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Edited Transcript of LODE earnings conference call or presentation 31-Oct-17 3:00pm GMT

Q3 2017 Comstock Mining Inc Earnings Call

VIRGINIA CITY Oct 31, 2017 (Thomson StreetEvents) -- Edited Transcript of Comstock Mining Inc earnings conference call or presentation Tuesday, October 31, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Corrado De Gasperis

Comstock Mining Inc. - Executive Chairman, President & CEO

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Conference Call Participants

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* David Unsworth

* Eliot Cohen

* Jacob Sekelsky

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Presentation

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Operator [1]

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

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Corrado De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [2]

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Thanks, Keith, and good morning everyone and afternoon, everyone. It's Corrado here, CEO of Comstock Mining and welcome to our 2017 Third Quarter Conference Call.

We have 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 a summary of those results through our press release this morning.

Our third quarter was extremely focused and 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 the 2017 Nevada Excellence in Mine Reclamation Award, recognized for some of the most excellent mine reclamations in Nevada. This happens to be our second first-place recognition in the last three years, which this year was awarded only to 3 firms -- Newmont, Kinross and Comstock Mining.

We also progressed to additional strategic cooperations. Before I get into some of the details, let me highlight that let me highlight that if you 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 Releases.

We'll 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're unable to ask a question on the call, again, remember we can be available afterwards.

Before I do begin, let me also say that any statements related to matters that are not purely historical facts may 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 the report 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 acknowledge 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 of each and every category. You have that highlighted in the release. But we will continue our diligence here.

We're now projecting the lowest operating spend rate going forward, even before the additional cost savings benefit associated with the Tonogold agreement, of less than $3.6 million per annum. As I said, that number will go down additionally, both on our continued diligence and the benefits of the agreement.

These cost 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 costs, third-party consulting, legal and even external IR. We're 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 have grown our land position by over 470 additional acres by locating, staking 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. This increases our total land holdings to over 9,284 acres. So the land position has never been better. It has never been more properly entitled. And all of that occurred with annual land carrying costs being net lower.

Earlier this month we announced a 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 the Lucerne Mine Project, with Mark and his team representing one of the most diligent, technical, committed and, frankly, passionate strategic partner that I've worked with maybe ever.

Both Mark and I and I and our teams have been extremely diligent in establishing agreement and now operationalizing that agreement that brings a strategic mining partner with strong technical expertise and well-aligned incentives, so that we will 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've designed the joint venture operationally. We've done that, as I mentioned on the 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 we have, as I said earlier, already started operationalizing the collaboration. We've established our working technical committee, which Mark heads up, and the Tono team is already engaged and already accelerating the evaluation, drill planning and development activities with $1 million committed to be invested in these first 6 months.

We are fully engaged in working with them. Our support also includes lowering our annual costs as part of this collaboration by over 1/3, effective immediately. That means the $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're already realizing the direct benefits of all these collaborations and ventures.

The second and third phase of the collaboration requires an additional $19 million in engineering, drilling, development and the related test work towards technical and economic feasibility assessments and moving towards recommencing production in Lucerne.

Just briefly, the Lucerne evaluation includes, but certainly isn't limited to, assessing an 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 PQ targets, among others. These targets represent the core of a broader geological corridor, where previous surface drilling in the area suggests more than 1,000 feet of mineralized strike in the Succor zone alone, lying adjacent to and below the Lucerne cut, with great potential to yield higher golds and silvers.

The 1,000-foot Succor Vein target, for example, has an average true width of about 15 feet and an average dip of about 65 degrees. This structure has reported historic mining grades of approximately or over 1/2 an ounce per ton of recovered gold and is open to the east and at depth along the entire structure.

The nearby Woodville Bonanza includes the same supporting historical mappings, with reported mining grades of closer to 3/4 of an ounce per ton, so a very high-grade historical profile. And the Woodville itself has significant current drill data, including over 100 intercepts of at least 10 feet grading over about 1/4 of an ounce per ton.

So we're very, very excited about what's there. But there's 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're continually working on or off our site. They'll be onsite again next week. And I just want to remind everyone, we spent 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're really looking forward to implementing these actions and looking forward to the results that will occur just in the next 3, 4 and even 5 months.

We also have two other strategic collaborations in progress. As you know, earlier this year we successfully completed a federally funded column test of our Dayton materials through Cycladex, a strategic investee, proving faster and safer leaching technologies. Yields were excellent, ranging between 82% and 85%.

Cycladex, along with its team and its president, have been onsite working continuously on the efficiency of their solutions on our ores. Currently doing additional tests 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 our role in supporting their federally funded testing and advancements.

We've also established over the course of at least the last 6 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 assessments of not only looking at the extraction possibilities of residual silver from our existing leach pads, but in that same process effectively remediating the reclamation costs 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 and cleaning that pad. And if this process proves effective, not only could we extract additional silver from the existing pad creating new revenue, but dramatically reduce and even potentially eliminate those remediation costs. 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 this benefits to our existing resource areas, especially as we move forward down into the Dayton. We've done advanced planning and analysis on the Dayton internally and we already have developed economic shells for the Dayton mine plan that depict an exceptional average grade. Right now our economic shells for Dayton average over 1.75 grams per ton. And that would be equivalent of over 0.5 ounces per ton, which delivers a 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 the Dayton production, but ultimately expand that resource along the additional mile and a half southerly strike down through 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 has positioned us to having these two mines developing as we go forward.

Just briefly and in conclusion, from a corporate perspective, we did announce this morning the final NYSE approval for a 1:5 reverse split. This split satisfies the New York Stock Exchange's minimum share price requirement. And the company is and has always been compliant with all other requirements. We sincerely consider this as a mechanical change. We have reversed both the outstanding and the authorized, so we're not increasing any share authorization through this exercise. Frankly, we're not changing the capital structure in any way. The company has very strong liquidity; strong, clean and simple share-based ongoing institutional support interest and as far as we're concerned, the split is done and completed. It requires just a 10-day notice period so it will go effective on November 10 and be behind us, so that we're really looking forward to spending all of our time developing our resources and moving this company forward.

Lastly, we closed on a number of smaller non-mining asset sales resulting in over $1 million of proceeds, all of which were used to reduce our long-term debt accordingly. This trend is just beginning and clearly tied to the increase in commerce and demand flowing in from the new USA Parkway and the industrial park developments. Just last week when I flew into the Reno airport there was a driver standing there holding a Google sign in his hand, and we just heard yesterday that Google is now actively soliciting bids for earthmoving work.

So this is just another development, economic development, that we see directly tied to the increasing interest and the increasing expedience of us selling these properties now to fully pay off our debt. Our senior debt is now below $10 million, sitting actually below $9.9 million. And the ongoing plans are still to sell both the Daney Ranch and the industrial park for proceeds still estimated at about $14 million. That's because the land sales that we've consummated adding up to over $1 million really didn't have anything to do with the industrial park or Daney Ranch. They were sort of incidental peripheral sales. So it was an outstanding start to the program.

And as the trend continues, I'm very pleased to announce today that we have an agreement with a group in Reno to sell 80% of the Daney Ranch for $3.52 million in cash. We're looking forward to closing that in the first quarter. But the way that we structured it actually puts a value of $4.4 million on the property, which we'll ultimately earn the smaller residual piece over time. But we're just exciting at the slashing that that will have to our debt balance and the leap forward that that makes for us on getting to our debt being fully paid off.

We noted in the release that we're liquid. We have cash and equivalents of over $2.3 million on hand. We're looking forward to advancing the JV to the next option team in April, which is very meaning to us, closing on the sale of the Ranch in that same exact time period and ultimately selling the remainder of our non-mining assets in 2018.

I want to just close with a very strong reemphasis that we could not feel better about the capabilities of Mark and his team to advance the Lucerne Project in every way, and we look forward to experiencing those advances live with you as they progress over, again, the next 3, 4 and 5 months.

So with that, Keith, let me just turn to questions, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Jake Sekelsky with Roth Capital.

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Jacob Sekelsky, [2]

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Just a quick question on the 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 we should keep an eye out over, call it, the next 12 months?

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Corrado De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [3]

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Yes, absolutely, Jake. So we were extremely diligent working together with Tono in 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 the diligence. And so it was very, very important for us that this was phased very carefully, I would say both for the 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 have they invested a tremendous amount of energy and capital leading up to this, but they're fully funded through the full 6 months. That first 6 months includes a $1 million commitment for not only very, very strong work on the buildup from the ground up of the resource in the Lucerne, but also designing, developing and -- it will ultimately be up to Mark and the Technical Committee -- but the commencement of drilling. So a tremendous amount of benefit and information should flow from that first 6 months, and that should parlay it right into the second phase, of which I'm not intimate with all of the components of it, but we know that there's already strong commitments from 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's going to be very transparent. He's going to be very communicative. And we'll be doing that often together.

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Jacob Sekelsky, [4]

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Looking forward to updates on this JV going forward. It seems like you guys are taking the right steps to move forward with this.

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Operator [5]

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

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Eliot Cohen, [6]

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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're just looking forward to getting these properties active. We're looking for some high-grade drill results, because that's what gets investors excited. That's what I'm excited about, is reproving the greatness of the Comstock Lode, which I think you're very close to doing in the next couple of years.

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Corrado De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [7]

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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 developments. And we're well on our way to strengthening the balance sheet with the land sales and debt. I personally feel like the activities have gone from 80% fix to 20% development to hopefully now 95-plus percent development and marching forward to really make 2018 an extremely meaningful year.

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Operator [8]

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We'll take the next question from Chip Unsworth with Legend Merchants.

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David Unsworth, [9]

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So the property that's up for sale, I want to just kind of look back on a couple 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 (inaudible) acres?

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Corrado De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [10]

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Good question, Chip. So the industrial property has 98 acres. We believe that it could operate effectively with about anywhere from 20 to, let's say, 40 acre-feet of water rights. What's important is that the water rights that we just sold, which was just a little over 50 acre-feet, the second portion of that sale was at $15,000 an acre-foot. So we're sitting with well over --

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David Unsworth, [11]

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What's the math on that? Forty --

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Corrado De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [12]

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Well, we're sitting with over 200 remaining, which puts 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 is effective for the buyer. But the acreage and the water rights together, we're looking at anywhere 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 in ultimately $4.4 million, 3.5-million-plus immediately, really, which gives us a direct path to not only paying off all our debt --

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David Unsworth, [13]

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Now, does the Daney Ranch have water rights also? Or is that only for --

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Corrado De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [14]

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Oh, yes.

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David Unsworth, [15]

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-- commercial [properties]?

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Corrado De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [16]

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Oh, yes. No, no, it comes with a sufficiency of water rights. We don't talk about those separately, but they're 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 they need to operate.

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David Unsworth, [17]

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So Google or any of these other companies that are moving into the area, they're going to be doing construction, they need to have water rights. Is that correct?

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Corrado De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [18]

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

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David Unsworth, [19]

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All right, well keep it up. Let's see that stock move up.

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Operator [20]

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We'll take our next question from [Jeff Backwit].

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Unidentified Shareholder, [21]

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

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Corrado De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [22]

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So it's really fascinating. You know, 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-pads across Nevada, the best of the best, probably we rank at the top of the list with maybe historically 59% yields or some might be 50%. This is an opportunity to see can we extract some portion efficiently of that remaining silver. What's fascinating is the materials used to do that also effectively remediate and cleanse the pad. So an almost immediate benefit, potentially the largest benefit, would be remediating the pad and saving substantially all, a substantial 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's super-effective, then you could actually reuse components of the pad and avoid capital. So it's a technology that has been proven in various other applications. It's working in a pilot phase. We're still at the front end of the testing. We've gotten through bottle roll tests that have been very successful and we're looking to start some column testing here in November. So a lot of pretty exciting possibilities. Applications certainly then could extend way beyond our operation as well. So I hope that's helpful. We're excited about it. We felt it was important to acknowledge it because of the investment that Itronics has already made and some of the early successes, frankly.

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Unidentified Shareholder, [23]

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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.

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Operator [24]

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

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Corrado De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [25]

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

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Operator [26]

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