Business Context and Reporting Period
Comstock Mining Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The company had no mining production or mining revenue and was repositioning toward sustainable natural-resource businesses, including lithium-ion battery recycling, mercury remediation, quantum materials, renewable process engineering, real estate, and mineral exploration.
The company reported three segments: Mining, Real Estate, and Natural Resource Renewal. Natural Resource Renewal was newly presented in 2021 and had not yet generated revenue or operating expenses.
Financial Highlights
| Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 |
|---|---|---|---|---|
| Total revenue | $54,625 | $48,375 | $103,125 | $96,800 |
| Operating loss | $(1.71) million | $(1.21) million | $(1.31) million | $(2.43) million |
| Net income (loss) | $(6.32) million | $1.28 million | $1.87 million | $1.01 million |
| Basic EPS | $(0.15) | $0.05 | $0.05 | $0.04 |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $(3.33) million | $(0.39) million |
Revenue consisted entirely of real estate revenue; mining revenue was zero. Operating margins were not economically meaningful because revenue was minimal and the company remained pre-production. Based on reported figures, operating margin was approximately negative 3,131% for the quarter and negative 1,273% for the six-month period. The six-month net profit was primarily driven by non-operating fair-value gains and other items rather than operating revenue.
- Liquidity: Cash and cash equivalents were $4.75 million, plus $0.50 million of restricted cash, at June 30, 2021. Management reported approximately $27.0 million of other net working capital.
- Debt: All outstanding long-term debt was repaid in March 2021. Debt was zero at June 30, 2021, compared with $3.56 million of current debt at December 31, 2020.
- Balance sheet: Total assets increased to $77.35 million from $43.12 million at year-end 2020, while total liabilities declined to $7.10 million from $11.34 million. Equity increased to $70.26 million from $31.78 million.
- Reclamation liability: The liability declined to $5.28 million from $6.05 million after management extended the expected reclamation commencement date to December 31, 2025.
- Share count: Common shares outstanding increased to 46.46 million at June 30, 2021 from 34.98 million at December 31, 2020. The filing reported 54.16 million shares outstanding at August 9, 2021.
Material Changes Versus the Prior Comparable Period
- Quarterly net results shifted from $1.28 million of net income to a $6.32 million net loss. The change primarily reflected a $2.85 million decline in the LINICO derivative asset, a $1.17 million decline in the fair value of the Tonogold note, approximately $1.03 million of unrealized losses on investments, and other fair-value changes.
- Six-month net income increased to $1.87 million from $1.01 million, primarily because operating costs declined by $1.11 million, including a $0.93 million reduction in the reclamation liability and a $0.81 million Tonogold reimbursement.
- Operating cash use increased to $3.33 million from $0.39 million, while investing cash use increased to $7.08 million from $0.42 million, reflecting advances and investments in SSOF, GenMat, LINICO, MCU-P, and other ventures.
- Financing cash flow increased to $13.22 million from a use of $0.08 million, mainly due to $18.02 million of common-stock proceeds, partially offset by $3.51 million of debt repayments and issuance-related costs.
- The company issued 4.42 million shares for gross proceeds of $18.02 million during the first six months, compared with 638,511 shares and $0.24 million of proceeds in the prior-year period.
- Comstock acquired Renewable Process Solutions Inc. in June 2021 for 1.0 million restricted shares and acquired or funded significant interests in GenMat and LINICO, expanding the business beyond historical mining and real estate activities.
Guidance, Outlook, Risks, and Unusual Items
- Outlook: Management outlined a three-year strategy focused on commercializing mercury remediation and battery recycling, advancing the Dayton and Spring Valley mineral properties, monetizing non-strategic assets, and developing investments in GenMat, RPS, MANA, LP Biosciences, and related ventures.
- Management planned approximately $7.0 million of annual operating expenditures before approximately $2.0 million of expected Tonogold reimbursements, implying approximately $4.0 million of net 2021 operating expenses.
- The company expected the Silver Springs property sale to close during 2021 for total proceeds of approximately $10.1 million. The filing does not confirm that the sale subsequently closed.
- Management expected to exercise the $2.5 million LINICO warrant during the third quarter of 2021, potentially resulting in a majority stake and consolidation of LINICO. This was forward-looking and is not confirmed in the filing.
- Management stated that existing cash, Tonogold share sales, collection of the Tonogold note, and the Silver Springs sale were expected to fund obligations for the following 12 months. However, timing shortfalls could require additional financing; failure to obtain funding could materially affect liquidity and raise substantial doubt about going-concern prospects.
- The Tonogold note had a $6.65 million face value, a fair value of $7.25 million, a 12% interest rate, and a March 31, 2022 maturity date unless extended. Its valuation was a Level 3 estimate and therefore subject to significant assumptions.
- Material commitments included remaining LINICO cash commitments, the GenMat investment program, potential warrant exercise, SSOF advances expected to be repaid from the Silver Springs sale, and subsequent transactions involving MANA and LP Biosciences.
- Key risks included the speculative nature of mineral exploration and emerging technologies, dependence on strategic partners, permitting and environmental obligations, volatile securities valuations, potential dilution, reliance on asset sales and financing, counterparty and collection risk, and COVID-19 or other operational disruptions.
- The company reported no material adverse legal proceedings. The Comstock Residents Association litigation was resolved in the company’s favor, and subsequent to quarter-end the court awarded Comstock approximately $203,151 in attorney fees and costs.
Important Facts for Investors to Verify
- Whether the expected $10.1 million Silver Springs property sale closed and whether related SSOF advances were repaid.
- Whether Comstock exercised the LINICO warrant, achieved a majority stake, and began consolidating LINICO.
- Collection, extension, or default status of the $6.65 million Tonogold note due March 31, 2022, including the impact of Level 3 valuation assumptions.
- Actual cash requirements and funding sources for GenMat, LINICO, MANA, LP Biosciences, and other strategic investments.
- Progress toward commercial production and cash generation from mercury remediation, battery recycling, and other Natural Resource Renewal initiatives.
- Execution of the Dayton and Spring Valley exploration and resource-estimation plans, including permitting and feasibility milestones.
- Potential dilution from restricted stock issuances, equity financing capacity, performance awards, and future transaction consideration.
- Whether operating cash burn, asset-sale timing, and investment commitments remain consistent with management’s stated liquidity assessment.