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Edited Transcript of LODE earnings conference call or presentation 5-Feb-19 4:00pm GMT

Full Year 2018 Comstock Mining Inc Earnings Call

VIRGINIA CITY Feb 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Comstock Mining Inc earnings conference call or presentation Tuesday, February 5, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Corrado F. De Gasperis

Comstock Mining Inc. - Executive Chairman, President & CEO

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Conference Call Participants

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* David T. Brigham

Brigham Exploration Company - EVP of Land & Administration

* Stephen W. Shipman

CM Advisors Family of Funds - CM Advisors Defensive Fund - Portfolio Manager

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Presentation

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Operator [1]

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Good day, ladies and gentlemen. Welcome to the Comstock Mining Q4 Update Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Corrado De Gasperis. Please go ahead.

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

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Thank you, Patrick, and good morning, everyone. This is Corrado De Gasperis, CEO of Comstock Mining, and welcome to our 2018 year-end conference call.

We are substantially, but not completely done with our year-end audit and plan on filing our annual report on Form 10-K later this month, well ahead, of course, of any filing deadline.

I'll provide a brief summary of the financial information that was summarized in our press release from this morning and update on the 2 transactions that were announced and both of our mine projects. 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.

Before I begin, please also let me remind you that in addition to the outlook, I may make forward-looking statements on this call. Any statement relating to matters that are not historical facts may constitute forward-looking statements. The 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 reports filed by the company and the SEC and in this morning's release and all forward-looking statements made during this call are subject to the same and other risks that we can't identify.

After my prepared remarks, we'll have a Q&A period, but we will limit the call as customary to one hour. If you don't get a chance to ask the question on this call, please do follow up with me after the call and I'll look forward to getting to everyone.

My prepared remarks will cover Lucerne and the recently announced Tonogold transaction; the monetization of our non-mining assets, especially now in the Opportunity Zone, our Dayton progress, our capital base and use of equity and our next steps towards the path of profitability and the non-dilutive forward view of our funding resources.

Let me start with Lucerne and Tono. We just announced last week that we entered into a definitive agreement and received a $1 million nonrefundable payment towards the sale of Lucerne to Tonogold for the sum of $15 million in cash plus the relief of $8 million in longer-term obligations, $7.2 million of which is on our Northern Comstock property lease payments and about $800,000 is specifically for Lucerne's direct reclamation obligations.

This alone -- those obligations alone permanently eliminate $1 million in annual operating expenses from our company, that for the most part are currently being reimbursed under the existing Option Agreement today. We also retained a 1.5% net smelter return royalty on Lucerne. Upon the closing of the transaction, the company will transfer the ownership of Lucerne properties and the related permits, while retaining ownership of the remaining land positions that we have on the Comstock.

We put a value on that portion of the transaction at over $25 million plus the royalty that based on the mine plans that we would hope to anticipate could be worth an additional $5 million to $10 million in future royalty payments. All of the gains on either the sale of the property or the future royalties will be sheltered from federal taxes due to our large net operating loss tax position. We expect the transaction to close between March and May of this year.

Additionally, we also agreed that upon closing, we'll enter into a new Option Agreement to lease our American Flat facilities to Tono for crushing, leaching and processing Lucerne material. Tono will reimburse American Flat expenses of approximately $1 million per annum during the option life, starting upon the closing of the transaction. When exercised, Tono would pay us a rental fee of $1 million a year plus $1 per ton processed for the first $15 million in revenue from that lease, and then continue with $1 million per year and $0.50 per ton processed for the next $10 million of revenue. After $25 million of revenue, the rates get more favorable. These revenues are also sheltered by our net operating loss carryforwards.

Upon closing these transactions, the agreement will -- these agreements will replace the current Option Agreement that exists today between us and Tono, but in the meantime, the current agreement remains in place until closing. Tono has met all of their milestones to date and has been working diligently with Mine Development Associates to produce a new resource model, an NI 43-101 technical report on Lucerne. They've already reimbursed us over $1 million during 2018 in addition to the $1 million deposit that we received last week and the $2 million that we received earlier this year.

The most frequently asked question so far over the course of the last weeks about this and the prior transaction coming from our investors is, can Tono close the transaction? Obviously, I can't speak directly for Tono, but I will give you my perspective.

As I mentioned, Tono has diligently and expertly advanced the work with MDA and is preparing to publish a new technical report on Lucerne, a report that we are intimately familiar with. This is also being coordinated with their new TSX listing. Tono is acquiring a known resource in Lucerne in the best jurisdiction with permits and infrastructure for mining and processing and a market that values production and third-party data, by the way, and gold over 1,300. Frankly, Tono has already invested over $6 million into this project and made every financial commitment timely and without drama. They've been exceptionally focused and professional.

Also, Tono's CEO, executive team and largest investors, including the single largest investor are engaged and intimate with the project, have been on-site, professional, directly engaged as a team with their CEO over the past few years, bringing the project diligently forward and being directly involved in the former, current and forward transactions.

Tono's focus has been a very production focused, but meticulous from the ground up, including, very advanced mine planning meetings with their whole team, technical experts, regulators, et cetera. For example, extending the Storey County SUP for the maximum 20 years was a suggestion that they brought up to us. They're extremely knowledgeable and focused on all the work over the past few years and really focused on how best to bring the mine back into production. I think they're extremely well positioned to do so, and they also have the full support of our resources and our team. Bringing that mine back into production is what they're positioned to do and will unlock huge value for the both of us, including and especially with our American Flat assets.

We've also provided significant flexibility together to ensure that the transaction gets done over the next 2 to 4 months, we both want it to get done, and with additional funds coming into Comstock either way by the next month. Both sides have invested an extraordinary amount of time to make this a win-win, and really from everything I have seen, engaged and talked to with the people capable of closing this transaction timely. In our opinion, it will close.

Moving on to the non-mining assets just for a second before I get back to Dayton. I mentioned last quarter, specifically that we're working diligently with financial counter-parties on the sale of the Silver Springs assets. And I'm pleased to announce that the company's board approved just late last week, the sale of one of our non-mining assets, the 98-acre certified industrial site and the related water rights that's adjacent to the Silver Springs airport. And also the sale of the purchase agreement and options that we have on the 160 acres of land and water and sewer also located in Silver Springs for a total of $9.75 million cash plus a 3% future share of the profit on those properties.

The sales are to Silver Springs Capital Partners, LLC, an Opportunity Zone fund that's actively investing with our help and guidance in other Silver Springs properties well beyond what we just announced. And this agreement is expected to be finalized within the next few days and close between -- in the multiple series of steps between March and July of 2019. The company expects to record a gain of approximately $5 million on that $9.75 million of proceeds. That again, because of our NOL position will not be subject to federal tax. I don't think I said NOL, so many times in any conference call before.

Although, these agreements will certainly allow us to monetize this one asset plus the option and use the NOLs to prevent any cash taxes on the gains, we as a team are also evaluating the second fund for the Comstock. This will be part of the forward-looking strategy announcement that's coming later this month that maps out specifically our path to profitability, more efficient use of capital, eliminating the ongoing dilution and maximizing use of our tax position even further, even beyond the ability to shelter these onetime gains. I need to ask you to stay tuned on this point of a new Opportunity Zone fund and an Opportunity Zone fund on the Comstock. Our board is reviewing the final plans and they are coming soon this month. We just really needed to complete the existing agreements on Lucerne and Silver Springs first because they were just critical prerequisites.

The almost $10 million that we're getting from the sale of the Silver Springs asset coupled with the Lucerne transaction brings us a minimum of $20 million by mid-2019 alone, paying off all of our debt and reducing in total going-forward expenses by over $3.3 million annually, while still maintaining all of our functionality. The $3.3 million is made up of approximately $1 million that we're currently being reimbursed today, an additional $1 million that comes with the new transaction and over $1 million of annual interest savings. So a remarkable reduction of cost that comes from a transformative repositioning of our assets.

The ranch is still listed for sale at $4 million and the hotel is still listed for sale at $1 million. Combined with the Silver Springs property, that represents the $15 million we've been talking about for the last year plus in terms of monetizing our non-mining assets. We did have a buyer for the hotel in the fourth quarter, with a very, very short lead time to close. They flaked out, and the deal didn't get done. We had a much more sincere and engaged buyer on the hotel that spend 5 to 6 months with us, the county financing organizations, the community, honestly, the fall-through of the hotel at the very last minute was a shock to us. It was disappointing. But the hotel continues to operate excellently. It's profitable for us, has been for the last 2 years -- 2 years ago on a cash basis, this year on both the cash and accounting basis. But both properties are still for sale.

Coming back to and looking forward to the Dayton. We have retained Behre Dolbear to produce our own NI 43-101 compliant technical report for the Dayton Resource. I didn't mentioned earlier, but we do expect that Tono is coordinating the final publication of their report with their TSX listing. They've been very open about that. The report is near-complete, probably complete for all material purposes. It's just the synchronization and coordination of a number of these activities, including the new transaction that have caused the delay in publication. They're ready to go. We'll be ready to go to publish our own report now scheduled for the second quarter of 2019, delayed from what we were hoping originally was the first quarter, but that's primarily because our small technical team and my time was completely committed to completing the Tonogold transaction. Those things tend to take longer than you plan for, in our case, it did, but we're very, very happy to have completed it. And I also had to dedicate some time working with Silver Springs. But all of that now, the work is substantially done from our side and we're looking forward to moving the Dayton forward. The scope of that report will include an updated robust mineral resource estimate, standalone for Dayton and the plan for expanding and further developing that resource.

And probably a bit further, we will also put into that updated report the work that's been done so far regarding preliminary economic shells and preliminary economic assessments. There won't be a PEA report scope, it will be a resource report scope. But a lot of the prerequisites for a PEA will also be included in there and it will be a major step towards actually establishing economic feasibility for Dayton in-house. We've already done a tremendous amount of engineering and mine plan for the Dayton and have already resulted in profiling internally a number of various economic shells with multiple cut-off grade scenarios that already quantify specific economic value for Dayton just with a 2- to 3-year mine plan based on what we know already, we have over $40 million in free cash flow.

So if you want to value Dayton today, we would say it's got a minimum of $40 million. We've got exceptional known grades, exceptional yields, a really great mine profile. What's important for us though is looking to double and triple those values with expanded drilling, a long strike and southerly down to and including the Spring Valley.

We previously announced assay results from that recently uncovered high-grade shear-zone in the Dayton. Samples revealed over 90 feet of mineralized material with gold grading over -- well over 0.04 ounces per ton, and silver grading over 0.4 ounces per ton. It included a 7.5-foot series of strike where the gold was well over 1/10 of an ounce per ton, 0.12 ounces per ton and the silver was well over 0.75 of an ounce per ton. All that just adds to the value that I previously mentioned with more to go.

We also recently completed another series of trials with Itronics to test their KAM-Thio metallurgical recovery, not just on our previously processed leach materials, but also on some virgin materials from the Dayton. Based on all of those results, we believe that we're closing in on a hybrid solution; a hybrid solution being sort of the combination of multiple steps and processing that we've evaluated as positive. The solution will be green, and I believe will ultimately result in an economically enhanced scenario for Dayton, that's really the goal to not only be able to go green with the processing solution, but enhance materially the economics from what we know we can do with just the conventional cyanide process. Ultimately, we plan on conducting step-out drilling with the Dayton once we're funded to both expand the resource and then advance it to full feasibility. Again, we'll be publishing our first report next quarter supporting the values and the parameters that we just discussed.

Let me conclude, with a corporate perspective, if I can. Again, I'd like to congratulate our whole team. Last year, we received the Sustainable Mineral Development Award in Washington, D.C. from the federal government and the BLM. It really puts us from an environmental leadership position at the top of the ladder. In 2017 and '15, most of you know that we also received Nevada's top Excellence in Reclamation award voted unanimously not only by the BLM, but Nevada Division of Minerals, Nevada Department of Environmental Protection, the U.S. Department of Wildlife and the U.S. Forestry Service. So those recognitions sound good. But I can tell you that it was a central part of the discussion when we were with the county and asking for our extension to 20-year maximum term. When we were first granted the SUP, the reason we weren't given 20-year term was they wanted to make sure that we would be socially responsible. We walk the talk and it was a unanimous approval for that extension and it was truly an outstanding result for us in every potential way.

Financially, we've also effected all of these transformational changes that we just talked about, while continuing to reduce costs and total liabilities. We recorded a record low operating cost and expenses for 2018. Total-total everything down to $7.6 million, which includes over $3.5 million of depreciation, that's a 16% reduction overall year-on-year from '17 to '18, but we can't forget that comes after an over 50% reduction from 2016. So overall, we continue to save over $8 million a year. 2016, we were not mining, which is important to highlight. We were still finishing off some of the processing, but a remarkable reduction across the board regardless. This year's reduction does include over $1 million of reimbursement that we've gotten from Tonogold with our current arrangement, but it also includes just under $1 million, about $0.75 million in non-recurring expenses, primarily from legal, transactional, consultative and G&A related to all of these transactions and initiatives. The good news is that those numbers don't continue as we project our cost going forward. So we're looking at an extremely lean cost profile going forward with full functionality on the platform.

Lastly, I want to say that we ended the year, our balance sheet with little over 75 million shares outstanding at December 31. That compares to just under 71 million that we announced as of our last disclosure -- our last 10-Q filing in October. This increase also included a private placement with a large shareholder and the issuance of shares that are related to acquiring about 25% of the Pelen transaction. Both of those issuances, which quite frankly, make up substantially all of the increase, are strong-handed placements that increase our share base, but also increase our strategic land position.

We believe that the transactions that we've now announced will be able to allow us to not use these equity facilities on a routine basis. We believe that once they're closed, we may not have any use for them at all. But certainly, $20 million of cash inflow rings true to that. But we do expect to have about 80 million shares outstanding at the end of this quarter. We can't -- we've minimized the use, we've reduced the use, but we always will maintain the ability to ensure our liquidity, no matter what. It's really not something that we'll talk about anymore, but it is something that's critically important to understand, we're doing everything in our power to reposition the company, reposition the asset, so that, that is not the current reality and we're damn close.

Our liquidity is excellent and we have major monetization events here now positioned and on the horizon and we're laying the final groundwork for advancing Dayton and our broader strategy that allow us to expand our value and grow the company back to profitability. The board's working on this in a very engaged focused manner. We have a precious metal-based strategy. Obviously, it's enabled by monetizing our non-mining assets, strengthening our balance sheet and allowing us to focus on gold and silver and making money profitable on that theme. Not just eliminating the dilution going forward, but also in a way that maximizes the use of our NOLs. So we've been doing a tremendous amount of transactional analysis in terms of how to best position the company. To do that, we're very close to being final with that and we plan to announce the broader portions of that go-forward strategy within certainly the month of February.

Now that the other transactions are final, we can accelerate that all, we can quicken that all. Timing-wise, we're positioned to benefit from all of that and gold seems to have turned. That may be a notion of timing being better lucky than good, but certainly the fact last 5 years have been brutal. So we're very, very happy to see the light here at the end of the tunnel.

Patrick, I think, I'll pause there, I'll stop there and turn it to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will take our first question from [Robert Lambert].

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Unidentified Analyst, [2]

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A little question about -- I mean, you did a very good explanation on showing us that we have a path now to profitability. But my question has to do with our hybrid technology now. Once this proves out, would that be something that we would not only use ourselves, but we would also engage Tono? And then, what does the entire gold mining industry, how would they look at that hybrid development if this really works?

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

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Thanks, [Bob] for the question. Let me see if I could phrase it or frame it this way. So we -- and just to make a point, I highlighted the update with Itronics, which I'm going to talk about right now, I didn't mention, and I maybe should have mentioned that Cycladex is also working actually with 2 international clients that are very heavy in silver, with that processing and different applications of use of their technology with some success. It's actually fascinating to watch it develop. With Itronics, we had remarkable results on the reprocessing of the already leached material, insofar as it related to silver. With gold, we just didn't have any conclusive results because there was so little gold left in leach pad. So we went to virgin material. As expected, it worked fantastically on the silver, reasonably okay on the gold. But when I say reasonably okay, let's make the point that cyanide seems to work superior to gold.

So when I mention hybrid, there's just a fascinating compilation of taking the existing process, and I'm one of those guys who hates the word bolt-on, but in this case, bolting-on in an advanced plan way an extra step. So if you have a material that is extremely well-yielding for gold and cyanide, which is the case on the Comstock, already proven, a second process of extracting more silver as planned, going back and doing it after the fact, obviously could be more expensive. But doing it sort of right upfront as planned has potentially remarkable implications. One, obviously, you get more, if not most, all of the silver. Number two, the solution detoxifies the cyanide. It destroys the cyanide complex and turns the materials back into an organic form. That notion alone proposes the ability to on-off the material. In other words, you could put it on the pad, process with cyanide, take it off the pad, reprocess it, get the remainder silver, use the materials back for reclamation. There's obviously an enhancement on revenue. There is obviously a reduction of reclamation cost. But if done the way that we're envisioning, could even avoid the need for expanding the leach pad. Now you start to get into dramatically better economics, but also elimination or massive reduction of reclamation and also a potential applicability to other processes or other projects.

So the answer to your question is our attitude has been, show us the money, our attitude has been, show us it works in our backyard, and if it can be proven beyond any doubt, meaning third-party economic feasibility applied, I don't see any reason why together we couldn't take it to other projects, Tono or otherwise, right? To the extent, it actually enhances. There's a lot of people, and I would say very justifiably so who are anxious about new metallurgical processes for 2 reasons. Cyanide works so damn good and other metallurgical processes sometimes have not worked very well. So that's -- but that's simply why we're saying, let's prove it in our own backyard. If you're able to prove it on the reprocessing of some existing materials, then you've eliminated the risk, right, of new processing. So I hope that was helpful.

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Unidentified Analyst, [4]

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Of course, cyanide is it environmental horrible hazard, so if we can really do this, it would be pretty incredible for the gold industry...

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [5]

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Yes, so -- and let me say this too. Like so, there's probably scenarios where it will work straight out on, let's say, silver only or silver major deposits. In our case, right now, we're looking at it as sort of a hybrid. We would still be using cyanide on the front-end, but we would completely recycle, clean and destroy it before you got to the end of the back end, right? So we still that's why we say it's still green, it's still 100% green in the end, which is the most important thing, because most of the reclamation costs for cyanide come with the post-monitoring, right? It just sits there forever. The bigger the pad, the longer and the more money you have to spend, in this case, we're hoping -- now I want to put a caveat on this. We haven't -- we're not in the final proof more. We haven't concluded the feasibility study, but we've seen enough evidence and we've done enough high-level process mapping that we're feeling pretty good about it, or good enough about it where we want to work with Dr. Whitney going forward in one form or another. And I think if we're able to do that, it wouldn't be just for our site, it would be, what could we do together beyond our site.

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Unidentified Analyst, [6]

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Right. And one small little point. I know you said we're going to have a new website, and I know you've been so busy, you haven't any time.

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

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Yes, well, there's 2 things, right? So first of all, the new website is substantially complete. And time constraint of our team was part of the reason I paused, it was my personal/professional decision to pause it. We're literally ready to launch. So it's built, it's ready. We're not looking to spend any more money to do it. So but with the transactions that were coming and maybe more importantly with the forward strategy that really is going to map out our path to profitability, we wanted to make sure the website captured all of that, right? So these 2 transactions give us 80% of what we need. We've got one more series of work to do. I'm not going to say that it's going to be done by the end of this month, but our goal is to synchronize it with the filing of the 10-K, the announcement of the go-forward strategy and the content reflecting all of that. So if you want to use the term new Comstock, you can, right? New Comstock, new extreme focus on precious metals, gold and silver, clean technologies, other gold activities and all communicated through our new website. It's coming very soon.

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Operator [8]

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(Operator Instructions) We will take our next question from [Lawrence Danny].

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Unidentified Analyst, [9]

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I have 2 questions. One is, how did you value Lucerne at about $30 million, including the royalty? And the second question is, if you're leasing the American Flat processing facilities to Tono, and down the road Dayton becomes a mine, how are you going to -- even though you have your hybrid, maybe different, how are you going to integrate all that?

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

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Sure. Thank you for the question. So when I talk about valuing Lucerne, obviously we hope that the mine plans, the range of mine plans that Tono has been looking at, and to some extent has talked about in their publications, annual meetings, we hope that they well exceed all that, like we could -- we couldn't be -- a stronger cheerleader obviously for them. That's the beauty of the way this thing's been structured. We're more than fully supportive of them, and they could make tremendous amounts of money, tremendous amounts of money. Mostly, because they are good miners and they have a fully permitted infrastructure, which, when I say fully permitted, they have the county permit and they have all the state permits totally in effect and they're evaluating the expansion possibilities and how that would impact federal. So they've got a great thing with short lead times.

We evaluated with the following 3 components, and each one has a different layer of probability. The first one is the $25 million, which is simply the $15 million of cash purchase price, plus the $8 million assumption of liability, plus ultimately will save us $2 million per annum in operating expenses. So just taking a 12-month view of the world, we'll have $25 million of benefit to Comstock. I know that's a huge number relative to our current valuations and our debt and that's what's wonderful about it for us. It's not a huge number in terms of what we're trying to achieve, obviously. So $25 million, we almost think of that as like the guaranteed piece of a sports contract. The next piece is the royalty. If you look at some ranges of potential mine plans, in terms of the potential tonnages of ore that they could be processing and even with $1,200, $1,250 type gold numbers, we could be looking at a $5 million to $10 million royalty stream coming from those mining activities. So then your $25 million becomes potentially $30 million to $40 million.

With the American Flat arrangement, again, there's a lot of capital invested at American Flat that Tono doesn't have to invest, which is a win-win. We have the capital invested, they don't. They can focus their capital on mine development and mining, quite frankly. So they take out one of the biggest risk factors, which is the permitting and building of an entire infrastructure. So it's a win-win. Ultimately, we structured the agreement where, again low to higher end of the range. And when I say low to higher end, it does not preclude new discoveries, expansions and continuation. But yes, another $15 million to $25 million. So is $45 million to over $60 million possible? Absolutely. That's what we have structured it to become. If that happens, Tono is going to be incredibly successful beyond. So we're really looking at the valuation in that context, right? And what we did was we have to look at that obviously relative to what we would be able to do and how we would be able to do it and the capital that it would require for us to be able to do it. And it was not tenable, so we like the situation much better and we're happy about it. So that was the first part of your question. And then I forgot what your second question was?

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Unidentified Analyst, [11]

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The second part was, if Dayton becomes a mine, and you lease out American Flat, how do you integrate it all? Or does your (inaudible)?

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

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Yes, yes, yes. So thank you for the question. I think that as much as American Flat is central -- centrally located to the Comstock District, it is really incredibly well-positioned in Storey County for the Lucerne asset, it was built for the Lucerne asset and the other mining claims in Storey County. I mean, it's ideal for that purpose. There is -- it's hard to imagine any obstacles for using that facility for Lucerne, beyond Lucerne, expanded Lucerne and then Storey County assets to the north. When you go to the south, there are some geographical obstacles. I'm not saying you couldn't overcome them, but most of my technical team has lobbied very hard, economically-so -- not emotionally-so, on an ideal -- an ideal second facility for the Dayton, which we can't finalize until we have a better handle on the mine plan. So most of what we've talked about in terms of value in Dayton and then the cash flow comes from the idea that we would have a smaller sort of dedicated facility in the south.

If you put a facility just south of Dayton in Lyon County, not only would it be more efficient in terms of operating the Dayton, but then it would be almost ideally positioned as you expand to the south in Spring Valley. So that isn't conclusive. There certainly could be a notion of sharing facilities, of optimizing, but right now it's important to know that, although, we can continue to use that facility for metallurgical testing, for all of the great green technology, things that we're doing with the existing leach pad, Crowe crusher, et cetera, it's really dedicated to Tono for their mine plan as a priority. So we'll have to see how it all plays out. I'm sure that to the extent that there's any synergies either way, we've worked incredibly well together. But a likely outcome would be the Dayton-Spring Valley would have a dedicated processing facility.

So now potentially a hybrid type of notion that we just talked to Dr. Lambert about. I mean, I think, that, what I hope, and I don't know if we'll be able to do it in one technical report, I'd love that, the feasibility report, so we update the Dayton report technically for the resource. But then once we start talking about economics, I'm ultimately hopeful that our engineers will have sort of 2 appendices. One that says here is what it looks like conventionally with a straightforward zinc precipitate Merrill Crowe facility using cyanide. And here is what it would look like with the hybrid facility. And our hope is that the total capital cost and the total operating cost will be much lower and that the yields will ultimately, especially for silver be much higher. That's where we're heading.

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Operator [13]

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We will take our next question from Stephen Shipman.

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Stephen W. Shipman, CM Advisors Family of Funds - CM Advisors Defensive Fund - Portfolio Manager [14]

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I have 2 questions. The first one is what was the thinking and the decision-making behind actually deciding to sell off the Lucerne versus keeping the JV?

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [15]

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Yes. So I think, as -- it came down to -- there are a number of variables. But let me see if I can just hit on the most salient, right, the 3 most salient. First and foremost, I think, that instead of us owning 51% -- I'm sorry, instead of us owning 49% of Lucerne and ultimately 49% of the American Flat infrastructure, there really wasn't an optimization of the partnership. With Tono owning 100% of the Lucerne Mine and us retaining 100% of the American Flat infrastructure, it's a big positive for them in my opinion, because obviously they would get all of the upside that comes with owning a 100% of the mine. And then we retain upside both in terms of the royalty and the use -- the productive use of that facility, but in a capital sensitive way for them, but also in a way that, from our perspective, it accelerates the profitability for us. So in the old agreement, we could have been 3 to 4 years before we even saw $1 net return of cash flow. And frankly, being a 51%-49% owner, there might be additional capital requirements that could use up some of that near-term cash flow over the first couple of years. So the prospect of waiting 4 or 5 or 6 years for cash flow, even if the ultimate valuation ends up to be higher was very attractive to us. So number 1. Number 2, the absolute certainty of getting some payments upfront, while retaining enough of the valuation through the royalty in American Flat made it attractive to us. And again, I think, it's not unique, but it's a wonderful scenario, where both of these points are positive to both of us, right? Ultimately, mining is a heavy capital-intensive business. So to the extent we could use of our already deployed capital to accelerate and increase our returns, while relieving them of some of the requirements, really worked out to be extremely well. The third part is that -- and there's 2 -- there is A and B to 3 is to absolutely accelerate development of our other properties. And so -- and obviously, as it pertains to the south, we can now focus on a very attractive project that we wanted to move forward, and we've just been financially constrained in being able to do it. As gold and silver are moving up, it's really opportune for us to move the Dayton-Spring Valley projects forward. But also in leasing Tono, the Occidental Lode and the northern targets, the Kentuck and the Yellow Jacket, I mean, there are tremendous amount of high grade targets up there that were just unperformed. So they now have a lease to be able to start drilling and developing even beyond Lucerne. And for us, it just felt like the entire Comstock comes alive in structuring it this way, while yet again, we retain royalties on those properties ultimately if they go into production. So does that help?

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Stephen W. Shipman, CM Advisors Family of Funds - CM Advisors Defensive Fund - Portfolio Manager [16]

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Yes. Just one minor clarification.

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [17]

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Sure.

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Stephen W. Shipman, CM Advisors Family of Funds - CM Advisors Defensive Fund - Portfolio Manager [18]

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You're saying that Tonogold actually has now leased opportunity beyond Lucerne, do that -- is that what you just finalized your last sentences?

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [19]

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Yes, let me be explicit. So not yet, but the agreement that is final and signed and written includes that if they buy Lucerne, they will enter into the lease for American Flat, which we already talked about, but also enter lease for the northern mineral properties. There's 2 groupings beyond Lucerne. The Occidental, and they're on targets. That actually saves us $100,000 per year in addition to what we talked about before. They pick up a $200,000 drill commitment for this year. And where we have been deferring some of those drill commitments, Tono is keen on getting some drilling going. So we retain royalty, it's just lease, so we still own those properties, right? There are 10-year renewable leases, but ultimately, if they put the exploration capital necessary into advancing and developing a resource and then if they put the development capital into it necessary for defining a mine plan, that will be a wonderful return for us without deploying additional capital. So everything we're trying to do is capital sensitive, while retaining the return. So yes, that's correct. But at the same time, 100% owned Dayton and Spring Valley complex, which has well over a 1.5 miles of strike length of which we drilled about 500, 600 feet of that 1.5 miles is waiting for us to go and develop. So it's almost like divide and conquer. They're drilling to the center north and we're drilling to the center South.

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Stephen W. Shipman, CM Advisors Family of Funds - CM Advisors Defensive Fund - Portfolio Manager [20]

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So again, just to amplify on your comment. Does that mean there are no more targets available to Comstock Mining after the agreement other than the 2 in the south?

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [21]

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Yes, which we have all of the Dayton and there's tremendous number of claims there as well and then we have all of the Spring Valley strike, which, if you look at the Comstock as a whole, it's not quite right down the middle, but it's a very, very logical separation. Also, those are all in Lyon County.

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Stephen W. Shipman, CM Advisors Family of Funds - CM Advisors Defensive Fund - Portfolio Manager [22]

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Okay. The second question I had refers to clarifying the press release about releasing the Comstock Mining liabilities on the Northern Comstock joint venture lease to Tonogold. Do I read this correctly that after the agreement is effected that Comstock Mining has no other long-term liability associated with the Northern Comstock joint venture lease?

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [23]

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Yes. As designed, right -- as designed, they're currently reimbursing us for those payments under the current. But upon closing, they will have assumed the entirety of that, because those claims are very integral to the Lucerne project, very integral. That's correct.

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Operator [24]

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We will take our next question from [Mike Downlier].

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Unidentified Analyst, [25]

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So most of my questions are already answered. So I just had one corporate question in compliance with the stock exchange. Do we have any sort of a backup plan or did we apply for extension? I could not find anything on the website.

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [26]

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No, we have till the end of this month, we have at least 2 backup plans. We're in constant dialogue with the NYSE. There is no scenario from all of our conversations, where we'd be delisted. So the New York Stock Exchange listing for us is critical. I mean, it's critical to our identity. We're on top of it. We would make some final decision in terms of how we restore the compliance within a week or 2. We've got plenty of time. We've got open communication, and it's probably just -- I can't -- we'd like to do it organically. We have to see how it's going to end up, right? We're working very hard. We believe that the most critical thing here is that we get all of the underlying value unlocked, recognized and just moving forward through this $0.20 threshold. We feel we're on track, but we'll deal with it one way or another. We haven't commented other than just the initial disclosures, which obviously tells you we prefer not to do a reverse split or anything of that nature, but we have all of the mechanisms at our disposal to ensure that we have a sustained listing. And the New York Stock Exchange has been phenomenal. I think that they're extremely user-friendly, they're extremely open-door. And we felt it was important, frankly, to get these announcements out and behind us before we look forward to make any kind of final decision.

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Operator [27]

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We will take our next question from [Harvey Mordka].

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Unidentified Analyst, [28]

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Can you tell us of the size of the net operating loss?

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [29]

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I can. Let me scratch my head, $178.100 million, 178 -- $178 million is the net operating losses that we have at our disposal, not -- that have not expired. And so theoretically, when we talk about sheltering a $5 million gain in Silver Springs or $5 million gain in Lucerne, we're absolutely just scratching the surface. When you talk about $25 million of revenue from American Flat, we're just scratching the surface. That's why we're working on additional plans, that all have to do with generating cash profit, because we can shelter those for almost as far as we can see.

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Unidentified Analyst, [30]

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Did you just say $25 million value on American Flat?

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [31]

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No, I said $25 million revenue coming out of American Flat from the deal that we just talked about. In practical reality, even if that was over the next 5 to 7 years, we would have absolutely no problem sheltering that income from tax. We still have well over $125 million, maybe $150 million of NOLs to go.

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Unidentified Analyst, [32]

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Okay. Do we have any new institutional investors that are looking at us?

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [33]

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We do. I think that the -- I want to say, it's -- because we announced the transactions, that's not really the biggest impact. What we've seen is since the Newmont transaction and the Barrick transaction and maybe even more so a couple of very, very large institutional funds being raised, BlackRock raising $0.5 billion gold fund and then even individual investors coming in, in a much bigger way with gold, what's been absolutely dead, and I don't want to say for 5 years, but it sure feels like 5 years is turning around and we're getting a lot of inquiry. So we have 2 or 3 new investors already in the portfolio, not necessarily small to our size, but certainly initial positions that they look to want to grow from, but I think, we're just getting started, I think we're really getting started.

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Unidentified Analyst, [34]

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Anyone with a 5% or greater position?

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [35]

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Yes, we had one investor take a 7% position, I would say, he's probably our second largest investor. It's actually a local high net worth person, that has an operating facility in the Tahoe Reno Industrial Center, working on certain metallurgical things. I think he is also an investor in Itronics. So that's very good to see. In both cases, his investment was restricted stock, right? So a long holder in that context. But we're getting more and more of very, very legitimate type of inquiries from institutions. And I've actually had like 4 outreaches just since we announced Lucerne on top of it. So I think that even though we view our debt as safe, I think, there's absolutely a large contingent of people out there that are waiting for it to go away. And so we're going to start seeing people trickle in from this point right up until these deals are closed. I think you're going to see value accretion happening between now and then, which is between now and 2 months, between now and 3 months, between now and 4 months and we're going to couple that with outreach, because now we have -- well, at least, after we announce this next phase of our strategy, we're going to have a lot of meaningful path to profitability that we want to be telling people, and I think it's going to be great.

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Unidentified Analyst, [36]

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Okay. I believe, I heard you say that we were going from 75 million to 80 million shares by the end of the first quarter. What's that other 5 million is going to be used for?

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [37]

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So essentially we just have to ensure that we maintain solid liquidity between now and closing these deals. That's something I never blink on. Anybody betting on us to not be liquid is making a mistake. And so we'll be as judicious as possible without question. The world changes, when we close just one of these 2 transactions, I said to the board in September, I thought it was 99% that we'll close one, greater than 50% that we'll close 2. I'm now at greater than 95%, we're going to close them both. So I just got a bridge to that point. Now it's -- the light's there right at the end of the tunnel.

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Unidentified Analyst, [38]

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Okay. Two last quick questions. One is, there was an option for Tonogold to exchange 3.5 million of their stock instead of cash. Was that -- and that's not showing up in this report. Is that...

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [39]

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Oh, yes. No, no it's not. So we just had some nice deliberation with them at the -- just before we signed a deal, and the conversation was they like the existing structure very well. They like the structure that we've articulated very well. And -- but they said that they wouldn't mind having the flexibility to do it differently. So the alternative structure -- so the current structure is $10 million cash at closing, that includes the $1 million deposit we already received, right? So $9 million more at closing is the first step of closing this transaction, then there's $5 million payment due on the first anniversary, that would be through a senior secured note on the Lucerne property. That's the current structure. And I guess, I would say, plan A for them. The alternative structure is that instead of $10 million at closing in total, it's $11.5 million at closing in total and we'd be willing to take $1.75 million of Tono stock. We believe in Tono. We actually like that structure a lot and then -- say it again?

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Unidentified Analyst, [40]

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This is their new stock?

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [41]

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It would be -- so the way that the deal is written, is that $1.75 million would be exactly identical to their offering placement, which means we're 100% in their book for their offering and supportive, skin in the game. And then a year later, we would get a second $1.75 million worth of stock. So we -- I mean, if you could talk to our 5 board members, you might get 2.5 of them saying they like one, and 2.5 saying they like other. We're kind of neutral to it. We're just trying to be as supportive as possible. And I don't think they need much more support from us. They're doing really great out there.

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Unidentified Analyst, [42]

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The second tranche would be at the same valuation?

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [43]

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No, the second tranche would be at the then-current share price. So we would get the value of the $1.75 million. We wouldn't be playing an option on their stock.

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Unidentified Analyst, [44]

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Okay. So my last question is, you've indicated in the past one forward-looking statement that we would be at $2 a share by 2020. Are you still of that belief? And if so, how are we getting there?

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [45]

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Yes, so I'm going to articulate, the answer is yes. The answer is, generating $450 million to $500 million valuation and we're in the final stages of putting the renewed plan in place. There is just too much work that had to go into the Tono and so these transactions for me to be able to get it done with the board by today, but we need a couple, 3 weeks, it will be out there, and we'll talk about it at a great length.

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Operator [46]

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We will take our next question from David Brigham with Brigham and Associates.

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David T. Brigham, Brigham Exploration Company - EVP of Land & Administration [47]

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It's great to hear that the company is off dead center and your wheels aren't spinning any more.

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [48]

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Thank you. It feels better.

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David T. Brigham, Brigham Exploration Company - EVP of Land & Administration [49]

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Up and around these diggings allows us to know what you've been through. Is it safe to say that even if Tonogold can't get the $15 million out of the IPO, they can do it some other way with their backers or something? I mean, they've got -- it's not just $15 million they're looking for, they've got to get a lot more than that.

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [50]

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Yes.

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David T. Brigham, Brigham Exploration Company - EVP of Land & Administration [51]

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Do you have that kind of confidence?

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [52]

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Yes, I do. Absolutely, a year ago, a year and a half ago, I had that confidence, but it was difficult to corroborate it. So like -- if I get into debates with some of our investors, look at their balance sheet or look at this or look at that, and I'm hard-pressed to prove somebody wrong, right? So what I was saying to folks a year ago, is look, we have very, very precise milestones, we have very, very well-delineated time frames and objectives. Let's see how it plays out. And frankly, it isn't just that they've hit all their milestones. They've been very meticulous in their developments and it's even more that the team that they have together, it's a very, very -- it's an expert team, it's a good team, but it's also very tight, and they have capital resources. So I think that it's optimal -- it's certainly optimal for them to get a listing on the big board in Toronto. It's certainly optimal for them to expand their capital base. I think they're going to make a lot of people a lot of money by doing that because they have a good project in front of them. They will enhance liquidity. When I say enhance liquidity, I now mean in the stock, right? They'll get meaningful institutional investors. I think when people see the names that have already committed to the book, they'll be surprised pleasantly. And then they'll supplement that with liquidity and some retail, I suspect that's what makes the most sense and they're very sensible and then they'll go forward. But they already have the capital commitments to make the next few phases of advancements. And they could do it themselves, right? I don't think it's the optimal way to do it and, I think, they're going down the optimal path. So to answer your question, yes. I think they're going to make it work one way or another, but their plan is really optimal, it's really outstanding what they've laid out. And so, I know their board has been excellent. Their board has been engaged. Their board has been doing their right responsibility, making sure that they're checking each box, each step of the way that the results are bankable, that the results are credible, all of that is positive for the Lucerne and the Comstock projects. And I've been dealing with them. We were -- 3 of us were up in Vancouver together January 20, 21, 22. Mark's been on site almost every week. If he is either up at the mine or in Reno working with the engineers and the geologists, I mean, just incredibly well engaged.

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David T. Brigham, Brigham Exploration Company - EVP of Land & Administration [53]

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Well, that sounds all good. Sounds all good.

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [54]

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And if the opinions aren't worth that much, the hard evidence now as I mentioned when we first started, they've got not just $6 million hard into the project, right? They've got many years of work, right, personal time invested, this is not promotional.

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Operator [55]

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Thank you, ladies and gentlemen. The time allotted for questions and answers has come to a close. I would like to turn the call back over to Mr. De Gasperis for closing remarks.

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Corrado F. De Gasperis, Comstock Mining Inc. - Executive Chairman, President & CEO [56]

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I just want to thank everybody for obviously their patience and their time and questions today. We are working extremely hard on the next phases, obviously closing these deals is paramount. We talked about that extensively. We're looking forward to doing it. But then what comes beyond that in terms of exploration, development and expansion of our gold properties is what we want to talk about next, and we look forward to doing that in the very near future. Thank you, everyone.

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Operator [57]

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This concludes today's call. Thank you for your participation. You may now disconnect.