The Company is a Houston-based company, whose primary business is the participation
in a joint venture to explore in the State of Alaska for gold ore and associated
minerals. On January 8, 2015, the Company and Royal Gold, Inc. (“Royal
Gold”), through their wholly-owned subsidiaries, consummated the transactions
(the “Transactions”) contemplated under the Master Agreement, dated
as of September 29, 2014 (the “Master Agreement”), including the
formation of a joint venture, Peak Gold, LLC (the “Joint Venture Company”),
to advance exploration of the Companys Tetlin Property, which is prospective
for gold and associated minerals. As of June 30, 2016, the Joint Venture Company
had leased or had control over an estimated 775,000 acres for the exploration
of gold ore and associated minerals.
Contango Mining Company (“Contango Mining”), a wholly owned subsidiary
of Contango Oil & Gas Company (“Contango”), was formed for the
purpose of mineral exploration in the State of Alaska. Contango Mining initially
acquired a 50% interest in properties from Juneau Exploration, L.P., (“JEX”)
in exchange for $1 million and a 1.0% overriding royalty interest in the properties
under a Joint Exploration Agreement (the “Joint Exploration Agreement”).
On September 15, 2010, Contango Mining acquired the remaining 50% interest in
the properties by increasing the overriding royalty interest in the properties
granted to JEX to 3.0% pursuant to an Amended and Restated Conveyance of Overriding
Royalty Interest (the “Amended ORRI Agreement”), and JEX and Contango
Mining terminated the Joint Exploration Agreement. JEX assisted the Company
in acquiring additional properties in Alaska pursuant to an Advisory Agreement
dated September 6, 2012, and the Company granted to JEX a 2% overriding royalty
interest in the additional properties acquired. On September 29, 2014, pursuant
to a Royalty Purchase Agreement between JEX and Royal Gold (the “Royalty
Purchase Agreement”), JEX sold its entire overriding royalty interest
in the properties to Royal Gold. On the same date, the Company terminated the
Advisory Agreement with JEX.
The Company was formed on September 1, 2010 as a Delaware corporation and
on November 29, 2010, Contango Mining assigned all its properties and certain
other assets and liabilities to Contango. Contango contributed the properties
and $3.5 million of cash to the Company, pursuant to the terms of a Contribution
Agreement (the “Contribution Agreement”), in exchange for approximately
1.6 million shares of the Company’s common stock. The transactions occurred
between companies under common control. Contango then distributed all of the
Company’s common stock to Contango’s stockholders of record as of
October 15, 2010, promptly after the effective date of the Company’s Registration
Statement Form 10 on the basis of one share of common stock for each ten (10)
shares of Contango’s common stock then outstanding.
In connection with the closing of the Transactions with Royal Gold (the “Closing”),
the Company formed Peak Gold, LLC and contributed to the Joint Venture Company
its Tetlin Property near Tok, Alaska, together with other personal property
(the “Contributed Assets”) with a historical cost of $1.4 million
and an agreed value of $45.7 million (the “Contributed Assets Value”).
At the Closing, the Company and Royal Gold, through their wholly-owned subsidiaries,
entered into a Limited Liability Company Agreement for the Joint Venture Company
(the “Joint Venture Company LLC Agreement”). The audited financial
statements of Peak Gold, LLC for the years ended June 30, 2016 and 2015 are
filed as an exhibit to this Form 10-K.
Upon Closing, Royal Gold initially invested $5 million to fund exploration
activity. The initial $5 million did not give Royal Gold an equity stake in
the Joint Venture Company. Royal Gold has the option to earn up to a percentage
interest of 40% in the Joint Venture Company by investing up to $30 million
(inclusive of the initial $5 million investment) prior to October 2018. During
the fiscal year ended June 30, 2016, Royal Gold contributed $5.7 million (in
addition to its initial $5 million investment) to the Joint Venture Company
and earned a percentage interest of 11.0%. The proceeds of Royal Gold’s
investment have been and will be used by the Joint Venture Company for additional
exploration of the Tetlin Property.
Properties
Since 2009, the Companys primary focus has been the exploration of a mineral
lease with the Native Village of Tetlin whose governmental entity is the Tetlin
Tribal Council (“Tetlin Tribal Council”) for the exploration of
minerals near Tok, Alaska on a currently estimated 675,000 acres (the “Tetlin
Lease”) and almost all of the Companys resources have been directed to
that end. All significant work presently conducted by the Company has been directed
at exploration of the Tetlin Lease and increasing understanding of the characteristics
of, and economics of, any mineralization.
The Tetlin Lease originally had a ten year term beginning July 2008 which was
extended for an additional ten years to July 15, 2028. If the properties under
the Tetlin Lease are placed into commercial production, the Tetlin Lease will
be held throughout production and the Company would be obligated to pay a production
royalty to the Tetlin, which varies from 2.0% to 5.0%, depending on the type
of metal produced and the year of production. In June 2011, the Company paid
the Tetlin $75,000 in exchange for reducing the production royalty payable to
them by 0.25%. In July 2011, the Company paid the Tetlin Tribal Council an additional
$150,000 in exchange for further reducing the production royalty by 0.50%. These
payments lowered the production royalty to a range of 1.25% to 4.25%, depending
on the type of metal produced and the year of production. On or before July
15, 2020, the Tetlin has the option to increase its production royalty by (i)
0.25% by payment to the Joint Venture Company of $150,000, or (ii) 0.50% by
payment to the Joint Venture Company of $300,000, or (iii) 0.75% by payment
to the Joint Venture Company of $450,000.
Partnering with strategic industry participants to expand future exploration
work. In connection with an evaluation of the Company’s strategic options
conducted by the Board of Directors and its financial advisor, the Company determined
to continue its exploration activities on the Tetlin Property through a joint
venture with an experienced industry participant. As a result, the Company formed
the Joint Venture Company pursuant to a Joint Venture Companys LLC Agreement
with Royal Gold. Under the Joint Venture Companys LLC Agreement, Royal Gold
is appointed as the manager of the Joint Venture Company (the “Manager”),
initially, with overall management responsibility for operations of the Joint
Venture Company through October 31, 2018, and, thereafter, provided Royal Gold
earns at least a forty percent (40%) percentage interest by October 31, 2018.
Royal Gold may resign as Manager and can be removed as Manager for a material
breach of the Joint Venture Company LLC Agreement, a material failure to perform
its obligations as the Manager, a failure to conduct the Joint Venture Company
operations in accordance with industry standards and applicable laws, and other
limited circumstances. The Manager will manage, and direct the operation of
the Joint Venture Company, and will discharge its duties, in accordance with
approved programs and budgets. The Manager will implement the decisions of the
Management Committee of the Joint Venture Company (the “Management Committee”)
and will carry out the day-to-day operations of the Joint Venture Company. Except
as expressly delegated to the Manager, the Joint Venture Companys LLC Agreement
provides that the Management Committee has exclusive authority to determine
all management matters related to the Company. Initially, the Management Committee
consists of one appointee designated by the Company and two appointees designated
by Royal Gold. Each designate on the Management Committee is entitled to one
vote. Except for the list of specific actions set forth in the Joint Venture
Companys LLC Agreement, the affirmative vote by a majority of designates is
required for action.