Business Context and Reporting Period
Comstock Mining Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2017. The Nevada-based company operates mining and real estate segments in the Comstock and Silver City districts. Existing leach-pad processing ceased in December 2016; the company is focusing on exploration and development of the Dayton and Lucerne projects.
Financial Performance and Position
| Metric | Three Months Ended June 30, 2017 | Six Months Ended June 30, 2017 |
|---|---|---|
| Total revenue | $27,370 | $46,664 |
| Mining revenue | $0 | $0 |
| Loss from operations | $(2.6) million | $(5.0) million |
| Net loss | $(2.9) million | $(5.7) million |
| Net loss per diluted share | $(0.02) | $(0.03) |
| Cash flow from operations | Not separately presented | $(3.6) million |
- Revenue consisted almost entirely of limited real estate revenue. The filing does not provide a meaningful operating or net margin because mining revenue was zero and total revenue was minimal.
- Cash and cash equivalents were $1.0 million at June 30, 2017, compared with $0.2 million at December 31, 2016. Working capital was approximately $5.1 million, based on current assets of $7.3 million and current liabilities of $2.2 million.
- Total assets were $32.7 million and stockholders’ equity was $11.6 million at June 30, 2017.
- Total debt, including current and long-term portions, was approximately $11.4 million, compared with $9.5 million at December 31, 2016. The increase primarily reflects the 11% senior secured debenture issued in January 2017.
- The company reported an accumulated deficit of $217.7 million.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue declined $1.5 million, from $1.49 million to $27,370, because mining operations had ceased. Six-month revenue declined $3.5 million, from $3.5 million to $46,664.
- Second-quarter net loss increased modestly by approximately $78,000, while the six-month net loss improved by approximately $1.2 million, primarily because lower exploration, mining, environmental and general and administrative costs more than offset the loss of mining revenue.
- Six-month exploration and mine development expense decreased by approximately $2.9 million, and general and administrative expense decreased by approximately $0.4 million.
- Interest expense increased by approximately $0.4 million for the six-month period, reflecting the company’s new debt structure.
- Financing activities provided $4.6 million of cash during the first six months, including $9.4 million of net long-term debt proceeds and $2.9 million of common-stock proceeds, partially offset by $7.7 million of debt repayments.
- The company issued 17.2 million shares under its ATM and Leviston equity programs for gross proceeds of approximately $2.7 million, before issuance costs. Shares outstanding increased to 203.6 million at June 30, 2017, from 185.4 million at December 31, 2016.
- Assets held for sale totaled $5.9 million at June 30, 2017. The company also acquired a property for approximately $1.7 million using prior deposits, stock issuance and debt.
Guidance, Outlook, Risks and Unusual Items
- Management expected second-half 2017 operating expenses of approximately $2.1 million and a sustainable annual expense run rate of approximately $3.6 million, excluding depreciation and amortization. Full-year interest expense was expected to be approximately $1.3 million.
- Management planned to sell non-mining land, buildings and water rights for expected net proceeds exceeding $14 million, with proceeds intended to repay debenture obligations and fund Dayton exploration. The filing states there is no assurance that these sales will occur on favorable terms or at all.
- Management targeted Dayton feasibility work, reverse-circulation drilling, metallurgical testing and permitting, with a stated goal of production within two years. These are forward-looking plans, not established production results.
- Dayton cyanide column tests recovered 82% to 85% of gold in 25 days; economic feasibility and processing costs remained subject to further testing.
- The company had approximately $7.0 million of available capacity under an $7.5 million loan commitment, bearing 11% interest, and approximately $9.0 million of unused equity capacity across the ATM and Leviston programs.
- Management concluded that available resources should sustain operations for the next 12 months, but warned that additional financing may be required. Failure to obtain funding, lower asset-sale proceeds or a declining share price could materially impair liquidity and raise substantial doubt about going-concern prospects.
- Extreme precipitation generated approximately $255,000 of excess water-management costs during the first half of 2017; management did not expect these costs to recur.
- A due-process claim in litigation brought by the Comstock Residents Association remained pending in Nevada state court; the company had moved for summary judgment. Management did not expect pending matters to have a material adverse effect.
- The CFO resigned effective May 19, 2017, and the CEO assumed the interim CFO and principal financial officer roles.
Important Facts for Investors to Verify
- Whether planned non-mining asset sales exceeding $14 million are completed and generate the expected proceeds.
- Cash burn, available equity and debt capacity, and the company’s ability to fund operations without further dilution or borrowing.
- Terms, collateral, interest obligations and asset-sale acceleration provisions of the 11% senior secured debenture.
- Progress toward Dayton feasibility, permitting, reserve definition and commercial production, including validation of metallurgical results.
- Whether mining revenue resumes and whether future production can support the company’s stated production and value-creation targets.
- Status and potential impact of the remaining litigation, environmental obligations and approximately $7.4 million reclamation liability.