Comstock Mining Inc. — 2019 Q3 Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019; filed November 4, 2019. The company is a Nevada-based mining, exploration, real estate and clean-technology venture with no current mining production revenue. The filing identifies the registrant as Comstock Mining Inc.
Financial performance and condition
| Metric | Three months ended Sept. 30, 2019 | Three months ended Sept. 30, 2018 | Nine months ended Sept. 30, 2019 | Nine months ended Sept. 30, 2018 |
|---|---|---|---|---|
| Total revenue | $48,350 | $32,281 | $130,132 | $83,946 |
| Mining revenue | $0 | $0 | $0 | $0 |
| Operating loss | $(792,383) | $(1,537,830) | $(3,814,618) | $(5,364,458) |
| Net income (loss) | $386,897 | $(2,045,110) | $(3,525,912) | $(6,945,346) |
| Net income (loss) per share | $0.00 | $(0.03) | $(0.04) | $(0.13) |
| Cash flow from operations | Not separately presented for the quarter | $(2,282,511) | $(3,497,220) |
- Revenue consisted entirely of real estate revenue: $48,350 for the quarter and $130,132 year to date. Mining operations have been inactive since December 2016.
- Operating margins remained substantially negative because the company incurred mining-related depreciation and other costs without mining revenue. The filing does not provide a meaningful consolidated revenue margin.
- At September 30, 2019, cash and cash equivalents were $276,649, total assets were $35.4 million, current assets were $12.4 million, current liabilities were $12.3 million, and working capital was approximately $0.1 million.
- Debt, net of discounts and issuance costs, was $6.9 million, including an 11% senior secured debenture with approximately $6.4 million of principal and a Caterpillar note. The debenture matures in 2021 and asset-sale proceeds are generally required to repay it.
- The accumulated deficit was $235.6 million and stockholders’ equity was $8.9 million.
- Investing activities provided $1.7 million, primarily from $3.9 million of Tonogold transaction deposits, while financing activities provided $0.4 million after $3.2 million of debt repayments and $3.6 million of net common-stock proceeds.
Material changes versus the prior comparable period
- Third-quarter net income improved by $2.4 million, from a $2.0 million loss to $0.4 million of income. The improvement was primarily attributable to $2.2 million of income recognized when a 2017 Tonogold option agreement was terminated, lower operating costs and lower interest expense.
- Nine-month net loss improved by $3.4 million, from $6.9 million to $3.5 million. Operating loss improved by $1.5 million, and interest expense declined by $0.2 million.
- Real estate revenue increased by $16,069 for the quarter and $46,186 year to date, primarily from additional rentals and, for the year-to-date period, a deposit forfeiture related to the terminated Gold Hill Hotel sale.
- Operating cash burn declined by $1.2 million year to date, primarily due to reimbursements from Tonogold and lower costs.
- Debt declined from $9.2 million, net of discounts, at December 31, 2018 to $6.9 million at September 30, 2019. The company issued 31.6 million common shares during the first nine months, and shares outstanding increased from 75.3 million to 116.2 million.
- The company received $4.75 million of Tonogold convertible preferred shares, recorded at a fair value of $5.65 million, and recorded $9.9 million of related deferred liabilities for cash, preferred shares and other advance payments.
Outlook, transactions and unusual items
- Management expects 2019 gross operating expenses of approximately $5.0 million, partially offset by approximately $1.6 million of Tonogold reimbursements and $0.3 million of interest reimbursements.
- For 2020, management plans approximately $4.0 million of gross operating expenses, excluding depreciation and discretionary exploration, with approximately $2.2 million of expected Tonogold reimbursements. Management expects to eliminate debt through announced asset sales and does not expect 2020 interest expense if those plans are completed.
- The Tonogold agreement contemplated the sale of 50.3% of Comstock Mining LLC, owner of the Lucerne properties, for cash payments and convertible preferred shares. The agreement was subsequently extended, with a final potential closing date of November 10, 2019. Additional payments were scheduled for late 2019 and 2020. Completion and collection of the full consideration remained material contingencies.
- The company agreed to sell Silver Springs industrial land and water rights for $6.5 million and its DTSS membership interests for $3.6 million, with closing required before December 15, 2019. Management expected approximately $4 million of gain and approximately $10.1 million of net proceeds.
- The company invested in Mercury Clean Up LLC and committed $2.0 million in capital contributions for an initial equity interest and future joint-venture rights. A pilot system was expected to be installed at the American Flat facility in late 2019, with trial operations targeted for January 2020.
- The company states that recurring losses, limited cash and near-term obligations could create substantial doubt about its ability to continue as a going concern if additional funding, asset sales or transaction proceeds are unavailable. Management nevertheless believes available funding sources will sustain operations for the next 12 months from issuance of the financial statements.
- Key risks include dependence on asset sales and Tonogold payments, dilution from equity issuances, limited liquidity, debt repayment requirements, execution and permitting risks for mining and remediation projects, commodity-price volatility, environmental and reclamation obligations, and litigation.
- The Comstock Residents Association appealed a judgment favoring the company in a zoning and due-process case. Precious Royalties LLC asserted a $510,000 royalty claim; trial was scheduled for July 2020. Management believes the claim lacks merit.
- NYSE American notified the company in June 2019 that it was not compliant with the exchange’s low-selling-price rule and provided six months to cure the deficiency.
Investor verification checklist
- Verify whether the Tonogold transaction closed, whether the remaining cash installments were collected, and how the Lucerne properties and deferred liabilities were ultimately accounted for.
- Verify completion and proceeds of the Silver Springs and DTSS asset sales and whether proceeds were applied to the secured debenture as required.
- Assess liquidity after quarter-end, including subsequent equity issuance, cash balances, unused borrowing capacity and any new obligations.
- Reconcile the company’s substantial share issuance and potential dilution, including the 10.7 million shares issued through October 25, 2019 under the Leviston agreement.
- Evaluate the fair value and conversion terms of the Tonogold preferred shares, which were classified as a Level 3 asset and subject to market and liquidity assumptions.
- Confirm the status of the NYSE American listing deficiency and any effect on financing access or trading liquidity.
- Review the status and potential financial exposure of the Precious Royalties litigation, CRA appeal, reclamation liabilities and MCU funding commitments.