Comstock Mining Inc. — Form 10-Q Summary
Business Context and Reporting Period
Unaudited results cover the quarter and six months ended June 30, 2018, with comparable periods in 2017. The company is a Nevada-based gold and silver exploration, development and former production company, with real estate activities. Mining and leaching operations ceased in 2016; the company reported no mining revenue in 2018 or 2017 and is focused on advancing the Dayton and Lucerne resource areas.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2018 |
|---|---|---|
| Total revenue | $28,815 | $51,665 |
| Mining revenue | $0 | $0 |
| Real estate revenue | $28,815 | $51,665 |
| Operating loss | $(1.94) million | $(3.83) million |
| Net loss | $(2.42) million | $(4.90) million |
| Net loss per diluted share | $(0.04) | $(0.09) |
| Cash used in operating activities | Not separately reported | $(2.18) million |
Revenue was insufficient to cover operating costs; therefore, the filing does not present a meaningful operating or net profit margin. Six-month operating expenses were $3.88 million, including $1.46 million of costs applicable to mining revenue despite no current mining revenue, $458,186 of exploration and mine development costs, and $1.55 million of general and administrative expense.
At June 30, 2018, cash and cash equivalents were $1.47 million, current assets were $7.54 million, and current liabilities were $1.58 million, producing working capital of approximately $5.96 million. Total debt, net of discounts and issuance costs, was $9.13 million, including $299,940 classified as current. Long-term reclamation liabilities were $7.43 million, and accumulated deficit was $227.50 million.
Material Changes Versus the Prior Comparable Period
- Six-month revenue increased to $51,665 from $46,664, entirely from real estate activities; mining revenue remained zero.
- Six-month operating loss improved by $1.17 million, or approximately 23%, to $3.83 million from $5.00 million.
- Six-month net loss improved by $806,667, or approximately 14%, to $4.90 million from $5.71 million.
- Operating cash use improved to $2.18 million from $3.61 million, primarily due to lower operating costs and reimbursements from Tonogold.
- Interest expense declined to $714,227 from $854,936, reflecting debt reductions. The company nevertheless recognized $437,852 of payment-in-kind interest on the senior secured debenture.
- Cash declined by $597,289 during the first six months, compared with an increase of $846,850 in the 2017 comparable period.
- The company issued 6.43 million common shares for gross proceeds of $1.80 million, at an average price of $0.28 per share, compared with 3.29 million shares and $2.67 million of gross proceeds in the prior-year period.
- Debt decreased from $10.26 million, net of discounts and issuance costs, at December 31, 2017 to $9.13 million at June 30, 2018. Total shares outstanding increased to 55.76 million from 47.24 million.
Guidance, Outlook, Risks and Unusual Items
- Management expects 2018 operating expenses of approximately $3.6 million, excluding approximately $3.2 million of depreciation and $1.4 million of interest expense. It expects total 2018 year-over-year operating-cost savings of approximately $2.0 million.
- Tonogold paid $2.0 million under the Lucerne option agreement in April 2018 and reimbursed approximately $0.3 million of expenses during the first six months. Tonogold may earn a 51% interest in the Lucerne property by funding specified capital expenditures and making required option payments.
- Management expects an updated Lucerne technical report during the third quarter of 2018 and a Dayton resource report and preliminary economic assessment during the fourth quarter of 2018. These are forward-looking plans, not established production or financial guidance.
- The company expects to monetize planned non-mining asset sales and use proceeds to reduce debt. Assets held for sale had a net book value of $5.36 million, and sale proceeds are required to satisfy obligations under the senior secured debenture.
- Management believes available cash, working capital, a loan commitment with approximately $7.0 million of unused capacity, an equity purchase agreement with approximately $2.6 million of unused capacity, and planned asset sales will fund operations for the next 12 months. However, recurring losses and negative operating cash flow create continuing liquidity and going-concern risks.
- The 11% senior secured debenture is due in January 2021 and is secured by substantially all company assets and subsidiary equity. A make-whole obligation of approximately $508,599 remained at June 30, 2018.
- The company recorded a $201,393 make-whole liability related to the pending acquisition of a 25% interest in Pelen, LLC. The transaction had not closed as of June 30, 2018.
- The company entered into an agreement to acquire Downtown Silver Springs, LLC. It paid a $250,000 non-refundable deposit by June 30 and reported additional July payments and deposits, bringing total non-refundable deposits toward the related land purchase to $800,000 as of the filing date.
- The Comstock Residents Association litigation retained a remaining due-process claim, with discovery expected to conclude in late August 2018. A separate royalty lawsuit filed July 12, 2018 sought $510,000; the company believes the claim is without merit.
- Principal risks include the absence of current mining revenue, dependence on financing and asset sales, commodity-price and permitting risks, exploration uncertainty, debt obligations, dilution from equity issuances, reclamation and environmental liabilities, and litigation.
Most Important Facts for Investors to Verify
- Whether Tonogold meets the Lucerne option agreement’s funding milestones and whether the planned technical reports support an economically viable mine.
- Progress toward restarting mining or developing Dayton; the filing contains no current production or mining revenue.
- Cash burn, availability and terms of the unused loan and equity facilities, and the timing and proceeds of planned asset sales.
- Compliance with the 11% secured debenture, including required interest, make-whole amounts, collateral, and the January 2021 maturity.
- Potential dilution from additional equity issuance and the effect of the July 2018 Leviston purchase agreement.
- Resolution and potential financial exposure from the remaining zoning litigation, the Precious Royalties lawsuit, and pending Pelen and Downtown Silver Springs transactions.