Contango Ore (CTGO) is a new recommendation; the company is a gold developer in Alaska with a game-changing strategy via a unique joint venture partnership with Kinross Gold (KGC) called Peak Gold, notes Brien Lundin, editor of Gold Newsletter— and a participant in The MoneyShow Las Vegas on May 9-11.
With its interest in Peak Gold, Kinross controls 70% of the Manh Choh open-pit gold project in southeast Alaska. Contango controls the remaining 30%, and Kinross is the operator. The partners will each pay their percentage share to bring the project to production.
Development and production at Manh Choh will lead to significant cash flows for Contango, as it retains a 30% royalty after all-in sustaining costs of approximately $750/oz are taken out. These numbers are based on Kinross’s June 2021 guidance on the project.
The deal will result in around 66,000 ounces of gold to Contango’s credit each year of operations. That could translate into around $60 million/year in cash flow with Kinross doing all the work.
A feasibility study on Manh Choh is expected in the next couple of months. After 13,000 meters of new drilling resulted in a larger, higher-grade resource, the prospects for this feasibility study are looking very strong.
Manh Choh is slated to be one of the highest-grade open pit mines in the world when it is operating. Because Kinross plans to truck the ore to its processing facility at its Ft. Knox mine, the operation at Manh Choh would be a blast, shovel and truck operation.
Ft. Knox will process all the ore and dispose of the resulting tailings. This will make construction at Manh Choh unusually quick and low cost, and Kinross is pushing to make it happen.
There are a lot of ways to win with Contango, as it could be either a super-royalty company in development or its share of Peak Gold could make it a serious buyout candidate. Or a bidding war could break out for Contango as a whole.
With $25 million in cash in the bank, Contango has the money to pay for its portion of development at Manh Choh and continue exploring and developing its Lucky Shot target.
This 100%-owned project had historic production of 250,000 ounces at 1.5 oz/t (yes, that’s 1.5 ounces/ton, which translates to about 40 g/t). The company is in the process of extending an existing tunnel at Lucky Shot to set up significant underground drilling this summer.
Contango’s goal is to discover between 500,000 and 1 million ounces of high-grade gold over the next two years at Lucky Shot. A lot of work needs to be done to actualize that goal, but another Manh Choh is clearly a possibility here.
Bottom line: Contango Ore is a high-value, super-royalty company that looks to be on its way to significant cash flow. It’s share structure is drum tight, to say the least, which explains the significantly higher share price than you’ll find with the companies we typically feature in this publication.
If you like gold for the medium and long-terms, the prospect of generous, near-term cash flow from Manh Choh makes Contango Ore a strong buy at current levels.
