Contango Ore: A Strong Buy Amid Gold's Rally, Low Costs, and a Strategic Kinross Partnership

Gold stocks are riding a tailwind as central banks, investors, and inflation hawks flock to the metal. For Contango Ore (NYSE: CTGO), the second quarter of 2025 was a masterclass in leveraging favorable macro conditions, operational efficiency, and strategic partnerships to deliver shareholder value. With gold prices averaging $3,274/oz in Q2 and central bank demand hitting record highs, Contango's low-cost production model and its 30% stake in the Peak Gold joint venture (JV) with Kinross Gold (KGC) position it as a compelling “strong buy” for investors seeking exposure to the gold sector's next phase of growth.

Operational Excellence: Beating Guidance and Cutting Costs

Contango's Q2 results were a testament to its operational discipline. The company sold 17,764 ounces of gold, exceeding its production guidance, while achieving cash costs of $1,416/oz and all-in-sustaining costs (AISC) of $1,548/oz—both well below its 2025 target of $1,625/oz. This outperformance was driven by the Manh Choh project, where 255,000 tons of ore yielded 52,000 ounces of recovered gold at a 93% recovery rate. Contango's 30% share of this output amounted to 15,700 ounces, with an additional 750 ounces in inventory, setting the stage for robust Q3 deliveries.

The company also executed a Carry Trade strategy, delivering 11,900 ounces of gold to its hedge contract. This reduced its remaining hedge balance to 62,900 ounces and locked in a net payment of $15.3 million, effectively hedging against near-term volatility while maintaining flexibility. With gold prices trending upward, this maneuver underscores Contango's agility in navigating the market.

Strategic Partnership with Kinross: A Game Changer

Contango's 30% stake in the Peak Gold JV with Kinross Gold is a cornerstone of its growth strategy. Kinross, a Tier 1 operator with 25 years of experience in Alaska, is managing the project and processing ore at its Fort Knox mill, eliminating the need for Contango to build costly on-site infrastructure. This offsite processing model slashes capital expenditures, reduces environmental risks, and accelerates timelines to production.

The JV's financials are equally compelling. Contango received $30 million in cash distributions from Peak Gold in Q2, with $54 million in total distributions for the first half of 2025. Assuming a $3,100/oz gold price for the remainder of the year, the company anticipates $95 million in 2025 cash distributions—a critical tailwind for liquidity and debt reduction.

Moreover, the partnership has expanded Contango's exploration footprint. The company now holds 100% ownership of 170,000 acres of Alaska state mining claims adjacent to Peak Gold, including the Hona, Eagle, and Triple Z prospects. These assets, combined with the 675,000-acre Tetlin Lease, offer significant upside for future discoveries.

Financial Strength and Debt Reduction

Contango's balance sheet is a model of prudence. The company reduced its credit facility debt by $15.2 million in Q2 and Q3 2025, bringing the outstanding principal down to $23.1 million. With $36.5 million in unrestricted cash as of June 30, 2025, and a projected $95 million in 2025 cash distributions, Contango is well-positioned to fund operations, exploration, and further debt reduction without diluting shareholders.

The Johnson Tract project, an underground gold-silver deposit with a pre-tax NPV5 of $359 million and a 37.4% IRR, adds another layer of value. Its low AISC of $860/oz and 1.3-year payback period make it a high-conviction growth driver.

Macro Tailwinds and Investment Thesis

Gold's rally is far from over. Central banks added 477 tons of gold in 2024, and geopolitical tensions, inflation, and a weaker dollar are likely to sustain demand. For Contango, its $1,500/oz AISC (well below the industry average of $2,500/oz) and strategic partnerships create a margin buffer that few peers can match.

The stock's valuation also appears attractive. At a market cap of $1.2 billion, Contango trades at a discount to its $95 million in projected 2025 cash distributions and the intrinsic value of its gold assets. With the Peak Gold JV on track for production in 2024 and the Johnson Tract project advancing, the company is transitioning from an explorer to a producer—a shift that typically drives valuation multiples higher.

Risks and Mitigants

While gold prices and permitting timelines are risks, Contango's low-cost model and Kinross's operational expertise mitigate many of these. The company's debt reduction and cash reserves further insulate it from volatility.

Conclusion: A Strong Buy for Gold's Next Leg Higher

Contango Ore's Q2 results, strategic partnership with Kinross, and disciplined capital allocation make it a standout in the gold sector. With gold prices likely to remain elevated and the company's production costs trending downward, CTGO offers a rare combination of low-risk exposure to gold's rally and growth potential from exploration and production. Investors seeking a high-conviction play on the gold cycle should consider Contango Ore a strong buy.