lucky Shot project as well. Hope you look forward to reporting on that in the next few weeks. Absolutely, Mark. I hope that answers your question. I think you just hit 1 there. Naturally there, Rick, but listen, Tom's pointing out obviously that Ken Ross is the critical factor here. What's the actual timeline to seeing production values from Fort Knox?
10:36 For production from Fort Knox, I'm going to understand the question from Manchuro. The question is for Fort Knox. Tom, maybe if you want to reword your question, we can come back around to you. Mark does have a question though. Trucks usually depreciate over 10 years. So with a 4.5 year mine life, can we assume that some residual value, there will be some residual value on the extra 32 million capex? Yeah, good question, Mark. And to be perfectly honest, I don't have a complete answer and understanding of how the whole trucking arrangement will work. It is something we'll get more clarity on, but I think your analysis is correct. I think the concept is, and it's related to things like insurance and other matters,
11:27 that we want to be in charge of getting, making sure the trucks get built. We the joint venture, and again, Ken Ross is manager here. But from an operating standpoint, the truck operator wants to be in charge of the trucks as well and care for maintenance and all those things. So I think there will be a bit residual value. I think you know basically us paying the capital will be recouped from the operating costs. So it'll probably be factored in there, but I don't, you know, I don't have any details on it and I'm still trying to get my head around accounting for this. So, But I'm not an accountant, I'm a geologist. Absolutely, I'm going to try and double barrel 2 questions here that are very related, talking about upcoming cadences for exploration. But Eric points out, you know, there's 270,000 hectares of land. What's the potential to find more mineralization?
12:16 And what's the most, what are the most interesting targets currently? Yeah, so we don't have a map to look at, but it's on our website. We've got the area right around the known deposits has a lot of data that has been collected over the years, surface geochem soils, trenching, lots and lots of geophysics to target the sulfide mineralization. So there are lots and lots of targets right around the 2 known open pits that'll be formed with the north and main Manchot deposits. That covers about 50 square miles of the whole 675,000 acre property. So one of the things we're doing this year is doing a lot of broad geochemistry as part of the exploration program at Manchot.
13:09 And that's going to hopefully light up other areas that look interesting for follow-up exploration. So You're absolutely right, Eric. There's just, you know, it's a tremendous, it's a big block of private land in the middle of the Yukon Tanana Train. So lots of areas to explore out there. And again, this is all private land owned by the Tetlin tribe.
13:30 And literally there's been no exploration work ever done in this area. It was set up, you know, in the 1920s as an Indian reserve for the Tetlin tribe. So there they kept everybody else out and not even the USGS or the state geologists have been on this land. So we think we've got an interesting part of the world to find more mineralization. All right. Tom is wondering when you're going to see cash flow starting. The guidance is by the end of 2024, I think, subject to permitting and all the things that you have to do to actually operate a mine. The main permit there is the mine operating permit.
14:15 It's with the state of Alaska, so we don't envision any particular issues. Again, not having a tailings facility really does simplify everything related to water. We have to manage water at the mine site, But again, you do that with just a proper SWEP program, stormwater drainage program. And the Kinross folks have been doing this for years. So they know this well. They know the regulations well. They know the regulators well. So there's things to do there. But I think the guidance that Kinross has put out is by the second half of 2024. And hopefully we can, like we've done with, like they've done with the feasibility study, we can get that done a little ahead of time.
15:02 Great, Thomas, a follow-up question. You mentioned Lucky Shot earlier, but does this news influence the development schedule for it? No, actually, at least not right now. Obviously, you know, next task is going out and raising the capital for our share of spending. The big spend will be next year at Manshaw. So we've got some time, it doesn't start like tomorrow or something like that. We will have an augmented budget that the joint venture will approve that'll address some of the construction activities that we mentioned, mainly at the Manchow site and finishing up the camp. Those are sort of the focus areas for this year. And then, again, there's not a lot to build out there. So I don't think that the construction schedule for the Mancho site itself is particularly arduous.
15:58 And so For right now, we're going to continue with our plans at Lucky Shot. And we're already exploring with the drill rig now, underground drilling. We're on our second hole. Probably complete that here this week and move on to the third. And continue with the development of the drift in the footwall after we go to the vein. We're actually gonna go with the underground workings to intersect the vein, which we think is about 100 feet in front of us, and bulk sample that and test mine it. And then we'll turn our attention to just going and drilling the heck out of it. Fair enough. Eric and a couple of people are wondering if you could recall the exact trucking distance.
16:46 240 miles, 400 kilometres. There we go. All right, next question. So the average grade of 8 grams per ton is twice the grade of the previous reported grades. Could you explain how you got there? Good question. Basically, by doing a lot of infill drilling and focusing on the higher grade part of the deposit, and obviously we're leaving some behind, as you'll see in our resource statement that we'll be publishing with the technical report. We're not really leaving much behind. What we've really done is really infill drill the heck out of this and get the guts out of it off. So we're on the grade tonnage curve. We're being very efficient about how many ounces of gold we're taking. It's close to 1 million ounces. You're leaving probably 200,000oz or 300,000oz there, but much lower grades. Obviously, that will remain a resource and we'll maybe in the future figure out if there's anything to be done there. But yeah, the 8 gram grade is pretty solid.
17:50 I mean, this is extremely well drilled out deposit at this point. And just to back on that trucking question about the miles, The way I think about this is it's about 1.5 grams per ton to truck the ore up to the Fort Knox Mill. That's your cost, if you will, at today's gold price. So you still got a heck of a margin here. Great. Thanks. Mark's wondering if we should expect some equity financing, debt or some other method, for example, a stream on the silver kicker. So short answer is no streaming, no royalties, no silver kickers, any of that kind of stuff. There are already royalties on the property. We certainly don't want to burden any more.
18:37 We only have 6.8, 6.7, 6.8 million shares outstanding. I think an equity financing would be in order to help our liquidity, frankly. We have a convertible debt instrument with Queens Road, and they've been great shareholders, and we'll certainly have a conversation with them as a shareholder, and There may be some opportunities there to take a look at that and restructure that. I think as a company, we're in an extremely good position, having only 6.8 million shares outstanding and having been prudent with our equity. We recognise it's a tough market, but this is a fantastic story.
19:28 8g per tonne, open pit, I think that will be the highest open pit Gold mine in the world. Thank you so much, Rick. That looks like all the questions we received for today. I'd like to thank everyone for asking questions and you, of course, coming on, Rick. But with that, I'd like to pass things over to you for some closing remarks. Stay tuned to our story. We'll have the technical report out, the SK-1300 technical report out by the end of August. And I think we'll have some interesting news out for you on our advancement of the Lucky Shot project. Pretty excited about what we're seeing down there too. And of course we own 100% of that. And Historically mined high grades there. And on the road system. We are focused on advancing both of these projects. Ken Ross is doing a wonderful job on the technical front and on the social front meeting with communities and addressing their concerns about trucking, which obviously is the you know the big part of this whole project. So we'll look forward to updating you and I'll sign off there. So thank you very much.
