The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
North of 60 Mining News - May 3, 2024
HighGold has outlined 1.05 million ounces of gold-equivalent in the JT Deposit at Johnson Tract.
In a deal that brings three high-quality Alaska gold projects into a single portfolio, Contango ORE Inc. has entered into a definitive agreement to acquire HighGold Mining Inc. in an all-shares deal valued at roughly $37 million (C$55 million).
"The combination of HighGold and Contango makes a tremendous amount of strategic sense for both sets of shareholders – it is a true win-win for all," said Contango President and CEO Rick Van Nieuwenhuyse.
Contango has developed a unique strategy of building a portfolio of high-quality gold assets in Alaska that can deliver direct shipping ore (DSO) to third-party mills for processing. This business model allows the company to bring gold mines into production without the capital outlay and long permitting and development timelines associated with building a mill, tailings storage facility, and other infrastructure needed for on-site processing.
Rick Van Nieuwenhuyse
"We believe that a model of focusing on assets that meet three specific criteria: 1) located near existing or amenable to new infrastructure; 2) sufficient grade to directly transport run-of-mine ore to an existing third-party processing facility; and 3) inclusive of a simple ore body – specifically in terms of permitting – will enable Contango to continue to build a significant production profile while minimizing our environmental footprint," said Van Nieuwenhuyse.
The company has already demonstrated the viability of this strategy at Manh Choh, a 1-million-ounce gold mine that Contango is developing under a 30-70 joint venture partnership with Kinross Gold Corp.
Because the ore is being processed through the Kinross Alaska mill at the Fort Knox mine north of Fairbanks, Alaska, it only took about 2.5 years to permit and develop Mahn Choh.
High-grade ore from Manh Choh is currently being trucked to the Kinross Alaska mill at the Fort Knox mine for processing, which is expected to begin around mid-year.
Contango's share of gold and silver to be recovered from Manh Choh is expected to be roughly 67,500 gold-equivalent oz per year.
Contango is applying a similar strategy to Lucky Shot, a high-grade underground gold mine project 112 road miles north of Anchorage, Alaska, and sees similar potential for the Johnson Tract project it is bringing into its portfolio through the acquisition of HighGold.
"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 operation," said Van Nieuwenhuyse. "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 was spun out of Constantine Metal Resources Ltd. in 2019 to explore Johnson Tract, a long-overlooked polymetallic gold project on land owned by Cook Inlet Region Inc., an Alaska Native regional corporation more commonly known as CIRI.
Drill rigs, camp supplies, and other goods being transported to Johnson Tract, a project located on the west side of Cook Inlet in Southcentral Alaska.
Lying just west of Cook Inlet, about 125 miles southwest of Anchorage, the 20,942-acre Johnson Tract property leased from CIRI hosts JT Deposit and a series of similar gold-rich volcanogenic massive sulfide (VMS) targets along a 7.5-mile-long corridor.
According to a 2022 calculation, JT Deposit hosts 3.49 million metric tons of indicated resource averaging 5.33 grams per metric ton (598,000 ounces) gold, 6 g/t (673,000 oz) silver, 5.21% (400.8 million pounds) zinc, 0.59% (43.1 million lb) copper, and 0.67% (51.5 million lb) lead.
Including the value of all the metals, this comes to 1.05 million oz gold-equivalent.
Drilling completed in 2022 and 2023 has outlined a significant zone of similar mineralization at Ellis, but a resource has not yet been calculated for this target about 2.5 miles (four kilometers) northwest of JT.
Much like Contango, HighGold has been looking into developing mines at Johnson Tract that would produce direct shipping ore for processing through third-party mills.
"Advantages of the DSO model include lower capital costs, lower execution risk, lower environmental impact, and potential for significantly shorter timelines to achieve production," said HighGold Mining President and CEO Darwin Green.
JT Deposit has been advanced to the point where the development of an underground exploration ramp to complete the drilling needed to establish reserves to support a mine plan is necessary.
Green believes that Contango is ideally suited to continue advancing JT toward development and exploring the wider Johnson Tract potential.
"Contango's management has a strong track record of achievement in Alaska, most recently with their near-production Manh Choh project, in partnership with Kinross, which was permitted and built in 2.5 years," he said. "With Contango's experience, financial capabilities, and projected robust cash flow we are confident in their ability to propel the Johnson Tract project forward."
To bring Johnson Tract into its portfolio, Contango has agreed to issue HighGold shareholders 0.019 Contango shares in exchange for every HighGold share held. This equates to a value of roughly C55 cents (roughly US40 cents) for each HighGold share. Based on the 20-day volume weighted average price of both companies' shares, the deal represents a 59% premium to HighGold shareholders.
Darwin Green
"HighGold believes this transaction with Contango represents a compelling value creating opportunity for our shareholders, with obvious synergies, an enhanced capital markets profile, financial strength, and a robust platform for future growth," said Green. "It is a union that brings together three of Alaska's most compelling high-grade gold deposits in one company with ability to self-fund growth out of cash-flow."
The merger will require the approval by two-thirds of HighGold shareholders at a special meeting slated to be held in late June.
Subject to shareholder approval and customary regulatory authorizations, HighGold and Contango expect the merger to be finalized in July.
Upon completion of the transaction, existing Contango shareholders will own approximately 85% of the merged company, and HighGold shareholders will own the balance.
Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.
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