Contango dealmaking with Canadian explorers to boost Alaskan gold portfolio

Contango Ore (NYSE-A:CTGO) is in the process of bolstering its Alaskan gold portfolio in the US after signing agreements with two TSX-V-listed companies. 

On May 2, Contango entered into a binding stock purchase agreement with Avidian Gold Corp (TSX-V:AVG) to acquire a 100% interest in the latter’s wholly owned subsidiary, Avidian Gold Alaska, for US$2.4 million ($3.7 million).

Both Avidian’s and Contango’s board of directors have unanimously recommended the transaction. 

The transaction is subject to Avidian shareholder approval and the receipt of all required governmental and regulatory approvals, including that of the TSX-V and NYSE-A.

Avidian Gold Alaska owns and controls the Golden Zone and Amanita NE gold properties and has an option agreement to purchase 100% of the Amanita gold property. 

Both Amaninta and Amanita NE border Kinross Gold Corporation’s (NYSE:KGC) Fort Knox operations. 

The sale includes a potential future upside consideration of US$1 million for total consideration of up to US$3.4 million. 

The consideration is a combination of US$400,000 in cash and US$2 million worth of Contango shares payable to Avidian.

Contango’s cash consideration will be paid in three tranches, including a US$50,000 deposit, an additional US$150,000 on the closing date, and the final US$200,000 due on or before the six-month anniversary of the closing date. 

The number of shares of common stock comprising the equity consideration will be determined based on Contango’s 10-day volume-weighted average price (VWAP) prior to the closing date.

If Contango makes a positive production decision on either the Amanita or Golden Zone properties within 10 years of the closing date, Contango will issue the additional US$1 million in either cash or scrip. 

Further, if Contango enters into a third party transaction on either asset, Avidian will receive 20% of the consideration received by Contango, capped at US$500,000 per property, to be credited against the total deferred purchase price. 

Should Avidian shareholders not approve the transaction, Avidian will terminate the transaction and pay US$175,000 to Contango. 

Chairman of Avidian Gold Dino Titaro says the board believes Avidian is well served by both the cash consideration to immediately strengthen its balance sheet and the Contango shares to better participate in the continued strength in the gold price. 

“Contango is a soon to be producer of gold that is expected to be generating cashflow by mid to late 2024 from the high-grade Manh Choh gold deposit, a 70:30 joint venture between Kinross Gold Corporation and Contango,” he says.  

“Contango has the financial and technical strength to quickly advance these properties. 

We are of the opinion that this acquisition will enhance their future production growth strategy, which Avidian will participate in and greatly benefit from its share ownership.”

Titaro also notes that if the transaction is approved by shareholders, the company will be debt free and have C$3 million ($3.3 million) in cash plus marketable securities, excluding the potential future upside payment on production.  

“Avidian will then focus on a value creation strategy for its 100%-owned Jungo Gold-Copper Project in Nevada and continue ongoing evaluation of a number of possible strategic opportunities/alternatives that could be transformational for the company,” he says.

Shares in Avidian increased more than 33% as of around 1pm (AEST) off the back of the announcement.

Contango has also entered into a definitive arrangement agreement to acquire all shares of HighGold Mining (TSX-V:HIGH) by way of a court approved plan of arrangement under the Business Corporations Act (British Columbia).

HighGold Mining owns the Alaska-based Johnson Tract Project, a one-million-ounce plus gold equivalent polymetallic deposit with an opportunity for near-term production and exploration potential. 

As part of the transaction, each HighGold share will be exchanged for 0.019 Contango shares based on the respective VWAP of the company’s shares for the five-day period ending 1 May 2024. 

The current exchange ratio implies total consideration of C$0.55 per HighGold share and total HighGold equity value of about C$51 million. 

The consideration represents a premium of 59% based on Contango’s and HighGold’s 20-day VWAP. 

Upon completion, Contango shareholders will hold an approximate 85% stake of the combined company. Shareholders in HighGold will hold the outstanding 15% interest. 

However, the transaction requires approval by over 66% of HighGold shareholders. Directors and officers of HighGold (representing 1.9% of shares) plan to vote in favour of the transaction, according to Contango. 

The deal also includes a C$2 million termination fee.  

Contango President Rick Van Nieuwenhuyse says the combination of HighGold and Contango makes a “tremendous amount of strategic sense” for both sets of shareholders.

“With the cashflow expected in the second half of 2024 from our high-grade Manh Choh operation achieving commercial production, we will be able to continue to create value for the Johnson Tract project and advance this high-quality project through to production,” he says.

When combined with our Manh Choh and Lucky Shot projects, the Johnson Tract project represents another asset that meets our criteria to be a run-of-mine, direct shipping ore (DSO) operation. 

Contango will now develop a growth plan to advance these three assets to a production decision and target producing well in excess of 150,000 ounces of gold per year.”

HighGold Mining CEO Darwin Green says the transaction brings together three of Alaska’s “most compelling” gold deposits in one company with the ability to self-fund growth out of cashflow.

“Contango’s unique business model sets it apart in the mining sector,” Green says. 

“Focusing on assets with potential for DSO development, in which mineralised material is shipped to an existing off-site facility for processing, mitigates much of the risk of conventional stand-alone mines. 

Advantages of the DSO model include lower capital costs, lower execution risk, lower environmental impact, and potential for significantly shorter timelines to achieve production.”

Following the announcement, shares in HighGold Mining were up by more than 49% at C$0.47.

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Images: Avidian & HighGold 
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Written By Adam Drought
Born and raised in the UK, Adam is a sports fanatic with an interest in Rugby League and UFC/MMA. When not training in Muay Thai and Brazilian Jiu Jitsu, Adam attends Griffith University where he is completing his final year of a Communication & Journalism degree.