Comstock Inc.
Q4 2019 Earnings Call Transcript

Published: 19 Mar 2020

[Operator:]

Good day and welcome to the Comstock Mining Year-End Update Conference Call. Today's conference is being recorded.And at this time, I would like to turn the conference over to Mr. Corrado De Gasperis. Please go ahead, sir.

[Corrado De Gasperis:]

Thank you, Jeff, and good morning, everyone. It's Corrado De Gasperis, CEO of Comstock Mining on the line. And I also have Zach Spencer, our Director of External Relations on the line today as well. And welcome you -- welcoming you to the Comstock Mining's full-year 2019 conference call.I'll provide a brief summary of information included in our press release from this morning, including our progress on our strategic initiatives. If you don't have a copy of today's release, you'll find a copy on our website at www.comstockmining.com under News/Press Releases. We will file our annual report on Form 10-K timely. All the accounting and reporting is done and it will be filed when the audit processes and documentations are complete.I can answer any and all relevant questions regarding our financials, and we provided a brief summary of most of those in our press release. Please also let me remind you that we may make [Technical Difficulty] relating to matters that are not historical facts, may also constitute forward-looking statements. These statements are based on current expectations and are subject to the same risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in previous reports filed by the company with the SEC and in this morning's press release. And all forward-looking statements made during this call are subject to those same risks and other risks that we can't identify.Okay. So, over the last few years and especially last year, we dedicated ourselves to repositioning the company for precious metal-based growth. And in 2020, we'll only be talking about gold and silver for most all intents and purposes, with extreme focus on driving value through our properties and our partners. We legally realigned Comstock's existing gold and silver assets, as depicted in the press [Technical Difficulty] facilitate growth of our mineral properties, growth of our natural resources in the ground, and the acceleration of value to our shareholders from our growing exposure to gold and silver, again, through our properties, our partners, our royalties and our future gold revenues.We partnered twice with Tonogold. Firstly, selling 50% of Lucerne last November and again in leasing some of our mineral properties. We've also helped found and partnered with Mercury Clean Up LLC to leverage our existing 100% owned permitted platform that launched the mercury remediation business that we are now commercializing in two different locations. And lastly, we established and partnered with Sierra Springs Opportunity Fund to sell our non-mining assets in Silver Springs for $10 plus million.The fund is moving full speed ahead and we expect to close on all asset sales in the next 45 to 60 days. For sure, the corona impacts have slowed down some of the progress, but not very much at all for us. We're picking up very good interest and we're so fully expecting to close despite this recent turmoil. In all of these ventures, we've positioned growth, while retaining meaningful equity ownership in all of our partners.In 2019, we also won the CRA lawsuit, I guess, again and again and again despite repeated appeals against us and the county relating to the zone changes for the Dayton Resource mineral claims. During the past for us to pursue and expand the permitting for the Dayton Resource area and the Silver -- and the Spring Valley complex, both of which are continuous and in Lyon County. Archaeologists are doing an incredible amount of work on expanding that resource towards publishing an updated standalone gold report later this year.Let me turn to the financials, where we significantly improved our financial position throughout 2019, really continuously throughout 2019. Improvement of [indiscernible] to quite a few folks, not us, as our assets increased by almost 40%. Our debt decreased by over 40%, putting the debt in the cross shares final pay-off next quarter.Specifically, we closed on 50% of Lucerne sale as I just mentioned, while still retaining full control of the entity. In doing so, we received $5.9 million in non-refundable cash. We received $6.1 million in non-refundable stock, valued at year-end at over $9 million. And we received $2.2 million in expense reimbursements throughout the year. We also with Tonogold leased the Occidental Lode claim grouping to the [Technical Difficulty] other mineral claims in a second partnership, which ultimately through those mineral leases requires up to $20 million in drill commitments and three progressive technical reports to be published, with $4 million in drilling expected, required, I'm sorry, in this fiscal year.We've also been meeting and working directly with Tono continuously, with our combined technical teams [Technical Difficulty] and with our regulators with the county towards the launching of a very exciting drill program that has been very, very, well researched and planned out, that we expect to commence in the second quarter, that would be Tonogold drilling in Storey County in the second quarter.As also mentioned, we partnered and launched the Mercury Clean Up LLC Company, which is a global mercury remediation clean technology growth company with projects starting this year, both on the Comstock and in the Philippines. The equipment started to arrive last month, meaningful equipment has arrived on site. We've already put test material from multiple samples -- sample locations around the Comstock through the spirals with both mercury and gold sited just in the small sample process test through those spirals. The full system is something quite different than just [Technical Difficulty] feet tall.It's quite a technological spectacle in our opinion. It's been manufactured for all intents and purposes in California. It's been finally assembled and intended to be shipped on to the Comstock certainly in the second quarter expectation is in April, there have been additional slowdowns again resulting to just [Technical Difficulty] being sort of semi-paralyzed for the last few weeks, but we're not. I would say the impact to us overall on this circumstance have been less, dramatically less than -- our empathy for a lot of other companies out there. We have a small team. We're all working full-time. We are now effective this past week all working remotely and just trying to schedule around certain obstacles, which we've been so far been able to do effectively.And lastly, as you all know, we've escrowed the $10 plus million sale of those two non-mining assets to the fund in Silver Springs. We've also received $400,000 in non-refundable deposits in escrow. And we are looking forward to closing them in the second quarter and extinguishing all of our remaining debt next quarter.Financially, as I mentioned, we'll be filing the 10-K this month on time, all that work is done. We're just finalizing some of the audit procedures towards publishing, but overall, let me share some of the details. Year-on-year, our overall operating expenses were down 27%. We anticipate another 10% reduction from those numbers in 2020, as we focus primarily on lower administrative costs. Much of this work has already been done and we expect to see at least a 10% reduction in general administrative cost.[Technical Difficulty] to be more significant next year, again, most of that work has already been completed and those results will already be evident in the first quarter of 2020. Our exploration and development costs were down 22%. Our environmental costs were down almost 200%, but that was really driven by a remarkable result of our reclamation efforts. We finished a big part of the Lucerne [Technical Difficulty]Department of Environmental Protection releasing almost $400,000 worth of our reclamation liability, so that reduction was reflected in net expense line, but it was real savings and real reduction of liabilities, so we're quite proud of that.Overall, that resulted in our net loss decreasing by almost $6 million for this year. We'll have a $3.8 million loss for the full-year with a loss [Technical Difficulty] from that. We certainly believe that we are going to have net income for the first time in 2020, not only because of dramatically lowering costs, which I'll talk about in just a second, but also resulting from some of these transactions actually being consummated. So we're very happy about that. We're also happy about the tax-free nature of those incomes because we can shelter [Technical Difficulty] losses.Overall, our most impressively, I think in my mind, our total assets grew by almost 40% to almost $40 million. This includes the investments that we have in our partners, and includes the investment as I said in Tonogold. But a tremendously strong growth in the asset side of our balance sheet, that's coupled with a dramatic reduction in our liabilities, including our total debt being reduced by over 41% to just over $5 million. Cash and cash equivalents at the end of the year were over $1 million. Our net assets alone now at year-end, you'll see in the balance sheet were just about $24 million in net assets, that will grow to almost $35 million when we consummate these transactions. So our net assets alone, our net assets alone show a value [Technical Difficulty].So, the fact that -- the fact that we're undervalued is becoming more and more evident just on the face of the balance sheet. Most importantly, we have not sold any stock in 2020 to-date. You'll see that when we file the 10-K, it's not happening and it hasn't happened. So that's good.I'm just going to summarize all of these points now with an outlook. So I'll give you six summary bullet [Technical Difficulty] back to Jeff for questions right after I do that. So number one, during the second quarter of 2020, we expect to closing the sale of Silver Springs. We expect to bring in the remaining net proceeds from those sales of $9.7 million. We expect to extinguish all of our debt, approximately $5 million when that happens. Number two, Tonogold is going to launch the drilling program in the second quarter. We've never been closer in the working relationship. We've never been closer in [Technical Difficulty]. We're extremely excited about it.Number three, we're advancing commercializing MCU in the second quarter. The Comstock system will be on display. It will be operating. There will be videos, there will be photos, people will be impressed and we're very excited about all the work that goes into commercializing that system. In the third quarter, we're going to do something very similar in the Philippines.The equipment will be tailored to the specific circumstance and we're very excited about that. Number four, we're currently planning to expand our 100% owned Dayton Resource. We plan on publishing an updated technical report later this year. And depending on resources and timing of resources, we're looking to do some real drilling development on that property this year. Number five, our annual operating expenses net are planned to be $2.6 million, that's the lowest [Technical Difficulty] ever been. We're proud of that. We're proud that we can have a very, very low operating profile and remain fully functional with our assets and our partners at the same time.Number six, as I just mentioned, we're significantly undervalued in my opinion by any measure we look at, but just using the most basic net asset plus the Tono receivable to us plus the Silver Springs transaction puts us at over $1.30 a share, that's just the next stop for this train in terms of the value journey. We grow much more stably from there with our growth activities. So Jeff, that's my briefer summary. Let me stop there and turn to questions. Look forward to answering any questions.

[Operator:]

Thank you very much, sir. [Operator Instructions] And we can take our first question from [James Dell] [ph], who is a private investor. Please go ahead, sir.

[Corrado De Gasperis:]

Good morning, Jim. Can you hear me?

[Unidentified Analyst:]

Corrado, how are you?

[Corrado De Gasperis:]

Good morning, Jim. I'm fine. How are you, sir?

[Unidentified Analyst:]

Okay, listen, are you going to replace hereon anytime soon?

[Corrado De Gasperis:]

I'm sorry. Can you repeat?

[Unidentified Analyst:]

[Technical Difficulty] anytime soon?

[Corrado De Gasperis:]

Yes. So we don't have any immediate plans to replace the position. We've really congregated very strongly as a team. I think ultimately, it's a role that we will want as the company is growing, but there is no immediate plans to do that.

[Unidentified Analyst:]

Okay. Your asset report, [Technical Difficulty] you tend to get -- put out, you said it's coming, but it's going to be second quarter, third quarter or what do you think?

[Corrado De Gasperis:]

In terms of the Dayton, Jim?

[Unidentified Analyst:]

Yes. Dayton Spring Valley.

[Corrado De Gasperis:]

Yes. So there's been a tremendous amount of work. I can't exaggerate the amount of work that primarily, Larry Martin, our chief geologist, and Mike Colin [ph] and Mike Norred sort of the technical core team have put into the Dayton. I mean, it's almost a comprehensive reevaluation of every aspect of it, and none of that is meant to be negative at all. There's been a tremendous amount of surface mapping and a tremendous amount of surface drilling that was never incorporated into [Technical Difficulty].Some people aren't even aware that there is a technical report out there because it was buried in the -- sort of in the appendix of the Comstock report that, let's say, emphasize the Lucerne. So, we're finding so much more connectivity of information, so much more connectivity of data, so much more stronger sort of geological control, and it's resulting in our ability to update the resource estimate, [Technical Difficulty] things, right, update the resource estimate, propose a very, very precise next phase of drilling program and also start to put in most of the variables that would contribute to sort of, they call it a PEA, Preliminary Economic Assessment.So I think the next report not only will it be standalone just for the Dayton Spring Valley complex, which I think a lot of people will [Technical Difficulty] unrecognized asset in our portfolio. We can say with a straight face that none of the net asset dollars I just mentioned have any reflection of the Dayton and any material reflection of the Dayton asset in them. So, it's an unvalued asset in our portfolio. So that standalone report I think will have an tremendous impact on people. So, we are in appreciation of that. But, secondly, the preliminary economic dialog because some of the K-shales that have been developed shall average grades of 1.75 grams per ton over 0.05 ounces per ton, very, very much higher than we have previously talked about. And then, maybe a path for drilling and a path for permitting. We are going to move forward on the permitting regardless. We currently have a permanent inline counting that allows to be an expensive amount of exploration and development. We are going to prepare that for sure and we are going to encroach on a broader [indiscernible] permit, which will ultimately need the drilling -- the drilling will be initiated off of a the finalization, of that plan, which they're very close. And also, the rest of us can catch up to them. And then the consummation of some of these transactions, which will allow us to fund the first phase of that program. So I think if everything worked out, well, we could be reporting in third quarter and hopefully starting to do some of that geological work in the third quarter as well. I think that's likely just not because we have to close these other transactions first, but if we go on our current schedule, that's what happened.

[Unidentified Analyst:]

[Indiscernible]

[Corrado De Gasperis:]

So can you just say that a little -- one more time a little slower? I just keep missing? I'm sorry.

[Unidentified Analyst:]

I take it that your basis on a mine plan, correct?

[Corrado De Gasperis:]

Yes. The preliminary economic assessment, which ultimately, I think this the steps are resource estimate preliminary economic assessment of that resource, pre-feasibility of a mine plan, full feasibility of a mine plan. So, when you do preliminary economic activity, you have to have concepts of a picture, you have concepts of buying plant -- be a surface or underground, whatever the delineations of these economic or bodies would be has to start to take shape. So, it's exciting for us to start talking about PA because then you start talking about economics in the context of the mine plan, correct?

[Unidentified Analyst:]

Okay. We're dealing in mine, we're still talking about the shallow surface more linear, correct?

[Corrado De Gasperis:]

I have to wait for all of Larry's work to be done. There's a tremendous amount of near surface less than 200 feet from the surface, gold and silver, so that's just factual. There's a tremendous amount of it. The work that Larry's doing is extending structures deeper and extending structures south and correlating each other which is remarkable. So, the answer to your point is yes, with more to come from there.

[Unidentified Analyst:]

[Indiscernible]

[Corrado De Gasperis:]

Yes. So most recent activity has been a tremendous amount while they're progress and remain current with [indiscernible]. And as an aside, just as an aside before I answer your question, most of the work that they did internally on concerns, obviously was based on like a $1200 gold range with gold sort of continuously bouncing around 1500. There's some reassessment of that going on right now, which obviously is positive. But I have to say that they've attracted a tremendous -- and they've done a tremendous amount of incredibly good work. They've done a tremendous amount of a very, very impressive geological assessment and I'm quoting my guys, when I say that, when my guys are tough and skeptical. But we've seen some incredible amount of analysis relating to historic grades, historic structures, incredible consolidation of data, new data and old data that's developing remarkable drill program. The drilling will be both -- I'm going to say what we were seeing drill targets of 700 feet and 800 feet and we're seeing drill targets of 1500 plus feet. But you're talking about targeting grades, half an ounce per ton, three quarters of an ounce per ton, and multi-ounce per ton.I mean, it's really the stuff of the Comstock ore and I mean that seriously. The fundamental thesis is that the old timers had grades of 50 grams per ton which [Technical Difficulty] and once they put exploration drifts in place, they had had grades of 33 grams per ton, like an ounce per ton in English, right. And, what that means is that they were only knowingly taking grades that were there and above and so as we calibrate [Technical Difficulty] we know address were put in and we know material wasn't taken out if it just needs a tremendous amount of opportunity there. That's exciting. When I that's exciting, they're attracting, a smart capital. We're seeing the trend of investment go from…[Technical Difficulty] people who pay attention to extremely technical finds. So we like that development, if you want to say that [indiscernible] has slowed down or taken a little bit of a backseat to that. That would be probably true. I can't speak for that because I do know that they're reassessing the [indiscernible] and they're reassessing, they're not to be assessing the mine plans with current gold prices, which is that there's just so much interest in this drilling program that -- it's really taken. I mean, I could safely say like 90 plus percent of their collected calories and we've gotten much more involved, in those programs. So, right now we're pretty excited about everything that they're working on. And I would think that the conversation is going to be more [Technical Difficulty] it's not the immediate priority, though, based on, if you list out their top 30 or top 40, drill holes, most of them, if not substantially, all of them are attacking some of these high grade targets.So, I think they're looking at -- they're looking at this whole Lucerne occidental corridor a little bit more [Technical Difficulty] load. We have some 40 claims congregated, I think we wanted a few people that were able to congregate all private patented and unpatented claims into one grouping, but most people aren't -- aware that occidental tail goes all the way right down into the-- right just to the east of the [indiscernible] property right down to the Story county, Line County border. [Technical Difficulty] there's a lot of attention. So they're starting to -- rather than it feels [Technical Difficulty] correlate Lucerne to Occidental up the stream to Virginia City. I mean, it's coming together very nicely. And, it's being talked about more holistically and I think that's intelligent. I think that's where you're going to get your long life mine plans from. And so, I think we just have to wait to see some of these results, but I think it's going to start right now in the second quarter, they're going to start doing some drilling work, but we're already working with that. We're working with them, Jim in almost every way to enable that, right? Like we have royalties on all of those properties, not just Lucerne, but all of the Occidental and all those properties where we're in the same boat, obviously, Lucerne has the near term extraction, mining opportunity, and that's not lost on anybody, but it's not the whole pie, the whole pie is bigger.

[Unidentified Analyst:]

Okay. Are they going to produce a new resource import with all this activity that you are doing?

[Corrado De Gasperis:]

Yes. So that's a great question. So in the leases that we've signed with them Occidental and otherwise -- have drill commitments required, certainly over a longer period of time. But we have immediately required a minimum of a million a year -- my understanding is they're hoping to spend over $5 million this year. So our minimums aren't really meaningful to their intentions. But, at least we know, but also to your point over the course of the leases period, there's three progressive technical reports required one --[Technical Difficulty] ability and one will be a full feasibility.So we have very, very strong and it's mutual between us and them, no one's here for promotion. We want to progress this thing to technical reports, okay. And so we've got control that every single year, we have to make progress towards those technical reports, ultimately, with three being published over the lives of leases that get us to production. So it's exciting and [Technical Difficulty] with Lucerne, you're going to get, a lot going on in the north. And owned by us, we're going to get connectivity to the south and I think for the first time we'll have, even though we're doing it with partners, we'll have all the properties in some way [indiscernible] active towards development which to me is the driver value. So, it's been a long time coming to be back here and now let's get him moving forward either directly with us or us working directly with our partners.

[Unidentified Analyst:]

Okay. One last question, probably a comment to, I'm concerned about [Technical Difficulty] it's a pretty good culture out there. Do have a local joint venture partners, it's going to be pretty stable?

[Corrado De Gasperis:]

Are you referring to [indiscernible] MCU…

[Unidentified Analyst:]

We're talking about the merger [indiscernible] venture in the Philippines?

[Corrado De Gasperis:]

Oh, yes. So no. So the partner [Technical Difficulty] it's the largest claim owner or one of the three largest -- three principal mining concerns. It's one of the longest lived operating, we've been advising them well before MCU, some of their processing when I say we, I mean like our partners Paul and our team at MCU.[Technical Difficulty] they were one of the strongest supporters of the action. They really look to see all of the artists in our mercury mining being eradicated from the district. And I think, we're in a position both to introduce clean processing technology together, but also [Technical Difficulty] for the artistical miners, right, so it's not just mining -- it's not just cleaning the river in the mountain, which is our number one priority. It's not just mining the claims, which is their priority. It's providing the community in the district, a clean solution that [Technical Difficulty] breakthrough is tremendous, where certainly just going out and cleaning up contaminated areas to the breakthrough and it's remarkable.But if we don't have a solution we can then provide, if people will still continue to use mercury in the absence of any alternatives. And so, we have that solution as well. And so that's, we've always viewed that as the second and third phase of our growth, either partnering with, [indiscernible] or partnering with the local community to provide, let's say a shared processing facility or a whole processing facility. That's all part of the grander scheme of things, right? We only announced and we're only focused on cleaning up the river. But doing that, [Technical Difficulty] and opportunities to us to proliferate the clean technology. So, the opportunities are endless. We're putting a tremendous amount of -- I am personally I've been there twice already, tremendous amount of time legally, financially, organizationally, partnership wise regulatorily, government, politically for us doing the first one in, second one right, we need option for [Technical Difficulty] this global opportunity. So we're very much in the early stages of laying that foundation but we're taking great care and most of our decisions are based on, the operation being successful over all other things, because for us, it's not just the success that we get there. It's [Technical Difficulty]

[Unidentified Analyst:]

[Technical Difficulty] I hope most of your comments is going to be a technological transfer versus a boots on the ground stuff.

[Corrado De Gasperis:]

Yes. Every single project will be different. Obviously you're referring to, non-U.S., obviously, in the U.S., we have boots on the ground like last week, the week before we were processing samples. [Technical Difficulty] boots on the underground, some we don't want to touch a 10 foot pole. Some will only want to lease equipment to protect the technology. I mean, all of the above, in some cases, the government may just hire us to clean something up it's a full spectrum of possibilities. We're starting to stay very focused on these first two to really ensure and prove to everyone that we have this solution that works.

[Unidentified Analyst:]

Okay. Thank you Corrado. I took a lot of everybody else's time.

[Operator:]

We can take our next question from [indiscernible] Investments. Please go ahead. Your line is open. Please go ahead sir, your line maybe muted.This concludes today's question-and-answer session. At this time, I'm about to hand the call back to sir, for any additional or closing remarks.

[Corrado De Gasperis:]

Yes. First of all, I want to thank everyone for their interest. I want to thank everybody for their patience over the last couple or three years. I really feel we're at that turning point here, 2020 is going to be very exciting for us.I also want to just really emphasize to everybody to take caution. There's so many various opinions out in the world about this coronavirus, but I think the simplest most fundamental one is, stay remote work from home, get all your work done remotely minimize interaction and let's just flatten this curve out, so we can get the damn thing behind us. And we wish everyone and their families, the safe next 2, 3, 4, 5 weeks, whatever this entail, and we're available for follow up directly with any of our investors. So thank you all.

[Operator:]

Thank you. This concludes today's call. Ladies and gentlemen, thank you for your participation. You may now disconnect.