Contango ORE stock sinks as Manh Choh mine costs rise

Shares of Contango ORE (NYSE: CTGO) plummeted 21.6% on Friday after the company provided increased cost guidance for the Manh Choh gold mine in Alaska, which it holds under the Peak Gold joint venture with Kinross Gold (TSX: K; NYSE: KGC) on a 30/70 basis.

It is now projected that the all-in sustaining cost (AISC) over Manh Choh’s approximate 4.6-year life will be US$1,400 per oz. of gold equivalent (AuEq) sold, a 25% increase compared to the US$1,116 per oz. outlined in a 2023 technical report. AISC for 2025 on a standalone basis is expected to be US$1,625 per oz. AuEq sold.

The anticipated rise in AISC, says Contango, relates to recent weight restrictions placed on the bridge used to transport the Manh Choh ore, as well as higher moisture content in the Manh Choh ore, limiting the overall amount of ore being transported annually by about 20%.

Rising processing costs are also contributing to the higher AISC projections, it adds.

“While we are disappointed with these new weight restrictions impacting Manh Choh trucking operations, which has an impact on AISC, the Manh Choh project is expected to be very profitable over its current 4-to-5-year mine life, generating significant free cash flow to Contango,” CEO Rick Van Nieuwenhuyse said in a release.

Company shares traded for US$14.08 apiece on Friday afternoon, for a market capitalization of US$171.2 million. Earlier, it had fallen to US$13.56, its lowest level in nearly four years.

At current hauling rates, and at an assumed spot gold price of US$2,500 per oz., Contango projects cash distributions from the Peak Gold JV flowing to itself next year to be about US$50 million. This is based on anticipated gold production of 60,000 oz., in line with expectations.

For this year, the company anticipates its share of gold production from the Manh Choh mine to be 38,500 oz., following a successful first pour in July. Contango and Kinross first formed the Peak Gold JV in 2020. In 2023, mining operations began, with ore transported to Kinross’ Fort Knox facilities for processing.

Together with Kinross’ share, it is expected that the Manh Choh mine will deliver approximately 220,000 oz. annually. The deposit hosts 9.2 million measured and indicated tonnes grading 4.1 grams gold per tonne and 14 grams silver, for 1.2 million contained gold oz. and 4.2 million contained silver ounces.