ON OUR RADAR: This $20 Junior Explorer Is Undervalued. Here’s Why…

It isn’t often I cast my gaze across the border into the U.S. while hunting big game in the junior resource sector.  Most of us are aware the OTCBB and Pink Sheets are a breeding ground for disease-ridden companies trying to pass themselves off as accomplishing something productive.  Investors who fall for such schemes end up holding shares which inevitably slide into oblivion.

So when I came across this “junior” explorer trading at $20/share, and cross checked the facts as reported on their website, I had to cock an eyebrow and do a double take.  It’s the real deal.

Here are the nuts and bolts of the 6 year old story:

  • Contango Ore (CTGO:OTC Markets) was spun out of its parent, Contango Oil & Gas (MCF:NYSE, $10.42) at $4.60/CTGO share.  1.72 million shares spun out, giving CTGO a market cap of about $7.9 million USD.
  • CTGO’s only asset is the 760,000 acre Tetlin high grade gold project in Alaska.
  • March 2012 – CTGO completed a Private Placement of 882,500 shares at $10/share, raising $8.8 million. Over $6 million spent on substantive drill program (36,000 feet of RC drilling).
  • March 2013 – Private placement of 1,230,999 units at $12/share – $14.7M raised, resulting in a further 14,000 Meters drilling.
  • January 2014 – Initial Resource Estimate announced – 783,000oz @ 4.08 g/t AuEq Indicated, 338,000oz Gold @ 2.69 AuEq Inferred.
  • CEO Brad Juneau (yes, Juneau, named after Alaska’s capital!) quoted, in 2014, “We feel we have reached the stage of proving sufficient known resources and defined upside to attract a buyer for the Company.”” – ultimately stating his goal and end game.
  • September 2014 – CTGO forms JV partnership with Royal Gold (RGLD:Nasdaq, $4.5 Billion Market cap), whereby RGLD is to spend $35 million over 4 years toward Tetlin development to earn 40% economic interest.
  • 2014-2016 The JV (Royal Gold) drills an additional 30,000 meters in 143 holes.
  • 2010-Current: $40 million spent on a 100 acre portion of the massive project.

With a base resource estimate of 1.2M ounces Indicated+Inferred, the company is working on incorporating the 2014-2016 drilling results into an updated comprehensive resource estimate.  I would not at all be surprised to see anywhere from 2.5 to 3.0 million ounces of gold come out of this.

Again, the Tetlin project is 700,000 acres in size.  All of the company’s efforts are focused on a 100 acre portion of the project.  You’ll have to jump onto their website and check out the Powerpoint presentation to appreciate the true scope of the project, not to mention the incredible NEAR SURFACE grades they are pulling out.

By way of comparison, you may recall Kaminak Gold’s (KAM:TSX Venture) Coffee prospect in the White Gold district of the Yukon.  Kaminak got taken out by Goldcorp for $520 million.  Kaminak’s asset was a similar-lower grade, deeper down and less accessible.

With only 4 million shares outstanding, CTGO at $20 has a market cap of only $80 million.

We feel once the new resource estimate is announced, it won’t be long before CTGO has a suitor of its own.  It’s anyone’s guess on what the valuation might come in at, however if Kaminak was able to get $520 million, we’re thinking CTGO has a darn good chance at much more.

This is one junior explorer we have placed near the center of our radar and in fact have started buying.