Business Context and Reporting Period
Comstock Mining Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2019. The company is a Nevada-based gold and silver exploration, development and former production company with real estate and industrial assets. Mining and processing ceased in 2015 and 2016, respectively; the company reported no mining revenue in the current or comparable periods.
Management’s 2019 strategy emphasized high-value precious-metals activities, property monetization, exploration and development of the Dayton project, and commercialization of alternative mineral-processing and mercury-remediation technologies.
Key Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $44,184 vs. $28,815 | $81,782 vs. $51,665 |
| Mining revenue | $0 vs. $0 | $0 vs. $0 |
| Operating loss | $1.45 million vs. $1.94 million | $3.02 million vs. $3.83 million |
| Net loss | $2.08 million vs. $2.42 million | $3.91 million vs. $4.90 million |
| Basic and diluted loss per share | $0.03 loss vs. $0.04 loss | $0.05 loss vs. $0.09 loss |
| Cash used in operating activities | Not separately provided | $1.65 million vs. $2.18 million |
Real estate generated all reported revenue. Six-month revenue increased 58% year over year, while the six-month net loss improved by approximately $1.0 million. The filing does not present a conventional gross or operating margin because the company had no mining revenue and continued to incur mining-related costs, including depreciation on temporarily idle assets.
| Balance Sheet Metric | June 30, 2019 | December 31, 2018 |
|---|---|---|
| Cash and cash equivalents | $136,625 | $488,657 |
| Total assets | $34.19 million | $28.61 million |
| Current assets | $11.70 million | $8.56 million |
| Current liabilities | $10.60 million | $2.39 million |
| Total debt, net of discounts and issuance costs | $8.04 million | $9.17 million |
| Accumulated deficit | $236.0 million | $232.1 million |
Current assets less current liabilities indicate approximately $1.1 million of working capital. One note states current working capital was $6.1 million, which is inconsistent with the balance-sheet amounts and appears to be a filing discrepancy. Current liabilities included $8.05 million of deferred liabilities, primarily related to the Tonogold transaction.
Cash Flow, Debt and Liquidity
- Operating activities used $1.65 million during the first six months, an improvement from $2.18 million used in the prior-year period.
- Investing activities provided $1.92 million, principally from $3.05 million of non-refundable Tonogold deposits, partially offset by $1.09 million of property and equipment-related purchases and deposits.
- Financing activities used $625,000, including $1.90 million of debt principal repayments, partly offset by $1.28 million of net common-stock proceeds.
- The 11% senior secured debenture was reported at $7.59 million of principal before discounts and issuance costs, with maturity in 2021 and a remaining make-whole obligation of approximately $403,000. A Caterpillar note was also outstanding.
- The company reported approximately $9.5 million of unused borrowing capacity under its loan commitment agreement after fees, and approximately $4.3 million of unused capacity under its 2019 equity agreement at June 30, 2019.
- Management stated that available funding sources, planned asset sales and transaction proceeds were expected to fund operations for the next 12 months, but warned that failure to obtain additional funds could raise substantial doubt about the company’s ability to continue as a going concern.
Material Changes Versus the Prior Comparable Period
- Revenue increased by $15,369 for the quarter and $30,117 for the six-month period, driven by higher real estate rentals and a deposit forfeiture related to the Gold Hill Hotel sale.
- Operating loss improved by $486,000 for the quarter and $804,000 for the six-month period. Lower depreciation and a $410,000 reduction in the reclamation liability were significant contributors.
- Net loss improved by $338,000 for the quarter and $987,000 for the six-month period, despite a $432,000 preferred-share issuance expense.
- Interest expense declined by $148,980 for the quarter and $71,182 for the six-month period, primarily because of debt paydowns and Tonogold interest reimbursements.
- Common shares outstanding increased from 75.3 million at December 31, 2018 to 85.5 million at June 30, 2019. The company issued 9.1 million common shares during the first six months at an average price of approximately $0.16 per share.
- Assets held for sale increased to $6.90 million from $5.36 million, including $1.54 million of Lucerne properties classified as held for sale.
- The company recorded a $5.0 million investment in Tonogold convertible preferred shares and $8.05 million of deferred liabilities associated with the Tonogold transaction.
Outlook, Transactions, Risks and Unusual Items
- The Tonogold agreement contemplated the sale of the Lucerne subsidiary for $15.0 million, including $11.5 million in cash and convertible preferred shares. At June 30, 2019, Tonogold had paid $3.05 million in cash deposits and delivered preferred shares valued at $5.0 million. The transaction remained subject to closing conditions and extensions.
- Management expected the Tonogold transaction to provide up to $11.5 million in cash, reduce or eliminate the senior secured debenture, and relieve approximately $8 million of future lease and reclamation obligations. These benefits depended on closing.
- Management planned annual operating expenses of slightly more than $4.0 million and expected approximately $2.2 million of annual savings after closing the Tonogold transaction, including current reimbursements and anticipated additional savings.
- The company agreed to sell the Industrial Park and water rights and its interests in Downtown Silver Springs for aggregate proceeds of approximately $10.6 million, plus potential residual carried-interest participation. Management expected the transactions to close in 2019 and estimated a potential gain of approximately $5.0 million.
- The company committed $2.0 million to a mercury-remediation pilot and joint venture with Mercury Clean Up LLC. Subsequent to quarter-end, it paid $50,000 and issued 4.5 million common shares valued at $850,000; additional cash and stock commitments remained.
- Subsequent to quarter-end, Temple converted 274 preferred shares into 1,936,590 common shares. The company also issued additional common shares under its equity agreement.
- The company received a June 24, 2019 notice from NYSE American that it was not compliant with the exchange’s low selling price rule and had six months to cure the noncompliance.
- Legal matters included a Precious Royalties claim seeking $510,000. The company denied the allegations and filed a counterclaim. A separate Comstock Residents Association due-process claim was denied, with a formal order entered July 11, 2019.
- Key risks include limited cash, recurring losses, dependence on financing and asset sales, dilution from equity and convertible securities, Tonogold closing risk, debt obligations, environmental and reclamation costs, permitting, mineral exploration uncertainty, commodity-price volatility, litigation and continued-listing compliance.
Investor Verification Checklist
- Verify whether the Tonogold transaction closed, the final cash and preferred-share consideration received, and the resulting debt repayment and liability relief.
- Reconcile the filing’s inconsistent working-capital disclosures: approximately $1.1 million based on reported current assets and liabilities versus the $6.1 million amount stated in a liquidity note.
- Assess cash burn, access to the remaining equity and borrowing capacity, and whether additional financing or asset sales were required.
- Confirm the status of the NYSE American low-selling-price deficiency and whether the company maintained its listing.
- Evaluate dilution from the preferred shares, equity sales, post-quarter-end issuances and potential conversions.
- Verify completion and proceeds of the planned Industrial Park, water-rights and Downtown Silver Springs sales, as well as the expected gain.
- Review the Mercury Clean Up investment commitments and the feasibility, funding and commercial prospects of the remediation pilot.
- Monitor the Precious Royalties litigation, reclamation obligations and other environmental or permitting contingencies.