Comstock Inc.
Q3 2017 Earnings Call Transcript

Published: 1 Nov 2017

[Operator:]

Good day. And welcome to the Comstock Mining Q3 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to your moderator Corrado De Gasperis. Please go ahead.

[Corrado De Gasperis:]

Thanks, Keith, and good morning and afternoon, everyone. It's Corrado here, CEO of Comstock Mining. And welcome to our 2017 third quarter conference call. We've completed our third quarter review efficiently with Deloitte & Touche and filed our full third quarter and year-to-date financial statements on Form 10-Q last night, and released the summary of those results through our press release this morning. Our third quarter was extremely focused on productive as we consummated various strategic initiatives especially the joint venture option agreement with Tonogold Resources, while closing on land and water sales at higher values, reducing our debt, closing the quarter with a significantly enhanced balance sheet. And we also received during the quarter of 2017, the Nevada Excellence in Mine Reclamation Award recognized for some of the most excellent mine reclamation in Nevada. This happens to be our second first place recognition in last three years which this year awarded only to three firms, Newmont, Kinross and Comstock Mining. We also progressed to additional strategic collaborations. Before I get into some of the details let me highlight that if we don't have a copy of today's release handy, you'll find a copy on our website at www.comstockmining.com under news/press release. We will keep the same format as previously for the call taking as many questions as time will allow. And then I'll be available after the call as always for any Q&A or any follow up remarks that people might want to call in on. If you are unable to ask questions in the call again remember we can be available afterwards. Before I do begin let me also say that any statements related to matter that are not purely historical facts may constitute forward-looking statements. These statements 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 the reports filed with the company and the SEC, and also in this morning's release, and all the forward-looking statements made during this call are also subject to those same and other risks that we can't identify. Before I start talking about these strategic initiatives including Tonogold, let me briefly acknowledged that our team has continued reduced spending in every major cost category, achieving record low operating expenses again in every category. I won't go down the list for each and every category, have that highlighted in the release but we will continue our diligence here. And now projecting the lowest operating spend rate going forward even before the additional cost savings benefits associated with the Tonogold agreement of less than $3.6 million per annum. As I said that number will god own additionally both on our continued diligence and the benefits of the agreement. These costs reductions have occurred despite keeping our team intact and growing our land position. We've actually added a mine engineer and a chief accountant to our team to support the operationalizing of the joint venture. While eliminating certain other costs as we continue our diligence including certain third party advisory, cost third party consulting legal and even external IR. We are not working with any external IR people as we speak. We are focusing our team to be smaller but stronger as we control these activities going forward. We also previously announced in September that we've grown our land position by over 470 additional acres by locating, taking and acquiring 30 unpatented lode claims that were contiguous and adjacent to both the Dayton and Spring Valley resource areas in the southern part of the Comstock district. These increase our total land holding to over 9,284 acres. So our land position has never been a better, it is never been more properly entitled and all of that occurred with annual land carrying cost being net lower. Earlier this month we announced the truly outstanding collaboration with Tonogold led by Mark Ashley, their CEO, the agreement has the objective of evaluating, drilling, developing and ultimately delivering a full economic feasibility on Lucerne Mine Project. With Mark and his team representing one of the most diligent, technical, committed and frankly a passionate strategic partner that I worked with -- maybe -- both Mark and I and our team have been extremely diligent in establishing an agreement and now operationalizing that agreement that brings a strategic mining partner, the strong technical expertise and well aligned incentives so that we both win advancing the Lucerne Project back into production. Mark has personally overseen all of the efforts fully engaged with his Board, with his team and always working directly and transparently with us to ensure that we find the joint venture operationally. We've done that as I mentioned on last call not just in terms of the front end portion of the option agreement, but the middle phases and also already having fully defined how it will operate when it's fully completed. Tonogold is fully funded through the first phases of this agreement, the first phase of this agreement and as I said earlier already started operationalizing the collaboration. We've established our working technical committee which Mark heads up and a Tono team is already directly engaged and already accelerating the evaluation, field planning and development activities with $1 million committed to be invested in these first six months. We are fully engaged and working with them. Our support also includes lowering our annual cost as part of this collaboration by over one third effective immediate. That means a $3.6 million that I previously mentioned would be reduced in the first year of this collaboration by about $1.2 million or more. And we are already realizing the direct benefits of all these collaborations and ventures. The second and third phase of the collaboration requires an additional $90 million in engineering drilling development and the related test work towards completing technical and economic feasibility assessment. And moving towards recommencing production and return. Just briefly Lucerne evaluation includes but certainly isn't limited to assessing exciting series of geological targets in the silver city branch of the Comstock Lode including but not limited to the Succor Vein systems, the historic Woodville Bonanza and the Central PQ2 target among others. These targets represents the core of our broader geological corridor where previous surface drilling in the areas suggest more than a 1,000 feet of mineralized strike in the Succor zone alone aligning adjacent to and below Lucerne cut with great potential to yield higher grade gold and silver. The 1,000 foot Succor Vein target for example has an average true width about 15 feet and average depth about 65 degree. The structure has reported historic mining grade of approximately or over half an ounce per ton of recovered gold and it is open to the East and a depth long entire structure. The nearby Woodville Bonanza includes the same supporting historical mappings with reported mining grade of closer to three quarter of an ounce per ton. So a very high grade historical profile and the Woodville itself has significant current drill data including over a 100 incepts of at least 10 feet grading over about a quarter an ounce per ton. So we are very, very excited about what's there but there is obviously real technical work to do. What really excites us is the diligence, the ground up, the reassessing that the team, the Tono team is committed to. They are continually working on and off our site; they will be onsite again next week. And I just want to remind everyone we spend a year together putting this transaction together in the most diligent way. And Tono has invested tremendous time and effort in getting ready. So we are really looking forward to implementing these actions and looking forward to the results that will occur just in the next three, four and even five months. We also have two other strategic collaborations in progress. As you know earlier this year we successfully completed federally funded column test of our Dayton materials through Cycladex, a strategic investee, proving faster and safer reaching technology. Yields were excellent ranging between 82% and 85%. Cycladex along with his team and his president have been onsite working continuously on the efficiency of this mission on our ore. Currently doing additional test on the Dayton ores and working through a myriad of different formulas to see what the most efficient way to implement their solutions on our ore types are. Some of you may or may not know we are a 10% owner of that company simply through a role in supporting their federally funding testing and advancement. We've also established over the course of at least the last six months, a strategic collaboration with Itronics Inc. Itronics has an existing proprietary technology for extracting precious metals especially effective with silver from ores. Itronics has funded the assessment of not only looking at the extraction a possibilities of residual silver from our existing leach pads but in that same process effectively we are remediating the reclamation cost related to our existing leach pad in the process. Some of you may know we have almost $7 million bonded just for the purpose of ultimately remediating cleaning that pad and if this process proves effective, not only could we extract additional silver from the existing pad creating revenue but dramatically reduce and even potentially eliminate those remediation cost. It could even ultimately lead to being able to reuse our pad and avoiding additional capital. So it's a very exciting venture that Itronics is investing in here with us. Both those activities are coordinated in a way that allows us to apply these benefits to our existing resource area especially as we move forward down into the basin. We've been advanced planning an analysis on Dayton internally and we've already have developed economic shells for the Dayton mine plan that depicts an exceptional average grade. Right now our economic shells per day in average over 1.75 grams per ton that would be equivalent of over 0.05 ounces per ton which delivers the cost of less than $600 an ounce. The plan is really a phenomenal start but our intention is clearly not only to move forward with Dayton production but ultimately expand that resource along the additional mile and half southerly strike down to the Spring Valley all the way down and almost up to Highway 50. We look forward to starting those plans in early 2018 and more so look forward to having both the Lucerne and Dayton projects actively developing really all the work that we've done up until now is positioned us to have these two mines developing as we go forward. Just briefly and in conclusion from a corporate perspective, we did announce this morning the final NYC approval for 1

[Operator:]

[Operator Instructions] We will take our first question from Jake Sekelsky with Roth Capital. Please go ahead.

[Jake Sekelsky:]

Hi, Corrado. Good, how are you? Just a quick question on your option agreement with Tonogold. Just hoping to get some color here. Can you just speak to their strategy for funding? And maybe some of the milestones that which you keep an eye out over call it the next 12 months.

[Corrado De Gasperis:]

. Yes, absolutely. Jake, thank you for the question. So we were extremely diligent working together with Tono and developing the plan and in terms of their funding strategy not only did we have direct contact and exposure to their lead investors but in fact they visited the site and participated in parts of due diligence. And so it was very, very important for us that this was phased very carefully. I would say both for protection of the company but also to position the success of the joint venture, almost all decisions have been consistent with that. And to that end it was very important not only to us but our investors that they were fully funded through that first phase. So not only they invested a tremendous amount of energy and capital leading up to this but therefore we funded those beautiful six months. That first six months includes a $1 million commitment for not only very, very strong work on the build up from the ground up of the resource in Lucerne but also designing, developing and it will be ultimately to Mark and the technical committee about the commence of drilling. So tremendous amount of benefit and information should flow from that first six months. And that should parlay it right into the second phase of which I am not intimate with all of the components of it but we know that there is already strong commitment from some strong institutions moving towards into the second phase. So we feel very, very good about it. But we also feel very good about the way it was structured so that it's methodical, it's diligent, it's from the ground up and of course Mark's transparency with us seems to be his same philosophy with his investors. So he is going to be very transparent. He is going to very communicative and we'll be doing that often together.

[Jake Sekelsky:]

Got it, got it, all right, thanks. I am looking forward to updates on this JV going forward. It seems like you guys are taking the right steps to move forward with Lucerne.

[Corrado De Gasperis:]

Thank you, Jake. Thank you. Appreciate that very much.

[Operator:]

We'll take the next question from Eliot Cohen with Oppenheimer. Please go ahead.

[Eliot Cohen:]

Hello. Thank you for taking my call, Corrado. Very good, very good. I just wanted to congratulate you on what I perceive as operational excellence here with all the milestones you completed and all the promises you kept here. It's a very impressive list, your strategic and operational highlights for the third quarter here as I review them and listen to you talk and we are just looking forward to getting these properties active. We are looking for some high grade drill results because that's what gets investors excited, that's what I am excited about as a reproving the greatness of the Comstock Lode which I think you are very close to doing in the next couple of years.

[Corrado De Gasperis:]

Thank you, Eliot. I appreciate that. I think that the last 12 months we had a lot of hard work including the establishment of this joint venture agreement. We planted some very good seeds with new development and we are well on our way to strengthen the balance sheet with the land sales and debt. I personally feel like the activities have gone from 80% fixed to 20% development so hopefully now 95 plus percent development and marching forward to really make 2018 an extremely meaningful year.

[Operator:]

We will take the next question from Chip Unsworth with Legend Merchants. Please go ahead.

[Chip Unsworth:]

Hey, Corrado. How are you? So the properties are up for sale I just want to kind of look back on a couple of things that I read before the water rights that you have attached to the industrial property. What is the actual amount that you need to keep on those 98 acre?

[Corrado De Gasperis:]

Good question. So the industrial property has 98 acres. We believe that it can operate effectively. It's about anywhere from 20 to let say 40 acres feet of water right. What's important is that the water right that we just sold is just a little over 50 acre feet. The second portion of that sale was at $1,500 an acre foot. So we are sitting with well over --

[Chip Unsworth:]

So what's a math on that?

[Corrado De Gasperis:]

Well, we are sitting over 200 remaining which put the value at over $3 million just for the remaining water rights. Now even though some of those would stay with the land, they would still have to be purchased with that land. So obviously it's important to have them associated. So the land effective for the buyer but acreage and the water rights together we are looking at where from still $9 million to $10 million realized. So it itself would pay off the remainder of our debt. Having said that, the Daney Ranch is looking to bring an ultimately $4.4 million - $3.5 million plus immediately really which gives us a direct path. They are not only paying off of all our debt --

[Chip Unsworth:]

Does the Daney Ranch have water right also or is that only for a commercial purpose.

[Corrado De Gasperis:]

Oh yes, no, no, it comes with the sufficiency of water rights. We don't talk about those separately but they are there as well, yes, so both of the properties are uniquely positioned right on Highway 50 zoned properly, certified and with all the water rights that need to operate.

[Chip Unsworth:]

So Google or any of these other companies that are moving in area they are going to be doing construction, they need to have water rights, is that correct?

[Corrado De Gasperis:]

100% correct and as they continue to come in and accumulate their needs, all of the periphery around it which is developing now just faster have growing this right. So just becomes scarcer and scarcer.

[Chip Unsworth:]

All right then well keep it up, so see the stock move up.

[Corrado De Gasperis:]

Appreciate it very much, thank you.

[Operator:]

And we will take our next question from [indiscernible]

[Unidentified Analyst:]

Yes, hello, Mr. De Gasperis. I am a shareholder and supporter of Comstock and I just want to say thanks for taking the call on this open form. I read in your report the strategic collaboration that you have with Itronics Inc, and I am familiar with Itronics and some of its successes. But my question is this with a new collaboration and its focus on the KAM-Thio technology, what are the key benefits that you envision will come from this collaboration?

[Corrado De Gasperis:]

So it's really fascinating. Dr. Whitney with Itronics has really created an extraction technology using non cyanide materials that is effective very effective on silver. So the idea here is to see if testing on our existing leach pad and when you think about leach pad across the data, the best of the best probably we ranked at the top of the list with maybe historically 59% yield or some maybe 50%. This is an opportunity to see can we extract some portion efficiently of that remaining silver. What's fascinating is the material used to do that also effectively remediates and cleanse the pad. So an almost immediate benefit potentially the largest benefit would be we are remediating the pad and saving substantial all, substantially majority if not substantially all of the future cost. Our bond for that is almost $7 million. So you have the possibility of increased revenue. You have the possibility of efficiently cleansing your pad in the same process. And ultimately if that cleansing is super efficient, if it is super effective then you can actually reuse component for the pad and avoid capital. So it's a technology that has been approving in various other applications. It's working in a pilot phase. We are still at the front end of the testing. We've gotten through bottle roll test that have been very successful. We are looking to start some column testing here in November. So a lot of pretty exciting possibility, application certainly then could extend way beyond our operation as well. So I hope that's helpful. We are excited about that. That we felt it was important to acknowledge it because of the investments that Itronics has already made and some of the early successes frankly.

[Unidentified Analyst:]

Right on. Well, thanks for that. I appreciate it. I do find it fascinating the environmentally friendly work that you are doing and the awards that you've received. So just keep up the good work and appreciate the answer.

[Operator:]

And there appears we have no further questions at this time. I'll return the floor to you Corrado for any closing remarks.

[Corrado De Gasperis:]

I just want to thank everybody for their interest. I think we had a very, very hard tough march to this place. We feel confident and good about where we are going. We have the clear path with our projects and with our partners. So we are looking forward to a lot more updates, a lot more of the update being value creating being very prospective looking. And look forward to much more frequent communication. Please again to this end if anybody wants to have any further communication, please don't hesitate to call us directly and have a great day.

[Operator:]

And this will conclude today's program. Thanks for your participation. You may now disconnect.