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Contango ORE, Inc. - Annual Report: 2012 (Form 10-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended June 30, 2012
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to   
             
Commission file number 000-54136 
CONTANGO ORE, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
27-3431051
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
3700 BUFFALO SPEEDWAY, SUITE 960
HOUSTON, TEXAS 77098
(Address of principal executive offices)
(713) 960-1901
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, Par Value $0.01 per share
 
OTCBB
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
¨
  
Accelerated filer
 
¨
Non-accelerated filer
 
¨
  
Smaller reporting company
 
ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
At December 31, 2011, the aggregate market value of the registrant’s common stock held by non-affiliates (based upon the closing sale price of shares of such common stock as reported on the OTCBB was $18,103,865. As of September 7, 2012, there were 2,480,269 shares of the registrant’s common stock outstanding.
 
Documents Incorporated by Reference
Items 10, 11, 12, 13 and 14 of Part III have been omitted from this report since registrant will file with the Securities and Exchange Commission, not later than 120 days after the close of its fiscal year, a definitive proxy statement, pursuant to Regulation 14A. The information required by Items 10, 11, 12, 13 and 14 of this report, which will appear in the definitive proxy statement, is incorporated by reference into this Form 10-K.




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CONTANGO ORE, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 2012
TABLE OF CONTENTS

 
 
Page
All references to the “Company”, “CORE”, “we”, “our” and “us” used in this Annual Report on Form 10-K (“10-K”) are to Contango ORE, Inc.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements made in this report may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, as amended. The words and phrases “should be”, “will be”, “believe”, “expect”, “anticipate”, “estimate”, “forecast”, “goal” and similar expressions identify forward-looking statements and express our expectations about future events. These include such matters as:
Our financial position
Business strategy, including outsourcing
Meeting our forecasts and budgets
Anticipated capital expenditures
Prices of gold and rare earth elements
Timing and amount of future discoveries (if any) and production of natural resources
Operating costs and other expenses
Cash flow and anticipated liquidity
Prospect development
New governmental laws and regulations
Although we believe the expectations reflected in such forward-looking statements are reasonable, such expectations may not occur. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from future results expressed or implied by the forward-looking statements. These factors include among others:
Ability to raise capital to fund capital expenditures
• Operational constraints and delays
• The risks associated with exploring in the mining industry
• The timing and successful discovery of natural resources
• Availability of capital and the ability to repay indebtedness when due
• Low and/or declining prices for gold and rare earth elements
• Price volatility for natural resources
• Availability of operating equipment
• Operating hazards attendant to the mining industry
• Weather
• The ability to find and retain skilled personnel
Dependence on our management personnel
• Restrictions on mining activities
• Legislation that may regulate mining activities
• Impact of new and potential legislative and regulatory changes on mining operating and safety standards
• Uncertainties of any estimates and projections relating to any future production, costs and expenses.
• Foreign or U.S. Government subsidies to our competitors
Timely and full receipt of sale proceeds from the sale of any of our mined products (if any)
• Interest rate volatility
• Federal and state regulatory developments and approvals
• Availability and cost of material and equipment
• Actions or inactions of third-parties
• Potential mechanical failure or under-performance of facilities and equipment
• Environmental risks
• Strength and financial resources of competitors
• Worldwide economic conditions
• Expanded rigorous monitoring and testing requirements
• Ability to obtain insurance coverage on commercially reasonable terms
You should not unduly rely on these forward-looking statements in this report, as they speak only as of the date of this report. Except as required by law, we undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events. See the information under the heading “Risk Factors” in this Form 10-K for some of the important factors that could affect our financial performance or could cause actual results to differ materially from estimates contained in forward-looking statements.

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PART I
Item 1.    BUSINESS
Overview
We are a Houston-based company, whose primary business is to explore in the state of Alaska for (i) gold ore and associated minerals and (ii) rare earth elements. We have leased or have control over approximately 794,280 acres of Alaskan Native, Federal and state of Alaska properties for the exploration of gold and associated minerals and rare earth elements. We anticipate that from time to time we will acquire additional acreage in Alaska for the exploration of gold and associated minerals and rare earth elements through leases or obtaining additional mining claims.
Background
Contango Mining Company (“Contango Mining”), a wholly owned subsidiary of Contango Oil & Gas Company (“Contango”), was formed on October 15, 2009 as a Delaware corporation for the purpose of engaging in exploration in the state of Alaska for (i) gold ore and associated minerals and (ii) rare earth elements. Contango Mining initially acquired a 50% interest in the Properties (defined below) from Juneau Exploration, L.P., (“JEX”) in exchange for $1 million and a 1% 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% 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. We believe JEX expended approximately $1 million on exploratory activities and related work on the Properties prior to selling the initial 50% interest to Contango Mining. JEX continues to assist the Company in acquiring land in Alaska and Mr. Brad Juneau, the sole manager of the general partner of JEX has recently been elected a director, President and Acting Chief Executive Officer following a medical leave of absence of our Chairman, Mr. Kenneth R. Peak.
The Company was formed on September 1, 2010 as a Delaware corporation and on November 29, 2010, Contango Mining assigned the 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 above took place between companies under common control.
Contango 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.
The Company had no operating history prior to the contribution of Contango Mining’s assets and liabilities. The financial statements of the Company include the financial position, results of operations, and cash flows of Contango Mining since its inception on October 15, 2009 (the “Inception”). The equity structure was retroactively adjusted to reflect the capital structure of the Company. References that describe the operations of the Company include the operations of Contango Mining for the periods prior to November 29, 2010.
Properties
The Company holds a 100% leasehold interest in approximately 675,000 acres from the Tetlin Village Council, the council formed by the governing body for the Native Village of Tetlin, an Alaska Native Tribe (“Tetlin Lease”). The Tetlin Lease has a 10 year term beginning July 2008 with an option to renew 50% of the acreage for an additional ten years. 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 Native Village of Tetlin, which varies from 2% to 5%, depending on the type of metal produced and the year of production. In June 2011, the Company paid the Tetlin Village Council $75,000 in exchange for reducing the production royalty payable to them by 0.25%. In July 2011, the Company paid the Tetlin Village 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 Village Council has the option to increase its production royalty by (i) 0.25% by payment to CORE of $150,000, or (ii) 0.50% by payment to CORE of $300,000, or (iii) 0.75% by payment to CORE of $450,000.
Additionally, the Company holds 18,560 acres in unpatented mining claims from the state of Alaska for the exploration of gold and associated minerals (together with the Tetlin Lease, the “Gold Properties”). The Company also holds interests in 3,440 acres in unpatented Federal mining claims and 97,280 acres in unpatented mining claims from the state of Alaska (which the Company is considering abandoning effective December 1, 2012) for the exploration of rare earth elements (the “REE

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Properties”, and together with the Gold Properties, the “Properties”). If any of the Properties are placed into commercial production, the Company would also be obligated to pay a 3% overriding royalty to JEX.
Our Properties consist of mineral leases and unpatented mining claims. We believe that we hold good title to our Properties in accordance with standards generally accepted in the minerals industry. As is customary in both the gold and rare earths industries, we conduct only a perfunctory title examination at the time we acquire a property. Before we begin any mining activities, however, we will conduct a full title examination and perform curative work on any defects that we deem significant. A significant amount of additional work consisting of at least another two years is likely required in the exploration of the Properties before any determination as to the economic feasibility of a mining venture can be made. Due to harsh weather conditions in Alaska, our work months are restricted to May through October. The following table summarizes our property holdings as of September 7, 2012:
 
 
 
Jurisdiction
 
Project Name
 
No. of Claims
 
Acreage
Gold
 
Tetlin Village Council
 
Tetlin Lease
 
n/a

 
675,000

 
 
State of Alaska
 
TOK / Tetlin
 
122

 
11,360

 
 
 
 
LAD / Triple Z
 
45

 
7,200

 
 
 
 
 
 
167

 
693,560

 
 
 
 
 
 
 
 
 
Rare Earth Elements
 
Federal
 
Salmon Bay
 
123

 
2,460

 
 
 
 
Stone Rock
 
49

 
980

 
 
 
 
 
 
 
 
 
 
 
State of Alaska
 
Alatna *
 
127

 
20,320

 
 
 
 
Spooky *
 
166

 
26,560

 
 
 
 
Wolf *
 
202

 
32,320

 
 
 
 
Swift *
 
113

 
18,080

 
 
 
 
 
 
780

 
100,720

Grand Total
 
 
 
 
 
947

 
794,280

* We are considering abandoning these claims effective December 1, 2012 to devote more time and resources to our remaining acreage.
Strategy
Our exploration strategy is predicated upon two core beliefs: (1) that the only competitive advantage in a commodity-based business is to be among the lowest cost producers and (2) that virtually all the mining industry’s value creation occurs through the discovery of mineral deposits that can be developed to the state of a commercially viable producing ore body. While we do not have previous experience in the gold or rare earth element industries, we plan to focus our business strategy on the following elements:
Using our limited capital availability to increase our reward/risk potential on selective prospects. We will concentrate our risk investment capital on our prospects in Alaska. We have leased approximately 675,000 acres and control another 18,560 acres consisting of 167 unpatented state of Alaska mining claims in Eastern Alaska for the exploration of gold and associated minerals. We also own 3,440 acres consisting of 172 unpatented Federal mining claims and 97,280 acres consisting of 608 unpatented state of Alaska mining claims for the exploration of rare earth elements. The Company is considering abandoning the 608 unpatented state of Alaska claims effective December 1, 2012 in order to devote more time and resources to the remaining claims.
Exploration prospects are inherently risky as they require large amounts of capital with no guarantee of success. Furthermore, we may never achieve a competitive advantage in the conduct of our business, since it is unlikely that our Properties will have commercially viable mineral deposits. Should the Properties prove to have known deposits, or mineral ore, we will be required to develop our own mining operations or contract with third parties to mine our mineral ore. We may only become a low cost producer if the mineral ore is of high quality and the cost of the infrastructure necessary to mine the mineral ore is low relative to other producers, including our competitors located in China if rare earth elements are mined.
Our strategic initiatives are to undertake cost efficient and effective exploration activities to discover mineralization and potential mineral reserves which may enhance the value of our Properties. If we are successful in our exploration activities, we may consider a joint venture or sale of our Properties to qualified mining companies.

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Maximize Value Creation per Share. We believe that the primary objective of a business is to maximize value creation per share. As a result, we intend to keep our G&A and interest costs to a minimum.
Structuring Incentives to Drive Behavior. We believe that equity ownership aligns the interests of our consultants, executives and directors with those of our stockholders. The Company’s directors and officers do not receive cash compensation for their work for the Company.
In September 2011, the Company granted 40,000 stock options to its directors and officers and an additional 10,000 stock options to its technical consultant, the owner of Avalon Development Corporation, an Alaska domiciled domestic corporation ("Avalon"). These options vest over two years, beginning in September 2011, the date of the grant. Additionally, the Company’s directors, executive officers and our technical consultant were granted an aggregate of 93,906 shares of restricted stock in November 2010. The restricted stock vests over three years, beginning in November 2011, the one-year anniversary of the date the shares were granted. As of June 30, 2012, the Company’s directors, executive officers and our technical consultant beneficially owned approximately 27% of our common stock.
In July 2012, the Company granted an additional 75,000 stock options to its directors and officers and an additional 25,000 stock options to its technical consultant. These options vest over two years, beginning in July 2012, the date of the grant. These options increase the beneficial ownership of our common stock by our directors, officers and technical consultant to approximately 29%. Upon full vesting of the restricted stock and all stock options, the Company’s directors, officers and technical consultant will beneficially own approximately 33% of the Company.
Alliance with JEX. JEX is a private company formed primarily for the purpose of assembling natural gas and oil prospects. JEX was responsible for securing and negotiating the Tetlin Lease and assisting in obtaining the Properties and initially engaged Avalon to conduct mineral exploration activities on the Tetlin Lease. If any of the Properties are placed into commercial production, the Company is obligated to pay a 3% overriding royalty to JEX. JEX will also continue to assist us in acquiring additional acreage in Alaska and provide other consulting services to the Company. Pursuant to an Advisory Agreement dated September 6, 2012 with JEX, the Company agreed to pay JEX a 2% of 8/8ths ORRI on all minerals mined from properties acquired by the Company after July 1, 2012 in the state of Alaska.
In August 2012, Mr. Peak, the Company's Chairman and Chief Executive Officer, received a medical leave of absence from his responsibilities at the Company for up to six months. In his absence, Mr. Brad Juneau was elected President, Acting Chief Executive Officer and a director of the Company. Mr. Juneau continues to be the sole manager of the general partner of JEX.
Exploration and Mining Property
Exploration and mining rights in Alaska may be acquired in the following manner: public lands, private fee lands, unpatented Federal or state of Alaska mining claims, patented mining claims, and tribal lands. The primary sources for acquisition of these lands are the United States government, through the Bureau of Land Management and the United States Forest Service, the Alaskan state government, tribal governments, and individuals or entities who currently hold title to or lease government and private lands.
Tribal lands are those lands that are under control by sovereign Native American tribes or Alaska Native corporations established by the Alaska Native Claims Settlement Act of 1971 (ANSCA). Areas that show promise for exploration and mining can be leased or joint ventured with the tribe controlling the land, including land constituting the Tetlin Lease.
The Federal government owns public lands that are administered by the Bureau of Land Management or the United States Forest Service. Ownership of the subsurface mineral estate can be acquired by staking a twenty (20) acre mining claim, which is granted under the General Mining Law of 1872, as amended (the “General Mining Law”). The Federal government continues to own the surface estate even though the subsurface can be controlled with a right to extract through claim staking. Private fee lands are lands that are controlled in fee-simple title by private individuals or corporations. These lands can be controlled for mining and exploration activities by either leasing or purchasing the surface and subsurface rights from the private owner. Patented mining claims are claims that were staked under the General Mining Law, and through application and approval the owners were granted full private ownership of the surface and subsurface estate by the Federal government. These lands can be acquired for exploration and mining through lease or purchase from the owners. In order to acquire a patent, an applicant must, among other things, prove that improvements have been made on the land of not less than $500, pay a fee of five dollars ($5) per acre, and identify and describe the mineral deposit located in the land. Unpatented mining claims located on public land owned by another entity can be controlled by leasing or purchasing the claims outright from the owners.

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With respect to unpatented mining claims, the Federal or applicable state government continues to own the fee interest in real property while allowing private parties to stake claims for exploration, development and commercial extraction of minerals with rights of ingress and egress on the real property. Unpatented claims give the claimant the exclusive right to explore for and to develop the underlying minerals and use the surface for such purpose. However, the claimant does not own title to either the minerals or the surface, and the claim is subject to annual assessment work requirements and the payment of annual rental fees which are established by the governing authority of the land on which the claim is located. Unpatented mining claims are generally considered to be subject to greater title risk than other real property interests because the validity of unpatented mining claims is often uncertain, due to the complex Federal and state laws and regulations that supplement the General Mining Law. Unpatented mining claims and related rights, including rights to use the surface, are also subject to challenges by third parties or contests by the Federal or applicable state government. In addition, there are few public records that definitively determine the issues of validity and ownership of unpatented state mining claims. Our mining claims on land belonging to the state of Alaska have no opportunity to be patented. Rights to deposits of minerals on Alaska state land that is open to claim staking may be acquired by discovery, location and recording as prescribed in Alaska state statutes (AS 38.05.185 – 38.05.280). The state of Alaska requires holders of unpatented mining claims to perform annual assessment work and pay an annual fee on the claims in order to maintain the claimant’s title to the mining rights in good standing. State of Alaska unpatented mining claims are subject to a title reservation of 3% net profits royalty for all mineral production on net mining income of $100,000 or more. Mining claims located on state of Alaska lands cannot be deeded to the claimant.
Gold Exploration
Gold is used for jewelry, coinage and bullion as well as various industrial and electronic applications. Gold can be readily sold on numerous markets throughout the world. Benchmark prices are generally based on the average London Bullion Market Association price for a specified month near the month of shipment.

To date, our gold exploration has concentrated on the Tetlin Lease, with only a limited amount of work performed on our TOK and Triple Z claims. The Tetlin Lease is located in eastern interior Alaska, approximately 200 miles southeast of Fairbanks and 12 miles southeast of Tok, Alaska. The area is accessible via helicopter and via the 23 mile long Tetlin Village Road which provides year-round access to the Alaska Highway. Buried electrical and fiber-optic communications cables link the Tetlin Village to the Tok power and communications grid.

Now in its fourth year, our exploration effort on the Tetlin Lease has resulted in identifying one mineral prospect (Chief Danny) and five other gold and copper leads (Taixtsalda, MM, Copper Hill, Chisana and W), as well as an exploration lead on our Triple Z prospect which is located 10 miles north of, and outside the boundaries of, our Tetlin Lease. None of the newly discovered exploration targets are known to host quantifiable mineral resources, none have had metallurgical or mineral processing studies conducted on them and none are near or adjacent to other significant gold or copper deposits. There has been no recorded past placer or lode mining on these leads, and other than the core drilling completed by the Company in 2011 and 2012, there has been no exploration drilling conducted on any exploration target within the Tetlin Lease. An unknown but small amount of drilling was conducted on the Triple Z lead in the early 1970’s but the details related to this work are not available to the Company. The Company conducted its first drilling on the Triple Z prospect beginning in mid-July 2012. We hope to know the results of our 2012 exploration program by December 2012.

Chief Danny Prospect. The Chief Danny prospect currently is the most advanced exploration target on the Tetlin Lease and is comprised of two distinct mineralized areas, the Chief Danny South zone and the Saddle zone. The Chief Danny prospect was discovered during rock, stream sediment and pan concentrate sampling in 2009 and since then has been explored using top of bedrock soil auger sampling, trenching, ground IP geophysics, airborne magnetic and resistivity surveys and core drilling. Results from this work indicate the presence of a zoned hydrothermal system consisting of a gold-copper-iron enriched core covering six square miles at Chief Danny South and a fault-offset arsenic-gold enriched zone to the north covering three square miles at the Saddle zone. Mineralization remains open to expansion, particularly to the west and south where work is in progress during mid-2012. From 2009 through 2012, the Company conducted field-related exploration work at the Chief Danny prospect, including collecting the following samples:
Year
Program
Core Samples
Rock Samples
Soil Samples
Pan Con Samples
Stream Silt Samples
IP/Geophysics (meters)
Trenching (meters)
2009
Chief Danny

569

33



 
709

2010
Chief Danny

251

610

1


14,160


2011
Chief Danny
1,415

20

668



3,842,000


2012
Chief Danny
2,597

16

215





 
     Total
4,012

856

1,526

1


3,856,160

709


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The 1,415 core samples taken during 2011 were taken over 8,057 feet of drilling in 11 core holes. The geophysics in 2010 was ground IP (induced polarization), while the geophysics in 2011 was airborne magnetics and resistivity surveys. All field operations were contracted through Avalon. Core drilling and trenching at the Chief Danny prospect did not return significant grade-thickness intervals for holes number 1, 3, 6, 8, 9 and 11. For the remaining holes, intervals of gold and copper mineralization were as follows, in grams per ton (“gpt”) for gold and silver and percent for copper:
Hole No.
Depth
Footage with Returns
Grams of Gold
Grams of Silver
Percent Copper

2
328 feet
4 feet
4.94 gpt
143.0 gpt
0.56
%
4
735 feet
10 feet
0.94 gpt
1.10 gpt
0.03
%
5
1,416 feet
12 feet
3.10 gpt
300.2 gpt
0.26
%
7
976 feet
21 feet
7.40 gpt
4.90 gpt
0.15
%
10
139 feet
32 feet
1.18 gpt
3.1 gpt
0.04
%
Trench
n/a
70 feet
0.69 gpt
8.60 gpt
0.38
%

The 2012 exploration program at the Chief Danny prospect began in mid-May and is currently ongoing. The Company has budgeted to drill a minimum of 25,000 feet in 30 to 40 core holes in the Chief Danny South area. As of July 25, 2012, the Company had completed 16,793 feet of drilling in 23 holes. The Company has also conducted additional soil auger geochemical sampling on the western and southern margins of the Chief Danny South zone and has initiated baseline water quality sampling in drainage basins that have the potential to be impacted by the development of the Chief Danny prospect. We have budgeted approximately $3.6 million for this work which includes drilling, geochemical analyses, landholding fees and other related expenses.

Exploration Leads. For 2012, we have budgeted to invest approximately $2.75 million on our Triple Z, Taixtsalda, MM, Copper Hill, Chisana and W leads to better define potential drilling targets, which includes approximately $350,000 in project management fees and rental payments. All of these exploration targets were generated using a combination of geological, geochemical and geophysical data generated in 2009 through 2011. The Company has prioritized these targets in the order presented below. Initial results will determine whether or not the entire approved budget is utilized or re-allocated to more promising leads.

Triple Z – In 2009, rock and soil sampling revealed gold values up to 9.07 gpt along with anomalous copper, arsenic and bismuth at the Triple Z lead. Our 2011 airborne magnetics data supports drilling at this current stage. Field related exploration activities included collecting the following samples:
Year
Program
Core Samples
Rock Samples
Soil Samples
Pan Con Samples
Stream Silt Samples
IP Geophysics (meters)
Trenching (meters)
2009
Triple Z

85

115





2010
Triple Z







2011
Triple Z

29

21

6

7



2012
Triple Z
48







 
     Total
48

114

136

6

7




For 2012, we have budgeted to drill 3,000 feet in five to seven core holes at our Triple Z lead, at an estimated cost of $600,000. As of July 25, 2012, the Company has completed 2,491 feet of drilling in two holes. Additional drilling is currently in progress. Analytical results are pending on these holes.

Taixtsalda – The initial work at the Taixtsalda lead was prompted by magnetic highs on 1970’s airborne data that is suggestive of a porphyry copper signature. The airborne magnetics and resistivity collected in 2011 revealed coincident strong magnetic and resistivity highs. Field related exploration activities included collecting the following samples:

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Year
Program
Core Samples
Rock Samples
Soil Samples
Pan Con Samples
Stream Silt Samples
IP Geophysics (meters)
Trenching (meters)
2009
Taixtsalda







2010
Taixtsalda

4






2011
Taixtsalda







2012
Taixtsalda


137





 
     Total

4

137






For 2012, we have budgeted to perform top of bedrock soil auger sampling to better define drilling targets, and to drill 2,000 feet in three to five core holes at our Taixtsalda lead, at an estimated cost of $575,000. Soil sampling was completed in May 2012 and outlined coincident gold and copper anomalies that will be used in conjunction with airborne geophysics to target prospective drill holes.

MM – In 2009, gold in pan concentrates exceeded 1 gpt at the MM lead. Multiple drainages with over 0.1 gpt gold hits were discovered during our follow-up program in 2010. Our 2011 airborne magnetics data suggests that the area is underlain by a large felsic intrusive. Field related exploration activities included collecting the following samples:
Year
Program
Core Samples
Rock Samples
Soil Samples
Pan Con Samples
Stream Silt Samples
IP Geophysics (meters)
Trenching (meters)
2009
MM







2010
MM







2011
MM

1

304





2012
MM


357





 
     Total

1

661






For 2012, we have budgeted to perform top of bedrock soil auger sampling to better define our drilling targets, and to drill 3,000 feet in five to seven core holes at our MM lead, at an estimated cost of $725,000. Soil sampling was completed in June 2012 and outlined several distinct gold, arsenic, and copper anomalies that will be used in conjunction with airborne geophysics to target prospective drill holes.

Copper Hill – During 2010 and 2011, rock and soil sampling at the Copper Hill lead revealed that copper and gold were most anomalous south of a district-scale thrust fault. Streams draining the highland area generated up to 23 grams of gold per ton in pan concentrate samples, several of which contained visible gold. Field related exploration activities included collecting the following samples:
Year
Program
Core Samples
Rock Samples
Soil Samples
Pan Con Samples
Stream Silt Samples
IP Geophysics (meters)
Trenching (meters)
2009
Copper Hill







2010
Copper Hill

105


28

41



2011
Copper Hill

16

290

5

1



 
     Total

121

290

33

42




For 2012, we have budgeted to drill 2,000 feet in three to five core holes at our Copper Hill lead, at an estimated cost of
$400,000. As of July 25, 2012, no work had been conducted on the Copper Hill lead during 2012.

Chisana –Two streams draining in the eastern half of the Chisana lead have generated coarse visible gold. Field related
exploration activities at the Chisana lead included collecting the following samples:
Year
Program
Core Samples
Rock Samples
Soil Samples
Pan Con Samples
Stream Silt Samples
IP/Geophysics (meters)
Trenching (meters)
2009
Chisana







2010
Chisana

4

35

17

19



2011
Chisana


327





 
     Total

4

362

17

19





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While no drilling has been planned in this area for 2012, we have budgeted to perform rock and soil sampling to better define our drilling targets, at an estimated cost of $50,000. As of July 25, 2012, no new work has been conducted on the Chisana lead during 2012.

W and Other Tetlin acreage – Pan-stream sampling at the W lead in 2010 revealed one stream generating coarse visible gold. Field related exploration activities at the W lead, as well as at other acreage in the Tetlin Lease included collecting the following samples:
Year
Program
Core Samples
Rock Samples
Soil Samples
Pan Con Samples
Stream Silt Samples
IP Geophysics (meters)
Trenching (meters)
2009
W and other Tetlin acreage

411


94

111



2010
W and other Tetlin acreage

251

90

646

763



2011
W and other Tetlin acreage

1






 
     Total

663

90

740

874




While no drilling has been planned at the W lead for 2012, we have budgeted to perform rock and soil sampling to better define our drilling targets, at an estimated cost of $50,000. As of July 25, 2012, no new work has been conducted on the W lead during 2012.

Behre Dolbear & Company (USA), Inc. has reviewed the results of our 2011 gold exploration program for the Tetlin Lease and provided us with a report which was filed with the Securities and Exchange Commission on February 6, 2012 as an exhibit to our report on Form 10-Q for the three months ended December 31, 2011.
Rare Earth Elements
The Company’s interest in rare earth elements arose from our belief that the increasing demand for products using rare earth elements will continue. Based upon the preliminary surveys conducted by the United States Geological Survey (the “USGS”) and subsequently reviewed and analyzed by Avalon, the Company has staked Federal and state of Alaska mining claims and has engaged Avalon to conduct preliminary exploratory activities for rare earth elements in Alaska.
The term “rare earth” is actually a misnomer. Rare earth elements are not in fact rare, as they are found in low concentrations throughout the earth’s crust. There are relatively few locations, however, where rare earth elements (“REEs”) are currently being economically mined and processed outside of China. Our decision to explore for REEs is based on our belief that REEs will become increasingly valuable as the world moves to embrace alternative “green” forms of energy such as wind turbines and advanced batteries which currently require REEs for component parts.
REEs have unique properties that have applications in several technologies, including:
Clean-Energy Technologies: hybrid and electric vehicles, and wind turbines
Defense and Homeland Security Applications: aircraft control, lasers, global positioning systems, radar, sonar, guided missiles and smart bombs
High-Technology Applications: microwaves, MRI testing, color televisions, motion picture studio lighting and projection
Demand for REEs is expected to increase due to increased demand for existing products that utilize rare earth elements as well as continued development of additional technologies that require application of REEs. Currently, China accounts for over 90% of the global supply of REEs and the oxides produced from REEs, and the Chinese government has begun to restrict exports of REEs and require that manufacturing of rare earth metals take place within China.

Our decision to focus our rare earth element exploration efforts in Alaska is based, in part, upon several surveys performed by the USGS in the 1970s and 1980s. The two primary sources of public-sector geochemical data which we and Avalon used to identify potential mineral prospects are the Alaska Mineral Resource Appraisal Program (“AMRAP”) and the National Uranium Resource Evaluation program (“NURE”), both of which were conducted in Alaska in the 1970s and 1980s. The AMRAP included geologic mapping, airborne geophysics and geochemical sampling. The program did not analyze for gold during the initial study, although analyses for important gold pathfinder elements such as arsenic, bismuth and tungsten were completed. These programs were run on a quadrangle by quadrangle basis resulting in multiple folios published by the USGS over multiple years. Geochemical data from the AMRAP and other USGS programs has been compiled in a digital database referred to as the RASS database (Rock Analysis Storage System, Open File Report 99-433), available from the USGS at http://pubs.usgs.gov/of/1999/of99-433/. The NURE program was funded by the United States Department of Energy

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primarily as a geochemical study to define new uranium sources in the United States. The original NURE samples were collected and analyzed in the 1970s but were re-analyzed in the late 1990s using more modern analytical techniques. These digital data are available in Open File Report 97-492 from the USGS at http://pubs.usgs.gov/of/1997/ofr-97-0492/. The surveys we and Avalon examined indicated anomalous uranium samples as well as anomalous zirconium, beryllium, tantalum, and niobium, which are commonly found near deposits of rare earth elements.
REEs consist of the 15 elements with atomic numbers 57 to 71 (the “Lanthanide Series”), plus the elements Scandium (atomic number 21) and Yttrium (atomic number 39). REEs are separated into two categories, light rare earths (“LREEs”, consisting of atomic numbers 57-62), and heavy rare earths (“HREEs”, consisting of atomic numbers 63-71, plus Yttrium (atomic number 39)).
The following table ranks the REEs in the order of their relative abundance in the earth’s crust:
 
Rare-Earth Element,
Symbol
 
Abundance
(parts per million)
 
Atomic
Number
Cerium, Ce
 
46.0

 
58

Yttrium, Y
 
28.0

 
39

Neodymium, Nd
 
24.0

 
60

Lanthanum, La
 
18.0

 
57

Samarium, Sm
 
6.5

 
62

Gadolinium, Gd
 
6.4

 
64

Praseodymium, Pr
 
5.5

 
59

Scandium, Sc
 
5.0

 
21

Dysprosium, Dy
 
4.5

 
66

Ytterbium, Yb
 
2.7

 
70

Erbium, Er
 
2.5

 
68

Holmium, Ho
 
1.2

 
67

Europium, Eu
 
1.1

 
63

Terbium, Tb
 
0.9

 
65

Lutetium, Lu
 
0.8

 
71

Thulium, Tm
 
0.2

 
69

Promethium, Pm
 

 
61

We began exploratory work for rare earth elements on our Salmon Bay and Stone Rock projects in the summer of 2011. Our exploration activities included reconnaissance geologic mapping, soil sampling and rock sampling on Prince of Wales Island in Southeast Alaska. Both projects are located at tidewater within the Tongass National Forest. Rare earth element mineralization was discovered at these projects by the U.S. Bureau of Mines in the late 1980’s but neither has received subsequent industry exploration until our work in the summer of 2011. Mineralization at both projects is light rare earth-dominant and both projects returned total rare earth element contents ranging from insignificant to greater than 1% in rocks and soils. Mineralization is hosted in mafic to felsic intrusive rocks and remains open to expansion at both projects. Additional exploration work will be required to advance these projects to the drilling stage, but we do not anticipate conducting any additional exploration activities in 2012.
We are considering abandoning our state claims consisting of the Alatna, Spooky, Wolf and Swift claims effective December 1, 2012 to devote more time and resources to our Federal claims at Stone Rock and Salmon Bay and our Gold Properties.

Consulting Services provided by Avalon Development Corporation
The Company is a party to a Professional Services Agreement (“PSA”) with Avalon to provide certain geological consulting services and exploration activities with respect to the Properties from time to time as requested by the Company. Pursuant to the PSA, Avalon will continue to provide certain geological consulting services and exploration activities. The Company pays Avalon on a per diem basis and reimburses Avalon for its expenses. As additional compensation, the owner of Avalon received 23,477 restricted shares of common stock in November 2010; stock options to purchase 10,000 shares of common stock of the Company in September 2011; and stock options to purchase 25,000 shares of common stock of the

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Company in July 2012. The restricted shares vest over three years beginning in December 2011, the one-year anniversary of the date the shares were granted and the stock options vest over two years beginning in September 2011 or July 2012, as applicable, the date such options were granted.
Avalon is a Fairbanks, Alaska based mineral exploration consulting firm, which has conducted mineral exploration in Alaska since 1985. Its team of engineers and geoscientists combined with its geographic information systems (GIS) database allows Avalon to synthesize existing geological, geochemical and geophysical data and identify specific target areas for ground evaluation and/or acquisition. Avalon’s exploration team has identified or conducted discovery drilling on several gold deposits in Alaska and has completed digital GIS compilations of the Tintina Gold Belt, a regional-scale mineral province stretching from southwest Alaska to the southern Yukon Territory. Avalon also has experience exploring for copper, nickel and platinum group elements (“Cu-Ni-PGE”) deposits and also created a comprehensive GIS compilation of PGE prospects in Alaska, an internally-owned database that contains data on over 200 PGE occurrences in Alaska. In 2002, Avalon expanded its digital database to the identification and acquisition of rare earth element prospects in Alaska.
Work schedules vary widely from a 7 day per week, 30-day minimum schedule for field related geologists and geological engineers to 40-hours per week schedules for geographic information system and management staff. Because the Company does not have experience exploring or evaluating gold or rare earth element prospects, we rely on Avalon’s exploration expertise to determine whether our exploration activities will be likely to develop commercially viable deposits. Avalon’s mineral exploration services include pre-field planning, in-progress evaluation/modification and post-field critical review. Avalon will continue to work in conjunction with the Company to identify new properties and will conduct the initial exploration for such properties. If the exploratory work on the Properties should prove successful, the Company could develop a wholly-owned mining operation entity to conduct mining operations, contract with mining companies to extract mineral ore from our Properties or enter into a joint venture with or sale of our Properties to an established mining company.
Consulting Services provided by Tetlin Village Council
On October 15, 2010, the Company entered into a consulting agreement, as amended from time to time, (the “Consulting Agreement”) with the Chief of the Tetlin Indian Tribe (the “Consultant”). The Consultant has special knowledge and experience with governmental affairs and tribal affairs issues and operates an independent consulting practice. Under the terms of the Consulting Agreement, the Consultant assists the Company in negotiations with other native tribes to lease additional properties and assists the Company with state of Alaska and Federal governmental affairs issues. The Company pays the Consultant $5,000 per month in exchange for his services, and can pay discretionary bonuses for successful negotiations.
Marketing and Pricing
Should our exploratory drilling activities prove to be successful, the Company expects to mine ore and derive its revenue principally from the sale of gold and associated minerals or rare earth elements. We may also enter into joint ventures with or sell some or all of our Properties to qualified mining companies. We do not currently have a market for any minerals that may be derived from our Properties. As a result, the Company’s revenues are expected to be determined, to a large degree, by the success of our exploration and any subsequent mining activities and by prevailing prices for gold and rare earth elements. Market prices are dictated by supply and demand, and the Company cannot predict or control the price it will receive for gold ore and rare earth elements.

Adverse Climate Conditions
Climate conditions affect the Company’s ability to conduct exploration activities and mine any ore from its Properties in Alaska. While exploratory drilling and related activities may only be conducted from May to October on certain of our Properties, the Company believes development work and any subsequent mining could be conducted year-round.
Competition
We currently face strong competition for the acquisition of exploration-stage properties as well as extraction of any minerals in Alaska. Numerous larger mining companies actively seek out and bid for mining prospects as well as for the services of third party providers and supplies, such as mining equipment and transportation equipment. Our competitors in the exploration, development, acquisition and mining business will include major integrated mining companies as well as numerous smaller mining companies, almost all of which have significantly greater financial resources and in-house technical expertise. In addition, we will compete with others in efforts to obtain financing to explore our mineral properties.
While there are few rare earth mining companies in the United States, the global rare earth mining and processing markets are competitive. China currently accounts for over 90% of rare earth mineral production and manufacturing, and should our rare earth mining efforts prove to be successful, we may not be able to implement the processing technologies and

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capabilities that our Chinese counterparts have already established. Our Chinese competitors have greater financial resources, as well as other strategic advantages to maintain, improve and expand their mining programs. In addition, Chinese domestic economic policies may allow Chinese companies to produce at relatively lower costs.
Competitive conditions may be substantially affected by various forms of legislation and regulation considered from time to time by the government of the United States and the state of Alaska, as well as factors that we cannot control, including international political conditions, overall levels of supply and demand for minerals, and currency fluctuations.
Government Regulation
Our mineral exploration activities are generally affected by various laws and regulations, including environmental, conservation, tax and other laws and regulations relating to the exploration of minerals. Various Federal and Alaskan laws and regulations often require permits for exploration activities and also cover extraction of minerals. In addition, our Tetlin Lease is located on land leased from the Tetlin Village Council. Federally recognized Native American tribes are independent governments, with sovereign powers, except as those powers may have been limited by treaty or by the United States Congress. Such tribes maintain their own governmental systems and often their own judicial systems and have the right to tax, and to require licenses and to impose other forms of regulation and regulatory fees, on persons and businesses operating on their lands. As sovereign nations, federally recognized Native American tribes are generally subject only to federal regulation. States do not have the authority to regulate them, unless such authority has been specifically granted by Congress, and state laws generally do not directly apply to them and to activities taking place on their lands, unless they have a specific agreement or compact with the state or federal government allowing for the application of state law. We will continue to use our best efforts to ensure that the Company is in compliance with all applicable laws and regulations but the denial of permits required to explore for or mine ore may prevent us from realizing any revenues arising from the presence of minerals on our properties.
Environmental Regulation
Mining operations are subject to local, state and federal regulation governing environmental quality and pollution control, including air quality standards, greenhouse gas, waste management, reclamation and restoration of properties, plant and wildlife protection, handling and disposal of radioactive substances, and employee health and safety. Extraction of mineral ore is subject to stringent environmental regulation by state and federal authorities, including the Environmental Protection Agency. Such regulation can increase the cost of planning, designing, installing and operating mining facilities or otherwise delay, limit or prohibit planned operations.
Significant fines and penalties may be imposed for failure to comply with environmental laws. Some environmental laws provide for joint and several strict liability for remediation of releases of hazardous substances. In addition, we may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances.
Some REE deposits contain naturally occurring radioactive substances, such as thorium and uranium. The mining of REEs that contain such radioactive substances involves the handling and disposal of such substances, and accordingly we may be subject to extensive safety, health and environmental laws, regulations and permits regarding radioactive substances. Significant costs, obligations or liabilities may be incurred with respect to such requirements, and any future changes in such requirements (or the interpretation or enforcement thereof) may have a material adverse effect on our business or results of operations. Furthermore, our drilling programs may also use hazardous materials and generate hazardous and naturally occurring radioactive wastes. These and similar unforeseen impacts that our operations may have on the environment, as well as human exposure to hazardous or radioactive materials or wastes associated with our operations, could have a material adverse effect on our business, reputation, results of operation and financial condition.
The Federal Mine Safety and Health Act of 1977 and regulations promulgated thereunder as well as the state of Alaska Department of Labor and Workforce Development impose a variety of health and safety standards on numerous aspects of employee working conditions related to mineral extraction and processing operations, including the training of personnel, operating procedures and operating equipment. In addition, the Company may be subject to additional state and local mining standards. The Company believes that it currently is in compliance with applicable mining standards; however, we cannot predict whether changes in standards or the interpretation or enforcement thereof will have a material adverse effect on our business, financial condition or otherwise impose restrictions on our ability to conduct mining operations.
Federal legislation and regulations adopted and administered by the U.S. Environmental Protection Agency, Forest Service, Bureau of Land Management, Fish and Wildlife Service, Mine Safety and Health Administration, and other federal agencies, legislation such as the Federal Clean Water Act, Clean Air Act, National Environmental Policy Act, Endangered Species Act, and Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and various laws and regulations administered by the state of Alaska, have a direct bearing on exploration and mining operations conducted in Alaska. These regulations will make the process for preparing and obtaining approval of a plan of operations much more time-

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consuming, expensive, and uncertain. Plans of operation will be required to include detailed baseline environmental information and address how detailed reclamation performance standards will be met. In addition, all activities for which plans of operation are required will be subject to a new standard of review by the U.S. Bureau of Land Management, which must make a finding that the conditions, practices or activities do not cause substantial irreparable harm to significant scientific, cultural, or environmental resource values that cannot be effectively mitigated.
CERCLA generally imposes joint and several strict liability for costs of investigation and remediation and for natural resource damages, with respect to the release of hazardous substances (as designated under CERCLA) into the environment. CERCLA also authorizes the EPA, and in some cases, third parties, to take action in response to threats to the public health or the environment and to seek to recover from the potentially responsible parties the costs of such action. Our mining operations may generate wastes that fall within CERCLA’s definition of Hazardous Substances.

Employees
The Company has three part-time employees. Brad Juneau is the President and Acting Chief Executive Officer of the Company and is responsible for the management of the Company. Sergio Castro is the Vice President, Chief Financial Officer, Treasurer and Secretary of the Company and is responsible for the financial affairs of the Company. Yaroslava Makalskaya is the Vice President, Controller and Chief Accounting Officer of the Company and is responsible for the Company’s accounting. As President and Acting Chief Executive Officer, Mr. Juneau devotes approximately 10% of his time to the Company’s business and Mr. Castro and Ms. Makalskaya each devote approximately 10% of their time to the Company’s business. The Company also uses the services of independent consultants and contractors, including JEX, to perform various professional services, including land acquisition, legal, environmental and tax services. JEX has two employees who are a land man and an engineer, respectively, and each devotes less than 1% of his time to the Company’s business. In addition, the Company utilizes the services of Avalon to perform geological, exploration and drilling operation services and independent third party engineering firms to evaluate any reserves.
Directors and Executive Officers
The following table sets forth the names, ages and positions of our directors and executive officers: 
Name
 
Age    
 
Position
Kenneth R. Peak
 
67
 
Chairman of the Board
Brad Juneau
 
52
 
President, Acting Chief Executive Officer and Director
Sergio Castro
 
43
 
Vice President, Chief Financial Officer, Treasurer and Secretary
Yaroslava Makalskaya
 
43
 
Vice President, Controller and Chief Accounting Officer
Joseph Compofelice
 
63
 
Director
Joseph G. Greenberg
 
51
 
Director

Kenneth R. Peak. Mr. Peak has been Chairman of the Board, Chief Executive Officer and a director of the Company since its inception as a wholly-owned subsidiary of Contango. In August 2012, Mr. Peak received a medical leave of absence from his responsibilities at the Company for up to six months. Mr. Peak founded Contango in 1999 and until August 2012 was its Chairman and Chief Executive Officer. Mr. Peak entered the energy industry in 1973 as a commercial banker and held a variety of financial and executive positions in the oil and gas industry prior to founding Contango in 1999. Mr. Peak served as an officer in the U.S. Navy from 1968 to 1971. Mr. Peak received a BS in physics from Ohio University in 1967, and a MBA from Columbia University in 1972. He currently serves as a director of Contango and Patterson-UTI Energy, Inc., a provider of onshore contract drilling services to exploration and production companies in North America.

Brad Juneau. Mr. Juneau was elected President, Acting Chief Executive Officer and a director in August 2012. Mr. Juneau is the sole manager of the general partner of JEX. Prior to forming JEX in 1998, Mr. Juneau served as senior vice president of exploration for Zilkha Energy Company from 1987 to 1998. Prior to joining Zilkha Energy Company, Mr. Juneau served as staff petroleum engineer with Texas International Company for three years, where his principal responsibilities included reservoir engineering, as well as acquisitions and evaluations. Prior to that, he was a production engineer with Enserch Corporation in Oklahoma City. Mr. Juneau holds a BS degree in petroleum engineering from Louisiana State University. Mr. Juneau was elected a Director of Contango in April 2012, and President and Acting Chief Executive Officer of Contango in August, 2012.
Sergio Castro. Mr. Castro has been Vice President, Chief Financial Officer, Treasurer and Secretary of the Company since its inception. Mr. Castro joined Contango in March 2006 as Treasurer, was appointed Vice President, Treasurer and Secretary in April 2006 and Chief Financial Officer in June 2010. Prior to joining Contango, Mr. Castro was a Consultant for UHY Advisors

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TX, LP from 2004 to 2006. From 2001 to 2004, Mr. Castro was a lead credit analyst for Dynegy Inc. From 1997 to 2001, Mr. Castro worked as an auditor for Arthur Andersen LLP, where he specialized in energy companies. Mr. Castro was honorably discharged from the U.S. Navy in 1993 as an E-6, where he served onboard a nuclear powered submarine. Mr. Castro received a BBA in Accounting in 1997 from the University of Houston, graduating summa cum laude. Mr. Castro is a Certified Public Accountant and Certified Fraud Examiner.
Yaroslava Makalskaya. Ms. Makalskaya has been Vice President, Controller and Chief Accounting Officer of the Company since its inception . Ms. Makalskaya has been Vice President, Controller and Chief Accounting Officer of Contango since June 2010 and has approximately 20 years of experience in accounting and finance, including 13 years in public accounting. Prior to joining Contango, Ms. Makalskaya was a director of the Transaction Services practice at PricewaterhouseCoopers, where she assisted clients with M&A transactions as well as advised clients with complex accounting and financial reporting issues. Prior to July 2008 Ms. Makalskaya was a Senior Manager in the audit practice of PricewaterhouseCoopers and Arthur Andersen, where her clients included many US and international companies in energy, utilities, mining and other sectors. Ms. Makalskaya holds a MS degree in Economics from Novosibirsk State University in Russia. Ms. Makalskaya is a Certified Public Accountant.

Joseph Compofelice. Mr. Compofelice has been a director of the Company since its inception. Mr. Compofelice has served as Managing Director of Houston Capital Advisors, a boutique financial advisory, mergers and acquisitions investment service since January 2004. Mr. Compofelice served as Chairman of the Board of Trico Marine Service, a provider of marine support vessels serving the international natural gas and oil industry, from 2004 to 2010 and as its Chief Executive Officer from 2007 to 2010. Mr. Compofelice was President and Chief Executive Officer of Aquilex Services Corp., a service and equipment provider to the power generation industry, from October 2001 to October 2003. From February 1998 to October 2000 he was Chairman and CEO of CompX International Inc., a provider of components to the office furniture, computer and transportation industries. From March 1994 to May 1998 he was Chief Financial Officer of NL Industries, a chemical producer, Titanium Metals Corporation, a metal producer and Tremont Corp. Mr. Compofelice received his BS at California State University at Los Angeles and his MBA at Pepperdine University.
Joseph G. Greenberg. Mr. Greenberg has been a director of the Company since its inception. Mr. Greenberg is founder and President of Alta Resources, L.L.C., an oil and natural gas exploration company. Prior to founding Alta Resources in 1999, Mr. Greenberg worked as an exploration geologist for Shell Oil Company and Edge Petroleum Company. Mr. Greenberg received a BS in Geology and Geophysics from Yale University in 1983, and a Masters in Geological Sciences from the University of Texas at Austin in 1986. He has over twenty-four years of diversified experience in domestic oil and gas exploration.
The Board of Directors is responsible for managing the Company in accordance with the provisions of the Company’s Bylaws and Certificate of Incorporation and applicable law. The number of directors which constitutes the Board of Directors is established by the Board, subject to a minimum of three and a maximum of seven directors. Except as otherwise provided by the Bylaws for filling vacancies on the Company’s Board of Directors, the Company’s directors are elected at the Company’s annual meeting of stockholders and hold office until their respective successors are elected, or until their earlier resignation or removal. Our executive officers are elected annually by the Board and serve until their successors are duly elected and qualified or until their earlier resignation or removal. There are no family relationships between our directors or executive officers.
The Board of Directors elected Mr. Peak as Chairman of the Board and Chief Executive Officer prior to Mr. Peak's medical leave of absence for a number of reasons. Mr. Peak is the founder of the Company and beneficially owns approximately 26% of the Company’s common stock, making him the largest shareholder. Mr. Peak has been an active entrepreneur who founded Contango and built the business into a large successful oil and gas company with a market capitalization of approximately $900 million.
Corporate Offices
The Company does not lease office space, but rather uses the corporate offices leased by Contango. Contango’s 60 month lease agreement at 3700 Buffalo Speedway, Ste 960, Houston, TX 77098 expires on December 31, 2015.
Code of Ethics
We adopted a Code of Ethics for senior management in September 2010. A copy of our Code of Ethics is filed as an Exhibit to this Form 10-K and is also available on our website at www.contangoore.com.


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Available Information
You may read and copy all or any portion of this annual report on Form 10-K, our quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments and exhibits to those reports, without charge at the office of the Securities and Exchange Commission (the “SEC”) in Public Reference Room, 100 F Street NE, Washington, DC, 20549. Information regarding the operation of the public reference rooms may be obtained by calling the SEC at 1-800-SEC-0330. In addition, filings made with the SEC electronically are publicly available through the SEC’s website at http://www.sec.gov, and at our website at http://www.contangoore.com. This annual report on Form 10-K, including all exhibits and amendments, has been filed electronically with the SEC.
Item 1A.    RISK FACTORS
In addition to other information set forth elsewhere in this Form 10-K, you should carefully consider the following factors when evaluating the Company. An investment in the Company is subject to risks inherent in our business as an exploration stage company. The value of an investment in the Company may decrease, resulting in a complete loss of your investment. The risk factors below are not all inclusive.

We depend on the services of our Chairman and implementation of our business plan could be seriously harmed if we lost his services.

We depend heavily on the services of Mr. Kenneth R. Peak, our Chairman, who received a medical leave of absence from the Company for up to six months in August 2012.

The probability that an individual prospect will contain commercial grade reserves is extremely remote.

The probability of finding economic mineral reserves on any of our Properties is extremely small. It is common to spend millions of dollars on an exploration prospect and complete many phases of exploration and still not obtain mineral reserves that can be economically exploited. Therefore, the possibility that our Properties will contain commercial mineral reserves and that the Company will recover funds spent on exploration is extremely remote.

We may not have sufficient capital to operate our business following the completion of our 2012 exploration program and may be required to cease operations.

The Company will have a limited amount of cash to fund its operations following its 2012 exploration program. Without additional funds to support the Company’s exploratory drilling activities, we may be required to cease operations and you may lose your entire investment in the Company.

Our ability to successfully execute our business plan is dependent on our ability to obtain adequate financing.

Our business plan, which includes the drilling of exploration prospects, will require substantial capital expenditures. We will require financing to fund any exploration activities beyond 2012. Our ability to raise capital will depend on many factors, including the success, if any, of our 2012 exploration program and the status of various capital and industry markets at the time we seek such capital. Accordingly, we cannot be certain that financing will be available to us on acceptable terms, if at all. In the event additional capital resources are unavailable, we may be required to cease our exploration and development activities or be forced to sell all or some portion of our Properties in an untimely fashion or on less than favorable terms.

We have no revenue to date from our Properties, which may negatively impact our ability to achieve our business objectives.

Since the acquisition of the Properties, we and our predecessors have conducted only very limited exploration activities and to date have not, discovered any commercially viable mineral deposits. Our ability to become profitable will be dependent on the receipt of revenues from the extraction of minerals greater than our operational expenses. We and our predecessors have carried on our business of exploring our Properties at a loss since our inception and expect to continue to incur losses unless and until such time as one of our Properties enters into commercial production and generates sufficient revenues to fund our continuing operations. The amounts and timing of expenditures will depend on the progress of ongoing exploration, the results of consultants’ analysis and recommendations, the rate at which operating losses are incurred, and other factors, many of which are beyond our control. Whether any mineral deposits we discover would be commercially viable depends on a number of factors, which include, without limitation, the particular attributes of the deposit, market prices for the minerals, and governmental regulations. If we cannot discover commercially viable deposits or commence actual mining operations, we may never generate revenues and will never become profitable.


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The Properties in which we have an interest do not have any proven or probable reserves and we may never identify any commercially exploitable mineralization.

None of our Properties have any proven or probable reserves. To date, we have engaged in only limited preliminary exploration activities on the Properties, and our exploration activities of our REE Properties are based upon prior preliminary surveys conducted by the Federal government. Accordingly, we do not have sufficient information upon which to assess the ultimate success of our exploration efforts. There is no assurance that we may ever locate any mineral resources on our Properties or if we find mineral resources, they may not be in economic quantities. Additionally, even if we find minerals in sufficient quantities to warrant recovery, such recovery may not be economically profitable. Mineral exploration is highly speculative in nature, involves many risks and is frequently non-productive. Unusual or unexpected geologic formations and the inability to obtain suitable or adequate machinery, equipment or labor are risks involved in the conduct of exploration programs. If we do not establish reserves, we will be required to curtail or suspend our operations, in which case the market value of our common stock will decline, and you may lose all of your investment.

Our Properties are located in the remote regions of Alaska and exploration activities may be limited by weather conditions and limited access and existing infrastructure.

Our focus is on the exploration of our Properties in the state of Alaska. The arctic climate limits certain exploration activities to the period from May to October. In addition, the remote location of our Gold Properties as well as our REE Properties may limit access and increase exploration expenses. Higher costs associated with exploration activities and limitation on the annual periods in which we can carry on exploration activities will increase the costs and time associated with our planned exploration activities and could negatively affect the value of our Properties and securities.

We are highly dependent on the technical services provided by our consultant, Avalon, including the exploration of the Properties and exploratory drilling activities, and could be seriously harmed if Avalon terminated its services with us or became otherwise unavailable.

Because we have only three part-time employees, none of whom are mineral geoscientists or have experience in the mining industry, we depend upon our consultant, Avalon, for the success of our exploration projects and expect to remain so for the foreseeable future. Our ability to continue conducting exploration activities is in large part dependent upon the efforts of our consultant. As a result, we have limited control over the exploratory operations on the Properties. In addition, highly qualified explorationists and engineers are difficult to attract and retain. We are dependent upon Avalon for assistance in acquiring acreage for our exploration projects in Alaska, planning work programs, conducting field work and interpreting assay results, and expect to remain dependent for the foreseeable future. As a result, the loss of the services of our consultant could have a material adverse effect on us and could prevent us from pursuing our business plan.

We are dependent on the services provided by the Chief of the Tetlin Indian Tribe, and could be seriously harmed if the Chief terminated his services or became otherwise unavailable.

We are dependent upon the knowledge and experience provided by the Chief of the Tetlin Indian Tribe regarding governmental affairs and tribal affairs issues. The loss of the services of the Chief could have a material adverse effect on us and could prevent us from pursuing our business plan.

Concentrating our capital investment in the state of Alaska increases our exposure to risk.

We expect to focus our capital investments in gold and rare earth mineral prospects in the state of Alaska. However, our exploration prospects in Alaska may not lead to any revenues or we may not be able to drill for mineral deposits at anticipated finding and development costs due to financing, environmental or operating uncertainties. Should we be able to make an economic discovery on our Properties, we would then be solely dependent upon a single mining operation for our revenue and profits.

We will rely on the accuracy of the estimates in reports provided to the Company by outside consultants and engineers.

We have no in-house mineral engineering capability, and therefore will rely on the accuracy of reserve reports provided to us by our independent third party consultants. If those reports prove to be inaccurate, our financial reports could have material misstatements. Further, we will use the reports of our independent consultants in our financial planning. If the reports prove to be inaccurate, we may also make misjudgments in our financial planning.


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Index to Financial Statements

Exploration activities involve a high degree of risk, and our participation in exploratory drilling activities may not be successful.

Our future success will largely depend on the success of our exploration drilling program. Participation in exploration drilling activities involves numerous risks, including the significant risk that no commercially marketable minerals will be discovered. The mining of minerals and the manufacture of mineral products involves numerous hazards, including:

• Ground or slope failures;
• Pressure or irregularities in formations affecting ore or wall rock characteristics;
• Equipment failures or accidents;
• Adverse weather conditions;
• Compliance with governmental requirements and laws, present and future;
• Shortages or delays in the availability and delivery of equipment; and
• Lack of adequate infrastructure, including access to roads, electricity and available housing.

Poor results from our drilling activities would materially and adversely affect our future cash flows and results of operations.

We have no assurance of title to our Properties.

We hold 115,840 acres in the form of state of Alaska unpatented mining claims, for both gold and REE exploration. We also hold approximately 3,440 acres in unpatented U.S. Federal mining claims. Unpatented mining claims are unique property interests, in that they are subject to the paramount title of, the state of Alaska or the U.S. Federal government, as applicable, and rights of third parties to uses of the surface within their boundaries, and are generally considered to be subject to greater title risk than other real property interests. The rights to deposits of minerals lying within the boundaries of the unpatented state claims are subject to Alaska Statues 38.05.185 – 38.05.280, and are governed by Alaska Administrative Code 11 AAC 86.100 – 86.600. The validity of all state of Alaska unpatented mining claims is dependent upon inherent uncertainties and conditions. These uncertainties relate to matters such as:

• The existence and sufficiency of a discovery of valuable minerals;
• Proper posting and marking of boundaries in accordance with state statutes;
• Making timely payments of annual rentals for the right to continue to hold the mining claims in accordance
with state statutes;
• Whether sufficient annual assessment work has been timely and properly performed; and
• Possible conflicts with other claims not determinable from descriptions of records.

The validity of an unpatented mining claim also depends on (1) the claim having been located on Alaska state land open to appropriation by mineral location, which is the act of physically entering the land and making a claim by putting stakes in the ground, (2) compliance with all applicable state statutes in terms of the contents of claim location notices or certificates and the timely filing and recording of such notices or certificates, (3) timely payment of annual claim rental fees, and (4) the timely filing and recording of proof of annual assessment work. In the absence of a discovery of valuable minerals, the ground covered by an unpatented mining claim is open to location by others unless the owner is in actual possession of and diligently working the claim. The unpatented state mining claims we own or control may be invalid, or the title to those claims may not be free from defects. In addition, the validity of our claims may be contested by the Alaska state government or challenged by third parties.

With respect to our Tetlin Lease, we retained title lawyers to conduct a general examination of title to the mineral interest prior to executing the lease. Prior to conducting any mining activity, however, we will obtain a full title review of the applicable lease to identify more fully any deficiencies in title to the lease and, if there are deficiencies, to identify measures necessary to cure those defects to the extent reasonably possible. However, such deficiencies may not be cured by us. It does happen, from time to time, that the examination made by title lawyers reveals that the title to properties is defective, having been obtained in error from a person who is not the rightful owner of the mineral interest desired. In these circumstances, we may not be able to proceed with our exploration and development of the lease site or may incur costs to remedy a defect. It may also happen, from time to time, that we may elect to proceed with mining work despite defects to the title identified in a title opinion.




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Index to Financial Statements

We have entered into the Tetlin Lease with a Native American tribe for the exploration of gold and associated minerals. The enforcement of contractual rights against Native American tribes with sovereign powers may be difficult.

Federally recognized Native American tribes are independent governments with sovereign powers, except as those powers may have been limited by treaty or the United States Congress. Such tribes maintain their own governmental systems and often their own judicial systems and have the right to tax, and to require licenses and to impose other forms of regulation and regulatory fees, on persons and businesses operating on their lands. As sovereign nations, federally recognized Native American tribes are generally subject only to federal regulation. States do not have the authority to regulate them, unless such authority has been specifically granted by Congress, and state laws generally do not directly apply to them and to activities taking place on their lands, unless they have a specific agreement or compact with the state or Federal government allowing for the application of state law. Our Tetlin Lease provides that it will be governed by applicable federal law and the law of the state of Alaska. We cannot assure you, however, that this choice of law clause would be enforceable, leading to uncertain interpretation of our rights and remedies under the Tetlin Lease.

Federally recognized Native American tribes also generally enjoy sovereign immunity from lawsuit similar to that of the states and the United States federal government. In order to sue a Native American tribe (or an agency or instrumentality of a Native American tribe), the Native American tribe must have effectively waived its sovereign immunity with respect to the matter in dispute. Moreover, even if a Native American tribe effectively waives its sovereign immunity, there exists an issue as to the forum in which a lawsuit can be brought against the tribe. Federal courts are courts of limited jurisdiction and generally do not have jurisdiction to hear civil cases relating to matters concerning Native American lands or the internal affairs of Native American governments. Federal courts may have jurisdiction if a federal question is raised by the lawsuit, which is unlikely in a typical contract dispute. Diversity of citizenship, another common basis for federal court jurisdiction, is not generally present in a suit against a tribe because a Native American tribe is not considered a citizen of any state. Accordingly, in most commercial disputes with tribes, the jurisdiction of the federal courts, may be difficult or impossible to obtain. Our Tetlin Lease contains a provision in which the Tetlin Village Council expressly waives its sovereign immunity to the limited extent necessary to permit judicial review in the courts in Alaska of certain issues affecting the Tetlin Lease.

Competition in the mineral exploration industry is intense, and the Company is smaller and has a much more limited operating history than most of its competitors.

We will compete with a broad range of mining companies with far greater resources in our exploration activities. Several mining companies concentrate drilling efforts on one type of mineral and thus may enjoy economies of scale and other efficiencies. However, our drilling strategies include both mining of gold ore and rare earth elements. As a result, we may not be able to compete effectively with such companies. We will also compete for the equipment and labor required to operate and to develop our Properties if our exploration activities are successful. Most of our competitors have substantially greater financial resources than we do. These competitors may be able to evaluate, bid for and purchase a greater number of properties and prospects than we can. In addition, most of our competitors have been operating for a much longer time than we have and have substantially larger staffs. Gold and rare earth minerals processing requires complex and sophisticated processing technologies. We have no experience in the minerals processing industry.

We have only owned mining properties since the acquisition by our predecessors of the Properties in 2009 and 2010. Furthermore, no member of our management has any technical training or experience in minerals exploration or mining. Because of our limited operating history, we have limited insight into trends that may emerge and affect our business. We may make errors in predicting and reacting to relevant business trends and will be subject to the risks, uncertainties and difficulties frequently encountered by early-stage companies in evolving markets such as ours. We may not be able to compete effectively with more experienced companies or in such a highly competitive environment.

With respect to our rare earth mining activities, our Chinese competitors have been exploring for, mining and producing rare earth minerals long before our entry into the industry, and have far greater financial capabilities, as well as other processing technologies and resources to improve and expand their facilities. Additionally, the Chinese have enjoyed economies of scale and favorable domestic policies. We may not be able to overcome any strategic advantages our Chinese competitors may have over us.







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The mining industry is historically a cyclical industry and market fluctuations in the prices of minerals could adversely affect our business.

Prices for minerals tend to fluctuate significantly in response to factors beyond our control. These factors include:

• Global economic conditions;
• Domestic and foreign tax policy;
• The price of foreign imports of gold and rare earth elements, and products derived from the foregoing;
The cost of exploring for, producing and processing mineral ore;
• Available transportation capacity; and
• The overall supply and demand for minerals.

Changes in commodity prices would directly affect revenues and may reduce the amount of funds available to reinvest in exploration and development activities. Reductions in mineral prices not only reduce revenues and profits, but could also reduce the quantities of reserves that are commercially recoverable. Declining metal prices may also impact our operations by requiring a reassessment of the commercial feasibility of any of our mining work.

Because our sole source of revenue, if our exploration efforts are successful, will be the sale of gold and rare earth minerals, changes in demand for, and the market price of, gold and rare earth minerals could significantly affect our profitability. The value and price of our common stock may be significantly affected by declines in the prices of gold and rare earth minerals and products.

Gold prices fluctuate widely and are affected by numerous factors beyond our control such as interest rates, exchange rates, inflation or deflation, fluctuation in the relative value of the United States dollar against foreign currencies on the world market, global and regional supply and demand for gold, and the political and economic conditions of gold producing countries throughout the world.

Demand for rare earth minerals may also be impacted by fluctuations in demand for downstream products incorporating rare earth minerals, including wind power technology and hybrid and electric vehicles. Lack of growth in the clean technology or automotive industries may adversely affect the demand for rare earth minerals. The success of our business also depends on the creation of new products that may incorporate rare earth minerals. A prolonged or significant economic contraction in the United States or worldwide could also put downward pressure on market prices of rare earth minerals and products.

An increase in the global supply of minerals may adversely affect our business.

The pricing and demand for gold and rare earth minerals is affected by a number of factors beyond our control, including global economic conditions and the global supply and demand for gold and rare earth minerals and products. Increases in the amount of gold and rare earth minerals sold by our competitors may result in price reductions, reduced margins and we may not be able to compete effectively against current and future competitors.

We depend upon our management team and our consultant, Avalon.

The successful implementation of our business strategy and handling of other issues integral to the fulfillment of our business strategy depends, in part, on our management team, as well as our consultant, Avalon, and its geoscientists, geologists, engineers and other professionals engaged by Avalon. The loss of key members of our management team or the professional staff at Avalon could have a material adverse effect on our business, financial condition and operating results.

We are subject to complex laws and regulations, including environmental regulations that can adversely affect the cost, manner or feasibility of doing business.

Our exploratory mining operations are subject to numerous laws and regulations governing our operations and the discharge of materials into the environment, including the Federal Clean Water Act, Clean Air Act, Endangered Species Act, and the Comprehensive Environmental Response, Compensation, and Liability Act. Federal initiatives are often also administered and enforced through state agencies operating under parallel state statutes and regulations. Failure to comply with such rules and regulations could result in substantial penalties and have an adverse effect on us. These laws and regulations may:

• Require that we obtain permits before commencing mining work;

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Index to Financial Statements

• Restrict the substances that can be released into the environment in connection with mining work;
• Limit or prohibit mining work on protected areas.

Under these laws and regulations, we could be liable for personal injury and clean-up costs and other environmental and property damages, as well as administrative, civil and criminal penalties. We maintain only limited insurance coverage for sudden and accidental environmental damages. Accordingly, we may be subject to liability, or we may be required to cease production from properties in the event of environmental damages. These laws and regulations have been changed frequently in the past. In general, these changes have imposed more stringent requirements that increase operating costs or require capital expenditures in order to remain in compliance. Any such changes could have an adverse effect on our business, financial condition and results of operations.

We are subject to the Federal Mine Safety and Health Act of 1977 and regulations promulgated thereto, which impose stringent health and safety standards on numerous aspects of our operations.

Our exploration and mining work in Alaska is subject to the Federal Mine Safety and Health Act of 1977, which impose stringent health and safety standards on numerous aspects of mineral extraction and processing operations, including the training of personnel, operating procedures, operating equipment and other matters. Our failure to comply with these standards could have a material adverse effect on our business, financial condition or otherwise impose significant restrictions on our ability to conduct mining work.

We may be unable to obtain, maintain or renew permits necessary for the exploration, development or operation of any mining activities, which could have a material adverse effect on our business, financial condition or results of operation.

We must obtain a number of permits that impose strict conditions, requirements and obligations relating to various environmental and health and safety matters in connection with our current and future operations. To obtain certain permits, we may be required to conduct environmental studies, collect and present data to governmental authorities and the general public pertaining to the potential impact of our current and future operations upon the environment and take steps to avoid or mitigate the impact. The permitting rules are complex and have tended to become more stringent over time. Accordingly, permits required for our mining work may not be issued, maintained or renewed in a timely fashion or at all, or may be conditioned upon restrictions which may impede our ability to operate efficiently. The failure to obtain certain permits or the adoption of more stringent permitting requirements could have a material adverse effect on our business, our plans of operation, and properties in that we may not be able to proceed with our exploration, development or mining programs.

Anti-takeover provisions of our certificate of incorporation, bylaws and Delaware law could adversely affect potential acquisition by third parties.

Our certificate of incorporation, bylaws and the Delaware General Corporation Law contain provisions that may discourage unsolicited takeover proposals. These provisions could have the effect of inhibiting fluctuations in the market price of our common stock that could result from actual or rumored takeover attempts, preventing changes in our management or limiting the price that investors may be willing to pay for shares of common stock. Among other things, these provisions:

• Limit the personal liability of directors;
• Limit the persons who may call special meetings of stockholders;
• Prohibit stockholder action by written consent;
• Establish advance notice requirements for nominations for election of the board of directors and for proposing
matters to be acted on by stockholders at stockholder meetings;
• Require us to indemnify directors and officers to the fullest extent permitted by applicable law;
• Impose restrictions on business combinations with some interested parties.

Our common stock is thinly traded.

As of September 7, 2012, there are approximately 2.5 million shares of our common stock outstanding, with directors, officers and our technical consultant owning approximately 29% of our common stock. Since our common stock is thinly traded, the purchase or sale of relatively small common stock positions may result in disproportionately large increases or decreases in the price of our common stock.




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Index to Financial Statements

We do not intend to pay dividends in the foreseeable future.

For the foreseeable future, we intend to retain any earnings to finance the development of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our Board of Directors and will be dependent upon then-existing conditions, including our operating results and financial condition, capital requirements, contractual restrictions, business prospects and other factors that our Board of Directors considers relevant. Accordingly, investors must rely on sales of their common stock after any price appreciation, which may never occur, as the only way to realize a return on their investment.

Item 1B.    UNRESOLVED STAFF COMMENTS
None


Item 2.    PROPERTIES
Our Properties are located in the state of Alaska, and principally consist of mineral leases and unpatented mining claims.
We believe that we hold good title to our Properties in accordance with standards generally accepted in the minerals industry. As is customary in both the gold and rare earths industries, we conduct only a perfunctory title examination at the time we acquire a property. Before we begin any mining activities, however, we will conduct a full title examination and perform curative work on any defects that we deem significant.
Lease with Tetlin Village Council
JEX entered into the Tetlin Lease with the Tetlin Village Council, effective as of July 15, 2008. An undivided 50% leasehold interest was sold to Contango Mining pursuant to the Joint Exploration Agreement dated as of September 29, 2009 in exchange for $1 million and a 1% overriding royalty interest. JEX transferred its remaining 50% leasehold interest to Contango Mining as of September 15, 2010 in exchange for an increased overriding royalty aggregating 3% pursuant to an Amended ORRI Agreement. The Tetlin Lease covers approximately 675,000 acres of land, provides for an initial term of ten (10) years, with an option to renew 50% of the acreage for an additional ten years, or so long as we continue conducting mining operations on the Tetlin Lease. While the Company is required to spend $350,000 per year annually until July 15, 2018 in exploration costs pursuant to the Tetlin Lease, the Company's exploration expenditures on the Tetlin Properties through its 2011 exploration program satisfied this requirement because under the Tetlin Lease, exploration funds spent in any year in excess of $350,000 are credited toward future years’ exploration cost requirements.
If the Tetlin Lease is placed into commercial production of precious or non-precious metals, we will be obligated to pay a production royalty to the Native Village of Tetlin, ranging from 2.0% to 5.0%. The Company has purchased 0.75% of this production royalty for $225,000, which reduces the production royalty to a range of 1.25% to 4.25%. On or before July 15, 2020, the Tetlin Village Council has the option to repurchase the 0.75% production royalty for $450,000, or a portion thereof. Until such time as production royalties begin, the Company pays the Tetlin Village Council an advance minimum royalty of $50,000 per year, which is credited toward any production royalty payable to the Tetlin Village Council. On July 15, 2012, the advance minimum royalty increased to $75,000 per year, and subsequent years are escalated by an inflation adjustment.
Gold Mining Claims
A listing of our state of Alaska unpatented mining claims as of September 7, 2012 for gold and associated minerals are listed in Exhibit 99.1.
REE Mining Claims
A listing of our state of Alaska and Federal mining claims as of September 7, 2012 for rare earth elements are listed in Exhibit 99.2.

Location and Access of our Properties
Our Gold Properties are located in the eastern interior region of Alaska. Access to the Tetlin Project claims is available by road and access to public power is available. The Triple Z Project claims are accessible via an ATV trail from the public road. There is no commercial power available.

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Our REE Properties are located throughout the state of Alaska. The Salmon Bay and Stone Rock Bay Project claims are located in the southeastern region of the state. Salmon Bay and Stone Rock are accessible only by aircraft or sea. No commercial sources of power are available. The Alatna, Spooky and Wolf Project claims are located in the interior region and the Swift Project claims are located in western region of Alaska. The Alatna, Spooky, Wolf and Swift claims are accessible by aircraft only and no commercial sources of power are available. We are considering abandoning the Alatna, Spooky, Wolf and Swift claims effective December 1, 2012 to focus our time and resources on the remaining claims.
In general, water rights are acquired on an as-needed basis from the state of Alaska Department of Natural Resources, Division of Mining, Land and Water. Potential water sources include both surface and subsurface waters. Water right applications can be either temporary (seasonal rights) or permanent, such as an operating mine would require. We will obtain water rights as necessary to carry out our exploration programs on our Properties. Such rights normally take approximately one month to acquire via permit.
Prior to JEX’s acquisition of the Properties, to the Company’s knowledge, the Properties had not been previously explored for minerals.
Fees
The following tables set forth the annual state of Alaska and Federal mining claim rental holding costs for the Company’s Alaska projects. Additionally, the state of Alaska claims are subject to annual work commitments. Federal mining claim rents are due and payable in full by August 31 of each year and state of Alaska mining claim rents and work commitments are due and payable by November 30 of each year.
The Company has met the annual work requirements for the Triple Z and TOK/Tetlin claims for the next four years, which is the maximum time frame allowed by Alaska law. The Company's Swift , Wolf and Alatna claims have work commitments totaling $176,800. In lieu of work commitments, the Company can pay $176,800 each year to maintain the claims. The Company's Spooky project is located on state of Alaska lands, but an annual claim rental is not currently required.
 

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Gold Claims:
Triple Z
 
Tetlin
 
Totals
# 160 Acre Claims
45

 
54

 
99

# 40 Acre Claims

 
68

 
68

# 20 Acre Fed claims

 

 

Total Acres
7,200

 
11,360

 
18,560

State Claim Rents—160-acre
$
2,200

 
$
7,560

 
$
9,760

State Claim Rents—40-acre
$

 
$
2,380

 
$
2,380

Fed Claim Rents—20-acre
$

 
$

 
$

Totals
$
2,200

 
$
9,940

 
$
12,140

REE Claims:
Stone Rock
 
Salmon
Bay
 
Spooky (1)
 
Wolf (1)
 
Alatna (1)
 
Swift (1)
 
Totals
# 160 Acre Claims

 

 
166

  
202

 
127

 
113

 
608

# 40 Acre Claims

 

 

  

 

 

 

# 20 Acre Fed claims
49

 
123

 

  

 

 

 
172

Total Acres
980

 
2,460

 
26,560

  
32,320

 
20,320

 
18,080

 
100,720

State Claim Rents—160-acre
$

 
$

 
$
23,240

  
$
28,280

 
$
17,780

 
$
15,820

 
$
85,120

State Claim Rents—40-acre
$

 
$

 
$

  
$

 
$

 
$

 
$

Fed Claim Rents—20-acre
$
6,860

 
$
17,220

 
$

  
$

 
$

 
$

 
$
24,080

Totals
$
6,860

 
$
17,220

 
$
23,240

(2)
$
28,280

 
$
17,780

 
$
15,820

 
$
109,200

 
(1)
We are considering abandoning the Spooky, Wolf, Alatna and Swift claims effective December 1, 2012 to focus our time and resources on the remaining claims.
(2)
Rental not due to the state of Alaska until land is patented .
Acquisition of Other Properties
The Company anticipates from time to time acquiring additional properties in Alaska for exploration, subject to the availability of funds. The acquisitions may include leases or similar rights from Alaska Native corporations or may include filing Federal or state of Alaska mining claims by staking claims for exploration and development. Acquiring additional properties will likely result in additional expense to the Company for minimum royalties, minimum rents and annual exploratory work requirements.
Overriding Royalty Interest
Pursuant to the Amended ORRI Agreement dated September 15, 2010, in consideration of JEX’s assignment of its 50% interest in the Properties to Contango Mining, the Company conveyed an overriding royalty interest to JEX which provides that JEX will receive a 3% of 8/8ths overriding royalty interest on all minerals mined from the Properties held by the Company as of the date of the Amended ORRI Agreement. Pursuant to an Advisory Agreement dated September 6, 2012 with JEX, the Company agreed to pay JEX a 2% of 8/8ths ORRI on all minerals mined from properties acquired by the Company after July 1, 2012 in the state of Alaska. In addition, we will pay the Tetlin Village Council a production royalty ranging from 2.0% to 5.0% should we deliver to a purchaser on a commercial basis, precious or non-precious metals derived from the Tetlin Lease. The Company has purchased 0.75% of this production royalty for $225,000, which reduces the production royalty to a range of 1.25% to 4.25%. On or before July 15, 2020, the Tetlin Village Council has the option to repurchase the 0.75% production royalty for $450,000, or a portion thereof.

Item 3.    LEGAL PROCEEDINGS
As of the date of this Form 10-K, we are not a party to any legal proceedings and we are not aware of any proceeding contemplated against us.

Item 4.    MINE SAFETY DISCLOSURES

Not applicable.

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PART II

Item 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock began trading on the Over-The-Counter Bulleting Board (OTCBB) on December 20, 2010 under the symbol “CTGO”. The table below shows the high and low closing prices of our common stock for the periods indicated.
 
 
High
 
Low
Fiscal Year 2011:
 
 
 
Quarter ended September 30, 2010
n/a

 
n/a

Quarter ended December 31, 2010
$
12.50

 
$
6.00

Quarter ended March 31, 2011
$
19.50

 
$
7.50

Quarter ended June 30, 2011
$
18.50

 
$
13.00

 
 
 
 
Fiscal Year 2012
 
 
 
Quarter ended September 30, 2011
$
16.00

 
$
12.50

Quarter ended December 31, 2011
$
17.88

 
$
12.50

Quarter ended March 31, 2012
$
14.00

 
$
7.77

Quarter ended June 30, 2012
$
12.98

 
$
8.65

On September 7, 2012, the closing price of our common stock on the OTCBB was $9.25 per share, and there were 2,480,269 shares of Contango ORE, Inc. common stock outstanding held by approximately 51 registered shareholders.

The Company does not intend to declare or pay any dividends and currently intends to retain any available funds generated by its operations for the development and growth of its business. It does not currently anticipate paying any cash dividends on its outstanding shares of common stock in the foreseeable future. Any future decision to pay dividends on its common stock will be at the discretion of its Board and will depend on its financial condition, results of operations, capital requirements, and other factors the Board may deem relevant.
The following table sets forth information about our equity compensation plans at September 7, 2012:
 
Plan Category
Number of securities
to be issued upon exercise
of outstanding options
 
Weighted-average
exercise price of
outstanding options
 
Number of securities
remaining available for future
issuance under equity
compensation plans (excluding
securities
reflected in column (b))
Equity compensation plans approved by security holders

 

 
756,094

Equity compensation plans not approved by security holders

 

 

On September 15, 2010, the Company’s Board of Directors (the “Board”) adopted the Contango ORE, Inc. Equity Compensation Plan (the “2010 Plan”), which was approved by the Company’s shareholders. Under the 2010 Plan, the Board may grant restricted stock and option awards to officers, directors, employees or consultants of the Company. Awards made under the 2010 Plan are subject to such restrictions, terms and conditions, including forfeitures, if any, as may be determined by the Board. As of September 7, 2012, there were 93,906 restricted shares outstanding and 150,000 options outstanding issued under the 2010 Plan.

Item 6.    NOT REQUIRED AS A SMALLER REPORTING COMPANY



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Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes and other information included elsewhere in this report.
Overview
The Company was formed on September 1, 2010 as a Delaware corporation. We are a Houston-based company, whose primary business is to explore in the state of Alaska for (i) gold ore and associated minerals and (ii) rare earth elements. We have leased or have control over approximately 794,280 acres of Alaskan Native, Federal and state of Alaska properties for the exploration of gold and associated minerals and rare earth elements.
Insolvency of Company
It is possible that our 2012 summer field work program will not identify any commercially exploitable minerals. Should this occur, or if we determine that recovery of any minerals may not be economically profitable, we may be required to cease operations, dissolve and wind up the business of the Company.
Results of Operations
The Company is a newly-formed company that has not commenced mining or producing commercially marketable minerals. To date, we have not generated any revenue from mineral sales or operations. We have no recurring source of revenue and our ability to continue as a going concern is dependent on our ability to raise capital to fund our future exploration and working capital requirements. In the future, we may generate revenue from a combination of mineral sales and other payments resulting from any commercially recoverable minerals from the Properties. We do not expect to generate revenue from mineral sales in the foreseeable future. If our Properties fail to contain any proven reserves, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected. Other potential sources of cash, or relief of demand for cash, include external debt, the sale of shares of our stock, joint ventures, or alternative methods such as mergers or sale of our assets. No assurances can be given, however, that we will be able to obtain any of these potential sources of cash. We will need to generate significant revenues to achieve profitability and we may never do so.
Claim Rentals and Minimum Royalties. Claim rentals and minimum royalties consist of Federal and state of Alaska rental payments, annual labor payments, and minimum royalty payments payable to the Native Village of Tetlin. We recognized claim rental expenses of $198,797 for the fiscal year ended June 30, 2012, compared to $281,418 for the fiscal year ended June 30, 2011. The lower level of claim rentals and minimum royalties is due to a reduction in minimum labor costs.
For the fiscal year ended June 30, 2011, we recognized claim rental expenses of $281,418, compared to $192,712 for the fiscal year ended June 30, 2010. The higher level of rentals is due to additional lands acquired in fiscal year 2011.
Exploration Expenses. We incurred approximately $3.5 million of exploration expense for the fiscal year ended June 30, 2012, compared to $2.3 million for the fiscal year ended June 30, 2011. This increase is principally attributable to our summer 2011 work program. Components of exploration expense include drilling, permits, field rentals and field supplies as well as staking, mapping, logging, surveying and plotting expenses. The increase is also attributable to stock-based compensation costs recorded under exploration expense related to the issuance of restricted stock in November 2010 and stock options in September 2011 to our technical consultant, pursuant to the Company's 2010 Equity Compensation Plan. Stock-based compensation costs included in exploration expense totaled $58,326 for the fiscal year ended June 30, 2012, as compared to $21,227 for the fiscal year ended June 30, 2011.
For the fiscal year ended June 30, 2011, we incurred approximately $2.3 million of exploration expense, compared to $0.9 million for the fiscal year ended June 30, 2010. This increase is principally attributable to our summer 2010 work program as well as stock-based compensation expense related to issuing restricted stock in November 2010 to our technical consultant.
Other Operating Expenses. Other operating expenses for the fiscal year ended June 30, 2012 were $28,898, compared to $87,167 for the fiscal year ended June 30, 2011. This decrease is mainly attributable to fewer travel expenses and fees.
Other operating expenses for the fiscal year ended June 30, 2011 were $87,167, compared to $30,485 for the fiscal year ended June 30, 2010. This increase is principally attributable to minimal exploration activities during the fiscal year ended June 30, 2010.


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Stock-based Compensation Expenses. We recognized $192,884 of stock-based compensation expense for the fiscal year ended June 30, 2012, related to restricted stock granted to our officers and directors in November 2010, and stock option awards granted to our officers and directors in September 2011. For the fiscal year ended June 30, 2011, we recognized $63,681 of stock-based compensation expense related to restricted stock granted to officers and directors in November 2010. All issuances of restricted stock and stock options were made pursuant to the Company’s 2010 Equity Compensation Plan.
General and Administrative Expenses. General and administrative expenses for the fiscal year ended June 30, 2012, 2011 and 2010 were $337,229, $150,810 and $1,677, respectively. The year-over-year increase is attributable to increased legal, accounting and other professional service costs as we implement Sarbanes-Oxley controls and procedures, XBRL reporting requirements, and expand our business and operations.
The Company's directors and officers currently do not receive cash compensation for their work for the Company, nor does the Company reimburse Contango for the shared services of its management officers or shared office space. If the Company continues its business activities, it is possible that we may be required to fund these expenses, which could lead to a significant increase in our general and administrative expenses.
Liquidity and Capital Resources
The Company is in the initial stage of conducting exploration activities on its Properties, and our longer term liquidity will be impaired to the extent our exploration efforts are not successful in generating commercially viable mineral deposits on the Properties.

Liquidity Outlook. Our initial source of funding was the $3.5 million in cash contributed by Contango which has been fully expended. On March 26, 2012, the Company completed the sale of 882,500 shares of Common Stock to accredited investors at a price of $10.00 per share in a private placement for total proceeds of approximately $8.8 million, including 400,000 shares that were purchased by Mr. Peak, the Company’s Chairman and Chief Executive Officer. The placement agents used in connection with the transaction received aggregate placement fees and expenses of approximately $0.4 million. After repaying approximately $0.5 million of short-term debt under the Company’s Revolving Line of Credit Promissory Note, the Company is using the remaining $7.9 million to fund its 2012 exploration program in Alaska, estimated at $6.75 million, and for general corporate purposes.

Revolving Line of Credit Promissory Note. On November 10, 2011, the Company entered into a $1.0 million Revolving Line of Credit Promissory Note with Contango (the “CORE Note”). The Company and Contango share common executive officers. The CORE Note contains covenants limiting our ability to enter into additional indebtedness and prohibiting liens on any of our assets or properties. Borrowings under the CORE Note bear interest at 10% per annum. Principal and interest are due on December 31, 2012, and may be prepaid at any time with no prepayment penalty.

On March 30, 2012, the Company repaid the $500,000 it had borrowed under the CORE Note, plus accrued interest of $14,917 from the proceeds of the equity offering. As of September 7, 2012, there are no amounts outstanding under the CORE Note. The Company may re-borrow any portion of the $1.0 million through December 31, 2012.

Capital Budget. Our 2012 capital expenditure budget calls for us to invest approximately $6.75 million per the table below. As of August 31, 2012, we had invested approximately $4.3 million of this amount.
Program
Budget
Chief Danny Prospect exploration and drilling
$
3,600,000

Copper Hill,Taixsalsa, MM, Chisana, W and Triple Z leads
$
2,750,000

Rare earth element exploration and claim rentals
$
400,000

 
$
6,750,000


We currently have two exploration rigs drilling with one rig focused on our Chief Danny prospect (30 – 40 core holes planned), and one rig dedicated to drilling another approximately 16 - 24 core holes to mature four of our six leads to either the prospect stage or condemnation.

Dissolution of the Company. While the Company was successful in selling shares of Common Stock sufficient to fund its 2012 exploration program, after completion of the 2012 exploration program, the Company anticipates requiring additional funding. If the 2012 exploration program is successful, the Company will be required to seek additional debt or equity funding or capital reorganization. If the 2012 exploration program is not successful, or if the Company is unable to obtain additional

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funding, the Company may be required to cease operations, dissolve and wind-up the business of the Company.
Off-Balance Sheet Arrangements
None
Contractual Obligations
The Tetlin Lease provides for an initial term of ten years, with an option to renew 50% of the acreage for an additional ten years, or so long as we continue conducting mining operations on the Tetlin Lease. The Company is required to spend $350,000 per year annually until July 15, 2018 in exploration costs pursuant to the Tetlin Lease. However, exploration expenditures through our 2011 exploration program have satisfied this requirement because exploration funds spent in any year in excess of $350,000 are credited toward future years’ exploration cost requirements. The Tetlin Lease also provides that we will pay the Tetlin Village Council a production royalty ranging from 2.0% to 5.0% should we deliver to a purchaser on a commercial basis precious or non-precious metals derived from the properties under the Tetlin Lease. As of June 30, 2012, the Company has paid the Tetlin Village Council $225,000 in exchange for reducing the production royalty payable to it by 0.75%. These payments lowered the production royalty to a range of 1.25% to 4.25%. On or before July 15, 2020, the Tetlin Village Council has the option to increase its production royalty by (i) 0.25% by payment to CORE of $150,000, (ii) 0.50% by payment to CORE of $300,000, or (iii) 0.75% by payment to CORE of $450,000. Until such time as production royalties begin, the Company pays the Tetlin Village Council an advance minimum royalty of approximately $75,000 per year, which amounts are credited toward the payment of any production royalties. Additionally, we will pay JEX an overriding royalty of 3% should we deliver to a purchaser on a commercial basis precious metals, non-precious metals or hydrocarbons derived from the Properties.
Application of Critical Accounting Policies and Management’s Estimates

The discussion and analysis of the Company’s financial condition and results of operations is based upon the financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We have identified below the policies that are of particular importance to the portrayal of our financial position and results of operations and which require the application of significant judgment by management. The Company analyzes its estimates, including those related to its mineral reserve estimates, on a periodic basis and bases its estimates on historical experience, independent third party engineers and various other assumptions that management believes to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the Company’s financial statements:
Mineral Property Interests, Exploration and Development Costs: Mineral property interests include interests in the exploration stage mineral properties acquired. The amount capitalized includes costs paid to acquire mineral property interests as well as the costs paid to obtain the lease rights. Exploration costs are expensed as incurred. Development costs are expensed as incurred until the Company obtains proven and probable reserves within its commercially minable properties. Costs of abandoned projects are charged to earnings upon abandonment. Properties determined to be impaired are written-down to the estimated fair value. The Company periodically evaluates whether events or changes in circumstances indicate that the carrying value of mineral property interests and related property, plant and equipment may not be recoverable.
Stock-Based Compensation. The Company applies the fair value based method to account for stock-based compensation. Under this method, we will measure and recognize compensation expense for all stock-based payments at fair value at the date of grant and amortize the amount over the employee's service period. Management is required to make assumptions including stock price volatility and employee turnover that are utilized to measure compensation expense.

Item 7A. NOT REQUIRED AS A SMALLER REPORTING COMPANY

Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplemental information required to be filed under Item 8 of Form 10-K are presented on pages F-1 through F- 15 of this Form 10-K.

Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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Item 9A.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of the Company’s senior management of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of June 30, 2012, the end of the period covered by this report. Based on that evaluation, the Company’s management, including the Chairman, Acting Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, concluded that the Company’s disclosure controls and procedures were effective as of such date to ensure that information required to be disclosed in the reports that the Company files under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to the Company’s management, including the Chairman, Acting Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes to the Company’s internal control over financial reporting (as that term is defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act) during the three months ended June 30, 2012 that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of the Company's management, including the Chairman, Acting Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the Company's evaluation under the framework in Internal Control - Integrated Framework, the Company's management concluded that its internal control over financial reporting was effective as of June 30, 2012.
This Annual Report on Form 10-K does not include an attestation report from UHY LLP, the Company's registered public accounting firm, regarding internal control over financial reporting. Management's report was not subject to attestation by UHY LLP, pursuant to SEC rules that permit the Company to provide only management's report in this Annual Report on Form 10-K.

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PART III

Item 10.     DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information regarding directors, executive officers, promoters and control persons required under Item 10 of Form 10-K will be contained in our Definitive Proxy Statement for our 2011 Annual Meeting of Stockholders (the “Proxy Statement”) under the headings “Election of Directors”, “Executive Compensation”, “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance” and is incorporated herein by reference. The Proxy Statement will be filed with the SEC pursuant to Regulation 14A of the Exchange Act, not later than 120 days after June 30, 2012.

Item 11. EXECUTIVE COMPENSATION
The information required under Item 11 of Form 10-K will be contained in the Proxy Statement under the heading “Executive Compensation” and is incorporated herein by reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required under Item 12 of Form 10-K will be contained in the Proxy Statement under the heading “Security Ownership of Certain Other Beneficial Owners and Management” and is incorporated herein by reference.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required under Item 13 of Form 10-K will be contained in the Proxy Statement under the heading “Certain Relationships and Related Transactions, and Director Independence” and “Executive Compensation” and is incorporated herein by reference.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required under Item 14 of Form 10-K will be contained in the Proxy Statement under the heading “Principal Accountant Fees and Services” and is incorporated herein by reference.

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PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)
Financial Statements and Schedules:
The financial statements are set forth in pages F-1 to F-15 of this Form 10-K. Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.
 
(b)
Exhibits:
The following is a list of exhibits filed as part of this Form 10-K. Where so indicated by a footnote, exhibits, which were previously filed, are incorporated herein by reference.
 
Exhibit
Number
  
Description
3.1
  
Certificate of Incorporation of Contango ORE, Inc. (1)
3.2
  
Bylaws of Contango ORE, Inc. (1)
4.1
  
Form of Certificate of Contango ORE, Inc. Common Stock (1)
10.1
  
Mineral Lease, effective as of July 15, 2008, between the Native Village of Tetlin and Juneau Exploration Company, d/b/a Juneau Mining Company, as amended by Amendment No. 1 to Mineral Lease, effective as of October 1, 2009. (1)
10.2
  
Amendment No. 2 to Mineral Lease, effective as of June 1, 2011 (2)
10.3
  
Amendment No. 3 to Mineral Lease, effective as of July 1, 2011 (2)
10.4
  
Chairman Agreement dated as of November 1, 2010, between Contango ORE, Inc. and Kenneth R. Peak (1)
10.5
  
Form of 2010 Equity Compensation Plan (1)
10.6
  
Contribution Agreement, dated as of November 1, 2010, between Contango Oil & Gas Company and Contango ORE, Inc. (1)
10.7
  
Amended and Restated Professional Services Agreement, dated as of November 1, 2010, between Avalon Development Corporation and Contango ORE, Inc. (1)
10.8
  
Consulting Agreement, dated as of October 15, 2010, between Mr. Donald Adams and Contango ORE, Inc. (2)
10.9
 
Revolving Line of Credit Promissory Note dated as of November 10, 2011, between Contango ORE, Inc. and Contango Oil & Gas Company. (3)
10.10
 
Securities Purchase Agreement, dated as of March 22, 2012, between Contango ORE, Inc. and the Purchasers named therein. (4)
10.11
 
Registration Rights Agreement, dated as of March 22, 2012, between Contango ORE, Inc. and the Purchasers named therein. (4)
10.12
 
Advisory Agreement, dated as of September 6, 2012, between Contango ORE, Inc. and Juneau Exploration L.P. †
14.1
 
Code of Ethics †
31.1
  
Section 302 CEO Certification
31.2
  
Section 302 CFO Certification
32.1
  
Section 906 CEO Certification
32.2
  
Section 906 CFO Certification
99.1
  
Schedule of Gold Properties (Excluding Tetlin Lease) (2)
99.2
  
Schedule of REE Properties (2)
99.3
 
Report of Behre Dolbear & Company (USA) (5)
101
 
Interactive Data Files †
Filed herewith

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1
Filed as an exhibit to the Company’s report on Amendment No. 2 to Registration Statement on Form 10, as filed with the Securities and Exchange Commission on November 26, 2010.
2
Filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2011, as filed with the Securities and Exchange Commission on September 19, 2011.
3
Filed as an exhibit to the Company’s report on Form 10-Q for the three months ended September 30, 2011, as filed with the Securities and Exchange Commission on November 14, 2011.
4
Filed as an exhibit to the Company’s report on Form 8-K, as filed with the Securities and Exchange Commission on March 27, 2012.
5
Filed as an exhibit to the Company’s report on Form 10-Q for the three months ended December 31, 2011, as filed with the Securities and Exchange Commission on February 6, 2012.

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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
CONTANGO ORE, INC.
 
 
  
 
/s/    BRAD JUNEAU        
 
/s/    SERGIO CASTRO         
  
/s/    YAROSLAVA MAKALSKAYA         
Brad Juneau President and Acting Chief Executive Officer
(principal executive officer)
 
Sergio Castro
Chief Financial Officer
(principal financial officer)
  
Yaroslava Makalskaya
Chief Accounting Officer
(principal accounting officer)
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
Name
  
Title
  
Date
/s/ BRAD JUNEAU
 
President, Acting Chief Executive Officer and Director
 
September 11, 2012
BRAD JUNEAU
 
 
 
 
 
 
 
 
 
/s/    JOSEPH COMPOFELICE
  
Director
  
September 11, 2012
JOSEPH COMPOFELICE  
 
 
 
 
 
 
 
 
 
/s/    JOSEPH GREENBERG
  
Director
  
September 11, 2012
JOSEPH GREENBERG 
 
 
 
 


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CONTANGO ORE, INC.
INDEX TO FINANCIAL STATEMENTS
 
 
Page

F-1

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Contango ORE, Inc.
We have audited the accompanying balance sheets of Contango ORE, Inc. (an exploration stage company) (the “Company”) as of June 30, 2012 and 2011, and the related statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended June 30, 2012 and from Inception (October 15, 2009) to June 30, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly, in all material respects, the financial position of Contango ORE, Inc. as of June 30, 2012 and 2011, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2012 and from Inception (October 15, 2009) to June 30, 2012 in conformity with accounting principles generally accepted in the United States of America.
/s/ UHY LLP
Houston, Texas
September 11, 2012

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CONTANGO ORE, INC.
(An Exploration Stage Company)
BALANCE SHEETS
 
 
June 30,
 
2012
 
2011
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash
$
7,765,265

 
$
2,395,100

Prepaid expenses
138,029

 
78,158

Total current assets
7,903,294

 
2,473,258

PROPERTY AND EQUIPMENT:
 
 
 
Mineral properties
1,008,886

 
1,008,886

Accumulated depreciation, depletion and amortization

 

Total property and equipment, net
1,008,886

 
1,008,886

OTHER ASSETS:
 
 
 
Other
225,000

 
75,000

TOTAL ASSETS
$
9,137,180

 
$
3,557,144

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
1,728,664

 
$
488,356

Accrued liabilities
73,000

 
156,408

Total current liabilities
1,801,664

 
644,764

COMMITMENTS AND CONTINGENCIES (NOTE 11)

 

SHAREHOLDERS’ EQUITY:
 
 
 
Common Stock, $0.01 par value, 30,000,000 shares authorized; 2,480,269 shares issued and outstanding at June 30, 2012; 1,566,467 shares issued and outstanding at June 30, 2011
24,803

 
15,665

Additional paid-in capital
15,527,205

 
6,853,515

Accumulated deficit during exploration stage
(8,216,492
)
 
(3,956,800
)
SHAREHOLDERS’ EQUITY
7,335,516

 
2,912,380

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
9,137,180

 
$
3,557,144


The accompanying notes are an integral part of these financial statements.

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CONTANGO ORE, INC.
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
 
Year Ended June 30,
 
 
 
2012
 
2011
 
2010
 
Period from Inception (October 15, 2009) to June 30, 2012
EXPENSES:
 
 
 
 
 
 
 
Claim rentals and minimum royalties
$
198,797

 
$
281,418

 
$
192,712

 
$
672,927

Exploration expenses
3,501,884

 
2,271,088

 
877,762

 
6,650,734

Other operating expenses
28,898

 
87,167

 
30,485

 
146,550

Stock-based compensation expense
192,884

 
63,681

 

 
256,565

General and administrative expenses
337,229

 
150,810

 
1,677

 
489,716

Total expenses
4,259,692

 
2,854,164

 
1,102,636

 
8,216,492

NET LOSS
$
4,259,692

 
$
2,854,164

 
$
1,102,636

 
$
8,216,492

LOSS PER SHARE
 
 
 
 
 
 
 
Basic and diluted
$
2.35

 
$
1.82

 
$
0.70

 
$
4.96

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
 
 
 
 
 
 
 
Basic and diluted
1,814,072

 
1,566,467

 
1,566,467

 
1,657,393


The accompanying notes are an integral part of these financial statements.

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CONTANGO ORE, INC.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
 
 
Year Ended June 30,
 
 
 
2012
 
2011
 
2010
 
Period from Inception (October 15, 2009) to June 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
Net loss
$
(4,259,692
)
 
$
(2,854,164
)
 
$
(1,102,636
)
 
$
(8,216,492
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
 
 
 
Stock-based compensation
251,210

 
84,908

 

 
336,118

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Decrease (increase) in prepaid expenses
(59,871
)
 
155,110

 
(233,268
)
 
(138,029
)
Increase in accounts payable and other accrued liabilities
1,156,900

 
133,608

 
511,156

 
1,801,664

Net cash used in operating activities
(2,911,453
)
 
(2,480,538
)
 
(824,748
)
 
(6,216,739
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
Acquisition of other assets
(150,000
)
 
(75,000
)
 

 
(225,000
)
Acquisition of properties

 

 
(1,008,886
)
 
(1,008,886
)
Net cash used in investing activities
(150,000
)
 
(75,000
)
 
(1,008,886
)
 
(1,233,886
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
Shareholders’ contributions

 
4,950,638

 
1,833,634

 
6,784,272

Common stock issuance, net
8,431,618

 

 

 
8,431,618

Short-term borrowings
500,000

 

 

 
500,000

Repayment of short-term borrowings
(500,000
)
 

 

 
(500,000
)
Net cash provided by financing activities
8,431,618

 
4,950,638

 
1,833,634

 
15,215,890

NET INCREASE IN CASH AND CASH EQUIVALENTS
5,370,165

 
2,395,100

 

 
7,765,265

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
2,395,100

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
7,765,265

 
$
2,395,100

 
$

 
$
7,765,265

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
 
 
 
 
Cash paid for interest
$
14,917

 
$

 
$

 
$
14,917


The accompanying notes are an integral part of these financial statements.

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CONTANGO ORE, INC.
(An Exploration Stage Company)
STATEMENT OF SHAREHOLDERS’ EQUITY
 
 
Common Stock
 
Additional
paid-in Capital
 
Accumulated
Deficit
Exploration Stage
 
Total
Shareholders’ Equity
 
Shares
 
Amount
 
 
 
Balance at Inception (October 15, 2009)


$

 
$

 
$

 
$

Shareholders’ contribution
1,566,467

 
$
15,665

 
$
1,817,969

 
$

 
$
1,833,634

Net loss for the period

 
$

 
$

 
$
(1,102,636
)
 
$
(1,102,636
)
Balance at June 30, 2010
1,566,467

 
$
15,665

 
$
1,817,969

 
$
(1,102,636
)
 
$
730,998

Shareholders’ contribution

 

 
4,950,638

 

 
4,950,638

Stock-based compensation

 

 
84,908

 

 
84,908

Net loss for the period

 

 

 
(2,854,164
)
 
(2,854,164
)
Balance at June 30, 2011
1,566,467

 
$
15,665

 
$
6,853,515

 
$
(3,956,800
)
 
$
2,912,380

Stock-based compensation

 

 
251,210

 

 
251,210

Shares vested
31,302

 
313

 
(313
)
 
 
 

Issuance of common stock, net
882,500

 
8,825

 
8,422,793

 
 
 
8,431,618

Net loss for the period

 

 

 
(4,259,692
)
 
(4,259,692
)
Balance at June 30, 2012
2,480,269

 
$
24,803

 
$
15,527,205

 
$
(8,216,492
)
 
$
7,335,516

The accompanying notes are an integral part of these financial statements.

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CONTANGO ORE, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. Organization and Business
Contango ORE, Inc. (“CORE” or the “Company”) is a Houston-based, exploration stage company. The Company was formed on September 1, 2010 as a Delaware corporation for the purpose of engaging in the exploration for (i) gold and associated minerals and (ii) rare earth elements in the state of Alaska.
On November 29, 2010, Contango Mining Company (“Contango Mining”), a wholly owned subsidiary of Contango Oil & Gas Company (“Contango”), assigned the Properties (defined below) and certain other assets and liabilities to Contango. Contango contributed the Properties and $3.5 million of cash to the Company, in exchange for approximately 1.6 million shares of the Company’s common stock. The above transactions occurred between companies under common control. Contango subsequently distributed the Company’s common stock to Contango’s stockholders. The Company had no operating history prior to the contribution of assets and liabilities by Contango. The financial statements of the Company include the financial position, results of operations, and cash flows of Contango Mining since Contango Mining’s inception on October 15, 2009 (the “Inception”). The equity structure (i.e. the number and type of equity interests issued), however, was retroactively adjusted to reflect the capital structure of the Company.
The Company is an exploration stage company as defined by Accounting Standards Codification (“ASC”) 915, “Development Stage Entities.” An investment in the Company involves a high degree of risk. The Company’s fiscal year end is June 30.
As of June 30, 2012, the Company held a 100% leasehold interest in 675,000 acres from the Tetlin Village Council, the council formed by the governing body for the Native Village of Tetlin, an Alaska Native Tribe (“Tetlin Lease”). The Tetlin Lease has a ten year term beginning July 2008 with an option to renew 50% of the acreage for an additional ten years, or so long as we continue conducting mining operations on the Tetlin Lease.
Additionally, the Company holds 18,560 acres in unpatented mining claims from the state of Alaska for the exploration of gold and associated minerals (together with the Tetlin Lease, the “Gold Properties”). The Company also holds interests in and to 3,440 acres in unpatented Federal mining claims and 97,280 acres in unpatented mining claims from the state of Alaska for the exploration of rare earth elements (the “REE Properties”, and together with the Gold Properties, the “Properties”). If any of the Properties are placed into commercial production, the Company would be obligated to pay a 3% overriding royalty to Juneau Exploration LLC (“JEX”).
2. Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, these financial statements include all adjustments considered necessary for a fair presentation of the financial statements. All such adjustments are of a normal recurring nature.
Financial statements for the periods from October 15, 2009 to November 29, 2010 represent financial statements of Contango Mining. All assets and liabilities contributed to the Company from Contango Mining on November 29, 2010 were recorded at the carryover historical cost basis.
3. Summary of Significant Accounting Policies
The Company’s significant accounting policies are described below.
Management Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents. Cash equivalents are considered to be highly liquid securities having an original maturity of 90 days or less at the date of acquisition.
Revenue Recognition. CORE has yet to realize any revenues. Expenses are presented on the accrual basis of accounting.

Capitalized Costs. The amount capitalized includes costs paid to acquire mineral property interests as well as the costs paid for Federal and state of Alaska unpatented mining claims. Exploration costs are expensed as incurred. Development costs are expensed as incurred until the Company obtains proven and probable reserves within its commercially minable properties.

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Index to Financial Statements

Costs of abandoned projects are charged to earnings upon abandonment. Properties determined to be impaired are written-down to their estimated fair value. The Company periodically evaluates whether events or changes in circumstances indicate that the carrying value of mineral property interests and any related property, plant and equipment may not be recoverable.
Common Stock. The Company’s certificate of incorporation authorizes us to issue up to 30,000,000 shares of common stock, $0.01, par value. As of June 30, 2012, approximately 2.5 million shares of common stock were issued and outstanding, all of which were fully paid and non-assessable. Holders of common stock are entitled to one vote for each share held of record on all matters to be voted on by stockholders and are not entitled to cumulative voting for the election of directors. Upon the liquidation, dissolution or winding up of our business, after payment of all liabilities and payment of preferential amounts to the holders of preferred stock, if any, the shares of common stock are entitled to share equally in our remaining assets. Pursuant to our certificate of incorporation, no stockholder has any preemptive rights to subscribe for our securities. The common stock is not subject to redemption. The Company’s equity structure for all periods prior to November 29, 2010 was retroactively adjusted to reflect the equity structure of the Company.
Stock-Based Compensation. The Company applies the fair value based method to account for stock-based compensation. Under this method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the award vesting period. The fair value of each award is estimated as of the date of grant using the Black-Scholes option-pricing model.

Reclassifications. Certain prior period amounts have been reclassified to conform to current year presentation. These
reclassifications were not material and had no effect on cash flows or net loss.
Income Taxes. The Company follows the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for the future tax consequences of (i) temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements and (ii) operating loss and tax credit carry-forwards for tax purposes. Deferred tax assets are reduced by a valuation allowance when, based upon management’s estimates, it is more likely than not that a portion of the deferred tax assets will not be realized in a future period. The Company recognized a full valuation allowance as of June 30, 2012 and 2011 and has not recognized any tax provision or benefit for the applicable period. The Company reviews its tax positions quarterly for tax uncertainties. The Company did not have any uncertain tax positions as of June 30, 2012 or 2011.
The Company files income tax returns in the United States and certain state jurisdictions. The Company’s tax returns through fiscal year 2012 remain open for examination by taxing authorities in the respective jurisdictions where those returns are filed.
Recently Issued Accounting Pronouncements
We have reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe that the future adoption of any such pronouncements will cause a material impact on our financial condition or the results of our operations.
4. Costs Incurred
Costs to acquire and explore the Properties were as follows:
 
Year Ended June 30,
 
 
 
2012
 
2011
 
2010
 
Period from Inception (October 15, 2009 to June 30, 2012
Acquisition of mineral interests
$

 
$

 
$
1,008,886

 
$
1,008,886

Exploration costs and claim rentals
3,700,681

 
2,552,506

 
1,070,474

 
7,323,661

Total costs incurred
$
3,700,681

 
$
2,552,506

 
$
2,079,360

 
$
8,332,547

5. Prepaid Expenses
The Company’s prepaid expenses of $138,029 and $78,158 as of June 30, 2012 and 2011, respectively, relate to claim rentals and certain geological consulting services and exploration activities conducted by Avalon.


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Index to Financial Statements

6. Other Assets
If the Tetlin Lease is placed into commercial production, the Company would be obligated to pay a production royalty to the Native Village of Tetlin, which varies from 2% to 5%, depending on the type of metal produced and the year of production. In June 2011, the Company paid the Tetlin Village Council $75,000 in exchange for reducing the production royalty payable to them by 0.25%. In July 2011, the Company paid the Tetlin Village Council $150,000 in exchange for further reducing the production royalty by 0.50%. These payments lowered the production royalty payable 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 Village Council has the option to increase its production royalty, if any, by (i) 0.25% by payment to CORE of $150,000, or (ii) 0.50% by payment to CORE of $300,000, or (iii) 0.75% by payment to CORE of $450,000. The Company has classified these payments as "Other Assets" in the financial statements of the Company.
7. Loss Per Share
A reconciliation of the components of basic and diluted net loss per share of common stock is presented in the tables below.
 
Year Ended June 30, 2012
 
Loss
 
Weighted
Average
Shares
 
Per
Share
Basic Loss per Share:

 

 
 
Net loss attributable to common stock
$
(4,259,692
)
 
1,814,072

 
$
(2.35
)
Diluted Loss per Share:

 

 
 
Net loss attributable to common stock
$
(4,259,692
)
 
1,814,072

 
$
(2.35
)
 
 
Year Ended June 30, 2011
 
Loss
 
Weighted
Average
Shares
 
Per
Share
Basic Loss per Share:
 
 
 
 
 
Net loss attributable to common stock
$
(2,854,164
)
 
1,566,467

 
$
(1.82
)
Diluted Loss per Share:

 

 
 
Net loss attributable to common stock
$
(2,854,164
)
 
1,566,467

 
$
(1.82
)

 
Year Ended June 30, 2010
 
Loss
 
Weighted
Average
Shares
 
Per
Share
Basic Loss per Share:
 
 
 
 
 
      Net loss attributable to common stock
(1,102,636
)
 
1,566,467

 
(0.70
)
Diluted Loss per Share:
 
 
 
 
 
      Net loss attributable to common stock
(1,102,636
)
 
1,566,467

 
(0.70
)

 
Period from Inception (October 15, 2009)
to June 30, 2012
 
Loss
 
Weighted
Average
Shares
 
Per
Share
Basic Loss per Share:
 
 
 
 
 
Net loss attributable to common stock
$
(8,216,492
)
 
1,657,393

 
$
(4.96
)
Diluted Loss per Share:

 

 
 
Net loss attributable to common stock
$
(8,216,492
)
 
1,657,393

 
$
(4.96
)

Options to purchase 50,000 shares of common stock were outstanding as of June 30, 2012, but were not included in the
computation of diluted earnings per share for the fiscal year ended June 30, 2012, due to being anti-dilutive as a result
of the Company’s net loss for all periods.

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Index to Financial Statements

8. Shareholders’ Equity

The Company’s authorized capital stock consists of 30,000,000 shares of common stock and 15,000,000 shares of preferred stock. As of June 30, 2012, we had 2,480,269 shares of common stock outstanding and an additional 112,604 shares of restricted stock and stock options outstanding. No shares of preferred stock have been issued.
On November 29, 2010, the Company issued approximately 1.6 million shares of common stock to Contango for distribution to Contango’s stockholders of record as of October 15, 2010 on the basis of one share of common stock for each ten (10) shares of Contango’s common stock then outstanding in exchange for the assignment by Contango Mining of all of its assets and liabilities, together with $3.5 million in cash to the Company pursuant to the terms of a Contribution Agreement between Contango and the Company (the “Contribution Agreement”). The Company’s equity structure for the periods prior to November 29, 2010 was retroactively adjusted to reflect the equity structure of the Company as of November 29, 2010.

On March 26, 2012, the Company completed the sale of 882,500 shares of Common Stock to accredited investors at a price of $10.00 per share in a private placement for total proceeds of approximately $8.8 million, including 400,000 shares that were purchased by Mr. Peak, the Company’s Chairman and Chief Executive Officer. The placement agents used in connection with the transaction received aggregate placement fees and expenses of approximately $0.4 million. After repaying approximately $0.5 million of short-term debt under the Company’s Revolving Line of Credit Promissory Note with Contango, the Company will use the remaining $7.9 million to fund its 2012 exploration program in Alaska, estimated at $6.75 million, and for general corporate purposes. The shares of Common Stock sold were not registered under the Securities Act of 1933, as amended, but are subject to a Registration Rights Agreement allowing the shares to be registered by the holders at a future date.

9. Line of Credit

On November 10, 2011, the Company entered into a $1.0 million Revolving Line of Credit Promissory Note with Contango (the “CORE Note”). The Company and Contango share common executive officers. The CORE Note contains covenants limiting our ability to enter into additional indebtedness and prohibiting liens on any of our assets or properties. Borrowings under the CORE Note bear interest at 10% per annum. Principal and interest are due on December 31, 2012, and may be prepaid at any time with no prepayment penalty.

On March 30, 2012, the Company repaid the $500,000 it had borrowed under the CORE Note, plus accrued interest of $14,917 from the proceeds of the equity offering. As of June 30, 2012, there were no amounts outstanding under the CORE Note. The Company may re-borrow any portion of the $1.0 million through December 31, 2012.
10. Stock Based Compensation
On September 15, 2010, the Company’s Board of Directors (the “Board”) adopted the Contango ORE, Inc. Equity Compensation Plan (the “2010 Plan”), which was approved by shareholders on December 8, 2011. Under the 2010 Plan, the Board may issue up to 1,000,000 shares of common stock and options to officers, directors, employees or consultants of the Company. The maximum aggregate number of shares of common stock of the Company with respect to which grants may be made to any individual is 100,000 shares during any calendar year. Awards made under the 2010 Plan are subject to such restrictions, terms and conditions, including forfeitures, if any, as may be determined by the Board. As of June 30, 2012, there were 62,604 restricted shares outstanding and 50,000 options outstanding issued under the 2010 Plan.
Stock-based compensation expense for the periods reflected was as follows:
 
Year Ended June 30,
 
2012
 
2011
 
2010
Stock-based compensation included in:
 
 
 
 
 
     Exploration expenses (1)
$
58,326

 
$
21,227

 
$

     Stock-based compensation expense (2)
192,884

 
63,681

 

Total stock-based compensation expense
$
251,210

 
$
84,908

 
$


(1) Related to restricted stock and stock option awards to the Company's technical consultant
(2) Related to the restricted stock and stock option awards to the Company's directors and employees.


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Index to Financial Statements


Restricted Stock
In November 2010, the Company granted 70,429 restricted shares of common stock to its officers and directors and an additional 23,477 restricted shares to its technical consultant, the owner of Avalon Development Corporation, an Alaska-domiciled domestic corporation (“Avalon”). All shares of restricted stock vest over a three year period, beginning in November 2011, the one-year anniversary of when the restricted stock was issued. Compensation expense related to these shares will be recognized over the vesting period. A summary of the Company’s restricted stock as of June 30, 2012 and the change during the year then ended, is as follows:  
 
Number of
Shares
 
Weighted
Average
Fair Value
Per Share
Nonvested balance at June 30, 2010

 
$

Granted
93,906

 
4.65

Vested

 

Forfeited

 

Nonvested balance at June 30, 2011
93,906

 
$
4.65

Granted

 

Vested
(31,302
)
 
4.65

Forfeited

 

Nonvested balance at June 30, 2012
62,604

 
$
4.65

As of June 30, 2012, the total compensation cost related to nonvested awards not yet recognized was $206,202. The remaining costs are expected to be recognized over the next 1.5 years.

Stock Options
In September 2011, the Company granted an aggregate of 50,000 options to its officers, directors and the owner of Avalon at a weighted-average exercise price of $13.13 per share pursuant to the 2010 Plan, to be expensed over the vesting period which is one-third immediately; one-third in September 2012; and one-third in September 2013. The option awards are for services performed during the fiscal year ended June 30, 2011. Under the 2010 Plan, options granted must have an exercise price equal to or greater than the market price of the Company’s common stock on the date of grant. The Company may grant key employees both incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, and stock options that are not qualified as incentive stock options. Stock option grants to non-employees, such as directors and consultants, may only be stock options that are not qualified as incentive stock options. Options generally expire after five years. As of June 30, 2012, the stock options had a weighted-average remaining life of 4.2 years.
The Company applies the fair value method to account for stock option expense. Under this method, cash flows from the exercise of stock options resulting from tax benefits in excess of recognized cumulative compensation cost (excess tax benefits) are classified as financing cash flows. See Note 3—“Summary of Significant Accounting Policies”. All employee stock option grants are expensed over the stock option’s vesting period based on the fair value at the date the options are granted. The fair value of each option is estimated as of the date of grant using the Black-Scholes options-pricing model.
A summary of the status of stock options granted under the 2010 Plan as of June 30, 2012 and changes during the year then ended, is presented in the table below:

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Index to Financial Statements

 
For the Year ended June 30, 2012
 
Shares Under Options
 
Weighted
Average
Exercise Price
Outstanding, beginning of period

 
$

Granted
50,000

 
$
13.13

Exercised

 
$

Forfeited

 
$

Outstanding, end of period
50,000

 
$
13.13

Aggregate intrinsic value
2,450

 


Exercisable, end of the period
16,667

 
$
13.13

Aggregate intrinsic value
817

 


Available for grant, end of period
856,094

 


Weighted average fair value of options granted during the period (1)
3.38

 

(1) The fair value of each option is estimated as of the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants during the year ended June 30, 2012: (i)risk-free rate of 0.42 percent; (ii)expected life of 3 years; (iii) expected volatility of 40 percent; and (iv) expected dividend yield of zero percent.
11. Commitments and Contingencies
Tetlin Lease. Pursuant to the terms of the Tetlin Lease, the Company is required to spend $350,000 per year until July 15, 2018 in exploration costs. However, the Company's exploration expenditures through the 2011 exploration program have satisfied this requirement because exploration funds spent in any year in excess of $350,000 are credited toward future years’ exploration cost requirements. Additionally, should we derive revenues from the properties covered under the Tetlin Lease, the Company is required to pay the Tetlin Village Council a production royalty ranging from 2.0% to 5.0%, depending on the type of metal produced and the year of production. As of June 30, 2012, the Company had paid the Tetlin Village Council $225,000 in exchange for reducing the production royalty payable to them by 0.75%. These payments lowered the production royalty to a range of 1.25% to 4.25%. On or before July 15, 2020, the Tetlin Village Council has the option to increase their production royalty by (i) 0.25% by payment to CORE of $150,000, (ii) 0.50% by payment to CORE of $300,000, or (iii) 0.75% by payment to CORE of $450,000. Until such time as production royalties begin, the Company pays the Tetlin Village Council an advance minimum royalty of $50,000 per year. On July 15, 2012, the advance minimum royalty increased to $75,000 per year, and subsequent years are escalated by an inflation adjustment.
Gold Properties. The Company’s Triple Z and TOK/Tetlin claims are both located on state of Alaska lands. The annual claim rentals on these two projects total $12,140 per year, and are due and payable in full by November 30 of each year. The Company has met the annual labor requirements for the Triple Z and TOK/Tetlin claims for the next four years.
REE Properties. The Company’s Stone Rock and Salmon Bay projects are both located on Federal land. The claim rentals on these two projects total $24,080 per year, and are due and payable in full by August 31 of each year. The Company’s Swift , Wolf, and Alatna projects are all located on state of Alaska lands. The claim rentals on these three projects total $61,880 per year, and are due and payable in full by November 30 of each year. Additionally, these three claims also have an annual labor payment totaling $176,800 payable by November 30 of each year, unless the Company meets certain spending requirements for exploration work. The Company’s Spooky project is located on state of Alaska lands, but annual claim rental is not currently required. The Company is considering abandoning these state of Alaska claims effective December 1, 2012 to devote more time and resources to our Stone Rock and Salmon Bay projects and our Gold Properties.
We will also pay JEX an overriding royalty of 3% should we derive revenues from any of the existing Properties and an overriding royalty of 2% should we derive revenues from properties acquired after July 1, 2012.

In connection with acquiring all the assets and liabilities of Contango Mining, the Company has assumed any claims, litigation or disputes pending as of the effective date on any matters arising in connection with ownership of the Properties prior to the effective date. The Company is not aware of any legal, environmental or other commitments or contingencies that would have a material effect on the Company’s financial position or results of operations.


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Index to Financial Statements

12. Income Taxes
 
 
Year Ended June 30,
 
 
 
 
 
2012
 
2011
 
2010
 
Period from Inception (October 15, 2009 to June 30, 2012
Provision (benefit) at statutory tax rate
$
(1,490,892
)
 
$
(998,957
)
 
$
(385,923
)
 
$
(2,875,772
)
Permanent differences

 
48,826

 
11,296

 
60,122

Valuation allowance
1,490,892

 
950,131

 
374,627

 
2,815,650

Income tax provision
$

 
$

 
$

 
$

The benefit for income taxes for the periods indicated below are comprised of the following:
 
 
Year Ended June 30,
 
 
 
 
 
2012
 
2011
 
2010
 
Period from Inception (October 15, 2009 to June 30, 2012
Current:

 

 
 
 

Federal
$

 
$

 
$

 
$

Deferred:

 

 
 
 

Federal
$

 
$

 
$

 
$

The net deferred tax asset is comprised of the following:
 
 
Year Ended June 30,
 
2012
 
2011
Deferred tax asset:

 

Capitalized exploration expenses
$
2,452,896

 
$
1,268,004

Stock Option Expenses
89,798

 
22,289

Net operating losses
272,956

 
34,465

Valuation allowance
(2,815,650
)
 
(1,324,758
)
Net deferred tax assets
$

 
$


These federal net operating loss carry-forwards will begin expiring in 2031.



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Index to Financial Statements

13. Related Party Transactions

In August 2012, Mr. Brad Juneau, the sole manager of the general partner of Juneau Exploration LLC ("JEX"), was elected to the Board of Directors of the Company and elected as President and Acting Chief Executive Officer of the Company following a medical leave of absence of our Chairman, Mr. Peak. JEX is a private company formed primarily for the purpose of generating natural gas and oil prospects. JEX was responsible for securing and negotiating the Tetlin Lease and assisting in obtaining the Properties and initially engaged Avalon to conduct mineral exploration activities on the Tetlin Lease.

Contango Mining Company ("Contango Mining"), the predecessor to the Company, was formed in October 2009 for the purpose of engaging in exploration in the state of Alaska for (i) gold ore and associated minerals and (ii) rare earth elements. Contango Mining initially acquired a 50% interest in the Properties from JEX in exchange for $1 million and a 1% overriding royalty interest ("ORRI") in the Properties under a Joint Exploration Agreement (the “Joint Exploration Agreement”). We estimate that JEX expended approximately $1 million on exploratory activities and related work on the Properties prior to selling the initial 50% interest to Contango Mining. Contango Mining also agreed to reimburse JEX for the next $2 million of exploration costs. During the fiscal year ended June 30, 2011 and 2010, Contango Mining paid JEX approximately $0.9 million and $0.5 million, respectively, for exploration costs incurred by JEX in the state of Alaska.

In September 2010, Contango Mining acquired the remaining 50% interest in the properties by increasing the ORRI granted to JEX to 3% in the Properties. Contango Mining assumed control of the exploration activities and JEX and Contango Mining terminated the Joint Exploration Agreement.
In September 2010, Contango Mining assigned the Properties and certain other assets and liabilities to Contango. On November 29, 2010, 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 all of the shares of the Company’s common stock in an amount equal to one share of common stock for each ten (10) shares of Contango's common stock then outstanding. Contango distributed all of the Company’s common stock to Contango’s stockholders of record as of October 15, 2010. The transactions above took place between companies under common control. Contango and the Company share the same executive management team.

In September 2012, the Company and JEX entered into an Advisory Agreement in which JEX will continue to provide assistance in acquiring additional properties in Alaska in exchange for an ORRI of 2% of 8/8ths in newly acquired properties.

On March 26, 2012, the Company completed the sale of 882,500 shares of Common Stock to accredited investors at a price of $10.00 per share in a private placement for total proceeds of approximately $8.8 million, including 400,000 shares that were purchased by Mr. Peak, the Company’s Chairman.

The Company currently does not lease office space, but rather uses the corporate offices leased by Contango. Contango’s 60 month lease agreement at 3700 Buffalo Speedway, Ste 960, Houston, TX 77098 expires on December 31, 2015.

14. Subsequent Events

The Company is currently working to acquire additional acreage in the state of Alaska. Accordingly, the Company has paid Chief Danny $15,000 for his assistance in identifying and and helping to acquire such acreage.
In July 2012, the Company granted 75,000 stock options to its directors and officers and an additional 25,000 stock options to its technical consultant. These options vest over 2 years, beginning in July 2012, the date of the grant. The fair value of the options was estimated as of the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: (i) risk-free rate of 0.69 percent; (ii)expected life of 3 years; (iii) expected volatility of 106.5 percent; and (iv) expected dividend yield of zero percent.










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Index to Financial Statements


CONTANGO ORE, INC.
QUARTERLY RESULTS OF OPERATIONS (Unaudited)
Quarterly Results of Operations. The following table sets forth the results of operations by quarter for the years ended June 30, 2012, 2011 and 2010:
 
 
Quarter Ended
 
Sept. 30,
 
Dec. 31,
 
Mar. 31,
 
June 30,
Fiscal Year 2012:
 
 
 
 
 
 
 
       Net loss
1,650,170

 
492,480

 
243,079

 
1,873,963

       Basic and diluted loss per share
1.05

 
0.31

 
0.15

 
0.76

Fiscal Year 2011:
 
 
 
 
 
 
 
Net loss
$
862,128

 
$
296,237

 
$
140,394

 
$
1,555,405

Basic and diluted loss per share
$
0.55

 
$
0.19

 
$
0.09

 
$
0.99

Fiscal Year 2010:
 
 
 
 
 
 
 
Net loss
n/a

 
$
267,435

 
$
306,134

 
$
529,067

Basic and diluted loss per share
n/a

 
$
0.17

 
$
0.20

 
$
0.34



F-15