$1.50
$5.50
bear $1.50
base $4.00
bull $5.50
margin of safety $2.20
market price* $15.25
Contango ORE owns 30% of the Peak Gold joint venture, whose Manh Choh mine in Alaska is managed by a Kinross subsidiary (KG Mining). Ore is trucked about 250 highway miles to Kinross's Fort Knox mill and processed under a toll agreement that expires on December 31, 2030 and can be extended until all ore delivered before that date has been processed. Commercial production began in the second half of 2024 (first gold poured July 8, 2024). Contango's own projects (Lucky Shot, Johnson Tract, Shamrock, Amanita and others) are still in exploration, and the company has about fifteen employees. It therefore earns money almost entirely from cash distributions from the joint venture: $40.5 million in 2024 and $102.0 million in 2025. What the shares are worth rests on one mine with a finite life. The feasibility plan called for two small open pits mined over 4.5 years from 2024. Management's 2026 and 2027 guidance (built on a $3,700 per ounce gold assumption) is for Contango's share of production of 40,000 to 45,000 ounces in 2026 and 75,000 to 80,000 ounces in 2027, with distributions of $48 to $54 million in 2026 and $165 to $175 million in 2027. The 2027 step-up is a function of the mine plan (higher grade mined and processed, 0.26 ounces per ton versus 0.16 in 2026), not of a new project. We treat guidance only as evidence of the mine schedule, not as the level of value, and we note it is not fully consistent internally: 2027 all-in costs are guided at $1,300 to $1,400 per ounce while the remaining life-of-mine cost is guided at $1,700 to $1,800. For that reason our base case sits below the low end of the 2027 range. A second drag is the gold hedge. Contango sold forward 124,600 ounces at an average $2,025 per ounce to its lenders; 43,000 ounces remained at the end of 2025. On February 12, 2026 it paid $46.4 million to settle contracts for 15,446 ounces, leaving 11,000 ounces to be delivered in 2026 and 15,000 ounces in 2027 (management plans to deliver the latter by the end of 2026). At the guidance gold price, delivering those 26,000 ounces costs roughly $1,675 per ounce above the strike, about $44 million. Owner earnings are measured after these cash settlements and after interest, general and administrative costs (about $9.7 million cash in 2025, plus $3.4 million of stock compensation, which we deduct as a real cost) and minimal capital spending ($162,000 in 2025). Owner earnings per share were $(0.03) in 2024 and $1.64 in 2025 (using 12.9 million weighted diluted shares). Because production only began in mid-2024 and 2025 was distorted by the hedge and financing flows, history is not a usable anchor; the valuation is built from the forward mine schedule instead. Base case: distributions of about $15 million over the rest of 2026 (a share of the guided full-year $48 to $54 million; we use $45 million for the year), $150 million in 2027, and about $55 million in 2028 as ore stockpiled ahead of the mill (guidance implies about 225,000 ounces mined versus 143,000 processed in 2026, and 307,000 mined versus 262,000 processed in 2027, on a 100% basis) is processed; nothing after 2028. Less corporate costs, stock compensation and the hedge cost above, discounted at 6%, this is worth about $133 million, or about $4.00 per share on the roughly 33.1 million diluted shares reported for the second quarter of 2026 (versus about 12.3 million a year earlier).
Bear case: 2027 distributions of $100 million (about 60% of the low end of guidance, reflecting the higher cost guidance and the lower recovery assumed for 2027, 88% versus 93%), only $25 million from stockpiled ore in 2028, and higher corporate costs; about $1.50 per share.
Bull case: distributions at the top of guidance ($54 million in 2026 and $175 million in 2027) and $80 million in 2028; about $5.50 per share. Federal net operating losses of roughly $100 million at the end of 2025 should shelter much of the early distributions, and we make no separate deduction for tax. What we did not credit: any value from Lucky Shot (a stated objective of 40,000 to 50,000 ounces a year is only a target subject to exploration success), Johnson Tract, Shamrock, Amanita or any other exploration property, and any value from the pending Dolly Varden Silver merger (agreed December 8, 2025 and expected to close in late March 2026). These carry no reserves or contracts today, so they are valued at zero, while the larger share count that appears to follow from the merger and other equity raises is fully counted. In line with our method, we do not subtract debt (about $14.6 million principal on the credit facility and $20 million of convertible debentures at the end of 2025, with $4.0 million and $10.0 million of principal repayments scheduled in 2026 and 2027) and we do not add the $64.9 million of cash held at year end; interest is already inside owner earnings. A reader who prefers to add cash held would arrive at a higher figure. What could make this wrong: the joint venture makes distributions at its own discretion and the company states there is no guarantee of future distributions; Kinross controls operations and the mill; production in 2026 is guided to be lower and costlier than 2025; and the value depends heavily on the higher-grade 2027 mining schedule being delivered. Upside beyond our cases would need new reserves, which have not been reported anywhere on the property other than the two Manh Choh deposits. The first-half 2026 quarterly figures show operating cash flow of about negative $50.3 million, consistent in size with the $46.4 million hedge settlement, but we could not read the narrative of that report and have not reconciled the larger share count or the merger status to it.