Comstock Mining Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018. The filing is an annual report, not a standalone fourth-quarter filing. Comstock is a Nevada-based gold and silver exploration and development company with approximately 9,358 acres in the Comstock and Silver City districts, plus a real estate segment. Mining ceased in 2015 and leach-pad processing ended in December 2016; therefore, the Company had no mining production or mining revenue in 2017 or 2018.
Financial and Operating Highlights
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Total revenue | $150,289 | $104,329 | +$45,960 |
| Mining revenue | $0 | $0 | No change |
| Real estate revenue | $150,289 | $104,329 | +44% |
| Loss from operations | $(7.4) million | $(8.9) million | Improved by $1.5 million |
| Net loss | $(9.5) million | $(10.6) million | Improved by $1.1 million |
| Basic and diluted loss per share | $(0.16) | $(0.26) | Improved |
| Cash used in operating activities | $(4.0) million | $(6.5) million | Improved by $2.5 million |
| Cash and cash equivalents | $0.5 million | $2.1 million | Decreased by $1.6 million |
| Total assets | $28.6 million | $31.0 million | Decreased by $2.4 million |
| Net debt, before discounts | $9.8 million | $11.5 million | Decreased by $1.6 million |
Operating costs and expenses were $7.6 million, including $2.8 million of depreciation on idled mining equipment and facilities, $1.0 million of exploration and mine development, $3.4 million of general and administrative expense, and $0.3 million of environmental and reclamation expense. The Company reported no income tax expense and had an accumulated deficit of $232.1 million.
Current assets were $8.6 million and current liabilities were $2.4 million, resulting in reported net working capital of $6.2 million. Assets held for sale totaled $5.4 million. The Company had $7.4 million of long-term reclamation liabilities and $2.6 million of cash collateral and other deposits supporting reclamation surety bonds.
Material Changes Versus the Prior Comparable Period
- Mining revenue remained zero because the Company had completed processing its existing leach pads in 2016.
- Net loss improved by $1.1 million, primarily due to lower operating expenses, although general and administrative expense increased by $0.8 million to $3.4 million.
- Operating cash burn improved from $6.5 million to $4.0 million.
- Interest expense declined by $0.3 million to $1.4 million, while other expense increased to $0.7 million, largely from the Pelen, LLC make-whole liability.
- Common shares outstanding increased from 47.2 million to 75.3 million during 2018. Equity financings generated approximately $4.1 million of net proceeds, contributing to significant dilution.
- Long-term debt, net of discounts and issuance costs, declined to $9.2 million from $10.3 million. The principal debt was an 11% senior secured debenture with principal due in 2021, together with Caterpillar equipment financing.
- In December 2018, Storey County extended the Lucerne mining and processing special-use permit through September 2034.
Guidance, Outlook, Risks and Unusual Items
Management planned to advance the Dayton resource area toward a feasibility study and production-ready mine plan, expand exploration into Spring Valley, and publish an updated NI 43-101 resource estimate. The filing does not provide production guidance or a reliable estimate of future mining revenue.
In January 2019, Comstock entered an agreement to sell its Lucerne subsidiary to Tonogold for $15 million in cash, relief from approximately $8 million of future obligations, a reduction of annual operating expenses, and a retained 1.5% net smelter return royalty. Comstock received a $1 million non-refundable deposit after year-end. Closing was expected by May 31, 2019, but remained subject to conditions and should not be treated as completed based solely on this filing.
Management also expected to sell Silver Springs non-mining assets for approximately $9.75 million and anticipated a gain of approximately $5 million. The filing states that these transactions were expected to close between March and July 2019; completion and final proceeds require verification.
Management expected to use asset-sale proceeds to retire the senior secured debenture, including principal and make-whole obligations of approximately $8.6 million plus accrued interest of approximately $0.4 million. The filing also disclosed an unused borrowing commitment of up to $10 million and a 2019 equity purchase agreement with up to $5 million of capacity, subject to market and registration conditions.
- Management stated that available resources and planned transactions were expected to fund operations for the next twelve months, but warned that failure to obtain financing or complete asset sales could raise substantial doubt about the Company’s ability to continue as a going concern.
- The Company has no proven or probable mineral reserves under the cited SEC standards. Exploration and development plans remain subject to geological, metallurgical, permitting, financing and commodity-price risks.
- Reclamation liabilities, environmental regulation, the Carson River Mercury Superfund Site, water availability, permitting delays and potential remediation costs could materially affect liquidity and project economics.
- Precious Royalties LLC asserted a claim for approximately $510,000 plus interest at 18% annually. The Company disputed the claim. A separate due-process matter involving the Comstock Residents Association remained pending.
- The NYSE American notified the Company of noncompliance with its low selling price rule. The Company received an extension through May 31, 2019 to regain compliance.
- The Company’s stock price declined materially during 2018, and management identified dilution, limited liquidity, debt covenants and potential delisting as significant shareholder risks.
Most Important Facts for Investors to Verify
- Whether the Tonogold sale of the Lucerne subsidiary closed, the actual cash received, the timing of the deferred $5 million payment, and the obligations assumed or released.
- Whether the Silver Springs asset sales closed and whether the anticipated approximately $5 million gain was realized.
- Whether the 11% senior secured debenture was fully extinguished and the amount of any make-whole payment and accrued interest.
- Current cash, operating cash burn, unused borrowing capacity and proceeds from any subsequent equity issuance.
- Current share count and the extent of dilution from equity programs, private placements, property acquisitions and related-party obligations.
- Results of the Dayton and Lucerne NI 43-101 technical reports, including any reserve or resource revisions; the 2018 filing itself does not establish proven or probable reserves.
- Status and potential exposure from the Precious Royalties litigation, the Comstock Residents Association proceeding, reclamation obligations and Carson River Superfund-related requirements.
- Whether the Company regained compliance with NYSE American listing standards by the May 31, 2019 deadline.