Comstock Mining Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2017. The filing identifies the registrant as Comstock Mining Inc., a Nevada-based gold and silver exploration and development company. Mining operations ceased processing existing leach-pad material in December 2016; the company is pursuing development of the Dayton Resource area and potential redevelopment of Lucerne with a partner.
Financial Performance and Position
| Metric | Three Months 2017 | Three Months 2016 | Nine Months 2017 | Nine Months 2016 |
|---|---|---|---|---|
| Total revenue | $27,000 | $1.13 million | $74,000 | $4.65 million |
| Mining revenue | $0 | $1.11 million | $0 | $4.54 million |
| Loss from operations | $(2.04) million | $(1.67) million | $(7.03) million | $(7.77) million |
| Net loss | $(2.50) million | $(2.19) million | $(8.20) million | $(9.10) million |
| Net loss per share | $(0.01) | $(0.01) | $(0.04) | $(0.05) |
- Cash flow: Operating activities used $5.1 million in the first nine months of 2017, versus $3.2 million in the comparable 2016 period. Investing activities provided $0.8 million, primarily from property sales. Financing activities provided $6.4 million, including $5.6 million of net equity proceeds and $9.4 million of debt proceeds, partly offset by $8.6 million of debt repayments.
- Liquidity: Cash and cash equivalents were $2.3 million at September 30, 2017. Current assets were $8.1 million and current liabilities were $1.3 million, producing working capital of approximately $6.8 million.
- Debt: Total debt was approximately $10.6 million, including a $10.7 million 11% senior secured debenture issued in January 2017 and due in 2021, net of discounts and issuance costs. The debenture is secured by substantially all company assets and subsidiary equity. An additional loan commitment provided approximately $7.0 million of available capacity at quarter-end.
- Equity: The company issued 35.2 million shares during the first nine months for gross proceeds of $5.9 million. Shares outstanding increased to 224.1 million at September 30, 2017, from 185.4 million at December 31, 2016.
- Margins: No meaningful operating margin existed because mining revenue was zero. The nine-month operating loss was approximately 9,600% of reported revenue, reflecting the company’s transition to exploration and development rather than active production.
Material Changes Versus the Prior Comparable Period
- Mining revenue fell to zero following the December 2016 cessation of leach-pad processing. Real estate revenue was $74,000 for the nine-month period, down from $102,000.
- Nine-month net loss improved by $0.9 million despite the $4.6 million revenue decline, primarily because total costs and expenses decreased by approximately $5.3 million.
- Exploration and mine development expense declined by $3.2 million, while general and administrative expense declined by $0.6 million. Mining-related costs also fell as processing and mining staff were reduced.
- Interest expense increased by $0.7 million for the nine months, reflecting the new debenture and refinancing activities.
- Debt was restructured during the period, with substantially all prior obligations other than certain equipment and property-related debt refinanced through the senior secured debenture.
- Properties held for sale declined to $5.4 million from $5.9 million. The company sold properties generating $0.9 million of net cash proceeds and a $0.1 million gain during the first nine months.
Guidance, Outlook, Risks and Unusual Items
- Management expects fourth-quarter 2017 operating expenses, excluding depreciation, amortization and depletion, to be below $1.0 million, with a sustainable annual run rate of approximately $3.6 million. It expects full-year 2017 operating expenses of approximately $4.5 million, excluding $4.4 million of depreciation and $1.3 million of interest expense.
- Management plans to sell non-mining land, buildings and water rights for expected net proceeds of approximately $14 million over the following 12 months. The proceeds are intended primarily to repay debenture obligations and fund Dayton exploration. The filing cautions that these sales may not occur on favorable terms or at all.
- The company targets a production-ready Dayton mine plan within two years and ultimately seeks production exceeding 100,000 gold-equivalent ounces annually. These are forward-looking targets, not current production guidance.
- On October 3, 2017, Tonogold Resources received an option to earn a 51% interest in the Lucerne property subsidiary by funding $20 million of capital expenditures and making $2.2 million of payments to Comstock. Tonogold paid the initial $0.2 million. Tonogold also received an option concerning 51% of certain American Flat equipment and property for $25 million.
- The company reports recurring losses, an accumulated deficit of $220.2 million, and continuing use of cash in operations. Management believes available cash, financing capacity, equity programs and planned asset sales will fund operations for the next 12 months, but acknowledges that failure to obtain additional funding could create a material liquidity problem and raise substantial doubt about continued operations.
- Principal risks include the absence of current mining revenue, dependence on asset sales and equity or debt financing, dilution, commodity-price volatility, exploration and permitting uncertainty, environmental and reclamation obligations, equipment and operational risks, and the ability to develop economically viable mines.
- A remaining due-process claim in litigation brought by the Comstock Residents Association was pending before the Lyon County District Court; management stated it did not expect pending matters to have a material adverse effect.
- Management stated that disclosure controls and internal control over financial reporting were effective as of September 30, 2017, with no material changes during the quarter.
Important Facts for Investors to Verify
- Whether and when mining operations can resume, particularly through the Dayton development plan or the Tonogold Lucerne arrangement.
- Completion and pricing of the planned non-mining asset sales and the resulting debt reduction.
- Actual use of the $7.0 million loan capacity and remaining availability under the ATM and Leviston equity programs.
- Cash burn, operating expense reductions and the company’s ability to fund operations without substantial additional dilution or borrowing.
- Tonogold’s exercise of its Lucerne option, required payments and capital commitments, and any resulting ownership dilution or transfer of assets.
- Permitting, feasibility, metallurgical testing, reserve validation and economic assumptions supporting the Dayton production targets.
- The remaining legal claim and the company’s approximately $7.4 million reclamation liability.