Dolly Varden Silver Corp. (DV:TSX.V; DVS:NYSEA; DVQ:FSE) and Contango Ore Inc. (CTGO:NYSEA) proposed a friendly, all-share merger of equals, reported Stuart McDougall, analyst at Research Capital Corp., in a Dec. 9 research note. On the news, Research Capital changed its rating on Dolly to Tender from Speculative Buy.
"Although the implied value falls short of our previous target price of CA$7.60 per share (CA$7.60/share), we see the longer-term benefits of the combination and think some of the immediate hit is offset by exposure to high-grade production from Contango's 30% interest in the Manh Choh gold mine in Alaska," McDougall wrote.
Research Capital no longer has a target price on Dolly, the analyst noted. At the time of his report, the Canadian explorer was trading at about CA$6.14/share.
Dolly has 91.9 million shares outstanding. Its market cap is CA$564 million (CA$564M). Its 52-week range is CA$3.21–7.46/share.
About the Deal
For the merger, Contango is to acquire all Dolly shares at an exchange ratio of 0.1652:1, noted McDougall. The transaction is slated to close in late Q1/26 after shareholders and regulators approve it. Support agreements have been signed by insiders and shareholders representing 22% of each company, and about 13% more are expected to vote in favor of the proposed merger. The deal is subject to a US$15M reciprocal break fee.
The Newco at a Glance
The combined company would be owned equally by the two shareholder groups, have about 30M shares outstanding for an implied market capitalization of CA$1.13 billion and have about US$100M in net cash. Also, the new entity would own 3,000,000 ounces of gold equivalent (3 Moz of Au eq) to advance towards production decisions prior to the depletion of attributable reserves. Rick Van Nieuwenhuyse would be the newco's chief executive officer and Shawn Khunkhun the president. The board would consist of four Contango and three Dolly nominees. The company would be listed on the New York Stock Exchange American and the Toronto Stock Exchange.
What Contango's Assets Offer
In the merger, Dolly will gain immediate high-grade production through Contango's 30% interest in the Manh Choh open-pit gold mine. Kinross Gold Corp. (K:TSX; KGC:NYSE), the operator, owns the other 70%. In the first three quarters of 2025, the joint venture project produced 173,400 ounces (173.4 Koz) of gold at an all-in sustaining cost of US$1,505 per ounce (US$1,505/oz). This followed the first gold pour in July 2024.
Manh Choh's Proven and Probable reserves at Dec. 31, 2024 were 3,310,000 tons of 7.5 grams per ton (7.5 g/t) gold and 13.6 g/t silver, a large enough amount to support the operation for four-plus years, noted McDougall.
Contango received US$87M in cash distributions for the first nine months of 2025 from Manh Choh and estimates US$450M in life-of-mine attributable distributions, using a gold price of US$3,200/oz.
Consolidated pro forma resources of Contango's two other most advanced projects, Lucky Shot and Johnson Tract in Alaska, are 1.7 Moz of gold, 64.9 Moz of silver, 466,000,000 pounds (466 Mlb) of zinc, 52 Mlb of copper and 56 Mlb of lead. Lucky Shot exposes Dolly shareholders to 131 Koz of high-grade gold averaging 13.2 g/t.
The Johnson Tract exposes Dolly shareholders to 629 Koz of 4.66 g/t gold plus the base metals and silver. A preliminary economic assessment of this project done in May showed an after-tax net present value discounted at 5% (NPV5%) of US$615M at a gold price of US$4,000/oz. At Research Capital's long-term gold price of US$3,000/oz, the NPV5% was nearly US$400M.
Project Advancement Planned
McDougall reported what the next steps are for the combined company's exploration-development assets. The mineral resource estimate on Kitsault Valley will be updated in Q1/26, to reflect the 200,000 meters (200,000m) of drilling since the previous estimate. Additional drilling, 50,000m worth, is slated for next year.
At Lucky Shot, plans call for 18,000m of underground drilling. At Johnston Tract, surface infrastructure will be built in preparation for an underground decline and infill drill program in 2027.
The vision is for all three projects to be direct shipping ore operations like Mahn Choh. However, at Johnston Tract and Kitsault Valley, barges would be used instead of trucks because they are close to state and provincial coastlines.
With respect to Manh Choh, Lucky Shot and Johnson Tract, the goal is to grow production from the trio to 100 Koz of Au eq in 2028 and to 200 Koz of Au eq in 2029.
On the Horizon
Near-term potential catalysts for Dolly Varden include ongoing project updates in Q4/25, noted McDougall. Beyond this, an updated Kitsault Valley mineral resource estimate and a shareholder vote on the proposed merger with Contango are expected in H1/26.
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