Contango ORE, Inc. Q1 FY2026 earnings call

• Mine Sequencing and Q1 Production Context: The 2026 calendar year was always planned as the low-production, higher-cost transition year for the Manchot mine, as the operation completes mining in the north pit and transitions to pre-stripping and development of the main/south pit, in line with the original feasibility study mine plan. Additional ore found in the remaining benches of the north pit has slightly delayed south pit production but is a positive incremental development. Q1 production missed the 10,000 ounce target (coming in at just over 8,000 ounces) due to unplanned winter weather disruptions and a belt fire, both of which have now been fully resolved.
• Balance Sheet and Hedge Restructuring: The company completed early settlement of 50,500 ounces of gold hedges during Q1, reducing the total hedge book to 22,000 ounces. The large non-cash derivative hit in the Q1 P&L is tied to this early hedge settlement. A combination of the recent merger, equity raise, and JV distributions strengthened the balance sheet: cash grew to $97.5 million even after a $46 million payment for hedge settlement, with debt reduced to $13.6 million. Management plans to fully eliminate all remaining hedges and pay off all outstanding debt by the end of 2026.
• Exploration and Development Pipeline: At the Lucky Shot project, management opportunistically acquired the full underlying lease and extinguished the 2% NSR royalty, saving an estimated $80 per ounce of future production. A $21 million, 18,000-20,000 meter drill program is underway, with underground development planned through early summer, followed by surface drilling starting in summer 2026, and a full feasibility study expected in H1 2027. At the Kitzholt Valley project (inherited from the Dolly Varden merger), an updated mineral resource estimate is expected by the end of Q2 2026, with a projected ~50% increase in silver resources and grade upgrades for gold. A 40,000 meter 2026 drill program will focus on extending high-grade zones and testing new undrilled targets, with a preliminary economic assessment expected in H2 2027. Corporate integration of the Dolly Varden merger is complete, with a combined focused team in place to manage all operational and exploration activities.

This call does not break out formal financial performance across multiple distinct product segments. All core operating results are tied to the Manchot gold mine, with Q1 2026 production of just over 8,000 gold ounces, cash costs of $2,692 per ounce, and All-In Sustaining Costs (ASIC) of $2,778 per ounce. Reported GAAP net loss for the quarter was $14.3 million, while adjusted net income was $4.7 million. End-of-quarter cash balance was $97.5 million, up from $64.8 million at the end of 2025. After Q1 hedge restructuring, remaining hedged gold volume is 22,000 ounces, and outstanding debt stands at $13.6 million.

• Full year 2026 gold production guidance is maintained at 40,000 to 45,000 ounces, with management confident that Q1 production shortfalls will be recovered over the remaining three quarters of the year. As mining progresses deeper into the south pit, higher grade ore (reaching ~0.25 ounces per ton by Q4 2026) and higher ore tonnage will reduce unit costs through the second half of 2026, bringing full-year costs back into the original guidance range.
• Full year 2027 gold production guidance is maintained at 75,000 to 80,000 ounces, which will be a peak production year with much lower unit costs, as all mining equipment will focus on ore extraction rather than waste pre-stripping.
• At current gold prices of ~$3,700 per ounce, management expects 2027 free cash flow of $165 to $175 million. If gold prices rise to $5,000 per ounce, 2027 free cash flow is projected to reach ~$225 million.
• The updated Kitzholt Valley mineral resource estimate will be released by the end of Q2 2026, and a Lucky Shot feasibility study is on track for H1 2027.

• Higher diesel prices in Alaska, driven in part by geopolitical instability in the Middle East, have already impacted exploration costs, and will begin to increase mining operating costs at Manchot in the second half of 2026, as the company’s pre-purchased fuel is consumed. At a sustained $6 per gallon of diesel (a ~33% increase from year-ago levels), the estimated impact is a ~10% increase in transportation-related costs, which accounts for one-third of total operating costs. Management notes that the current elevated gold price more than offsets this incremental cost increase.
• The delay in south pit production resulting from extended mining of additional north pit ore is a minor near-term production headwind, though management views the additional ore as a net positive for long-term project value.

Q: Can you explain the $19 million and $51 million derivative losses on the early hedge settlement, and what to expect from hedge accounting going forward?

A: At the start of Q1, Contango held 43,000 ounces of hedged gold at an average price around $4,200 per ounce, against a spot price that rose to ~$4,800 during the quarter. The company delivered 17,000 ounces into the hedges (1,500 natural delivery, 15,500 early cash settlement), creating a $51 million realized loss on the settlement. At the end of Q1, the remaining 22,000 ounces of hedges were revalued at the ~$4,400 per ounce end-of-quarter gold price, creating additional mark-to-market losses that sum to the headline $19 million net non-cash hit. Going forward, remaining hedge volumes are much smaller, so quarterly derivative mark-to-market swings will be far less volatile.

Q: What is the plan for the low-grade mineralized waste stockpile, and will it be processed as a leach operation?

A: This material is classified as mineralized waste and is not part of the current active mine plan, and it will not be processed as a heap leach operation. It will only be processed after all the higher-grade ore outlined in the original feasibility study has been mined, at the end of the mine life. Since the material has already been mined, the only incremental cost is transportation to the Fort Knox mill. If gold prices remain at or above the $3,700 per ounce planning price, processing this material will be profitable and can also help fund the mine’s reclamation trust. No processing will occur until the end of the mine life, so no near-term plans are in place.

Q: What is Rick Van Nieuwenhuizen most excited about for the remainder of 2026?

A: Management is most excited about the 60,000 meters of planned exploration drilling across the company’s pipeline: 20,000 meters at the Lucky Shot project, and 40,000 meters at Kitzholt Valley. Lucky Shot’s underground development will enable extensive testing of the high-grade KM vein, while Kitzholt drilling is expected to deliver top-tier high-grade gold and silver drill results, following the project’s historic track record. Management also expects sequentially improving Manchot mine production each quarter through 2026, is confident it will hit full-year guidance, and notes that the belt fire disruption has been fully resolved, with smooth operations expected going forward.