Contango Ore: $50M in Free Cash Flow From New Gold Producer

• Contango Ore (CTGO) is developing the Manh Choh gold project in Alaska in partnership with Kinross Gold
• Production is expected to start in H2 2024 at a low $1,000/oz cash cost, generating significant cash flow
• CTGO plans to grow by identifying additional nearby projects with good grades that can utilize existing processing infrastructure
• The company aims to pay down debt and potentially pay a dividend, while being opportunistic about raising capital for the right M&A opportunities
• CEO Rick Van Nieuwenhuyse sees strong fundamentals for the gold price and increasing investor interest in the gold sector

Why Investors Should Consider Adding Gold Exposure

With economic uncertainty on the rise globally, gold has reemerged as a sought-after safe haven asset and portfolio diversifier for investors. The precious metal recently surged to an all-time high above $2,400 per ounce amid escalating geopolitical tensions, persistently high inflation, and concerns about the stability of major fiat currencies like the US dollar. Many analysts believe gold's rally has further to run as these macro risks show no signs of abating.

The Bullish Case for Gold

Gold has a long history of serving as a store of value and hedge against economic and market turmoil. It tends to appreciate when real interest rates are low or negative (as they are now in many developed economies), reducing the opportunity cost of holding a non-yielding asset. Gold also often moves inversely to the US dollar and offers protection against currency debasement.

Geopolitical tensions, such as the current conflict between Russia and Ukraine, typically boost safe-haven demand for gold as well. Heightened risks of a global recession are another potential catalyst, as investors seek to preserve capital. Analysts see gold hitting $3,000 an ounce in the event of a US recession.

Central banks, especially in emerging markets, have also been adding to their gold reserves at a rapid clip to diversify away from dollar-denominated assets. According to the World Gold Council, central bank gold purchases surged 152% year-over-year in Q2 2022.

The Chinese government has been a particularly large buyer. "Clearly, it's a de-dollarization strategy," said Rick Van Nieuwenhuyse, CEO of gold miner Contango Ore. "It's not going to take place overnight, but there's a little bit of concern that things are moving too fast, too quickly.

How to Gain Exposure

Investors have several options to gain portfolio exposure to gold, each with their own pros and cons:

Physical Bullion: Owning physical gold bars or coins provides direct exposure but involves storage and insurance costs. Gold ETFs offer more liquidity and convenience.

Gold Mining Stocks: Shares of gold miners provide leveraged upside to the gold price and the potential for capital appreciation and dividends. But miners also face operational risks and their share prices can be volatile.

Royalty & Streaming Companies: These firms provide financing to miners in exchange for royalties or rights to purchase a percentage of production at a fixed price. They offer high margins and diversified portfolios but depend on partners to execute projects.

With the gold price up nearly 20% over the past year, margins are expanding for well-positioned mining companies. "Anybody who's in production now, they just got $300 new of margin," Van Nieuwenhuyse noted. "Margins are going to improve and that's going to bring a lot of investors back into the space."

With an uncertain macro backdrop and a historically strong outlook for gold, now may be an opportune time for investors to add or increase their exposure to the precious metal. Whether through physical holdings, ETFs, mining shares or royalty companies, gold offers a range of compelling options to potentially enhance returns, mitigate risks and diversify portfolios. As with any investment, however, it's important to consider your individual circumstances and risk tolerance before diving in.

The Investment Thesis for Contango Ore

• Well-funded, near-term gold producer with low cash costs of $1,000/oz
• Strategic 70/30 JV partnership with major miner Kinross Gold
• Set to start producing 65,000 oz per year in H2 2024, generating $50M in free cash flow at current gold prices
• Additional 100% owned high-grade Lucky Shot project in the pipeline
• Proven management team with a track record of developing profitable gold mines
• Potential to grow production via a "cookie cutter" approach - identifying nearby deposits that can utilize existing infrastructure
• Healthy balance sheet and strong cash flow expected to allow debt repayment, organic growth and potential dividend
• Exposure to rising gold price via unhedged production and leverage to expanding margins

The outlook for gold remains constructive based on persistent macro uncertainties, negative real rates, and strong central bank buying, especially from China. While off its recent peak, the gold price is still up significantly over the past year, boosting margins for producers.

In this environment, gold mining companies with quality assets, experienced management teams, and sound strategies appear well-positioned to deliver value for shareholders. Contango Ore stands out as a near-term, low-cost producer with a unique partnership model that allows it to leverage existing infrastructure to minimize capex and time to production. If the company can execute its growth plans and the gold price remains elevated, investors could be rewarded handsomely.

Gold's resurgence over the past year has been driven by a confluence of powerful macro forces that show no signs of abating anytime soon. Persistently high inflation, geopolitical instability, recessionary risks, and a precarious outlook for the US dollar have reignited investor interest in the precious metal as a safe haven and portfolio hedge. Central banks, led by China and other emerging markets, have been aggressively adding to their gold reserves in a bid to diversify away from dollar-denominated assets and mitigate risks of currency debasement. This trend appears to have accelerated in recent months, providing another pillar of support for gold prices.

Taken together, these macro drivers suggest gold's role as a strategic portfolio asset is only increasing. As Van Nieuwenhuyse put it, "margins are going to improve and that's going to bring a lot of investors back into the space.

The sharp increase in geopolitical tensions this year, most notably the war in Ukraine, has only added fuel to the fire. Historically, periods of elevated global conflict have often coincided with strong performance for gold as investors seek out safe havens.

While the gold price has pulled back from its recent all-time high, many analysts believe the long-term bull market remains intact. With real interest rates still deeply negative and the Federal Reserve likely to pivot to a more dovish stance in the face of recessionary pressures, the opportunity cost of holding gold remains low.