Comstock Mining Inc. 2020 Q3 SEC Filing Summary
Business context and reporting period
This unaudited Form 10-Q covers the three and nine months ended September 30, 2020. Comstock operated through mining/exploration and real estate segments, with no mining revenue because processing ceased in 2016. The company is pursuing mineral exploration, royalty interests, real estate monetization, and mercury-remediation ventures.
On September 8, 2020, Comstock sold 100% of Comstock Mining LLC, which owned the Lucerne properties, to Tonogold Resources Inc. Comstock retained a 1.5% net smelter returns royalty on the Lucerne properties.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Change |
|---|---|---|---|
| Total revenue | $49,425 | $48,350 | +$1,075 |
| Operating loss | $(1.5) million | $(0.8) million | Loss increased $0.7 million |
| Net income | $17.3 million | $0.4 million | +$16.9 million |
| Basic EPS | $0.54 | $0.02 | Improved |
| Metric | Nine months ended September 30, 2020 | Comparable 2019 period |
|---|---|---|
| Total revenue | $146,225 | $130,132 |
| Operating loss | $(3.9) million | $(3.8) million |
| Net income (loss) | $18.3 million | $(3.5) million |
| Cash used in operating activities | $(2.4) million | $(2.3) million |
| Cash and cash equivalents at period end | $1.7 million | $0.3 million at September 30, 2019 |
The nine-month net profit was primarily non-operating and non-recurring. It included an $18.3 million gain on the Tonogold transaction, $2.3 million of net gains on Tonogold securities, and a $0.8 million gain from changes in the contingent forward asset. Core operations remained loss-making.
At September 30, 2020, total assets were $48.2 million, including $9.7 million of Tonogold securities and a $6.4 million Tonogold note receivable. Total liabilities were $13.0 million, stockholders’ equity was $35.2 million, and accumulated deficit was $217.5 million.
Net debt was approximately $4.8 million after discounts and issuance costs, of which $4.7 million was classified as current and due on or before September 30, 2021. The debt included $4.5 million of unsecured promissory notes issued in August 2020 and a $0.5 million Caterpillar note.
Material changes versus the prior comparable period
- Revenue remained minimal and entirely from real estate leases; mining revenue was zero in both periods.
- Q3 operating expenses increased 82% to $1.5 million, mainly because Daney Ranch and Gold Hill Hotel were removed from held-for-sale classification and approximately $0.7 million of previously unrecorded depreciation was recognized.
- Nine-month operating expenses increased modestly to $4.1 million, while mining-related depreciation and costs applicable to mining declined because certain assets became fully depreciated.
- The Tonogold sale materially changed the balance sheet and business profile: Comstock received approximately $7.1 million in cash, Tonogold preferred stock, and a note receivable, while deconsolidating the Lucerne business.
- Common shares outstanding increased to 34.4 million from 27.2 million at December 31, 2019, primarily from equity financings and other stock issuances.
- The company retired its senior secured debenture in August 2020 and refinanced debt with unsecured promissory notes.
Cash flow, liquidity, guidance, and outlook
Operating activities used $2.4 million during the first nine months. Investing activities used $0.1 million, while financing activities provided $3.2 million, including $4.2 million of debt proceeds and approximately $4.2 million of net equity proceeds, partly offset by $5.1 million of debt principal payments.
Management expected to fund the next twelve months through existing cash, Tonogold note receipts, sales of Tonogold securities, and planned Silver Springs property sales. Management stated that these sources should be sufficient for the next twelve months, but warned that additional financing may be needed if expenditures exceed expectations or asset values and share prices decline.
Management planned 2020 operating expenditures of approximately $6.0 million excluding depreciation, with approximately $2.5 million expected to be reimbursed under Tonogold agreements. The company also expected approximately $10 million from Silver Springs property sales, with closing anticipated in the fourth quarter of 2020.
Planned activities included advancing the Dayton and Spring Valley resource areas, preparing an S-K 1300-compliant resource estimate, supporting Tonogold’s approximately $7 million drilling program, and commercializing Mercury Clean Up LLC technologies. COVID-19 had delayed mercury-recovery testing in Nevada and the Philippines, and the duration and financial impact of those delays remained uncertain.
Unusual items, contingencies, and risks
- On October 2, 2020, Tonogold redeemed the remaining $2.2 million face value of preferred stock for approximately $2.6 million in cash. Comstock used subsequent proceeds to reduce promissory note principal to approximately $1.9 million by October 9, 2020.
- The Silver Springs sale remained subject to closing; the company had received approximately $0.4 million of deposits and had advanced $1.3 million to Sierra Springs Opportunity Fund-related entities.
- MCU investments totaling approximately $1.9 million and MCU Philippines deposits of $1.0 million had not yet closed. The company expected the MCU transaction to close in the fourth quarter of 2020 and the MCU Philippines transaction in the first quarter of 2021.
- The company reported recurring operating losses, limited cash, substantial accumulated deficit, dependence on asset sales and securities monetization, and potential dilution from equity financing.
- Key risks included COVID-19 disruption, volatile Tonogold securities, speculative mineral exploration, permitting and environmental obligations, reclamation liabilities of approximately $6.0 million, debt repayment, market and financing access, and potential litigation.
- The Comstock Residents Association appeal remained pending before the Nevada Supreme Court. Three former employees also filed an OSHA complaint alleging wrongful termination; the company is defending the matter.
- Management reported that a previously identified material weakness related to valuation of the Tonogold transaction was remediated through additional reviews, third-party expertise, and formalized complex-transaction controls.
Important facts for investors to verify
- Whether the Silver Springs property transactions closed and generated the expected approximately $10 million of proceeds.
- Collection, valuation, and repayment or conversion terms of the $4.5 million Tonogold note receivable, including its September 20, 2021 maturity.
- Liquidity after the October debt repayments and the company’s remaining near-term debt obligations.
- Actual closing, funding requirements, and commercial results of the MCU and MCU Philippines ventures.
- Progress and results of the Dayton/Spring Valley resource work and Tonogold’s drilling program.
- Whether the company can generate sustainable operating cash flow, given that reported 2020 earnings were driven predominantly by asset-sale and fair-value gains rather than recurring revenue.