Comstock Mining Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
The filing covers the three months ended March 31, 2021, with comparative results for the three months ended March 31, 2020. Comstock is transitioning from historical mining operations toward mineral exploration, real estate monetization, mercury remediation, and lithium-ion battery materials recycling. The company reported no mining production or mining revenue during either comparable period.
Key strategic activities during the quarter included the investment in LINICO Corporation, continued development of Mercury Clean Up, LLC and MCU Philippines, Inc., exploration of the Dayton and Spring Valley areas, and planned sales of Silver Springs properties.
Financial performance and key metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $48,500 | $48,425 | $75 increase |
| Mining revenue | $0 | $0 | No change |
| Real estate revenue | $48,500 | $48,425 | $75 increase |
| Income from operations | $397,758 | $(1,221,881) | $1,619,639 improvement |
| Other income, net | $7,790,473 | $958,669 | $6,831,804 increase |
| Net income (loss) | $8,188,231 | $(263,212) | $8,451,443 improvement |
| Basic and diluted EPS | $0.22 | $(0.01) | Improved |
| Cash flow from operations | $(2,207,298) | $(171,239) | Greater cash use |
| Cash flow from investing | $(3,245,343) | $143,670 | Greater cash use |
| Cash flow from financing | $13,315,506 | $37,791 | Increase |
Operating costs and expenses were reported as a net credit of $349,258 in Q1 2021, compared with $1.27 million of expense in Q1 2020. The 2021 result primarily reflected a $812,500 reimbursement of a Northern Comstock accelerated payment and a $926,435 reduction in the reclamation liability following an extension of the expected reclamation commencement date.
Q1 2021 other income included a $6.99 million increase in the fair value of the LINICO derivative asset, a $497,250 increase in the fair value of the MCU derivative asset, approximately $1.0 million related to the Tonogold note receivable, and a $193,664 gain on the sale of Tonogold shares. These gains were partly offset by a $900,575 unrealized loss on investments in securities.
Balance sheet, liquidity, debt, and cash flow
- Cash and cash equivalents were $10.3 million at March 31, 2021, compared with $2.4 million at December 31, 2020.
- Total assets increased to $70.1 million from $43.1 million, primarily due to cash raised, the LINICO investment and derivative asset, and higher notes receivable and advances.
- Other net working capital was $28.9 million at March 31, 2021.
- The company had no outstanding debt at March 31, 2021 after repaying approximately $3.5 million of debt during the quarter.
- Accumulated deficit was $212.8 million.
- Operating cash use was $2.2 million, while investing cash use was $3.2 million, including $2.15 million advanced to SSOF, $1.5 million paid to LINICO, and $820,000 advanced to MCU Philippines.
- Financing activities generated $13.3 million, primarily from equity issuances, partially offset by debt repayment and issuance costs.
Material changes versus the prior comparable period
- Net income replaced the prior-year net loss, largely because of fair-value gains on LINICO and MCU-related derivative assets and the Tonogold note receivable.
- Common shares outstanding increased to 42.5 million at March 31, 2021 from 35.0 million at December 31, 2020. The increase reflected equity financing, the LINICO investment, and other equity issuances.
- The company raised $18.0 million of gross equity proceeds during the quarter, including a $16.0 million registered direct offering and approximately $2.0 million under the Leviston sales agreement. Net proceeds after issuance costs were approximately $16.8 million.
- Comstock issued 3.0 million restricted shares to acquire LINICO Series A preferred stock with a stated value of $6.25 million and obtained approximately 45.45% of LINICO voting shares.
- The company increased its interest in MCU to 25% and its investment in MCU Philippines to $2.0 million, resulting in a 50% interest in MCU Philippines.
- The Tonogold note principal increased to $5.55 million, its maturity was extended to March 31, 2022, and its fair value increased to $7.32 million at quarter-end.
- The reclamation liability declined from $6.05 million to $5.21 million after management extended the expected reclamation commencement date to December 31, 2025.
Guidance, outlook, commentary, risks, and unusual items
Management’s three-year strategic plan focuses on developing mineral properties and royalties, commercializing mercury remediation, expanding lithium-ion battery recycling, and monetizing more than $25 million of non-strategic assets. Planned 2021 operating expenditures, excluding depreciation, are approximately $6.0 million, with approximately $2.0 million expected to be reimbursed under Tonogold agreements.
- Management expects the Silver Springs property sales to close during 2021 for approximately $10.0 million and expects the related proceeds to help fund LINICO commitments.
- Comstock expects to make the remaining LINICO cash commitment payments, exercise its $2.5 million warrant, and potentially obtain a majority interest in LINICO during the third quarter of 2021. These actions could result in consolidation of LINICO’s financial results.
- MCU Philippines commenced mercury remediation and sand and gravel production in the first quarter, with production rates expected to increase during the first half of 2021.
- Management plans to advance Dayton and Spring Valley exploration and publish an S-K 1300-compliant mineral resource estimate.
- Liquidity depends partly on planned sales of Tonogold shares, collection of the Tonogold note, and completion of the Silver Springs property sale. Management believes available resources will fund obligations for the 12 months following issuance of the financial statements, but there is no assurance that planned transactions or additional financing will occur.
- Major risks include speculative mineral exploration, permitting and environmental requirements, commodity and securities-price volatility, dependence on strategic investments and counterparties, potential equity dilution, execution risk related to LINICO and MCU, related-party transactions, and the company’s history of operating losses and accumulated deficit.
- The company had a full valuation allowance against deferred tax assets and recognized no income tax expense or benefit for the quarter.
- The Nevada Supreme Court denied the Comstock Residents Association’s request for en banc reconsideration on April 9, 2021, leaving the judgment in favor of Comstock and Lyon County in place.
Important facts for investors to verify
- Whether the $10.0 million Silver Springs property sale closes as expected and whether SSOF repays its $3.8 million of non-interest-bearing advances.
- The collectability and ultimate settlement or conversion of the $5.55 million Tonogold note due March 31, 2022, including the substantial fair-value adjustments recorded in earnings.
- Remaining LINICO cash commitments, the planned warrant exercise, potential dilution, and whether LINICO becomes consolidated.
- The technical, permitting, and commercial progress of MCU and MCU Philippines, including the ability to generate sustainable revenue.
- The sustainability of reported profitability, because Q1 earnings were driven predominantly by non-cash or fair-value gains rather than operating revenue.
- Future funding needs, equity issuance capacity, share dilution, and the company’s ability to maintain liquidity if planned asset sales or investment recoveries are delayed.
- Changes in reclamation estimates, environmental obligations, and the company’s ability to satisfy required surety and regulatory commitments.