Contango Silver & Gold Inc. (CTGO) Earnings Call Transcript

[Audio Gap] in Beaver Creek, Colorado. Rick Fendel, as a CEO of Contango Silver and Gold, Shawn Khunkhun, the company's President and on-site. David Larimer, the company's Rockstar and VP Exploration and to run through the very exciting mineral resource estimate at the Kitsault Valley project in British Columbia. Gentlemen, has everything going?

Yes, that's good. Bever Creek, this time of year is beautiful, all colors and a cash bar, not a better place to be and everybody is excited. So

Awesome No, glad to hear it. Yesterday is going to work is for the folks in the room and do some really quick housekeeping them. We'll get into the protein faster promise. I'm going to ask the gentleman to hear some questions just based on the press release. But this is an open forum, pleased to use the chat button at the bottom of the screen. I know several of you have already sent questions in over e-mail. We'll get to those once I'm then prepared questions. But then I'll try to get to as many as I can in the chat. Get them in early, and I'll like to get to them. But for every reason, I can't get to your question, I'll make sure the Contango Silver & Gold team gets them and is able to get back to you quickly using either your phone number or e-mail found at registration. The only other thing I'll say is this event is being recorded and will be available for replay in the late afternoon Eastern Time. It will [indiscernible] in your inbox, will also be available on 6ix's channel.Okay. Let's get to the good stuff. I was very excited to read this press release. Rick, I'm going to start with you and then, Sean, I want to kind of hear your perspective. The headline number, obviously, a very exciting 93% increase in indicated resources to just shy of 90 million ounces silver equivalent. So before I get into how you got there, which I do want to do, give us a big picture, what does this estimate tell investors about what Contango actually owns in the Golden Triangle right now?

A lot of silver. We when we combined the companies, we actually get gluten to the K, and we were not happy about that. And so this is kind of a statement piece that says, "Hey, guys, this is the largest silver resource from Canada. Don't forget about us." It's high grade silver. It's close to 10 ounces. It's over 10 ounces of silver per tone. And that equivalent is made up of gold. It's not -- it's only 10% of the equivalent number is made up of base [indiscernible] . So this is a precious metals, silver biased, big, high-grade silver deposit. So we're coming back on to subject.

very exciting. Shawn, I'll turn to you. Obviously, you're very, very familiar with the project for your perspective on the summary.

Yes. Look, we're -- the project is located in what they call the golden triangle. There's been a lot of silver discovered up in the Golden Triangle. There's been a lot of silver produced up in the Golden Triangle. And so we've identified the largest silver resource in Canada, primary silver. Romeo, you highlighted the big increase in the indicated category and you expressed a silver equivalent. If we just look at the silver resource, we're talking 83 million ounces of high-grade primary 300-gram per tonne silver and 1 million ounces of gold. So what this gives Contango is it gives us a high degree of confidence in a very, very unique globally unique project. And again -- and one thing I want to highlight here is we've got one of the largest land packages in that Golden Triangle. And this resource only represents maybe 3% of that entire land package. These deposits are open. It really, except for one exception, had not been drilled to a greater depth than 300 vertical meters. So we're open at depth, we're open along strike and the company this year 2026 is in the midst of a 53,000 meter drill program that has not been incorporated into this estimate but will be incorporated into the next one. And the last thing I'll say is when a company puts out a resource estimate, you've got to look at the data. This resource estimate is built on almost 0.5 million meters of drilling and almost 2,000 drill holes. So the amount of confidence we have in this resource is very high.

I appreciate that very much. And thanks both of you giving your perspectives. But Dave, with respect to Shawn and Rick or the start of today show to some degree. You're the guy who signed off on these numbers. So I'd love to start with the language in the MRE. Indicated versus inferred, obviously, we talked about a lot on these kind of calls. In plain English and keeping in mind as far as I know Rick is threating to cut you off if you get too technical. What does it mean the 90 million ounces announced in the India category?

Yes. Plain English, the difference is basically indicated and for it's just a level of confidence that you have in that estimate. If you start on the lower side, the inferred resource, it's supported by drilling, geologic evidence, but the drill space is generally a little wider. There's a little more uncertainty in that continuity, but that's how you build these things up. You believe the mineralization is there, but additional drilling is needed to tighten that geology and the continuity through that. you take that to the next higher category that indicated resource category has closer spacing, stronger geologic support, and it gives you greater confidence that the amount, the grade shape and the continuity of that mineralization is there. Additionally, it's that indicated category is considered reliable enough just to start your meaningful engineering and economic evaluations at this level, which we're moving forward to in the initial assessment. So when you look at that 90 million solar equivalent ounces in that indicated category, that's a large portion of the project that is now defined at that higher level. That in confidence that we have. Gives you a strong foundation of evaluating that future potential mining approaches, processing options and the different deposits on how they start to fit together in the development plan. I will have to say, at the end of the day, this is a mineral resource. I got thrown my QP hat. This is not a reserve. It doesn't demonstrate economic viability, but it is significant improvements at this scale and confidence of the resource that can help us maneuver into the next phase of the project. It's not getting too much more technical, I'll kind of leave it there, but I could dive all day if we want on geostatistics and math on this, but I'll leave it there for any follow-up questions on it.

I might have to do a separate section, which just me and the nerds in the audience for one of those. But I do have 1 question because a couple of SEP investors did ask over e-mail, inferred ounces did come down about 25% from the 2023 numbers. Walk us through why a smaller inferred inventory coming out of this remodel is the sign the estimate got better, not that the ounces went somewhere?

No absolutely fair question. That's an important question. I would caveat that by saying the first thing, that thing is important is the objective of any mineral resource estimate is not to maximize your number of ounces for this to produce the most accurate defensible representation of that mineralization supported by the available drilling. A lot available drilling that went into this. And the significant part of this reduction of the inferred ounces reflects a successful conversion from the inferred into the indicated category. Looking at that indicated silver equivalents, we increased that by approximately 43 million ounces, while the inferred decreased by 22 million ounces. Again, it's not a one-for-one conversion, but the overall movement into that about larger, higher confidence resources and an extreme success for us. We also looked at the remodel and when we talked about the data, the amount of data that went into this, we're able to apply tighter geologic controls, better data, better understanding of the geology that's sitting in that mineralized bodies. I mean we've rebuilt these mineralized domains and all the data that supports it behind it. In some areas, this brought the mineralization into the better defined shapes. And in other areas, this material that was previously extrapolated from less drilling was a little too broad, and it was no longer supported in this estimate. So if ounces didn't simply disappear, some of them move to that higher confidence indicated category, while others were refined removed from the reported inventory because the new model is what we consider more disciplined. And this is what a good mineral resource model does and an update. It should reflect the data that supports it and then rather than just preserving ounces and throwing everything in there, it maintains that disciplined approach of what's there.

Awesome. Appreciate it. One thing I wanted to ask, I'll address -- I guess, I'll call the elephant in the room. Perhaps not an African elephant, but a modest-sized Thai elephant, which is the timing of this MR being released. I know I'd rather we discuss it here, then I would take off the comment section. The update landed a few months later than originally guided. Just curious, Rick, through to first just from your perspective what happened there?

Yes. I'll let Dave expand on this. But there's 2 components to completing a mineral resource estimate just getting all the data coral. And I think that was a bigger job than we anticipated because there are like 9 individual deposits and they were in an older resource that was in older software and to transform that into a modern leapfrog system took longer than expected. That's 1 element. And then the other element is just we're at the mercy of our QPs and or other outside experts, and they're busy. And there's a lot of money being thrown in the exploration business in general. And that guess having to rely on a third party is you have to work at their time schedule. So that's -- those are the 2 components that I think led to the longer time. And Dave could probably get someone...

Yes. Diving in that on the technical side, it's not just an exercise, they're just adding new drill holes hitting F1 that I call men the model cycle through there. We look at most mineral resource updates that are out there, as Rick kind of said, they involved maybe 1 or 2 deposits. This one was an 8-deposit upload, each with its own kind of unique geology, mineralization down in there in historical data and modeling requirements. While we updated the detailed geology, the interpretations, we also migrated this into leapfrog, kind of the more modern technical aspects that we'll talk about. All the mineralization domains are putting their inputs into the resource estimates, but the largest timing factor that contributed to this what was our specialist contractor. We needed to be able to set up the deposits and set up everything just right so we can factor in the data into it. And it was just getting the base data set up was very time consuming. The guy is busy, it's busy out there. However, at the end of the day, the benefit for this now for us is that we have this modern integrated geological resource model that really is designed for efficiency in the future. As I've talked about it in some of our other webinars, we're looking at the technology and how we bring our data in and get to this near-time solution. Now that we have our model set up in our databases set up, so we can run these models. We get this almost near-time resolution. This drilling comes in factors into the logging, gets populated into our database, and that gets pushed into our modeling stuff. So we can take a quicker look of what each drill hole is doing to that resource almost in a near-time basis going forward. which ultimately will help guide our drilling as we go. At the end of the day, this next resource update. We'll still have to go through the formal resource and review the validation of the QP review of this. But this gives us a closer dedicated near-time resolution on what the models, how the models are behaving while we're drilling. So I'm extremely excited about that. And while the update took a little longer, the work has left us in such a strong position on a technical foundation, they will be more efficient in the future. And these resource updates we'll be able to flow a lot smoother than the future.

I appreciate that, both of you. Just some extra context is helpful. Shawn, I want to show it to you for a bit because I know you spent the better part of a decade building [indiscernible] around this district before combining with Contango. Now you've got a good view at the first full remodel of the combined asset. Does this estimate meet the expectations you had when you agreed to put these companies together?

It does. And again, the -- you've heard Dave on the call and Rick, and this is exactly what the Kitsault Valley needed. It needed to be in the hands of the team that was looking to develop the project. And I think as we look ahead at 2027, in addition to another estimate, we're looking ahead at an economic study, we're looking at road improvements and we're looking to get the project back into production. This was the DSO line, that was a very famous mine, Canada's third largest primary silver mine. Not only are the metal prices at a point where I think it's going to be very economic to move the project back into production, but we now have enough size and scale. And this has been a process that started initially with the consolidation of the district, bringing the Homestake project into the Kitsault Valley and then consolidating the [indiscernible] package that added 60,000 hectares of ground to giving us 100,000 hectares. And so we've successfully consolidated everything from the south of Red Mountain down to [indiscernible]. And so and then again, going back to your question around the merger, that's the cash flow. So in addition to the technical expertise and the leadership here technically, having that cash flow to fund those road improvements and to move the project back into production.

Also, One thing I wanted to note as I note as much as asking your question, Shawn, is the so was around $53 silver, and the metal has obviously spent most, if not all, of the year, trading well above that, including today. So high-grade primary silver districts, for people in the audience, are genuinely very rare animals. This is a very unusual thing to take place. So from where you sit, what is this silver market we're seeing now and in my opinion, likely to see continue in the future due to the strategic value of an asset like Kitsault?

Yes. I think Rick said earlier in his opening remarks about the company being pushed out at the [indiscernible]. The last couple of news already close come out of Contango have been coming out of Kitsault Valley. The big drill results, which we had a 10,000 gram meter interval, 165 grams of silver over 55 meters. Those roll results in addition to this mineral resource estimate is highlighting the silver in the business. And again, for investors, there are 10 primary silver producers to choose from. And if you go through the list, some of those companies only derive 28% of the revenue from silver. So as we look into the future, as we look out 3, 4 years and as we look to be a 5 million-ounce per annum silver producer, if we take, Romeo, $50 and if we assume maybe our costs are going to be somewhere around $20 an ounce, that's $30 million of free cash flow for every 1 million ounces we produce. Now if you want to take spot silver or you take where silver was trading in Q1, that's a very, very robust project. And then what's complemented here is our ambitions for 200,000 ounces of gold production to complement the 5 million ounces of silver. It's a very, very robust business. And again, we're not dressing up a zinc mine or a lead mine with 30% silver credits here, 90% of the economics in the kids all valve are precious metals. And within those precious metals, it's about 60-40 silver to gold.

Contango really has kind of leveraged every direction for silver and gold bug, which I am one, as a degenerative myself. One thing I want to talk to Dave, and Shawn already referenced this, but it's part that jumped out of me reading the release, is none of the 2026 drilling, 50,000 meters of it, is in these numbers at all. So I guess my question is for people reading this MRE, what is this year's program been targeting? And where could it move the needle when it rolls into the '27 update that we're expecting?

Yes, absolutely. It is an important point to look at because we have to have a cutoff date when you do have mineral resource estimates. We had that cut-off date early in the year. That's the data you use, you process that, and that's what gets our mineral resource estimate. The 2026 program, that 50,000 meters in excess, obviously, is not included in this. But the program focused on infill drilling to tighten up areas that we can kind of see through the MRE that you can see before that, step out drilling around the known deposits and testing several early-stage targets through there. When we look at some of our press releases that we've had already this year at Torbrit North Star, the drilling has confirmed mineralization and some gaps between the 2 deposits. at Wolf, we tested the extensions of known mineralization, some of the deeper parts, plus and holes in the middle of Wolf, but also is that newly recognized Torbrit-style mineralization that we've highlighted in that 40/70 zone in previous press releases. At Home State, Main and Home State silver, the focus was really on kind of that gold rich centers of some of those, can you pull out some of the gold-rich centers on that area. When we combine all this together, the 2026 drilling broadly, when we start to view the Dolly Varden southern area is more of an integrated mineralized complex instead of individual deposits, we're now pushing that drilling to show a little more of the continuity, that geology structures through there. And looking at this area is more of a complex than individual deposits that are sitting there. And this 2026 drilling should really help us better understand how these systems will link together and ultimately how we need to evaluate these in the future going forward. Additionally, we've overlaid additional geomedical work on here. We want to better understand the mineralization styles, potential processing characteristics through each of these. But together, the drilling, the geologic model and this network is going to allow us to tighten up our resource models, which, again, we have a great foundation for this. We'll be able to spin this around quickly in the next update and then tie into our future studies going forward of how we want to maneuver these as a complex in deposits going forward.

Awesome. Thanks, Dave. Appreciate that. I want to talk to Shawn, Rick, you guys for a second about community relations. Shawn, I'll start with you. I know this project sits on it's got treaty lands. The first modern treaty, as I understand it in British Columbia. I know Dolly Varden worked alongside the Nation for years, obviously, before the combination of the companies. How does that relationship shape the way Contango advances from here?

Yes. I was really blessed. At Dolly, we had directors and consultants that had strong ties to the community over generations, multiple generations. So I inherited -- I was welcomed with really warm and greeting hands from Manishka. And that's not really unique because both Niska and Talton have about a 100-year history with mining companies and Rick can speak to his experience in the district that goes back 20 years as well. But how my relationship evolved and really the relationship that the Kitsault Valley project has with Nishka is just a trusted partnership. We were part -- we are part of an alliance called the BC Regional Mining Alliance. where I'm a Director of the organization. So that's a partnership with government. It's a partnership with Nishka. It's a partnership with companies like Contango. And we work together to inform each other as we're progressing. We really actually -- the organization has started to promote that BC is open for business. Mining is such a big part of the province. So that relationship for me has evolved. And whether it's private businesses that have helped Nisha residents to start [indiscernible] pads or companies like Nations royalty. So that's creative Canada's largest indigenous public company. So the relationship is strong. They are supportive from the community level, grassroots community level to the executive, so very, very strong. And look, the Nishka are doing really big things in the province with LNG, with ports and mining has been a rich part of their history.

Appreciate that, Shawn. And Rick, as Shawn intimated, you obviously have a lot of experience working in the region and with indigenous groups generally. So curious to see your perspective as well.

I mean to me, it's all about what mining gives back to the community is good paying up, not just jobs but jobs and training and opportunities to take those skills set, frankly, anywhere in the world. I remember in Alaska, we had 1 of our projects, I started out as a driller's helper team the driller, and then he gave me a call from Chile, and he was just having a ball working in Chile. And he's going to come back home. But -- so it's -- the jobs are -- they're good paying jobs, they're local jobs. People who live in Vancouver, Toronto in the cities don't really understand that the rural communities need jobs. They're not one reason going to come to Vancouver and Toronto. So that's something that I think in the BC context, that's important for people to understand. On the flip side, [indiscernible] nations in the case of the [indiscernible] the [indiscernible], they have their businesses. And so it's not hard for us to engage those businesses. They work hard. They know the terrain. They know the climate. It's their home. So they're not somebody from the south that comes up and goes, "Oh, yes, it's cold up here." Yes.

It's given out the community is obviously a very, very long history with mining. Rick, I wanted to talk about building what comes next. Because I know the Valley has, obviously, as we've talked about today at various times, mining history, including direct shipping ore operations. There's also road and power in the region already. But generally, if you could sum it up, what's there today? And what are you planning to upgrade as part of this project?

Yes. So it's going to start with the -- incorporating the 50,000 meters of drilling that we did this year into the MRE. As Dave explained, we've got the the model is set up now. So it will go a lot faster, and I'm going to hold into this, by the way. We're all in camera here, I got it. So we get the MRE out, and then that's going to form the basis to complete an initial assessment or Canadian ports, the preliminary economic assessment PEA. That's going to give us a guide to how we're thinking about developing this district. We know there's 2 centers of gravity in the district. The sole rich part of the district, which is Torbrit, Dolly Varden, [indiscernible], starting to see that connectivity between Torbrit and North Star. That's important from a mining standpoint, because rather than having 2 tunnels, I can have 1. And now the 470 zone, which is kind of starting to connect Wolf with with the other Senate gravity here at Torbrit and North Star, that [indiscernible] makes the whole thing come together. So that's what's going to be incorporated into the initial assessment. That will be later in 2027. And then obviously, fitting the Homestake part of the district into that as well, which is it's 5 kilometers north, it's separate. By the way, we haven't really drilled a lot between the 2 systems. So I'm pretty sure it's not dead there, but more work to do there. But -- so it's an exciting step-wise. And so what we will do is give analysts and investors a metric and say, here's what we think the value of this thing. We're just going to add an NPV and an IRR. And with this DSO model, we think it's going to look really, really good. So that starts to form what the future looks like, and it's a derisking exercise and getting us to demonstrate to the market that, okay, we're at 60,000 ounces of production on a lunch, but we're going to get to 20,000 ounces of gold and 5 million ounces of silver, here's the path in instance the Kitsault what we have.

No, I think that's great. Thank you. And certainly excited to see what is between the zones. So looking forward to more information there. But this leads into a question every underground silver story gets eventually. I've had 3 texts about it since this event started not lying. It's already in the comments, it's been e-mailed in. People want to talk about the mill. So Rick, to the best of your ability, where is the mill?

Yes. So I mean, we said this before, we're working on a number of opportunities. We're not ready to talk about them yet. We're under confidentiality agreements, so we can't really talk about them. But I'm confident we're going to find the right solution to -- for processing both Kitsault and Johnson [indiscernible]. And one of those solutions might be permitting sort of building our own mill on an already permanent site. So those are all things that we're looking at. We're not afraid of building something, but we just don't want to spend 10 years [indiscernible]. That's the criteria. So we can custom build a facility that works for all the things that we needed to do so long as it's -- we don't need to spend 10 years permitting. So that's the important part of the criteria and what we're looking at these different options and the value.

Avoiding a decade is always nice in mining. So the -- we've already gone over the schedule, but I think it's good to reiterate just 1 for folks in the room. It's always good to say this kind of thing to use. The release lays out the 2-stage road map. The initial assessment targeted for the first half of 2017, then that multiyear push that you talked about towards pre-fees. But for investors in the room trying to actually mark their calendars and I'm sure some of them do, I know I do, what is the path from today's estimate to an actual mining study look like? Just as far as dates are in your head right now?

I'd say first half of the year, we will have the resource, the updated -- a new updated MRE, and then we'll initiate the study, initial assessment study, and that will be completed before the end of the year. That's our objective.

Great. Appreciate it. If you'll both indulge me, this is Shawn and Rick. Dave, I got some questions for you from the chat. I'd like to crystal ball gaze for a moment. So please do adult with me. The release uses the phrase 1 of the premier primary silver mines in the Golden Triangle. Obviously, impressive claim for a neighborhood with some pretty big names. I know if you could paint a picture for us -- if this plan works exactly as all of us in room intend, but is Kitsault Valley 5 years from now. So looking pretty far into the future.