Comstock Mining Inc. — Form 10-Q Summary
Business Context and Reporting Period
This unaudited Form 10-Q covers the three and six months ended June 30, 2020. The filing identifies the registrant as Comstock Mining Inc., a Nevada-based mining exploration and development company with real estate holdings and emerging mercury-remediation and precious-metal technology initiatives. Mining operations ceased in 2015 and processing ceased in 2016; the company generated no mining revenue during the reported periods.
The company operates through mining and real estate segments and is pursuing asset sales, Tonogold-related transactions, exploration, and commercialization of Mercury Clean Up LLC technology.
Financial Performance and Position
| Metric | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | Comparable Prior Period |
|---|---|---|---|
| Total revenue | $48,375 | $96,800 | $44,184 and $81,782, respectively |
| Mining revenue | $0 | $0 | $0 |
| Operating loss | $(1.21) million | $(2.43) million | $(1.45) million and $(3.02) million |
| Net income attributable to Comstock | $1.28 million | $1.01 million | $(2.08) million and $(3.91) million |
| Basic EPS | $0.05 | $0.04 | $(0.13) and $(0.24) |
| Net cash used in operations | Not separately reported | $(381,224) | $(1.65) million |
- Revenue increased 9.5% year over year in the second quarter and 18.4% for the six-month period, entirely from real estate activities.
- The improvement to net income was driven primarily by non-cash gains on Tonogold securities and the contingent forward asset, together with lower operating and interest costs. Six-month other income, net was $3.45 million versus expense of $0.89 million in the prior year.
- At June 30, 2020, cash and cash equivalents were $968,211, total assets were $44.4 million, total liabilities were $16.8 million, and total equity was $27.6 million.
- Accumulated deficit was $234.9 million.
- Debt, net of discounts and issuance costs, was $5.22 million, including $5.03 million classified as current. The senior secured debenture had a principal balance of approximately $4.76 million, bore 11% interest, and was amended to mature December 25, 2020.
- Assets held for sale totaled $10.5 million, with related liabilities of $1.0 million. Properties held for sale include Silver Springs land and water rights, DTSS land, Daney Ranch, the Lucerne mine, and the Gold Hill Hotel.
Material Changes Versus the Prior Comparable Period
- Six-month net income improved by $4.93 million, from a $3.91 million loss to $1.01 million of income.
- Operating loss improved by $589,415 for the six-month period, primarily because of lower depreciation, exploration, mine-claim, and other operating costs. General and administrative expense increased by $112,547.
- Interest expense declined by $500,801 for the six-month period because of lower debt balances and Tonogold reimbursements.
- Operating cash use declined from $1.65 million to $381,224, partly because of accelerated Tonogold expense reimbursements and other working-capital changes.
- Common shares outstanding increased from 27.24 million at December 31, 2019 to 28.82 million at June 30, 2020, reflecting equity issuance, MCU consideration, and director compensation.
- During the quarter, the company converted $1.1 million of Tonogold convertible preferred stock into 6.1 million Tonogold common shares and sold 107,071 of those shares for net proceeds of $43,013 by June 30.
Liquidity, Going Concern, Outlook, and Risks
Management disclosed substantial doubt about the company’s ability to continue as a going concern. The company had approximately $1.0 million of cash, recurring operating losses, $4.8 million of debt maturing in December 2020, and stated that it did not then have the ability to repay that debt. Planned funding sources included asset sales, Tonogold securities, expense reimbursements, and additional equity issuance, but these plans were outside management’s control.
- Management planned approximately $5.5 million of 2020 operating expenditures, excluding depreciation, with approximately $2.5 million expected to be reimbursed under Tonogold agreements.
- The company expected approximately $10 million of proceeds from Silver Springs asset sales during the third quarter of 2020 and planned to apply at least 80% of those proceeds to debt repayment.
- Management expected Tonogold to begin exploration drilling on leased Storey County properties during the third quarter, subject to permitting and COVID-19-related delays.
- The company planned to update the Dayton resource estimate, continue exploration in Spring Valley, and advance MCU mercury-remediation testing at the American Flat facility.
- COVID-19 had already delayed MCU testing and Tonogold exploration drilling. The company stated that the duration and financial impact of the pandemic could not be reliably estimated.
- Key risks include dependence on asset sales and equity financing, commodity and securities-price volatility, permitting and exploration uncertainty, environmental and reclamation obligations, debt repayment, litigation, COVID-19 disruption, and potential dilution.
- The company reported a material weakness in internal control over financial reporting related to valuation of the complex Tonogold contingent forward transaction. Management implemented additional review procedures and engaged third-party expertise.
- The company faces an OSHA complaint by three former employees alleging wrongful termination. A separate Comstock Residents Association appeal remained pending before the Nevada Supreme Court.
Subsequent to quarter-end, the company raised $1.25 million from Triton in July 2020 and $650,000 from Leviston through July 31, 2020. On August 6, 2020, it agreed to refinance the senior secured debenture with unsecured promissory notes having aggregate principal of $4.475 million, 12% interest, and a September 20, 2021 maturity.
Important Facts for Investors to Verify
- Whether the Silver Springs asset sales closed as expected and generated the projected approximately $10 million of proceeds.
- Whether the August 2020 debt refinancing was completed and whether subsequent debt repayment obligations remain manageable.
- The liquidity and valuation of Tonogold securities and the contingent forward asset, including the assumptions underlying the Level 3 fair values.
- Whether Tonogold makes scheduled payments and fulfills exploration, reimbursement, and development commitments.
- Progress, economics, permitting, and funding for MCU’s mercury-remediation pilot and Philippine opportunity.
- Remediation of the disclosed internal-control material weakness and the effect of the contingent-forward accounting correction on future reporting.
- Potential dilution from equity agreements, subsequent share issuances, stock-based compensation, and warrants or other financing instruments.
- The status and potential financial exposure associated with the OSHA complaint, CRA appeal, environmental obligations, and reclamation liabilities.