Detailed narrative
Company Positioning and Macro Outlook
Contango Silver & Gold has transitioned to an unhedged position as of July, providing full exposure to gold price upside. Management noted gold finding a floor at $4,000 and subsequently moving higher, driven by central bank buying. The company is generating strong cash flows and is well-positioned for the second half of 2026 and into 2027, particularly with higher-grade production expected from Manh Choh. The company maintains a lean share structure with 33 million shares outstanding.
Manh Choh Production and Cost Cadence
The 30% share of Manh Choh production in Q2 FY26 was 8,900 ounces, with 8,627 ounces sold at an average spot price of $4,328. The first half of the year saw lower grades from the North pit and higher cash costs ($2,665/oz) and AISC ($2,830/oz) due to pre-stripping in the South pit. Management expects a significant improvement in H2 FY26, with higher grades and increased tonnes mined from the South pit, projecting full-year cash costs to be within the $1,900-$2,000/oz guidance.
Lucky Shot Acquisition and Development
Contango completed the acquisition of mineral claims around Lucky Shot from Alaska Hardrock, including a 2% net smelter royalty. This opportunistic deal consolidates control of the district and reduces royalties, underscoring management's belief in the asset's potential. The company is conducting underground and surface drilling programs (2 helicopter-supported rigs) to gather data for a direct shipping ore (DSO) based feasibility study, targeting 400,000-500,000 ounces of gold at 10-14 g/t. Ore sorting is being evaluated to mitigate transportation costs.
Kitsault Valley Drilling and Resource Update
The Kitsault Valley project has seen significant activity, with over 35,000 meters of a 40,000-meter program completed by the end of June, utilizing 5 rigs. The drilling is highly efficient, averaging over 500 meters per day per rig. Management expects to exceed the initial meterage budget with the same flow-through financing. A new resource estimate is anticipated this quarter, and initial drill results are expected within a month (late August/early September), with subsequent results every 2-3 weeks. The company highlighted the silver-centric nature of Kitsault, with 90% of value from silver in key deposits.
Johnson Tract Permitting and Infrastructure
Johnson Tract is undergoing permitting under the FAST-41 schedule, which is proceeding as planned. Concurrently, the company is building roads and bridges to connect the camp to the proposed portal site, with this infrastructure development reported to be under budget. Management expressed excitement about the progress and plans to share photos and videos of the completed infrastructure. Johnson Tract is positioned behind Lucky Shot and Kitsault in the development queue but remains a key asset.
Balance Sheet and Capital Allocation
The company ended the quarter with $89 million in cash. With only $2 million in facility repayments remaining for the rest of the year and expected cash distributions from Manh Choh, Contango has sufficient capital to advance all three key projects (Manh Choh, Lucky Shot, Kitsault Valley, Johnson Tract) as planned. Cash is expected to end the year around $45 million, dipping in Q1 next year before steadily increasing in 2027 with Manh Choh's ramp-up.