Comstock Mining Inc. Form 10-Q Summary
Business context and reporting period
Comstock Mining Inc. is a Nevada-based gold and silver exploration and mining company with a real estate segment. The filing covers the three and six months ended June 30, 2016, compared with the corresponding 2015 periods. The company was transitioning from surface mining toward underground exploration, development and resource expansion in the Lucerne and Dayton areas. It reported no proven or probable reserves under SEC Industry Guide 7.
Key financial metrics
| Metric | Three months ended June 30, 2016 | Six months ended June 30, 2016 |
|---|---|---|
| Total revenue | $1.5 million | $3.5 million |
| Mining revenue | $1.5 million | $3.4 million |
| Loss from operations | $(2.3) million | $(6.1) million |
| Net loss | $(2.9) million | $(6.9) million |
| Net loss per common share | $(0.02) | $(0.04) |
| Operating margin | Approximately (152%) | Approximately (174%) |
| Net margin | Approximately (192%) | Approximately (197%) |
For the six months, operating cash flow was $(3.2) million, compared with $0.4 million of cash provided in the prior-year period. Investing activities provided $1.6 million, primarily from equipment sales. Financing activities provided $0.7 million, including approximately $4.0 million of common-stock proceeds, partly offset by $3.7 million of debt repayments. Ending cash and cash equivalents were $0.8 million.
At June 30, 2016, current assets were $10.3 million and current liabilities were $8.7 million, producing working capital of approximately $1.6 million. Total debt and capital lease obligations were $8.6 million, including $6.5 million classified as current and $2.1 million long term. The accumulated deficit was $206.0 million. Assets held for sale totaled $4.3 million, and the long-term reclamation liability was $6.9 million.
The company shipped or poured 2,957 ounces of gold and 51,569 ounces of silver during the first six months, equivalent to approximately 3,621 gold-equivalent ounces. The realized average prices were $1,193.04 per ounce of gold and $14.58 per ounce of silver.
Material changes versus the prior comparable period
- Six-month revenue declined 70% to $3.5 million from $11.5 million, primarily because gold production fell and the company shifted away from surface mining. Gold production declined from 9,270 ounces in the first half of 2015 to 2,957 ounces.
- Six-month net loss increased to $6.9 million from $0.2 million. The prior-year period included approximately $3.2 million of other income that did not recur.
- Mining revenue costs declined 61% to $2.7 million, reflecting lower mining and processing activity, reduced staffing and higher estimated metallurgical yields.
- Exploration and mine-development expense increased to $3.4 million from $1.1 million because of underground activities, including the PQ and Succor targets.
- General and administrative expense declined to $2.0 million from $3.5 million, consistent with organizational cost reductions. The company recorded approximately $0.3 million of severance costs.
- Total debt declined from $13.3 million at December 31, 2015 to $8.6 million at June 30, 2016. The Auramet revolving facility was fully repaid on April 1, 2016.
- Common shares outstanding increased to 182.1 million at June 30, 2016 from 159.9 million at year-end 2015, primarily reflecting equity financing and shares issued in other transactions.
Guidance, outlook, risks and unusual items
- 2016 production was expected to be limited to processing existing leach-pad material, with leaching and gold and silver pours expected to continue into the third quarter, potentially through September or later.
- Management targeted more than $8 million of 2016 non-mining cost savings compared with 2015 and expected to operate with fewer than 15 employees during exploration and development activities.
- Management planned to sell more than $10 million of non-mining land, buildings and water rights, with expected net cash proceeds exceeding $7 million, and to sell up to $2 million of surplus mining equipment. The stated objective was to eliminate substantially all debt within 12 months, although the filing cautions that asset sales may not occur on favorable terms or at all.
- The company believed available resources would sustain operations for the next 12 months, but recurring losses, negative operating cash flow, low cash balances, dependence on asset sales and potential future financing create material liquidity risks. Failure to obtain funds could raise substantial doubt about continued operations.
- On June 27, 2016, the company entered into a Caterpillar forbearance and restructuring arrangement. Equipment sales were to reduce approximately $3.7 million of obligations, with remaining amounts payable primarily through $25,000 monthly payments. Approximately $2.9 million remained outstanding as of July 29, 2016 after a $0.7 million July payment.
- The company established a $5.0 million at-the-market equity program and a separate equity facility of up to $5.0 million; no shares had been sold under the ATM program as of June 30, 2016. Further equity issuance could dilute shareholders.
- On July 25, 2016, the company purchased land and water rights for $3.2 million using a $3.25 million secured loan. Interest was 9% initially, increasing to 12.5% and then 14%; the lender may convert principal into common stock upon default.
- Exploration results remain subject to geological, metallurgical, permitting, operating and financing risks. Gold and silver prices, recovery rates, production levels, equipment availability and environmental or reclamation obligations could materially affect results.
- A legal appeal concerning zoning and mining rights in Silver City remained pending before the Nevada Supreme Court, although management did not expect pending proceedings to have a material adverse effect.
Important facts for investors to verify
- Whether planned asset sales generate the projected proceeds and whether they substantially retire debt.
- Actual third-quarter 2016 leach-pad production, recovery rates and realized metal prices.
- Liquidity after the July 2016 secured borrowing, Caterpillar payments and ongoing exploration spending.
- Future equity issuance under the ATM and other equity facilities and its potential dilution.
- Whether Lucerne and Dayton exploration produces sufficient continuity, grade and tonnage to support economically feasible mine plans and reserves.
- The status and outcome of the Nevada Supreme Court zoning appeal and required mining, environmental and operating permits.