We came across a bullish thesis on Contango Ore, Inc. (CTGO) on Substack by Junior Resource Investing. In this article, we will summarize the bulls’ thesis on CTGO. Contango Ore, Inc. (CTGO)’s share was trading at $12.86 as of May 12th. CTGO’s trailing and forward P/E were 4.97 and 10.17 respectively according to Yahoo Finance.
Aerial view of a gold mine in the mountains, trees reflecting the light from the sun.
Contango Ore has unveiled a promising preliminary economic assessment (PEA) for its Johnson Tract deposit in southern Alaska, highlighting a significant step forward in the company’s expansion strategy. The report, though not yet formally filed, outlines compelling economics based on approximately 700,000 recoverable gold-equivalent ounces (GEOs) over a seven-year mine life. This represents a notable improvement in both annual output and longevity compared to the company’s currently operating Manh Choh mine. Johnson Tract is a high-grade, polymetallic deposit with substantial exposure to gold, silver, zinc, copper, and lead, though about 70% of its revenue will be derived from gold. The location of the deposit—tucked into a mountain—has historically limited drilling, but mineralization remains open above and below, suggesting ample room for future resource expansion beyond the current estimates.
Key highlights from the base-case scenario at $2,200 gold include a post-tax internal rate of return (IRR) of 30.2%, a payback period of just 1.3 years, and a post-tax net present value at a 5% discount rate (NPV5) of $224.5 million. The all-in sustaining costs (AISC) are estimated at $860 per ounce, with management confident that even after royalties and taxes, total costs will remain comfortably below $1,000 per ounce. With initial capital pegged at $213.6 million and sustaining capital at only $61.3 million, the project is relatively low-cost to build and maintain, and its NPV5-to-initial capital ratio of 1.05 at base-case pricing already signals economic viability. Contango also stands out for including generous contingencies—25% for initial and 20% for sustaining capital—suggesting prudent and realistic planning, rather than inflating economics with overly aggressive assumptions.
What sets this project apart further is its leverage to gold prices. At $3,000 gold, Johnson Tract’s post-tax NPV5 swells to $398.2 million, and at $3,300 gold (close to current spot), the NPV5 jumps to roughly $465 million—pushing the NPV5-to-initial capital ratio to an impressive 2.18. Even at a conservative $1,800 gold, the project retains a solid $140 million NPV5, showing strong downside resilience. This makes Contango uniquely positioned to thrive in a high-gold-price environment, especially as Manh Choh is already generating meaningful cash flow and paying down debt and hedges aggressively.
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